By Lucrecia Gomez, Research Manager, Frost & Sullivan Energy & Power Systems
The increasing cross-border flow of capital and goods from different countries has fostered globalization. Internationalization covers almost every aspect of human life, including politics, culture, science, financial systems and lifestyles.
The core of this concept is economic globalization. Trade liberalization, production internationalization, and financial and technological saturation are the major drivers behind this concept. Several top mega trends that impact business, society and culture are summarized here.
Mega trends have different meanings and impacts for different industries, companies and individuals. Analysis of these mega trends and their implications forms an important component of a company’s future strategy, development and innovation process, impacting product and technology planning.
This article identifies the most important mega trends, potential scenarios of specific trends in 2020, and the implications of these mega trends in transforming the next decade of power generation. Chart 1 shows the top five mega trends affecting the U.S. energy market.
Population and GDP Growth Support Rising Energy Demand
A growing population and improving economic conditions in the United States will raise energy consumption during the next decade. The population in the United States is projected to increase to 324 million by 2020, which represents a 7.5 percent increase over the 2011 population. On the other hand, U.S. gross domestic production (GDP) per capita is projected to increase 17.1 percent by 2020. This anticipated recovery of the American economy and an improved standard of living are expected to drive the electricity demand, showing a 18.0 percent increase, compared to an insufficient 6.0 percent growth of generation capacity by 2020. Chart 2 shows the growth of the population, real projected GDP per capita, and a U.S. energy consumption forecast from 2010 to 2020.
End Users Analysis
Residential: electricity consumption in this sector is expected to decrease significantly from its 2010 level, despite population growth at a 1.0 percent compound annual growth rate (CAGR), because of improved efficiency measures. A federal ban on inefficient incandescent lighting is among the major initiatives driving energy efficiency in this sector.
Commercial: this sector is projected to increase electricity consumption as demand for new electrical equipment exceeds energy gains from efficiency improvements. Reduced energy consumption among these end users is largely driven by the government sector, which is held to targets such as 30.0 percent reduced energy consumption over 2003 levels by 2015 for federal buildings.
Industrial: after 2015, this sector’s share of total electricity consumption is projected to decline because of increased adoption of on-site energy generation and improved efficiency with combined head and power (CHP) systems. Most energy consumption by industrial end users is concentrated among the chemical, refining, paper, steel and food sectors.
The Concern for Unmet Energy Demand
The balance between world supply and demand drives the oil and gas industry. Various geopolitical factors and regional trends impact the industry, and it is essential to target the opportunities for achieving strategic growth. United States crude oil production capacity comes from the Gulf of Mexico and Alaska. The gulf is subjected to weather turbulences and hurricanes affecting the production capacity for a few months every year. These factors contribute to the seasonal fluctuation in crude oil demand of this region, significantly increasing imports at these times.
Natural gas is exploited from the Canadian shale gas deposits and in the last couple of years, new reserves were found in the United States, especially in Texas, Pennsylvania and New York. The production of natural gas is expected to rise in the United States with these new discoveries. Canada’s maturing gas fields are likely to be substituted by production in the United States. However, stringent regulations are expected to impact the production from these reserves, after concerns have been raised about the environmental hazards of using hydraulic fracturing for production from gas fields. Furthermore, the U.S. oil and gas market is highly conditioned by the global industry status, which has recently taken a hard hit by the economic downturn and price volatility.
There is a growing need to increase the domestic supply of energy, which brings increased self-sufficiency and greater national security. U.S. energy supply is expected to increase as a result of enhanced investments in upstream activities. Onshore fields are mature and experiencing a decline in production. However, the key targets include: natural gas reserves in Alaska and the Rocky Mountains; oil sand projects in Canada; and technically complex fields, such as those in deepwater exploration for global producers. The oil sands in Canada are estimated to hold between 1.7 and 2.5 trillion barrels of non-conventional oil, making this region attractive.
Additionally, unconventional supplies—such as natural gas, coal bed methane (CBM), shale gas, and tar sands—are expected to maintain the supply for the current level of energy consumption that oil reserves are not likely to satisfy. Deepwater exploration and development is expected to become favored in the international oil industry, driving the demand for advanced technology and deepwater infrastructure. Currently, the need to capitalize on deepwater reserves drives technological breakthroughs. Technological advancements and government support to promote exploration has helped to facilitate major oil discoveries. Chart 3 shows the oil supply imports and domestic production forecast, U.S., 2010-2020
Domestic production will increase at a higher growth rate than demand, decreasing importation as a percent of total consumption by 2020. However, as consolidated technology transforms itself to fit today’s business requirements, several challenges exist that need to be addressed. Environmental regulatory challenges and price erosion (due to competition and technology advancement) are some of the key aspects that all industry participants need to adjust so they can succeed in a fast-changing market.
