TRILEMMAANDTRANSITIONThemomentumtobreakbarriersEnergyIndustryInsights20232DNVEnergyIndustryInsights2023EnergyIndustryInsightsdrawsonDNV’sannualsurveyofmorethan1,000seniorprofessionalsandaprogrammeofin-depthinterviewswithleadersandexperts.ItisdevelopedandcreatedbyteamsfromDNVandFTLongitude(aFinancialTimescompany).TheresearchwasconductedduringDecember2022andJanuary2023.Surveyrespondentsweredrawnfromacrosstheenergyindustry,includingpubliclylistedcompaniesandprivatelyheldfirms,andspan-ningelectricalpower,renewables,oilandgas,industryspecialists(e.g.intechnology,financeorpolicy),andindustrialenergyconsumers.Thesurveyrespondentsrepresentarangeoffunctionswithintheindustry,fromboard-levelexecutivestoseniorengineers.TrilemmaandTransitionispublishedbyDNV,theworld’sleadingresourceofindependentenergyexpertsandtechnicaladvisors.SurveydemographicsWethankoursurveyrespondentsfromacrosstheenergyindustry.ABOUTTHERESEARCHOilandgasindustryRenewablesElectricpowerCross-industryspecialistsEnergy-consumingindustries35%12%17%4%32%EuropeAsiaPacificNorthAmericaLatinAmericaMiddleEastandAfrica44%29%9%6%11%C-suiteC-suite-129%17%SectorOilandgasindustryRenewablesElectricpowerCross-industryspecialistsEnergy-consumingindustries35%12%17%4%32%EuropeAsiaPacificNorthAmericaLatinAmericaMiddleEastandAfrica44%29%9%6%11%C-suiteC-suite-1C-suite-2Other29%25%17%29%US$100morlessUS$100-500m35%19%SeniorityOilandgasindustryRenewablesElectricpowerCross-industryspecialistsEnergy-consumingindustries35%12%17%4%32%EuropeAsiaPacificNorthAmericaLatinAmericaMiddleEastandAfrica44%29%9%6%11%C-suiteC-suite-1C-suite-2Other29%25%17%29%US$100morless19%RegionOilandgasindustryRenewablesElectricpowerCross-industryspecialistsEnergy-consumingindustries35%12%17%4%32%EuropeAsiaPacificNorthAmericaLatinAmericaMiddleEastandAfrica44%29%9%6%11%C-suiteC-suite-1C-suite-2Other29%25%17%29%US$100morlessUS$100-500mUS$500m-1bnUS$1bn-5bnUS$5bn-10bn35%11%5%19%12%11%7%$10bnormoreDon’tknow/notapplicableRevenueDNV’sEnergyIndustryInsightsresearch–nowinits13thyear–explorestheconfidence,sentiment,andprioritiesfortheenergyindustryintheyearahead.3ABOUTTHERESEARCHWeextendourthankstothefollowingintervieweesforsharingtheirtimeandinsightswithus:LizBurdock,CEO,BusinessNetworkforOffshoreWind(US)MichaelCohen,ChiefUSEconomistandHeadofOilAnalysis,BP(US)BenHutt,CEO,Evergen(Australia)TomEinarJensen,CEO,Freyr(Norway)PhilippeKavafyan,ExecutiveDirector,AkerHorizons(Norway)AnabeleNatividad,SeniorVP,ACEN(Philippines)DerkSwider,VPGroupStrategy,Foresight&Analytics,E.ON(Germany)AlixThom,WorkforceEngagement&SkillsManager,OffshoreEnergies(UK)DanielToppin,ChiefDataOfficer,NationalGas(UK)AsenioranalystatalargeChineseoilandgascompanyACKNOWLEDGEMENTS1,385seniorenergyprofessionalssurveyed29%ofrespondentsareC-level93countriesrepresented10in-depthinterviewswithindustryleaders28%ofrespondentsfromcompanieswithrevenueofmorethanUSD1billionCONTENTS4DNVEnergyIndustryInsights2023CONTENTS5CONTENTS1Strongconfidenceoverall,butamixedpictureforshort-termperformance082Energysecurityisnowtheenergytrilemmapriority183Anacceleratingenergytransitionpushesthroughandagainstbarriers244Unknownterritoryandvestedinterestsleadingtostrategicdivergence325Majorpolicychangespresentsignificantopportunities386Progresscontinuestowardsasmarterenergysystem446DNVEnergyIndustryInsights20237CHAPTER11STRONGCONFIDENCEOVERALL,BUTAMIXEDPICTUREFORSHORT-TERMPERFORMANCEElectricalpowerunderpressure08Renewableshaveatrendtorelyon10Peakprofits(perhaps)foroilandgas12Someindustrialconsumersmovetoproducetheirown14Awaytowininthenewworld158DNVEnergyIndustryInsights20231STRONGCONFIDENCEOVERALL,BUTAMIXEDPICTUREFORSHORT-TERMPERFORMANCEEarlyexplorersoftenleftwithacleargoal-todiscoveraquickertraderouteortofinduntappedresources.Butoften,theysetoffontheirjourneywithoutdetailedmapsandnotknowingwheretheywouldstoporevensome-timestheirdestination.Today’senergyindustryparticipantsneedtooperateabitlikethosepioneers.Wehaveacleargoal–todecar-bonizetheworld–butwearemovingforwardwithoutadetailedmapandonlyhaveahigh-levelideaofthefutureenergysystemwearebuilding.Thiscombinationofafixed,universalgoal,butwithflexible,diversepathways,offershistoricopportunitiestoenergysectororganizations.Inoursurveyofover1,300energyindustryexecutivesfromaroundtheworld,threequarters(74%)areoptimisticaboutthegrowthprospects(fortheirpartoftheenergyindustry)intheyearahead.Bycoincidence,werecordedthesamenumbergoinginto2022,butthereisamuch-changedpictureunderly-ingthisaverage,particularlyacrosstheenergyindustrysub-sectors–electricalpower,renewables,andoilandgas–whichweexplorebelow.ElectricalpowerunderpressureTherehasbeenasharpdropintheproportionofelectricalpowerrespondentsoptimisticaboutindus-trygrowthfortheyearahead(72%),downfromtheheightsof87%goinginto2022.Comparedtolastyear,powersectorrespondentshavelowerconfidenceintheirorganization’sabilitytomeetrevenueandprofittargetsfortheyearahead.Halfnowsaytheyaremorefocusedonshort-term,thanlong-term,strategies,upfrom34%ayearago.Wealsorecordedarelateddrop–from77%to66%–intheproportionofpowerrespondentsthatexpecttoseeanincreaseinthenumberoflarge,capital-intensiveprojectsintheyearahead.Thepowerindustryisunderpressuretochange,togrow,tosupportthechangesaroundus.Thisisamassivechallengebecausetheindustrycomesfromastablebackground,andwearenowoperatingthroughaveryvolatilephase.DerkSwider,VicePresidentGroupStrategy,Foresight&AnalyticsatGermanutilityE.ON.9CHAPTER1Overallindustryoptimismremainsstrong,butonlytheoilandgassectorshowsimprovedsentimentQ:Howconfidentareyoufeelingaboutthegrowthprospectsforyourspecificpartoftheenergyindustry(i.e.yoursub-sector)intheyearahead?LatinAmericaEuropeAsiaPacificNorthAmericaMiddleEastandAfricaOverallOilandgasindustryElectricalpowerRenewables74%74%58%66%87%72%87%84%67%64%75%80%71%73%84%79%73%71%Optimistic2022Optimistic2023NetoptimisticforindustrygrowthCONTENTSDNVEnergyIndustryInsights2023RenewableshaveatrendtorelyonTherenewablessector,likemostnewerindustries,ismoreaccustomedtoinstability.Theindustryisexpand-ingatspeed,despitethechallengesofpowergridcapacity,energypricevolatility,inflation,supplychainfailures,regulatoryredtape,anddelaystosupportinginfrastructureprojects.Unlikemanynewindustries,however,renewablesaresweptforwardbyamegatrendwithirresistiblemomentum–decarbonization–andthisappearstoprovidedeepconfidencetoorganizationsinvolvedincleanenergy.Themarketbackdrophasneverbeenstronger.TheenergyandsecuritycrisisinEuropeisabigchallenge,asisinflationarypressure,butwearefocussedontheenormouslong-termopportunitytocontributetoanewenergysystem.TomEinarJensen,ChiefExecutiveOfficerofFREYR,aNorwegianbatteryproducerMostrenewablesindustryrespondents(84%)areoptimisticforindustrygrowthin2023,butmanyexpectfurtherchallengesinthenear-term.Thisappearstohaveledtolowerconfidenceintheirorganization’sabilitytoreachfinancialobjectivesfortheyearahead,withoptimismforbothrevenueandprofittargetsfallingcirca10percentagepointsyear-on-year.Alackofgovernmentsupportandpermittingissuesfornewprojectsarethetoptwobarriersfortheindustry,andrenewablesrespondentsalsoappearparticularlyhamperedbysupplychainissues.Nearlyeight-in-ten(79%)renewablesrespondentsbelievethatsupplychainissuesareslowingdowntheenergytransition,lessthanhalf(47%)thinktherewillbesignificantimprovementintheavailabilityofgoodsin2023,and63%believerisingrawmaterialcostswillreducethecostcompetitivenessofrenewablescomparedwithotherenergysources.