The world is facing an historic energy challenge. Or to be more precise it is facing two historic energy challenges.
Energy access and energy poverty remain global crises that are yet to be overcome, stunting life chances and undermining development. And at the same time the energy industry continues as one of the primary drivers of climate change, air pollution, and wider environmental impacts.
Consequently, the wide-reaching global challenge summed up by the UN's seventh Sustainable Development Goal (SDG7) and its calmly ambitious stated aim to "ensure access to affordable, reliable, sustainable and modern energy for all", represents one of the world's keystone challenges - an aspiration that is critical to unlocking progress on the SDG's 16 other goals.
Delivering sustainable energy for all by 2030 not only means vastly increasing the amount of renewable power sources pretty much everywhere, but also cleaning up the energy used in transport and homes, where progress on limiting emissions has remained frustratingly stagnant. And all while making rapid headway to increase the energy efficiency of the global economy.
It's about energy efficiency and it's about low carbon or renewable energy - Poppy Maltby, Regen
What's more, this clean energy revolution needs to be completed in a society where around 13 per cent of the global population still lack access to electricity, and the availability of clean and modern cooking energy is only just keeping pace with population growth, leaving millions of people relying on dangerous, unsustainable, and polluting fuels.
Like the other SDGs, the energy access goal is wide-ranging and applicable in different ways to developing and developed countries, especially when combined with the 2015 Paris Agreement, which pledges that global temperature increases should stay at most "well under 2C". It not only covers every corner of the energy industry, it touches upon the built environment, the transport sector, the policy environment and political sphere, and, of course, the development agenda.
"You can pretty much fit what you need to under [the] broader goal [of SDG7]," reflects Poppy Maltby, senior project manager at sustainable energy non-profit Regen. The goal and its targets covers all the big areas it needs to, she says. "It's about energy efficiency and it's about low carbon or renewable energy," she explains. "And that is the basic energy problem: reducing how much of it we use, and then cleaning up how we generate it... As a global process, I think it's as specific as you can get."
But some observers fear the sheer breadth of the goal may prove counterproductive and make it too easy for policymakers to ignore. Emma Pinchbeck, executive director of Renewable UK, says that in several years at the UK trade body working on renewables and energy access in the UK, as well as with the Department for International Trade, she has not had a single conversation about SDG7, bar a request from an NGO to write a chapter on it for a report. Virtually everyone may agree that energy access and decarbonisation are hugely desirable, but coherent strategies for delivering on SDG7 at both a corporate and political level remain rarer than they should be.
Progress to date
The overarching goal is broken down into three main sub-targets: ensuring universal access to "affordable, reliable and modern" energy; "substantially" increasing the share of renewables in the global energy mix; and doubling the rate of energy efficiency improvement - all by 2030. A further two sub-targets address cooperation on clean energy research and energy service infrastructure expansion in developing countries, which are likely to prove critical to delivering on the three top targets.
With 17 SDGs famously (or should that be notoriously) boasting 169 targets, SDG7 is based on a relatively small set of targets. But in terms of ambition they are quite enough for policymakers and businesses to grapple with. Around one billion people, largely in sub-Saharan Africa and South Asia, still live without reliable electricity, according to a progress report on SDG7 released in May 2018 by five organisations including the International Energy Agency (IEA) and the International Renewable Energy Agency (IRENA).
Roughly 118 million people gain access to electricity each year, the report said, but uneven progress, insufficient policies, and population growth mean that, based on current trends, the total number of people without power access could still be as stubbornly high as 674 million in 2030.
Of the countries with large underserved population, Bangladesh, Ethiopia, Kenya, and Tanzania are all moving relatively fast to deliver electrification, as the chart below shows. But many of the world's poorest nations, such as Chad, Malawi, and Sudan, are among the global laggards, with a lack of access to power undermining their wider development efforts.
