Trust And Cooperation As Building Blocks Of The Energy Transition

Trust And Cooperation As Building Blocks Of The Energy Transition
Trust and cooperation are the real success factors of the energy transition – and perhaps even more decisive than technology or money. So argues Marco Bosman, Director of Public and Regulatory Affairs Netherlands at Vattenfall.

The energy transition – the necessary transition from fossil energy to energy from fossil-free sources – has been in the making for some time, but it faces increasing pressure. The causes for this include the current political landscape, scarcity in the energy infrastructure, rising costs and the urgency for action, which means that climate measures must be implemented faster. Because of the latter, public support may also come under greater pressure as the public and businesses feel overwhelmed.
Discussions on how best to approach the energy transition are taking place in an increasingly broad social context. This discussion is a valuable element of the transition: it will not happen by itself, which is why different approaches and perspectives are important. Broad involvement of consumers, businesses, governments and civil society organizations is necessary.

Promising perspective
The good news is that we found the right path. Until 2010, most efforts to make our energy supply more sustainable were relatively optional. But with the successful agreements concluded in the Energy and Climate Accord in the Netherlands, clear legal frameworks and goals for the transition have been established for this country. The statutory goal of reducing net greenhouse gas emissions to zero by 2050 is the main guideline, as is the goal of reducing these emissions by 55 percent by 2030 as compared to 1990.
This introduced several concrete implementation plans, many of which are now being implemented. Think of the realization of offshore wind farms. In addition, the scope of the transition has been broadened to what is happening within organizations - the built environment - and to the industrial transition.

Who pays what part of the bill?
The bill of the energy transition is about both cost and financial feasibility. The switch to a fossil- free energy system incurs investment costs. But the question of who bears what costs comes into play. It is relatively straightforward to calculate a business case for insulating your home: the costs, subsidies and payback period are all easily mapped out. But who will bear what cost when natural gas networks and installations are replaced by a heat network? That question affects several players: the housing cooperative, the tenants, the homeowner, the heat company, the municipality and the national government. An equitable distribution based on cooperation will have to be reached, the reality being that the change to a sustainable built environment will require extensive investments.

Socialize costs
Sustainability creates an energy system with more variables than the traditional system. Energy production changes with weather conditions, grids and consumers will need to be more flexible and, in some cases, switching between electrons and (gas and heat) molecules will be necessary. This transition not only requires extensive investments, but also increases annual operational costs. For example, grid costs for electrolysers and electric industrial solutions are skyrocketing; these costs inhibit further investment. Therefore, some form of socialization of costs will be necessary. A good example is the Dutch Gasunie’s construction of the hydrogen backbone. Through government support, the investment costs of 1.5 billion euros are partly socialized, but transport revenues from future users are also counted on.

Large companies play a key role
Large industrial players shape discussions about the transition significantly - this is also reflected in the discussion about the business climate for large companies. Large companies are under scrutiny, but they play a pivotal role in the energy transition. Providing companies with clarity about and confidence in consistent government policy allows investment decisions to be made. Due to the scope of these decisions, they are a prerequisite for triggering the supply of renewable energy (in the form of electricity and hydrogen). Industrial projects create the demand for sustainable energy, enabling energy companies to trust in realizing the supply. Bringing supply and demand together requires clarity, trust and cooperation. This also includes the predictability of policies.

Offering perspective
Until recently, companies could count on two substantial funds established by the Dutch government: the National Growth Fund (20 billion euros) and the Climate Fund (35 billion euros). There is a possibility that politicians may want to allocate the money in these funds differently. The industry’s reaction is understandable. It slows down developments and investments necessary for climate and energy transition. This is a problem: without clarity, there is no investment perspective. Without an investment perspective, there is no investment confidence. Without investment confidence there is no innovation, scaling up and collaboration. This invariably leads to a delay, while it is exactly acceleration that is needed.
But how can we achieve such an acceleration? The government has already initiated many actions, and there are legal frameworks with objectives that must be met. What can be leveraged to give the energy transition the necessary boost? What becomes important are aspects such as shortening of permit procedures, the timely and affordable construction of energy infrastructure, and providing clarity on (intermediate) steps towards the end goal. It is important to realize that success also depends on doing the right things at the right time.

Need for more predictability
An important reason for the potential delay now looming is the uncertainty about how the climate and energy transition will be facilitated and stimulated. Transitions categorically benefit from as much clarity as possible regarding goals and timelines. These goals and timelines need to be safeguarded by supportive policies aimed at further innovation, scaling, and execution. The Dutch electricity system must be completely CO2-free by 2035, where 10 years is quite a short period for energy companies. From 2040 onwards, no new emission rights will be available for the industry; this can well pose an even greater challenge. Households have a bit more time to transition away from gas, but some are ready and able to do so now. Allow each household the time it needs to make the switch and support them in doing so.

Finally: innovation tends to happen in bursts but is always more efficient when in collaboration with sufficient execution power. However, the societal trend is to distrust the big corporations. This is not a good basis for accelerating together. Companies will only invest when they have confidence that they can be part of a market for the long term. Conversely, large players possess significant investment capacity. Not collaborating with these large companies therefore imposes significant limitations. Focus on where each player wants to go and pay a little less attention to where they come from – that is the call here.
In short, we must consider the financial, technical, political, and infrastructural aspects, but let us not forget that we need everyone – and this is where the human aspect enters. Collaboration starts with people willing to sacrifice some self-interest. Both entrepreneurship and political leadership require the ability to look ahead: everything we do now is part of a sometimes-uncertain transition to a stable, fossil- free future. By trusting in the end goal and in our fellow travelers, we can collectively take the steps necessary for a sustainable economy.