“Despitethechallenges,ouroveralloutlookhasnotchanged,”saysAnabeleNatividad,SeniorVicePresi-dent–Development,SolarandStorageatACEN,theenergyplatformofthePhilippineAyalaGroup.“Wehaveseensomesignificantimpactsonspecificprojects,butour2030targetsareunchanged.”10CHAPTER1Electricalpower,renewablesandenergyconsumersallexpectworseperformanceagainstrevenueandprofittargetsin2023(vs.2022).OilandgasrespondentsexpectstrongerperformanceQ:Withrespecttoyourorganization,howconfidentareyouaboutthefollowingfortheyearahead?EnergyconsumingindustryRenewablesElectricalpowerOilandgasindustry11CONTENTSOptimisticaboutreachingREVENUEtarget(2022)OptimisticaboutreachingREVENUEtarget(2023)OptimisticaboutreachingPROFITtarget(2022)OptimisticaboutreachingPROFITtarget(2023)Overall67%60%66%58%65%61%70%65%74%62%64%56%75%67%66%55%67%59%55%47%12DNVEnergyIndustryInsights2023Peakprofits(perhaps)foroilandgasAmongoilandgasrespondents,growthprospectshaveimprovedintheyear,risingfrom58%to66%.Thisisperhapsamodestjumpconsideringtherecord-shatter-ingprofitsthatmanyoilandgascompanieshavepostedfor2022.Forinstance,nearly$200bnin(adjustedbasis)profitsweremadebythefivesupermajors:ExxonMobil($55.7bn),Chevron($35.5bn),TotalEnergies($36.2bn),BP($27.7bn)andShell($39.9bn)–whileseveralstate-ownedoilandgasgiantsdidevenbetter.Itwasarguablythemostprofitableyearinthewholehistoryofoilandgas,anditwill,forashorttimeatleast,redefinewhatacceptableprofitslooklike.Lastyear52%ofoilandgasexecutivessaidthattheirorganizationwouldmakeacceptableprofitsiftheoilpriceaveragedUSD40toUSD50perbarrel(Brent-WTIaverage)in2022.Fortheyearahead?Just39%saythesame.Recordprofitsmayalsohaveaffectedthestrategiesofoilandgascompanies,bothshort-andlong-term.Agreaterproportionofoilandgasrespondentssaytheywillincreasetheirinvestmentsinhydrocarbonsintheyearahead–withgasupeightpercentagepointsto53%,andoilupninepercentagepointsto43%-relativeto2022.Theindustryappearstobefocussedoninvestmentswithreturnsinsidefiveyears,aheadoflonger-termcommitments,1andweareunlikelytoseemanygiant-sized,long-termgreenfieldprojects,orexplorationsintoultra-deepwater,thearctic,orotherchallengingconditions.Longer-term,oursurveyshowsoilandgascompaniesareslowingtheirshiftintoareasoutsideofcorehydrocar-bonsandreducingthepaceofdecarbonization,comparedwiththeiroutlookfor2022.ExamplesofthisQ:Towhatextentdoyouagreeordisagreewiththefollowing?Base:AllOilandgasindustry.Percentagesreflectnetagreement(i.e.moderately+stronglyagree).1.WhereonEarthisbigoilspendingits$150bnprofitbonanza?TheEconomist2.BPslowsoilandgasretreatafterrecord$28bnprofit.FinancialTimesOilandgasindustryin2023:slowingthepivotintoareasoutsideofcorehydrocarbons,reducedpaceofdecarbonization,andredefiningacceptableprofits.Intheyearahead,myorganizationwillshiftourstrategytowardsopportunitiesoutsideoilandgas2023202220232022Myorganizationisactivelyadaptingtoalesscarbon-intensiveenergymix20232022MyorganizationwillmakeacceptableprofitsiftheoilpriceaveragesUSD40toUSD50perbarrel(Brent-WTIaverage)intheyearahead62%53%61%55%52%39%13CHAPTER1havebeguntoemerge,includingBP’sannouncementtoscale-backplanstocutoilandgasproductionby2030.2Manyoilandgascompaniesarestillbuildingforthefuture,buttherewillbeadjustmentsinthepaceofexpansioninsomeareas.Forinstance,oursurveyshowsthatasmallerproportionareincreasingthepaceofinvestmentintosolarandwindintheyearahead,butgreenandbluehydrogenandcarboncaptureandstorage(CCS)remainunchanged,withcircahalfofoilandgasrespondentsincreasinginvestmentsinthesetechnologiesintheyearahead.CONTENTSGreaternumberofoilandgascompaniesexpecttoincreaseinvestmentinoilandgasportfoliosQ:Doyouexpectyourorganizationtoincreaseordecreaseinvestment/focusinthefollowingenergysourcesintheyearahead?Gasprojects/portfolioOilprojects/portfolioSurveyOct-Nov2017SurveyOct-Nov2018SurveyOct-Nov2019SurveyOct-Nov2020SurveyDec2021SurveyDec2022-Jan202329%35%29%31%21%34%43%40%37%45%53%14DNVEnergyIndustryInsights2023SomeindustrialconsumersmovetoproducetheirownenergyOursurveyalsoincludesrespondentsfromindustrialbusinesses,suchasshipping,steel,chemicals,andmanufacturing.Likethoseinenergyindustrysectors,theseindustrialenergyconsumersarelessoptimisticabouthittingrevenuetargets(downfrom67%to55%)andprofittargets(downfrom59%to47%)intheyearahead,comparedto2022.Heavyenergyconsumersfacedauntingbarriersandchallengingstrategicchoicesastheynavigatetheenergytransition.Foralargeminorityoftheseorganiza-tions(44%)electricitygridsinkeylocationscannotsupporttheirorganization’srenewableenergyambitions.Gridissues,securityandreliabilityofsupplyareamongthereasonswhy,formorethanaquarter(27%)ofindustrialenergyconsumers,itnowmakessensetobuildorbuytheirowncleanenergygenerationinfra-structureorassets.15EnergytransitionprogresshasbecomeadriverofbusinessconfidenceCHAPTER1Q:Whenconsideringyourorganization'stargetsandprospectsfortheyearahead,whatfactorsarethestrongestdriversofoptimismforyourorganization?AwaytowininthenewworldManyfactorssupportrespondents’optimismfortheirorganizationintheyearahead,withemphasisdifferingbysector.Forexample,sentimentamongoilandgasindustryrespondentsremainstiedtomarketcycles,withoilandgaspricesandglobaleconomicconditionsbeingmuchmoreimportantdriversthanforotherpartsoftheenergyindustry.However,“progressintheenergytransition”wasthestand-out,topdriverofoptimism–theleadingfactorforelectricalpower,renewablesandevenforindustrialenergyconsumers,andthesecondhighestamongoilandgasrespondents.Thisisaremarkableresult,giventhatorganizationshavetypicallyderivedconfidencefromthingslikemarketpositioning,newinvestment,orconventionalgrowthstrategies.Instead,effortstoadvancetheglobaltransformationofoursharedenergysystemappeartopositivelyinfluencebusinessconfidence.Thiscouldbeafunctionofthegreatermomentum,consensus,coordination,andpolicysupportnowbehindtheenergytransition.“Recentresponsesbycountriesandbusinessesreflectthefactthattheenergytransitionisnowdirectlytiedtocompetitiveness,”saysMichaelCohen,ChiefUSEconomistandHeadofOil&RefiningatenergymajorBP.