Countries with the largest numbers of people without energy access between 2010 and 2016. IRENA Tracking SDG7 report 2018
More encouragingly there is evidence that countries can make rapid progress in securing electricity access across their economies. India alone provided new power access to 30 million people per year from 2010 to 2016, well above any other country. Around 40 countries reached universal access during the same period, including China, Brazil, Mexico, and Iran.
SDG7 is the lifeblood of the economy - Rachel Kyte, UN SEforAll
But sadly much of this progress, while helping to deliver on SDG7 also actively undermined it. The goal also requires that the accessible energy must also be sustainable and "modern" - essentially code words for clean and low carbon. It is a target that is further enforced by the Paris Agreement climate deal, which requires the rapid decarbonisation of the energy industry if its temperature goals are to have any chance of being met. Renewable electricity has been the global climate success story in recent years, with rapid expansion, government support, and innovative business models leading to steeply falling costs. As such renewables' share of the amount of new power electricity coming online each year has risen sharply over the last decade and now typically accounts for over half of new generation capacity each year. But at the same time new coal plants continue to come online, albeit at a slower pace than analysts previously predicted, gas infrastructure is also still being built, and overall renewables accounted for just 23 per cent of global power in 2015. Without a step change in clean power development fossil fuels will continue to dominate the global market for decades to come.
And it gets worse. Even increasing renewables and nuclear's share of electricity to 100 per cent would not do nearly enough to meet SDG7's ambitions. Only a fifth of global energy use is via electricity, meaning clean electricity's penetration also needs to be expanded in other sectors like transport and heat if it is to increase its share in the overall energy mix. Electric vehicles may be tipped for rapid growth and heat pumps and other system may technically allow for heat to be decarbonised, but overall progress in these sectors has been slow to date. Renewables provided just three per cent of the energy used in transport globally in 2015, and although around quarter of energy used for global heat in 2015 was renewable, its share has remained stagnant for years, and only a third of the world's renewable heat comes from modern technologies - the bulk of it is biomass fuel that brings with it its own air pollution and deforestation challenges.
The overall renewable share in the energy mix is set to rise from 18 per cent in 2015 to 21 per cent by 2030, according to IRENA - a welcome improvement, but one that is difficult for anyone to characterise as the "substantial" increase SDG7 requires. What is urgently needed is more investment, but research shows that the finance required to close electricity and clean cooking access gaps remains far short of what is needed. Indeed, a recent analysis from the IEA suggested the level of renewables capacity dipped last year for the first time this decade. A rival analysis from Bloomberg NEF indicated that annual deployment may have ticked up in 2018, but the one thing everyone agrees is that current investment levels and deployment rates are well short of what is required by the Paris Agreement and SDG7.
Lifeblood of the economy
The blunt truth is that for all the progress made by the clean energy revolution, the world is not currently in line to meet the SDG7 targets - far from it. But that is not to say the goal is not having an impact. It provides a roadmap detailing what the world's governments think progress on energy looks like, and how it should go about delivering it. And this roadmap presents a host of business opportunities.
"SDG7 is the lifeblood of the economy," says Rachel Kyte, chief executive of Sustainable Energy for All (SEforAll), a body set up by UN secretary general Ban-Ki Moon in 2011 with broadly the same energy targets SDG7 ultimately adopted. She argues that the goal contains "myriad solutions for providing everybody with clean energy that's affordable and reliable… this is a growth market".
Indeed, supporting countries to meet the targets laid out in SDG7 has become a central goal - and overarching business strategy - for a growing band of firms and investors. For example, Iberdrola, the Spain-based multinational utility, says it is using the goal as a blueprint for developing new business models and market opportunities. It is working both to increase energy access in low-income countries and investing heavily in renewables, which already make-up 62 per cent of its global capacity. It aims to invest a further €13bn in renewables between 2018 and 2022.
