Rebalancing resources and supply chains for greater resilience
How do we balance supply chains and finite resources to mitigate the effects of the next big shock to our energy systems?
This article dives into one of the key findings outlined in GHD’s SHOCKED report, one of the largest global opinion research studies that interviewed 450 senior decision makers in the energy sector regarding the ongoing energy crisis.
The global energy crisis and the scramble for supply
The energy crisis is forcing countries and industries to scramble for supply. The Covid-19 economic rebound has increased the demand for energy; varying weather patterns (particularly those that cause natural disasters) continue to disrupt supply chains; and geopolitical tensions have forced some countries to look elsewhere for alternative sources of energy, particularly as a substitute for Russian natural gas throughout Europe. In fact, in 2022, the European Union witnessed a significant decline in natural gas demand, down by 13%, equivalent to powering over 40 million homes, as reported by the International Energy Agency (IEA).
All these factors have influenced the surge in crude oil and coal prices. The price of crude oil increased to US$120 per barrel during the first half of 2022. In September of the same year, the price of Newcastle coal reached US$457.80 per tonne.
This ongoing energy crisis underscores the need to fast-track a mix of renewable and low-carbon energy generation to offset a continued dependence on – but increasingly unpredictable supply of – conventional energy sources. However, this transition is rife with challenges and complications. In addition to the financial risks, supply-chain issues and a shortage of resources – materials, critical minerals, and human labour – plague the energy transition. SHOCKED, one of the largest studies of its kind, explores the delicate balance (and rebalancing) of supply chains and finite resources needed to enable the energy transition and stay the course to a net-zero future in an era of profound uncertainty.
Energy systems that are connected but not dependent
According to the energy leaders who participated in SHOCKED, the average amount of energy reserves held by their companies is equivalent to just 70 days of supply. Eight percent of respondents said they only have 11 to 20 days of supply, while 60% said they have less than 60 days of storage. Very few respondents indicated they have as much as six months of supply if cut off from foreign energy supplies.
In this context, the negative impacts of an over-reliance on foreign energy supply should urge countries to create and invest in resilient and localized energy systems. This is supported by findings that 74% of energy leaders surveyed in SHOCKED believe that geopolitical tensions are reducing energy security within their country. A further 66% of energy leaders said they are already moving on the energy transition by accelerating investments in renewable energy. Eighty-two percent said their investments continue to accelerate in renewables, despite the energy shock and concerns about varying weather patterns influencing renewables generation.
At the same time, geopolitical tensions have pushed some countries to temporarily increase their dependence on fossil fuels. For example, Germany has decelerated its investment in renewable energy sources and has gone back to burning coal as its energy crisis deepens, in tandem with its stated aim of accelerating its timeline to reach net zero. This seeming contradiction emphasizes the need to maintain some forms of traditional energy supply while sustainably transitioning to lower-carbon alternatives. This is supported by the IEA’s sustainable-development scenario, which suggests that countries must have multifaceted energy solutions before transitioning to carbon-free energy systems. This approach can mean diversifying energy sources, trade routes, and suppliers.
Improved connectivity to mobilize critical minerals and materials
The transition to renewable energy will also require several critical materials. Rare earth elements, for example, are important in producing permanent magnets used in electric vehicles and wind turbines. Hydrogen electrolyzers and energy-efficient fluorescent lighting also rely on rare earth elements as their components. While not a rare earth element, copper is also crucial for the transition; its efficiency as a conductor makes it useful in building renewable-energy technologies and transmission infrastructure.
However, some critical minerals and materials are concentrated in a few countries; this can lead to competition among nations and cause geopolitical tensions that further hinder the energy transition. Seventy-two percent of energy leaders interviewed believe that increasing interconnections between countries and regions to strengthen this transfer of vital resources can effectively improve energy security.
Building a local supply chain of rare earth elements and other critical materials helps reduce the reliance on foreign resources. However, an increasing investment (whether through government subsidies or industry incentives) in research and development is needed to scale up and commercialize technologies requisite to the production, reprocessing, and recycling of rare earth elements. Identifying bottlenecks and inefficiencies in the supply chain of critical materials is also crucial.
A skilled workforce: An increasingly important enabler
The lack of a skilled workforce may not have caused the energy crisis, but a new skill set is necessary for the transition to low-carbon energy. This endeavour requires the commitment of our best engineers, innovators, planners, scientists, and technologists to achieve net zero, if not net negative. However, seven in ten of the energy leaders interviewed for SHOCKED said the industry lacks the skills and expertise required for the energy transition. Case in point: In 2021, the Interstate Renewable Energy Council’s job census reported that 89% of U.S. solar-energy firms struggled with hiring qualified installation technicians.
Retraining or upskilling workers is one strategy to address this challenge. In transitioning away from fossil fuels, policymakers are concerned about job losses and how this will affect communities and economies. However, there are opportunities to offset these losses with jobs in the renewable-energy sector. Transferable skills, especially those involving construction, finance, project management, operations, and engineering, allow professionals to move from the traditional energy sector to the low-carbon energy sector. Creating a network that links employers, prospective employees, and trainers will streamline this process.
Investing in clean-technology innovations to generate jobs in the renewable-energy sector is another lever to pull. The International Labour Organisation (ILO) reported last year that employment in the renewable-energy industry reached 12.7 million in 2021, with the solar-energy sector being the fastest-growing sector. ILO identified China as the leader in manufacturing and installing solar photovoltaic panels, and the country has seen growth in the number of offshore wind jobs, as well. Meanwhile, Southeast Asian countries are fast emerging as producers of biofuel and as hubs of photovoltaic manufacturing.
Resilient energy systems and supply chains to overcome imbalances
To become more resilient to potentially debilitating future shocks, world markets, governments, and businesses need to secure the supply chains and resources needed to drive the development, operation, and maintenance of low-carbon energy systems. This means building a well-supported and talented workforce, ensuring the abundance and accessibility of materials and minerals essential to renewable energy technologies and infrastructure, and establishing localized energy systems that are connected but not dependent on energy supply beyond international borders. As much as this is an energy transition, it is also a human transition.
Dr. Tej Gidda is an educator and engineer with over 20 years of experience in the energy and environmental fields.