“Itisawaytowininthisnewworldwherecleanenergytechnologiesareasolutiontoensuringenergysecurityandeconomicgrowth.”TotalElectricalpowerOilandgasRenewablesConsumingindustryCONTENTSProgressintheenergytransitionNationalorinternationalenergypolicychangesorreformsIncreasedcertaintyofdemandforproducts/servicesNewinvestmentinthebusinessOrganizationalstrategieswithinrenewablesOilandgasprices8%28%28%26%38%40%46%16%24%24%24%31%22%24%25%27%35%41%9%32%24%31%48%53%13%16%28%29%28%36%16DNVEnergyIndustryInsights202317GrowingoptimismCHAPTER12ENERGYSECURITYISNOWTHEENERGYTRILEMMAPRIORITYEnergysectorshavedifferenttrilemmapriorities18Thelong-termgoal:“Resolving”thetrilemma20Lowconfidenceinmeetingclimatetargets21ESGcontinuestolinksustainabilityandprofitability2118DNVEnergyIndustryInsights20232ENERGYSECURITYISNOWTHEENERGYTRILEMMAPRIORITYIfyouhaveevershoppedforamountainbikeyoumayhaveheardthedecisionsyoufacesummarizedwiththemaxim:light,strong,andcheap–picktwo.Itreflectstheimpossibilityofgettingeverythingyouwant,andtheneedtocompromiseinatleastonearea.Beginnerstypicallyleavethestorewithaheavybike,whileenthusi-astsleavewithalightwallet.Foryears,manyintheenergyindustryhaveviewedtheenergytrilemmaasasimilarscenario,implyinganeedtoprioritizebetween:secure,clean,andaffordable.Thedifference,whicheventsin2022demonstrated,isthatwecannot–foranyextendedperiod–haveastrategythatcompromisesonanyaspectoftheenergytrilemma.Perspectivesonthetrilemmachangeovertime.Forexample,inrecentyearsrenewableshavebecomemoresecureandaffordablethaninthepast.Russia’sinvasionofUkraine,andthepandemicbeforeit,haveremindedusofhowfragileenergysecuritycanbe,andhowitcanimpactaffordabilityandcleanenergy–compromiseshavebeenneededacrossallareas.In2022,thiswasespeciallythecaseinEurope,asconsumerssawtheirenergybillsrocket,coalplantswerefiredup,andtherewasarealthreatofagassupplyshortfall(relievedonlybyLNGimportsandanunusuallymildwinter).EnergysectorshavedifferenttrilemmaprioritiesAcrosstheenergyindustry,secureandreliableenergyisthegreatestpriorityinthetrilemmafor2023,followedbycleanandsustainableenergy,withaccessibleandaffordableenergyinthirdplace.However,thedifferentsectorshavevaryingbiases.Energysecuritytakescentrestageforoilandgasandelectricalpower,renewablesrespondentsmakecleanenergythetoppriority,whileindustrialenergyconsum-ersprioritizeaccessibleandaffordableenergymuchmorethantheenergyindustrysectors.“Weneedanorderlytransition,”saysMichaelCohenatBP,“soifsupply-relatedpressureresultsindisruptionorpricespikes,weloseonefoundationofthethree-leggedstooloftheenergytrilemma.Asaresult,weneedtoseemorefocusonpolicies,societalbehaviours,andprefer-encesthathelptoreducethedemandforcarbon-inten-sivefuels,sothatwedonotgetmisalignedintermsofsupplyanddemand.”Itisnotasimplecasethatenergystrategiesandprojectshavetoprioritizeoneortwoaspectsoveranother.Inthefuture,arenewables-basedenergysystem–supplyingbothgreenelectronsandmolecules–hasthepotentialtoaddressallaspectsofthetransition,suchasthroughgreaterelectrification,energystorage,andgridcapacity,orthroughlarge-scalelow-carbonhydrogen,bothcombinedwithlow-costrenewablegeneration.Indeed,80%ofrenewablesrespondentsbelieveenergysecurityconcernswillleadtoincreasedinvestmentinrenewablesintheyearahead.ButwillenergysecurityconcernsnotalsoleadtoincreasedinvestmentinnaturalgasandLNG?“Oneofthebigthingsforusisensuringenergysecurity,”saysDanielToppin,HeadofDataatNationalGas,theoperatorofBritain'sgastransmissionnetwork."Recentworldeventshavecertainlyhighlightedjusthowessentialgasisacrosstheworld.Thisputgasbackinthespotlight,becauseitshowshowgassupplywillbecomeamajorprobleminfutureifwedon'tdosomethingdifferent.”NationalGasultimatelyseeshydrogenastheanswer,buttheextenttowhichthiswill(orshould)scaleisanotherareaofdebate.35%12%17%4%32%45%Myorganizationiscurrentlyfocusedonshort-termratherthanlong-termstrategies19CHAPTER2Q:Whichaspectsoftheenergytrilemmashouldtheenergyindustryprioritizeintheyearahead?Thepastyearhasputthespotlightonenergysecurity,butthetransitiondemandsthatwepushcleanandsustainableenergyforwardasfastaspossiblewithoutharmingsecurityoraffordabilityAccessibleandaffordableenergySecureandreliableenergyCleanandsustainableenergyOilandgasConsumingindustryElectricalpowerRenewables43%26%31%50%28%23%29%50%21%34%29%37%“Idonotthinkweshouldfantasizethatallthegasandallgasgridscanbereplacedwithhydrogen,”saysDerkSwideratE.ON.“Hydrogenwillplayarole.Greengaseswillplayarole.Electricitywillplayarole.Youneedtohavelocalsolutions.Perhapshousesneartoanindustrialhydrogenclustercanusehydrogen,otherplaceswillbeelectric,stillotherswillremainonnaturalgas.”SwiderbelievesthatEuropehasnotsolveditsenergycrisisyet:"In2023,westillhavetofocusonbeingasefficientaspossiblewithregardtogas,reducinggasdemandwherepossiblewithoutdistressingtheindustryinEurope.Peoplehavedevelopedtheexpectationnowthatgasdemandwillfade.Andnaturalgasdemandwill.Butgreengasdemandlikesyntheticmethane,biogasandsoonwillplayanincreasingroleasabridgetoacleanenergymix.Itjustmightbeashorterbridgethanweexpected."CONTENTS20DNVEnergyIndustryInsights2023Q:Howlongdoyouexpectitwillbebeforetheenergytransitiondeliverssecure,clean,andaffordableenergytoallpartsoftheenergysysteminyourcountry?Mostintheenergyindustrybelievethetrilemmawillberesolved,butnotthisdecadeThelong-termgoal:“Resolving”thetrilemmaTheenergyindustrybelievesitwillbealongtimebeforethetrilemmaisresolved.Justone-in-sixbelievetheenergytransitionwilldeliversecure,clean,andaffordableenergyintheircountryinthenextdecade.Four-in-tenseethisbeingachievedin10-20years,whileathirdbelieveitwillbewellintothe2040s.Thispictureisbroadlysimilaracrossregions,butNorthAmericanrespondentsappeartohavesomewhatslowerexpecta-tionsforthespeedinwhichthetransitioncandeliveronallaspectsofthetrilemma.Doingmorewiththeproventechnologyisanabsolutepriorityforthecomingyears.Wemustencouragethedevelopmentofnewtechnologies,butfirstandforemostwemustacceleratethedeploymentatscaleofwhatweknowisneededinthisdecade.PhilippeKavafyan,ExecutiveDirector,AkerHorizons,thegreeninvestmentarmoftheNorwegianAkergroup18%15%42%19%43%17%45%20%38%12%33%34%28%33%32%37%10%10%5%10%AsiaPacificEuropeLatinAmericaMiddleEastandAfricaNorthAmericaUnder10years10to20years20to30yearsNotwithin30years21CHAPTER2Q:Towhatextentdoyouagreeordisagreewiththefollowing?Percentagesreflectnetagreement(i.e.moderately+stronglyagree).Thefinancialsystemhasevolvedpasttheerawhenimprovedsustainabilitymeantacompromiseonreturns.Environmental,social,andgovernance(ESG)criteriaareimpactingmostinvestmentdecisionsintheenergyindustry:halfofenergyindustryprofessionalssayESGisdrivingchangeintheirorganization’soperationsandlong-termstrategy,whilesix-in-tensaytheircompanycanbecomemoreprofitablebyimprovingsustainability.ESGcontinuestolinksustainabilityandprofitabilityEnergyindustryseesprofitabilityinsustainability,butthisvariessignificantlybyregionFocusingonthebenefitsofincrementalinnovation,PhilippeKavafyanatAkerHorizonsreferencestherecentannouncementofplanstobuildahydrogenpipelinebetweenNorwayandGermany.