"SDGs for us are like the strategic plan, are like a compass, for the long term activity," says Monica Ovido, who is responsible for sustainability management within Iberdrola. The company launched the Electricity for All program, which focuses on increasing electricity access, back in 2014, before the SDG goal was set. It met its initial target, to provide new electricity access to four million people by 2020, two years early. Its new goal, set last year, is to reach to 16 million beneficiaries by 2030 - close to two per cent of all people on Earth currently without access to electricity. The firm does not explicitly exclude non-renewables from playing a role in meeting the target, but all projects so far have been renewables-based, says Ovido.
The firm uses three activities to reach its goals: direct investments in projects, the actions of its many subsidiaries, and NGO and corporate volunteering work. Moreover, specific management steps are taken to try and accelerate progress towards the goals. For example, Iberdrola has a non-profit arm focused on SDG7 and it does not expect the same economic return from its energy access initiatives as for other projects, explains Ovido.
But she is clear that in large part the 2030 agenda will be fulfilled by new market opportunities, not charitable endeavours, welcome as those are. "We really think that private sector has been invited to this agenda not to make charity but to make smart and good business," she says. "If all the 192 countries have signed this agenda for 2030 and they are committing themselves to double or increase their renewable energy, that means great opportunity for companies."
Iberdrola is just one participant in a wider market trend encompassing utilities, oil and gas giants, tech firms, and the wider corporate sphere, regardless of whether or not they are explicitly committed to delivering on SDG7. Companies inevitably span the full gamut from pioneers to laggards, but virtually every business has been forced to respond in some way to the disruption unleashed by cost-competitive renewables and climate policies, as well as the looming transformation to the energy system promised by electric vehicles, smart grids, and energy storage.
In the UK green specialist such as Ecotricity, Good Energy, and Ovo have grown rapidly, as demand for clean power and related technologies has increased. Established energy giants have pivoted to reduce their exposure to fossil fuels and drastically increase investment in renewables. Some have taken dramatic steps to highlight the transition, splitting into renewables and legacy fossil fuel businesses or completely rebranding and repositioning, as was the case with DONG Energy, which famously ditched its name and its reference to Danish Oil and Gas in favour of its new name, Orsted, and an exclusive focus on clean energy. Others have made a big bet on a new generation of nuclear projects, hoping they can overcome cost challenges as China looks to rapidly expand its nuclear fleet and new small modular reactor technologies emerge. Almost every utility has developed clean energy transition plans of varying degrees of ambition, stepping up investment in everything from smart home and demand response grid services to heavy industrial carbon capture and storage projects.
Even the oil and gas majors have embarked on similar journeys, again with varying degrees of ambition. A number of leading firms have pledged to bring their emissions into line with the Paris Agreement, at the same time as diversifying their business models with sizeable investments in renewables, biofuels, and electric vehicle infrastructure. As the likes of Shell and BP wrestle with the twin pressures of energy access and energy decarbonisation, the pace at which they pivot towards a cleaner future could ultimately determine whether or not SDG7 is met.
And it is not just energy providers getting in on the act. The integration between EVs, energy storage, and smart grid technologies that is regarded as the crux of any modern, clean energy system means tech giants such as Google and IBM and auto manufacturers such as Tesla, Ford, VW, and Nissan are all pushing to play an integral role in both the global energy market and the pursuit of SDG7.
At the same time, corporate energy users are also recognising how they can use their purchasing power to drive development of clean energy technologies, either by deploying onsite renewables and smart energy management systems themselves or using Power Purchase Agreements (PPAs) and other contracts with energy providers to source renewable power. The high profile RE100 initiative now boasts over 175 members, including leading brands such as IKEA, AB InBev, BT, and BMW, who together are aiming to source over 161TWh of renewable power a year - more than enough to meet power demand from Egypt or Poland. Corporate demand for clean energy is set to keep rising as more businesses recognise the cost, reputational, and environmental benefits renewables can unlock, as well as the integral role they can play in delivering on the SDGs.
In the dark
But for all this welcome progress in many corners of the global energy market big hurdles still remain as governments and businesses strive to cut energy-related emissions and improve energy access.