“Ayearago,theideaofdiscussingbuildingapipelinebetweenNorwayandGermanythatwouldinitiallytransportbluehydrogenandthenmovestogreenhydrogenovertimewouldhavebeenunthinkable”,hesays,“butthethreattoenergysecurityhasdrivenustopragmatism.”LowconfidenceinmeetingclimatetargetsPerhapsthemostconcerningfindingofthisresearchisthatonly39%feeloptimisticaboutreachingtheirorganization’sdecarbonizationtargets,withasmuchas29%pessimistic.Similarly,just38%feelthatthatnetzerotargetsintheircountryarerealisticandachievable.Settingandmeetingdecarbonizationtargetsisnoteasy.Successindefiningobjectives,andmeetingthem,whilealsoimplementingasmoothtransitionisthegreatobjectiveofourtimesfortheenergyindustry.“Wehavetosettargetstofocusourbusinessactivities,andtheseneedtobeasrealisticandachievableaspossible,”saysMichaelCohenatBP.“Thechallengeforallofusishowtogetfromthestateoftheenergysystemtodaytoarevolutionarynewenergysystemin25to30years'time.Itisgoingtotakealotofeffortbyalotofdifferentstakeholders,organizations,andcompanies.Noneofusareoperatinginavacuum.Weneedinvestors,custom-ers,suppliers,competitors,societyandpolicymakerstosupportthetargets,getbehindtheinfrastructure,andalignobjectivestoensurethattargetsareachievable.”Inthisregard,whilethelackofoptimismarounddecar-bonizationtargetsshouldtemperourpositivityaboutprofits,growth,andexpansion,wecanatleastreportthatthelevelofoptimismissimilaracrossallsectorsandregions.Thisrepresentscommongroundtobuildonandcanhelpsupportagreementaboutthestepsthatweneedtotaketogetclosertomeetingourtargets.CONTENTSMycompanycanbecomemoreprofitablebyimprovingitssustainabilityFocusonESGisdrivingchangesinmyorganization'slong-termstrategyFocusonESGisdrivingchangeinmyorganization'soperations66%56%53%56%53%50%68%61%56%78%48%43%51%43%35%AsiaPacificEuropeLatinAmericaMiddleEastandAfricaNorthAmerica22DNVEnergyIndustryInsights202323GrowingoptimismCHAPTER13ANACCELERATINGENERGYTRANSITIONPUSHESTHROUGHANDAGAINSTBARRIERSBarriersheatingup24Theurgentneedforgridinvestment26Postponedpermissions26Supplychainslowingthetransition27Capitalisabundantforsome,butscarceorexpensiveformany2824DNVEnergyIndustryInsights20233ANACCELERATINGENERGYTRANSITIONPUSHESTHROUGHANDAGAINSTBARRIERSTherecanbelittledoubt,thepaceoftheenergytransi-tionisaccelerating.Eight-in-teninoursurvey(79%)acrossallindustriesandregionsbelievethis,andtherearesignsthatitwillgatherevenmorepacein2023.IthasbeensuggestedthattheRussia’sinvasionofUkrainemayhaveacceleratedthetransitionbyfivetotenyears.3“Thegeneraltrendoftheenergytransitionhasbeenmassivelyaccelerated,”saysDerkSwideratE.ON,“Notonlywe'retalkingaboutnewandhighertargets,weareseeingconsumersbuyingmoresolar,batteries,andEVs.Weareseeinggovernmentscontinuingtosupportrenewabledeployment.Thegrowththatweseeishigherthanexpected.”Historically,priceshocksandenergycriseshavesparkedmajorcorporateorpolicydecisions.Giventhatrecentturmoilhasfallenwithinanalreadyacceleratingenergytransitionmegatrend,itseemslikelythatwewilllookbackon2022asaparticularlyimportantturning-point.“China'senergyindustrymaywitnessseveralchangesfollowingtheenergycrisisof2022,”saysasenioranalystatalargeChineseoilandgascompany.“Forinstance,itmaypromotethefurthertransformationofChina'sindustrialstructuretomoretechnology-intensive.Throughseveralpreviousenergycrises,Japanrestruc-turedtheirindustries,andusedpoliciestoencouragemoreR&Dandtechnologydevelopment.Especially,thesecondoilcrisisinthe1970sbroughtaboutthepopular-ityofsmallcarsinJapan.Similarly,wemayseecurrenthighoilandgaspricesbringaboutaccelerateddevelop-mentofelectricvehiclesinChina.”BarriersheatingupInmuchthesamewayasdrivingfasterheatsupallthemechanicsofacar–fromthesteeloftheengineblocktotherubberofthetyres–astheenergytransitionmovesfaster,thebarrierswefacegrowmoreurgentandincreaseinintensity,throughouttheenergysystem.Skillsisagoodexample.Acrossallrespondentstooursurvey,thetopbarriertogrowthisskillsshortages(and/oranagingworkforce).Closetotwo-thirdssaythatnotenoughpeopleareenteringtheworkforceintheirpartoftheenergyindustry.Asmorefunds,policiesandstrate-giesaligntotransformandexpandtheenergyindustry,itseemslikelythatgreatercompetitionforskilledandtalentedpeoplewillremainabarrier.“Weneedtogetouttherewithourpositivenarrative,”saysAlixThom,workforceengagement&skillsmanageratOffshoreEnergiesUK,“Thiswillenableustohelpyoungpeoplerealizetheopportunitytohelpsolveoneofthebiggestchallengesfacinghumankind.Butthetalentsupplyisnotgoingtobefixedovernight.Thisisalong-termtransition,soweneedacarefulandinclusivelong-termapproach.”Overrecentyears,ourresearchhashighlightedhowpartnershipsandcollaborativeapproacheswillbecrucialtosuccessintheenergytransition.Itisimportant3.Warandsubsidieshaveturbochargedthegreentransition,TheEconomist80%17%79%80%17%79%20222023Saythepaceoftheenergytransitionisaccelerating25CHAPTER3Q:Towhatextentdoyouagreeordisagreewiththefollowing?Percentagesreflectnetagreement(i.e.moderately+stronglyagree).tounderstandtheimpactthishasonskillsrequirements.“Theenergyindustrytodayistoocapitalintensiveandtoocomplicatedforanycompanytothinktheycanmasterallofthedisciplines,”saysTomEinarJensenatFREYR.“Therefore,weareteamingupwiththebestandthebrightestandbringingthemalongfortheride.”Atthesametime,collaborationitselfrequiresskillsthathavenotalwaysbeenprioritized,giventheimportanceoftechnicalcapabilitiesformanypartsoftheindustry.“Developmentrequiresanunderstandingofthetechnicalside,ofcourse,butmuchofthemorestrategicworkandcoordinationinitiativesrequireustodealwithmanydifferentpeople,includinggovernment,regula-toryagencies,competitors,andlocalcommunities,”saysAnabeleNatividadatACEN.“Thismakespeopleskillsmoreimportantthanbefore,andsoitisanareawearebuildingup.”SkillschallengesacrossallsectorsandregionsOilandgasElectricalpowerRenewablesConsumingindustryNotenoughpeopleareenteringtheworkforceinmypartoftheenergyindustry66%66%61%55%AsiaPacificEuropeLatinAmericaMiddleEastandAfricaNorthAmericaMyorganizationisfindingitincreasinglydifficulttoattractemployeeswiththeskillsneededfortheenergytransition64%63%58%56%65%Myorganizationstrugglestofindpeoplewiththedigital/dataskillswerequire56%47%45%52%43%Q:Whichofthefollowingdoyouexpecttobethebiggestbarrierstogrowthforyourorganizationintheyearahead?Electricalpower1.Skillsshortage2.Lackofpolicy/governmentsupport3.Lackofinvestmentintechnology/innovationRenewables1.Lackofpolicy/governmentsupport2.Permitting/licensingbarriersfornewprojects3.SkillsshortageOilandgas1.Skillsshortage2.Lackofpolicy/governmentsupport3.GlobaleconomicconditionsEnergyconsumers1.Lackofinvestmentintechnology/innovation2.Skillsshortage3.GlobaleconomicconditionsTopthreebarrierstogrowthbysectorCONTENTS26DNVEnergyIndustryInsights2023Q:Towhatextentdoyouagreeordisagreewiththefollowing?Percentagesreflectnetagreement(i.e.moderately+stronglyagree).TheurgentneedforgridinvestmentTheelectricitygrid(transmissionanddistribution),orratheritstransformation,isbecomingabiggerandbiggerissuefortheenergyindustryandfortheracetobeatclimatechange.Electricalpowerindustryrespond-entsoverwhelmingly(81%)saythatthereisanurgentneedforgreaterinvestmentinthepowergrid.Therateofexpansioninrenewablesgenerationissignificantlyquickerthantherateatwhichthegridcanadapttoaccommodatethisgrowth.Lastyearitwasestimatedthat844GWofnewcapacityiscaughtupintransmissioncapacityqueues(with90%ofthisbeingrenewablesorenergystorage).4Only22%ofrenewablesindustryrespondentsbelievecurrenttransmissioncapacityplanningissufficienttoenabletheexpansionofrenewables.Mostpowerindustryrespondents(69%)acknowledgethisissue,reportingthatpowergridinfrastructurecannotyetadequatelyconnectsourcesofrenewableenergytoareasofhighdemand.Inmanycases,powergridsneedsignificantinvestmentjusttokeeppacewithprojectedgrowthindemandforelectricity,letalonetransformingtosuitamassivelydistributedandhighlydigitalizedelectricitynetwork.Intheelectricalpowerindustry,65%saythatagingpowergridinfrastructure(andrelatedassets)areasignificantbarriertogreateruseofrenewables(inourmainregions).PostponedpermissionsTheprogressofrenewablesexpansionandpowergridtransformationisoftenhamperedbypermittingdelays.Forexample,researchacross18EUstatesfindsthatonshorewindpermitstakeanywherefrom2.5to10yearstobeapproved,allslowerthanthe24monthslimitintheEU’sRenewableEnergyDirective.5AcrossEurope,thereisareported80GWinwindenergyprojectsstuckinpermitting,enoughtoincreasetotaloutputbyover40%.6Manyoftheprocessesinvolvedinpermitting–environ-mentalimpactassessments,communityengagement,duediligence,etc–doneedtime.Wecannotcompro-miseonproceduresthatarecrucialtoensuringwehaveajust,effectiveandsustainabletransition.However,theabove-mentionedresearchfindsthat“commonissueswithpermittingincludelackofdigitaliza-tionintheoverallprocess,lackofresourceswithinlocalauthorities,delayscausedbylegalappealsandoverlapofresponsibilityamongstdifferentauthorities”.7Theseareallareasweshouldbeabletoaddressorexpeditewiththerightleadership,adoptionofnewideas,andtargetedfunding.GridupgradesneededtoenablegrowthinrenewablesElectricalpowerThereisanurgentneedforgreaterinvestmentinthepowergrid81%Agingpowergridinfrastructure(andrelatedassets)areasignificantbarriertogreateruseofrenewables(inourmainregions)65%Powergridinfrastructurecannotyetadequatelyconnectsourcesofrenewableenergytoareasofhighdemand69%RenewablesCurrenttransmissioncapacityplanningissufficienttoenabletheexpansionofrenewables22%27CHAPTER3SupplychainissuesareslowingdowntheenergytransitionMyorganizationwillseektoachievegreaterstandarizationoftoolsandprocessestoreducecostsovertheyearaheadSupplierswilldrivenotablepriceinflationovertheyearaheadMyorginazationexpectssignificantimprovementintheavailabilityofgoodsfromoursupplychainin202374%17%77%77%17%44%74%17%77%77%17%44%74%17%77%77%17%44%74%17%77%77%17%44%Q:Towhatextentdoyouagreeordisagreewiththefollowing?Percentagesreflectnetagreement(i.e.moderately+stronglyagree).SupplychainslowingthetransitionAstrongmajorityofenergyindustryprofessionals(77%)expectthatsupplierswilldrivenotablepriceinflationovertheyearahead.Aminority(44%)expectthattherewillbesignificantimprovementintheavailabilityofgoodsfromtheirsupplychainin2023.Therearesomeareaswhichareeitherlessaffectedorrecoveringquickly.Forexample,thepriceofphotovoltaicmodulesisexpectedtofallthisyearassupplyreboundsfromseveralsetbacksoverthepastfewyears.8Therearealsonewpressures,suchasthelocalcontentrequirementsoftheInflationReductionAct(IRA)intheUS.Anewsupplychainistakingshapeforoffshorewindindustrythere,butitwilltaketimebeforeithasthecapabilitiesalreadyavailableinotherregions.We'refocusedoneducatingandtraininglocalcompaniessothattheycanenterintotheoffshorewindsupplychain.OurindustrycannotcontinuetobereliantontheEuropeansupplychain,soitisimperativethatwequicklyinvestinbuildinguplocalsuppliers.LizBurdock,CEO,US-basedBusinessNetworkforOffshoreWind.4.2023renewableenergyindustryoutlook,Growthunleashedamidheadwinds,Deloitte5.Ready,Set,Go:Europe'sraceforwindandsolar,Europe’sraceforwindandsolar,Ember6.Theworldneedswindenergy—here'showtorampupproductionin2023,WorldEconomicForum7.Ready,Set,Go:Europe'sraceforwindandsolar,Europe’sraceforwindandsolar,Ember8.Solarpanelpricesaretippedtofallafteryearsofincreases,sowhen'sthebesttimetobuy?ABCNewsCONTENTS28DNVEnergyIndustryInsights2023Capitalisabundantforsome,butscarceorexpensiveformanyAcrosstheenergyindustry40%ofprofessionalssaytheirorganizationisfindingitincreasinglydifficulttosecurereasonablypricedfinanceforprojects.Regionally,weseethatfinanceiseasiertoaccessfororganizationsinNorthAmericaandEurope.Amongthesectors,moreelectricalpowerrespondents(47%)findaccesstofinancechallenging,comparedtooilandgas(39%)orrenewables(36%).Q:Towhatextentdoyouagreeordisagreewiththefollowing?Percentagesreflectnetagreement(i.e.moderately+stronglyagree).Accesstofinancevariesconsiderablybyregionandsector36%39%47%40%Myorganizationisfindingitincreasinglydifficulttosecurereasonablypricedfinanceforourprojects53%50%46%33%25%AsiaPacificEuropeLatinAmericaMiddleEastandAfricaNorthAmerica29CHAPTER3CONTENTS4UNKNOWNTERRITORYANDVESTEDINTERESTSLEADINGTOSTRATEGICDIVERGENCEWhereistheenergyindustryinvesting?32Limitedcapitalandlimitedcertainty34Strategiesforgridstability34Newbusinessmodelsandfirst-movercoalitions3532DNVEnergyIndustryInsights20234UNKNOWNTERRITORYANDVESTEDINTERESTSLEADINGTOSTRATEGICDIVERGENCEIntheageofdiscovery,explorerswouldsometimestakedifferentroutes,aimingatthesamegoal,buteachconvincedtheyhavechosenthebestwaytogetthere.Similarly,astheenergytransitionscalesupandspeedsup,companiesneedtosecure(orre-allocate)capitalandmakeincreasinglydifficultchoicesaboutwhatdoesanddoesnotgetfunded.“Oneofthebiggeststrategicchallengesforusiscapitalallocation,”saysDerkSwideratE.ON,“workingouthowandwheretofocusandinvestisacoreissuewearecontinuouslydiscussing.”Whereistheenergyindustryinvesting?Thetopbusinessareasinwhichrespondentsexpecttoincreaseinvestment/focusin2023representtheareasmostassociatedwiththeenergyindustry'schangeagenda,includingdecarbonization,energyefficiency,scaling-upnewtechnologies,anddigitalization.Intermsofenergyvectors,therearefiveareasthatarethemostcommonlycitedforincreasedinvestment/focusintheyearahead:1.Greenhydrogen/ammonia2.SolarPV3.Floatingoffshorewind4.Fixedoffshorewind5.Bluehydrogen/ammoniaQ:Towhatextentdoyouagreeordisagreewiththefollowing?Percentagesreflectnetagreement(i.e.moderately+stronglyagree).Infiveyears,themajority(morethanhalf)ofmyorganization'srevenuewillbefromfossilfuelenergybusiness?Infiveyears,themajority(morethanhalf)ofmyorganization'srevenuewillbefromcleanenergybusiness?Infiveyears,halfofallindustryrespondentsexpecttohavethemajorityoftheirrevenuecomingfromcleanenergyOverall42%50%Oilandgasindustry75%19%Electricalpower30%54%Renewables13%81%33CHAPTER4Q:Doyouexpectyourorganizationtoincreaseordecreaseinvestment/focusinthefollowingenergysourcesintheyearahead?Percentagesshownreflecttheproportionthatselected“increase”.Energysources/carriersattractingincreasedinvestment(orfocus)fromtheenergyindustryin2023Electricalpower2022Electricalpower2023Oilandgas2023Oilandgas2022Renewables2022Renewables202345%35%39%31%52%49%FloatingoffshorewindFixedoffshorewind32%33%26%56%65%57%SolarPV54%48%52%53%49%68%51%Greenhydrogen/ammonia43%44%20%20%29%Bluehydrogen/ammonia30%CONTENTS40%29%39%47%46%34DNVEnergyIndustryInsights2023LimitedcapitalandlimitedcertaintyTherearestillmanydebatesandunknownsthatsurroundtheseareas,makingcapitalallocationdecisionsmorechallenging.Forinstance,intheelectricalpowerindustry,44%believehydrogenshouldbeusedasanenergycarriertoreducetheneedfornewelectricitytransmissionnetworks,but22%disagree.Istherearightanswer?Ifitdependsontheregion,whatarethefactorsthatmattermost?Oilandgasrespondents(66%)arefarmorelikelytothinkthatcarboncaptureandstorage(CCS)willscaleuprapidlyinthenextfiveyearsthanpower(48%),renewa-bles(54%),orconsumingindustries(53%).CCSfitswiththeotherstrategiestheindustryhas,forexample,togrowbluehydrogenandtomakeuseoftheirexpertiseinlarge-scale,offshoreandgeologicaloperations.Butdoweneedbluehydrogen?Willthecostofgreenhydrogenfallfastenough–andcapacityincreasequicklyenough–forusnottoneedit?“Toachievecarbonneutrality,alongwitheconomicdevelopment,wethinkthereisaneedtospeeduptheuseofdecarbonizationtechnologies,”saysasenioranalystatalargeChineseoilandgascompany.“Technol-ogieslikehydrogenwillhelpinthetraditionalenergyindustryaswellashelpingtointegratenewenergies.However,carboncapture,storageandutilization(CCUS)mayendupbeingevenmoreimportant.Ifthescalecanbeincreased,CCUScoulddecarbonizeourentireenergyindustry.UnfortunatelytherearebottlenecksinthecurrentCCUSeconomy.Thepriceistoohigh,andsomeremainconcernedaboutleaksfromCO2storage.Thereisalsoaneedforamuchbiggerindustrialchainthatmakesuseofcarbondioxide.Here,Chinamaybeabletodeveloprapidly,giventhescaleofthedownstreamchemicalindustryinplace.”StrategiesforgridstabilityAkeyareaofstrategicdivergenceisthefutureofbatterieswithinelectricitygridsandtheenergysystemasawhole.Ontheonehand,batteriescouldofferutility-scalestoragethatreducestheneedtooverhaulpowergrids.“InOslo,forinstance,thereisabigdiscussiononwhetherweshouldupgradethegridcomingintothecapitalbecausetherearebottle-neckslimitinghowmuchenergycanflowin,”TomEinarJensenatFREYR.“ButifyouputGWhsworthofstoragefacilitiesinstrategiclocations,youcanbasicallysolvethatproblem,andthatwouldalsocostsignificantlylessthanoverhaulingthegrid.”Ontheotherhand,somebelievethatforlarger-scalestorageweshouldlooktothermal,hydro,orgreenQ:Doyouexpectyourorganizationtoincreaseordecreaseinvestment/focuslevelsinthefollowingareasintheyearahead?Percentagesshownreflecttheproportionthatselected“increase”.DecarbonizationEnergyefficiencyDigitizationScaling-up(orcommercializing)newtechnologiesorbusinessesEnergystoragetechnologies64%61%59%59%50%Muchoftheenergyindustryexpectstoincreaseinvestment/focusin2023inareasthatwilltransformorenablethetransformationoftheenergysystem,continuingamulti-yeartrend35CHAPTER4hydrogen,whichcanstoreenergyforlongerperiodsandarearguablybettersuitedtoscalingupenergystorage.“Idon'tthinkthesolutionofthefutureiselectricbatteriesforstorageatlargescaletostabilizethegrid,”saysPhilippeKavafyanatAkerHorizons.“There'scertainlygoingtobeaneedforbatteriesinlocalgridsandsmallersystems.However,regionsthathavehighgridinstabilityandlonggeographicaldistancesbetweensupplyanddemandwillbebetterservedapplyingothersolutionsthanbatteries.”Kavafyan’sobjectionisthatbatterysystemsonlyoffershortdurationstabilization,andthatweneedmuchlargerscale,moreefficientstoragetocopewithever-growingrelianceonrenewables.“Beyondbatteries,Ithinkweneedstrongerinterconnections.Whetheritisahydrogenpipelinebetweencountriesorgridconnectionsacrossborders,ortoenergyislands,Ibelievethatsecure,reliablestabilityneedsgreaterinterconnections,”hesays.Jensen’spointisthatbatteriesaremoreflexible,cheaper,faster,anddonotrequireasmuchregulation.Asmuchasitistemptingtoarguethatweshouldusebothlarge-scalebatteriesandinterconnections,dependingoncircumstances,capitalisalwayslimited,andtherewillbecircumstanceswhereindustryandgovernmentleadershavetofavouronestrategyoveranother.“Onemajorproblemisthatitisnotalwaysintheinterestsofregulatorsandbigutilitiestogivebatteryoperatorsamajorrole,”saysJensen.“Theylosesomedegreeofcontrolbydoingsoandthismakesitamoredifficultconversationtohave.”Theenergysystemneedstoevolvefast,incrementallyspreadinglikegrassrunnersoverfertileearth,fromnewsourcestoindustrialclusters,intotowns,throughtransportnetworks,andacrossborders,adoptinginnovationsalongtheway–intechnology,businessmodels,theworkforce,andmore–remainingreadytoadaptquicklytochangingparametersandresilienttoshocksandsurprises.Itisnotsurprisingthenthatmostenergyindustryexecutives(84%)saythattheindustryneedstodevelopnewoperatingmodelstoachievefurthercostefficien-cies.Itisalsoclearthatnewbusinessmodelsareneededjusttogetnewmarketsmovingandtoallowtechnologiestoflourish.Oneexampleisthewayasset-ownersandinvestorsdriverenewablesprojects.“Thereisgrowingattentionbeinggiventosystemicapproachesinbusinessmodels,andtheemergingimportanceofsecuringfeedstockoroff-takeagreementsatthesametimeasrenewableinvestmentsarefinanced,”saysPhilippeKavafyanatAkerHorizons.“Essentially,youneedtoensurethatyourfullvaluechainisintheequationfortheretobeabusinesscasefinancialinstitutionswillgetbehind.”Suchanapproachleadstomuchtighterlinksbetweenfinanceandindustrialpartners,aswellasnewinter-in-dustrycollaborations.Togetherthesegroupsstandamuchbetterchanceofsuccesswithinnovativerenewa-blesprojects.“Whatweseeisthatthereismuchmoreofaneedforearlypartnershipsbetweenplayersindifferentindus-tries–these‘firstmovercoalitions’–whichhaveshowntobeeffectiveinhelpingtotriggernewvaluechains,”saysKavafyan.Newbusinessmodelsandfirst-movercoalitionsCONTENTS36DNVEnergyIndustryInsights202337GrowingoptimismCHAPTER15MAJORPOLICYCHANGESPRESENTSIGNIFICANTOPPORTUNITIESLegislationtoenablemarkets38Collaborative,principles-basedregulations4038DNVEnergyIndustryInsights2023Energyindustryexecutivesreportthatthebiggestriskstotheirorganizations’near-termsuccessarepublicpolicies(beingdelayed,inadequate,orunexpected)andpoliticalchange(orinstability).Policyandpoliticsarealsomajorforces–perhapsthemajorforces–indeterminingwhetherwecurbclimatechangeenoughtoavoidcatastrophes.“Whilewecanallsaythatallthethingswearedoingneedtohappen,andtheyneedtohappenfaster,quiteoftenthingstaketimebecauseofaveryslow-to-evolveregula-toryframework,”saysBenHutt,CEOofAustralianenergysoftwareproviderEvergen.“Oneofthebiggesthand-brakesgloballyishowregulatorshampermarketdevelop-ment.We'restillpilotingthingsthatwe'veproventwoorthreeyearsago.Webelievethatregulationsandmarketbodiesneedtoevolvetoallowthefuturetotakehold.ItsometimesseemsthatweareinasimilarplacetoafewyearsbeforeUbertookholdinmajorcities,whereestab-lishedforceswerescramblingforreasonstostopthem.”Butwhile71%ofrespondentssaypolicyfailuresareholdingbackgreateractiononclimatechange,thisproportionmaystarttofallasnewlegislationtakeseffect.ExamplessuchastheInflationReductionAct(IRA)intheUS,9andtheGreenDealIndustrialPlan(GDIP)intheEU,10indicatethatgovernmentsarestartingtoenable,ratherthanhamper,fasteractiononclimatechange.EarlyestimatessuggestthattheIRAwilladdupto550GWof“new,utility-scalecleanpower”from2022-2030.11Thescaleofpoliticalchangeislarge,asarethechallengesahead.Ithinkthatweareenteringanewagewhereindustrialpolicy,climatepolicy,jobs,andeconomicgrowthareallintertwined.MichaelCohen,ChiefUSEconomistandHeadofOilAnalysis,BPLegislationtoenablemarkets“Apredictableandsimplifiedregulatoryenvironment”isthefirstpillarofEU’sGDIP,whichpromisestopromotequickdeployment,“ensuringsimplifiedandfast-trackpermitting.”12Thisisanareaofcriticalimpor-tance.Inoursurvey,81%sayacceleratingpermittingandlicensingprocessesiscriticaltomeetingParisAgreementgoals.Otherlegislativeactionhasdebatableeffects.Thewindfalltaxesleviedonoilandgascompaniesin2022havestirredcontroversy.AlixThomatOffshoreEnergiesUK,representativebodyfortheoffshoreenergyindustry,saysthat“theUK’sEnergyProfitLevyiscausingrealproblems.”Shesays:“Theenergyindustryneedsfiscalstabilitytoencouragecompaniestoinvest.Withoutinvestmentsupplychaincompaniescan'tseeapipelineofwork,andsowerisklosingthemtootherareasoftheworld.”5MAJORPOLICYCHANGESPRESENTSIGNIFICANTOPPORTUNITIES9.InflationReductionActGuidebook,TheWhiteHouse10.TheGreenDealIndustrialPlan:puttingEurope'snet-zeroindustryinthelead,EUCommission11.InflationReductionAct:It’saBigDealforJobGrowthandforaCleanEnergyFuture,AmericanCleanPower12.Ibid39CHAPTER5Q:Whichofthefollowingrepresentthebiggestriskstoyourorganization’snear-termsuccess?TotalElectricalpowerOilandgasRenewablesConsumingindustryRiskradar–thetop10riskstonear-termsuccessintheenergyindustryCONTENTS10%20%30%40%50%60%9.People-relatedrisks1.Publicpolicies(i.e.inadequacy,delays,orsurprises)2.Politicalchangeorinstability3.Supplychainfailures4.Financialmarketinstability5.Oilandgasprices6.Conflict(i.e.wars,terrorism,riots)7.Withdrawalofinvestmentinfossilfuelprojects8.Negativepublicsentiment(towardsmypartoftheenergyindustry)10.Lackoffocusonajusttransition40DNVEnergyIndustryInsights2023Collaborative,principles-basedregulationsAsinsomanyareasoftheenergytransition,thekeyforenergyindustryleadersistoensuregreatercoopera-tionbetweenstakeholders,withregulatorsandgovern-mentatthetopofthelist.“We’rereallytryingtobemorecooperativeandmoreopentothenationalgridinthePhilippinesintermsofourplan,”saysAnabeleNatividadatACEN.“Eveninearlystageconceptualizationsofourprojects,wetalktothem,wediscusswiththemtheplans,andatsomepointwetrytoconvincethemtohelpusadvance.”E.ON’sDerkSwideragrees:“Ithinkweneedtocometogetheroncommongroundandthenthinkabouttheoptionspacesfromaneutralpointofview,”hesays.“Thisisnotdoneoftenenough.Weshouldfindthebestsolutionsforeveryone,notjustourowncompanies.”Thechallengewithpolicyandregulationissimilartothecapitalallocationchallengeandtheenergytransitionchallengemorebroadly:wedon’thaveitallworkedoutandagreedinadvance.Forregulators,thishastoleadtoashifttowardslessprescriptive,andmoreprinciples-basedgovernance,sothatrulingscanbemadeonfutureissuesthatlegislatorscannotforeseeinhighdefinition.”Itshouldbeaframeworkwhereyoucanmove,whereonecanactwithin,andwherethereissomeroomtoflex–makeitasefficientaspossible,”saysSwider.“Atight-ly-regulated,highly-plannedapproachwillnotwork.Wemustallowthemarkettosolvetheproblems.”ThethingabouttheUSisthateverythingcanchangeovernight,dependingonthepoliticalwill.Ifyouhaveagovernorthatdecidestheywillgetbehindsomething,itcansuddenlyhappeninamuchquickertimeframe.LizBurdock,CEO,BusinessNetworkforOffshoreWindQ:Towhatextentdoyouagreeordisagreewiththefollowing?Percentagesreflectnetagreement(i.e.moderately+stronglyagree).PolicyandpublicsupportkeytoaligninggridandrenewablesexpansionElectricalpowerPolicymakersdonotunderstandthechallengesinvolvedinrapidlyexpandingandupgradingthepowergrid68%Reformstopermittingandlicensingprocesses(forelectricalpowerinfrastructure)arecriticaltomeetingnetzerotargets78%RenewablesLackofpublicsupportisholdingbackrenewableenergyexpansion57%41CHAPTER5CONTENTS42DNVEnergyIndustryInsights202343GrowingoptimismCHAPTER16PROGRESSCONTINUESTOWARDSASMARTERENERGYSYSTEMTheeraofsmartelectricalpower44Digitalresistance45Fromcollaborationcomesstandardization47Continuousinnovationvs.standardizedindustrialization48Ever-evolvingcyberthreats4844DNVEnergyIndustryInsights2023Thisisthemomentfornewideas,technologiesandinnovationstohelpkeepthetransitioninmotion.Theelectricalpowerindustryisturningtotechnologiestohelpwithmanyoftheseissues.Respondentsfromthissector(69%)aremorelikelythanothersectorstosaythatdigitalizationiscentraltotheirorganization’sstrategy.Ingeneral,energyindustryrespondentsarebecomingmoresophisticatedwithrespecttodata-drivenstrate-gies.Threequarters(75%)saythatintheyearahead,theirorganizationwillprioritizeimprovingdataqualityandavailability,while72%alsoreportthatadvanceduseofdataischangingthewaytheyworkattheirorganiza-tion.Butpowerindustryrespondents–andpowergridoperatorsinparticular–arearguablymovingthroughthemosturgent,highimpactperiodofdigitalizationanywhereintheindustry.Theeraofsmartelectricalpower“There'sallthesethingshappeningwhichthenetworksdon'tsee,”saysBenHuttatEvergen,“becausetheyaggregateatthesubstationlevel.Byprovidingvisibilityandsubsequentlycontroltothenetworks,wecanreducethecostofnetworkinfrastructurebymaximisingthevalueofwhat'stherealready.Forinstance,therecouldbe10typesofEVand10typesofbattery,alldifferentmanufacturers,speakingdifferentAPIlanguages.Networksorretailerswanttobeabletomeasureandinfluenceallofthosethingseasily.Theyneedthesedisparatesystemsaggregatedsothattheycanorchestratethegridmoreeffectively.”6PROGRESSCONTINUESTOWARDSASMARTERENERGYSYSTEMQ:Towhatextentdoyouagreeordisagreewiththefollowing?Percentagesreflectnetagreement(i.e.moderately+stronglyagree).72%Advanceduseofdataischangingthewayweworkatmyorganization75%Intheyearahead,myorganizationwillprioritizeimprovingdataqualityandavailability45CHAPTER6Just44%ofNorthAmericarespondents,and45%ofLatinAmericarespondents,expecttoincreasespendingondigitalizationin2023,comparedto69%fortheMiddleEastandAfrica,62%forAsiaPacific,and61%forEurope.ThosefromNorthAmericanorganizationsreportedthatthestandoutbarriertodigitalizationisresistancetochange.Thiscouldimplythatthoseorganizationshavereachedmoreadvancedstages,wheredeeper,moredifficultchangesareneeded.However,NorthAmericanrespondentsare,ingeneral,earlierintheadoptioncycleformosttechnologiesinourresearch,suggestingthereisagenuineneedfortheregiontocatch-upwithglobalpeersondigitalization.DigitalresistanceQ:Towhatextentdoyouagreeordisagreewiththefollowing?Percentagesreflectnetagreement(i.e.moderately+stronglyagree).NorthAmericanrespondentslagotherregionsintheemphasisplacedondigitalizationDigitalizationiscentraltomyorganization’sstrategy63%67%70%70%43%Myorganizationhasincreasedfocusondigitalizationoverthepastyear72%73%55%61%50%Digitaltechnologiesareenablingtheenergytransitionformyorganization55%50%43%57%37%CONTENTSAsiaPacificEuropeLatinAmericaMiddleEastandAfricaNorthAmerica46DNVEnergyIndustryInsights2023Cloud-basedapplications,IoT,anddigitalautomationleadtechnologyadoptionQ:Whatstageofdevelopmentisyourorganizationatwithrespecttothefollowingtechnologies?NoexistingorplannedactivityEarlyplanningR&DandpilotingUsedinlive,day-to-dayoperationsHighlyintegratedand/oradvancedEstablishingCloud-basedapplicationsanddatabases10%14%10%35%16%Sensors,internetofthingsandremotecommunications12%14%15%31%12%Digitalautomationand/orcontrolnetworks15%13%13%30%11%Remotesurvey/witnessingtechnologies15%16%15%24%9%Applicationprogram-minginterfaces(APIs)18%12%11%22%9%EmergingArtificialintelligence(includingmachinelearning)25%19%19%11%4%Digitaltwins27%13%16%11%4%Virtualreality,augmentedreality32%15%15%9%3%Blockchain38%13%8%6%2%0%100%47CHAPTER6FromcollaborationcomesstandardizationStandardizationintheenergyindustrywouldmaketaskslikeorchestrationeasier.“Wehavelotsofconver-sationsgoingonwithsomeoftheothernetworksaroundhowdowestarttoworktogether,howwestandardizedataacrosstheindustry,becausethat'sgoingtobeveryimportant,”saysDanielToppinatNationalGas,“becausewhenwetalkaboutopendataanddatasharing,weneedinformationtobeinthesameformats,sothatwecanefficientlylinkdatapointstogether.Itwilldemandthatallintheindustryworktogetherandbecomesignificantlymoreopenwithdata–thisrepresentsamassivechangefortheindustry.”Standardizeddatawillhelptoimprovethespeedandaccuracyofinformationoperatorsusetomanagetheirnetworksandtheinterconnectionstheyhavewithothers.Itisalsoimportanttodevelopintegratedviewsofelectronandmoleculenetworkstogether.“Interoper-abilitybetweentheenergynetworksisimportant,”saysToppin,“becausethiswillgiveusaviewoftheentiresystem–includingshipping,interconnections,produc-ers,storage,consumersandeverythingbetween.Thisisgoingtobecomemoreimportanttobothmanagementandstrategicplanningaswetransitionfurther.”Inoursurvey,77%saytheirorganizationwillseektoachievegreaterstandardizationofitstoolsandprocessestoreducecostsovertheyearahead,while45%saythatalackofindustrystandardsisholdingbacktheirorganization’sinvestmentincleanenergytechnologies.Q:Towhatextentdoyouagreeordisagreewiththefollowing?Percentagesreflectnetagreement(i.e.moderately+stronglyagree).DigitaltwinsafocusforincreasedinvestmentMyorganizationwillincreaseinvestmentindigitaltwintechnologiesintheyearahead50%44%30%45%31%CONTENTSAsiaPacificEuropeLatinAmericaMiddleEastandAfricaNorthAmerica48DNVEnergyIndustryInsights2023Continuousinnovationvs.standardizedindustrializationAtsomepoint,amanufacturermustsettleonafinaldesigntoefficientlystartmassproduction.R&Dmightsoonmakeimprovements,butabusinessneedssomethingtosell.Similarly,ournewenergysystemneedstoscale,andweneedtosettleonsomedesignsandrollthemout,despitecontinuoustechnologyimprovements.“Thechallengewithoffshorewindisgoingtobestandardization,”saysPhilippeKavafyanatAkerHori-zons.“Weneedtostabilizethesizeoftheturbinesandothercriticalcomponentsforatime,toincreasethevolume,reducecomplexityaswellascosts,insteadofjumpingtothenextgeneration.Thetemptationtokeepdevelopingtoenhanceperformanceisalwaysthereforthedeveloper,butthevolumebenefitisgoingtobesufficientforourindustrygoals.”Morethanathirdofrespondentstooursurvey(35%)willincreaseinvestmentinfixedoffshorewindin2023,withasimilarproportion(38%)directingcapitaltowardsfloatingoffshorewind.Thelatterhasaparticularlydiversesetofinnovationsbeingpilotedandpromoted,aimingatimprovedperformance,simplification,lowercosts,andmore.13“Inthefloatingsectorthereisabigdebategoingonrightnowaroundstandardizationandindustrialization,”saysLizBurdock,CEO,BusinessNetworkforOffshoreWind.Moregenerally,BurdockbelievesthatthegrowthofoffshorewindintheGulfregionoftheUSwillleadtofurtherinnovationsincost-efficiencyandthenamajorpushtowardsstandardization.“Ibelieveouroilandgassectorwillinnovateinwaysthatwehaven'tseeninEurope,”shesays,“particularlyinmakingoffshorewinddevelopmentleanerbyreducingover-designandover-engineering.”Morethanhalf(56%)ofenergyindustryrespondentswillbeincreasingtheirspendingoncybersecurityin2023.Withthemajorityoftheenergyindustrybecomingmoredata-driven,andmoreopenaboutsharingdata,organizationsneedtoevolvetheirgovernanceproce-durestoensuresensitiveinformationisnotleftvulnerable.“Weaimtohaveadatatriageprocessthatisfastbutaccurate,”saysDanielToppinatNationalGas,“sothatprojectsthatinvolvesharingcanbeenabled,whilethosethatdemandreal-timedataarenotslowed.Itisabigchallengebutonewecanovercometogetherintheindustry.”Ever-evolvingcyberthreatsQ:Towhatextentdoyouagreeordisagreewiththefollowing?Percentagesreflectnetagreement(i.e.moderately+stronglyagree).Cyberattacksareamajorthreattomyorganization59%Cybersecurityisanurgentpriorityformyorganization’sseniormanagement56%Mypartoftheenergyindustryisnotinvestingenoughincyberresilienceforoperationalassetsandinfrastructure41%Mypartoftheenergyindustryiscurrentlymorevulnerablethanevertocyber-attacks41%13.T-Omegare-thinksfloatingoffshorewindturbinesforhugecostsavings,NewAtlas49CHAPTER6Copyright:StiesdalCONTENTSHeadquarters:DNVASNO-1322Høvik,NorwayTel:+4767579900www.dnv.comThetrademarksDNV®andDetNorskeVeritas®arethepropertiesofcompaniesintheDetNorskeVeritasgroup.Allrightsreserved.DNVisaglobalqualityassuranceandriskmanagementcompany.Drivenbyourpurposeofsafeguardinglife,propertyandtheenvironment,weenableorganizationstoadvancethesafetyandsustainabilityoftheirbusiness.Weprovideclassification,technicalassurance,softwareandindependentexpertadvisoryservicestothemaritime,oil&gas,powerandrenewablesindustries.Wealsoprovidecertification,supplychainanddatamanagementservicestocustomersacrossawiderangeofindustries.Combiningtechnical,digitalandoperationalexpertise,riskmethodologyandin-depthindustryknowledge,weempowerourcustomers’decisionsandactionswithtrustandconfidence.Wecontinuouslyinvestinresearchandcollaborativeinnovationtoprovidecustomersandsocietywithoperationalandtechnologicalforesight.Withoriginsstretchingbackto1864andoperationsinmorethan100countries,ourexpertsarededicatedtohelpingcustomersmaketheworldsafer,smarterandgreener.dnv.comAboutDNV
VIP