Sixteen of the 20 countries that account for 80 per cent of the energy access gap today are in Sub-Saharan Africa, and many are currently making sluggish progress towards SDG7, warns Kyte. "Given African population momentum, there is a risk that by the time we get to 2030, we will have missed the goal for universal access, and most of that missing access will be in sub-Saharan Africa," she says. Around 600 million people on the continent currently live without access to electricity; current projections indicate this number will barely change by 2030.
Despite the potential for solar technologies to reach the poorest off-grid communities, progress is slow, acknowledges Emily Bellis, development officer at UK-based non-profit SolarAid, over email. There are four key challenges for those charities and businesses trying to scale up distributed energy systems, she says: lack of focus on the issue from NGOs; a preference among African governments for grid rather than off-grid electrification, even when full grid penetration remains decades away; a lack of profitable opportunities for businesses in the nascent sector; and a preference amongst aid bodies for supporting for-profit activities.
SolarAid is one of the organisations working to tackle these challenges head on. Set up in 2006 by Solarcentury, the UK's largest solar company, it aims to drive the development of clean, safe, and affordable solar lighting markets for the poorest rural communities in Malawi and Zambia.
Although itself a charity, SolarAid sees itself as a market catalyser, entering the poorest rural communities to build demand and trust in solar lights in the expectation that private players can then arrive and build sustainable markets. Its social enterprise, SunnyMoney, sells solar lights for just $5 to rural families and offers pay-as-you go options for families that cannot afford the upfront cost.
It is worth noting, however, that while such programmes bring huge benefits in terms of education and economic opportunities, access to solar lighting alone may not be enough to meet the level of reliable energy that SDG7 requires. SEForAll has said the goal means everybody has to have at least access to 'Tier 3'-level access. This is defined as enough energy to be able to be "productive" in the economy.
Beyond the scandal of energy poverty, SDG7 faces further challenges in industrialised and developing markets alike.
It may not be immediately obvious how improving energy efficiency is linked to providing energy access for all, but the goal makes clear that the aim is to deliver "affordable" and "modern" energy. That means efficient grids and appliances are critical.
By increasing the efficiency of appliances and homes, countries will need to install less energy to meet their needs, with individuals paying less for a better level of energy access. This reduction in overall energy demand can also allow the renewable share in the energy mix to increase faster. The specific energy efficiency target under SDG7 is "the [one] that's never discussed first but should be", argues Kyte.
The target states that the rate of energy efficiency improvements needs to double by 2030. That means energy intensity - the amount of primary energy used per unit of GDP - should be declining by 2.6 per cent per year, according to a recent IRENA progress report. The rate of improvement is currently not expected to exceed 2.4 per cent per year up to 2030.
The problem is that in every market, including the most prosperous in the world, energy waste remains a glaring market failure that businesses and policymakers too often struggle to correct. Progress has been made - for example, in the UK energy efficiency has been an under-appreciated success story, driving down emissions as improved EU product standards and building standards have taken effect - but vested interests lobbying against tighter rules and the upfront costs associated with many energy efficiency upgrades means many businesses continue to waste energy and carbon by failing to deploy proven efficiency measures.
This failure also represents a commercial opportunity. For example, universal access to sustainable energy would result in an enormous market opportunity for super-efficient appliances and gadgets that can be retailed for the rising middle-classes in middle and low-income countries, says Kyte. "So anybody that can provide the hyper-efficient water pump, or the hyper-efficient electric motor that retails for rising middle class Kenyans to buy: that's a massive market of billions of people and trillions of dollars," she predicts.
Energy efficiency is also considered to be crucial to meeting the Paris Agreement temperature goals. One study published last year in the journal Nature Energy showed global temperature rise could be limited to 1.5C without the use of negative emissions technologies by vastly increasing energy efficiency, in terms of both reducing energy intensity and limiting energy demand. The opportunities are obvious and there is a suite of well-established energy efficiency policies and technologies to choose from, the question is whether political and business leaders are willing to prioritise the steps needed to drive up investment.
These are just some of the investment opportunities the UK could be embracing, as it seeks to deliver on SDG7. But the country's efforts against the goal has often left something to be desired. The government has made much of the UK's position as the fastest decarbonising economy across the G7 and it has led the world in phasing out coal power and building an offshore wind industry. However, a traffic-light based progress report released last year by the cross-sector UK Stakeholders for Sustainable Development (UKSSD) branded progress on energy efficiency as "red". The SDG target on renewable share in energy mix secured an "amber" rating and on energy access, unsurprisingly for an industrialised economy, it was given a "green" rating.
The UK's energy intensity almost halved between 1990 and 2016, said the report, due to energy-intensive industries moving abroad, the switch from coal to gas and efficiency improvements. But with the "easy wins" now already achieved on energy efficiency, it will be "challenging" to continue on the current trajectory, warned the report.
Improvements in homes have stalled since 2015, while policies to back-up efficiency commitments made in the 2017 Clean Growth Strategy have yet to be laid out, despite a recent announcement from Chancellor Philip Hammond that all new homes will have "world-leading" efficiency and low-carbon heating systems from 2025. The recent recommendation for a net-zero 2050 target from the UK's climate advisors called for an effort to transform existing houses as well.
Improving energy efficiency would also help to improve the UK's efforts on the other parts of SDG7, such as by tackling slow progress on decarbonising heating in homes. "Ultimately the quickest and cheapest way to reduce emissions from heating is energy efficiency," says Maltby, who authored the progress report. "So just using less, and once you've used less, you're options are bigger. Then you might be able to efficiently heat a home with electricity and it won't cost a fortune, if you're not using a lot of energy to do it."
Access to electricity and clean fuels has already been long achieved in the UK, but there is also work to be done on making this energy both "affordable" and "sustainable". Around 11 per cent of homes are classified as fuel poor in England, rising to 27 per cent in Scotland. Energy efficiency could go a long way towards helping with this.
The UK will need to implement a whole-house energy efficiency renovation at a rate of more than 1.5 homes per minute between 2018 and 2050 to meet its climate change targets, according to a report released last year by the Institution of Engineering and Technology (IET) and Nottingham Trent University, which called for an ambitious national retrofit program to meet the goal.
Some European demonstration projects are already attempting to spark a step change in energy efficiency improvements. Picardie Pass Rénovation, a French public initiative, offers homeowners a major energy upgrade using a long-term, low-interest loan. Meanwhile, Dutch initiative EnergieSprong, pioneered in the Netherlands but also being trialed in Nottingham, retrofit properties to be near net-zero energy, offering a performance guarantee for 30 years while the occupiers pay off the loan in place of energy bills.
The challenges faced by the UK as it seeks to decarbonise its energy system are familiar to virtually every industrialised economy. Progress on deploying increasingly cost competitive renewables is accelerating as investment flows into the sector and the emergence of smart grid technologies and plummeting energy storage costs shows how a virtually zero emission electricity grid is possible. But planning constraints, policy changes, and concerns about the impact of decarbonisation on carbon intensive industries are all slowing progress. Investment in clean energy has flatlined or even fallen in recent years, driven by a combination of falling costs, but also steep subsidy cuts, policy setbacks, and weakening economic confidence. Meanwhile, constraints on capital spending hampers energy efficiency programmes and green heat technologies are struggling to breakthrough into the mainstream.
The net result is a multi-billion dollar market that is heading in the right direction, but still not moving fast enough. Meanwhile, developing economies watch on and ask, 'if richer nations cannot prove that a zero emission energy system works at scale how can we be expected to deploy such a model?' The answer is that if both industrialised and developing nations fail to engineer a clean energy revolution over the next decade both SDG7 and the Paris Agreement will be breached.
A just transition
And then there is the challenge of ensuring the sustainable energy access SDG interlocks with the other goals. So many of the goals covering health, infrastructure, education, and so on are reliant on access to clean power. For Joyce Lee, policy and operations director at the Global Wind Energy Council (GWEC), SDG7 could also play a particularly important role in improving gender diversity, embodied in the targets of SDG5. "Women are disproportionately affected by a lack of access to cheap and sustainable energy," she says. "And that's largely because of the socioeconomics divide in many developing countries, where women and children are the ones who rely on biofuels like firewood, having their stoves and ovens use wood for fuel, and in order to heat their homes."
In a bid to take on the gender rights challenge, GWEC have created a program focused on mentorship, learning, and development, sponsored by firms including MHI Vestas, Mainstream Renewable Power, and GE Renewable Energy.
Women are disproportionately affected by a lack of access to cheap and sustainable energy - Joyce Lee, GWEC
Known as the Women in Wind Global Leadership Program, the program focuses on 18 key emerging markets for wind in Latin America, Asia and Africa, where gender inequality remains high thanks to cultural and social barriers, traditional gender roles, and lack of access to education and training, particularly in the STEM disciplines, says Joyce. She points out that research shows diversity makes companies more profitable as well as being important for talent acquisition and retention.
Another example: SDG8, which lays out the right to productive employment and decent work opens up the question of how workers and communities will be supported in the move away from more polluting forms of energy. The need for a so-called "just transition" will be increasingly important as the world strives to rapidly increase the share of renewables in the energy mix and effectively close down some of the most polluting industries. The term has become a key buzzword at climate negotiations: it was captured in both the 1.5C of the Paris Agreement and the Silesia Declaration adopted by the Polish presidency of the climate negotiations last December.
Discussions on SDG7 so far have not included the just transition as much as needed, says Sharon Burrow, general secretary of the International Trade Union Confederation (ITUC), the world's largest trade union federation. "In fact we're only putting our toe in the water across all areas of sustainability around just transition," she says. "As we see investment in renewable energies, what we're not seeing yet is enough quality jobs. That needs to be built in from the beginning."
Italian multinational energy group Enel is one business doing well on the just transition from coal to wind and solar, says Burrow. The firm, which has announced plans to close 23 power plants in Italy over the coming years, signed a just transition agreement with its Italian union. This includes a commitment to retention, retraining, and redeployment for younger workers and an early pension for older workers. Governments are also signing up to just transition declarations or dialogues, including Scotland, Germany and Canada. "Our view is very clear," says Burrow. "You will not achieve any of this unless all the players are at the table: governments, the industry, the unions."
Pinchbeck says she wonders whether the SDGs could actually be most useful for pushing progress in areas that perhaps "won't get done anywhere else" - such as the just transition - by forcing the tricky conversations that no-one wants to have. She is struck by how many corporates are cherry picking which of the SDGs to highlight. "There's so many of them that [companies] are able to do the ones they're kind of already doing," she reflects. "A more interesting question would be, 'is it possible for any one organisation to try and deliver all of them, or any one government to try and deliver all of them?'" she says.
When it comes to SDG7, many of the challenges the goal presents are already being tackled by companies and governments in a multitude of ways, as they seek to maximise the opportunities and minimise the risks associated with a clean energy transition that is well underway and accelerating fast. The combination of plummeting renewables costs, energy storage technologies, and smart grids, alongside CCS innovations, nuclear progress, green heat developments, and energy efficiency gains, promises to decarbonise industrialised economies, drastically increase the rate of energy access through a distributed energy revolution, and push emerging economies onto a clean development path. As Kyte succinctly puts it: "We're at the cusp of a completely new way of thinking around how energy systems support economies."
If the world embraces this change, it could transform itself within a decade or two into a prosperous global economy with a far cleaner, wide-reaching, and highly efficient energy system that provides the spring board required for both full decarbonisation and the achievement of all 17 SDGs. But if such an upbeat vision is to be realised then welcome progress to date needs to accelerate - and fast.
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