Innovating to Zero
Renewable energy has great potential to play a significant role in increasing domestic energy supply. Growing awareness of the environmental impact of high consumption is the leading driver behind increasing interest in green technologies. A “Zero Concept” world with zero emissions, zero accidents, zero fatalities, zero defects, and zero breaches of security can now be a reality in the future. Companies are shifting focus to develop products and technologies that “innovate to zero.” Such zero-emission technologies include wind power, geothermal energy, solar photovoltaic (PV) and biomass.
U.S. government objectives of net-zero buildings and renewable energy generation have influenced national policy to include strict mandates to meet reduced energy consumption targets and increased renewable energy goals at the federal and state levels.
Areas for technology development to reduce carbon dioxide emissions include coal upgrading, improving efficiency in existing power plants, integrating gasification combined cycle (IGCC), and utilizing carbon capture and storage (CCS).
Increases in renewable energy sources for electricity, from 19.6 percent in 2010 to 26.8 percent in 2020, will be at the demise of oil usage, mostly due to oil price volatility and environmental concerns. Hydropower will continue to be the leading renewable energy source, but wind and solar are the fastest growing technologies for 2020. Chart 4 shows the total electricity generation by fuel in the U.S. from 2010 to 2020.
- Hydro: Hydropower is the most mature form of renewable energy and accounts for 14.7 percent of the country’s electricity capacity. Among all the renewable energy technologies, hydropower is projected to grow at the lowest rate because of high initial investment costs, long payback period, and environmental concerns regarding its impact on the aquatic life.
- Wind: Wind power is the fastest growing renewable energy technology in the United States in terms of annual capacity additions. As of 2010, wind power represented 70.8 percent of the non-hydro renewable energy capacity. Wind energy will remain a significant contributor to the U.S. energy portfolio because it helps states achieve Renewable Portfolio Standard (RPS) targets. Looking forward, wind power installations will be highly dependent on an Investment Tax Credit (ITC) extension.
- Solar Photovoltaic (PV) Systems: More than 20 giga watt (GW) of utility-scale PV projects are currently under construction in the U.S. More than 90.0 percent of the total installations in the North American region are in the United States, particularly in California.
- Biomass: Most of the biomass capacity is located in the private industrial sector, primarily pulp and paper mills and paperboard manufacturing. There has been little activity in new installed capacity investment for waste-to-energy plants since 2000, however, population growth and the trend toward urbanization leads to increasing waste generation. Biomass and waste-to-energy technologies will play a major role in relieving pressure on landfills.
- Concentrated Solar Power (CSP): There are more than 11 GW of CSP capacity under construction in the U.S. More than 80.0 percent of this capacity will be located in California.
- Geothermal: The total installed geothermal power capacity in the United States reached 3,086 MW in 2010, making this country the world leader in geothermal energy production. Installed capacity in California and Nevada represented 97.0 percent of the total U.S. geothermal market.
Need for Increased Energy Supply and Sustainable Sources
The energy industry is already challenged to meet current energy demands, and forecasted increases in population and GDP per capita over the next 10 years means even greater stresses on the electric grid.
|Siemens’ SGT6-5000F gas turbine. Photo courtesy of Siemens|
The U.S. consumes the majority of the worldwide oil supply with Canada, Mexico and the Middle East being the major importers of crude oil. However, recent political and economic situations have led to renewed efforts in reducing foreign oil dependence in the U.S. The focus is on adopting renewable energy sources and clean coal technology, with nuclear energy also emerging as an option for the long-term energy needs of the country.
Natural gas has emerged as a viable alternate fuel whose potential use can be increased by providing more government incentives to new users. Moreover, North America is expected to emerge as a major exporter of natural gas in the next decade.
Chart 5 shows the future trends that will increase energy demand in the U.S.
Implications for a Cohesive U.S. Energy Policy
The U.S. consumes an excessive amount of energy, accounting for 26 percent of world energy consumption. This heavy reliance on electricity makes the protection of U.S. energy sources a top priority for federal policy.
U.S. policy has made great strides in recent years to spur renewable energy adoption and smart grid development, but further incentives and stronger policy support is needed to identify and monitor the eco-system of mega trends and the related elements through 2020.
Furthermore, U.S. policy recommendations to overcome energy challenges should include a continued focus on extended incentives for renewable energy sources as well as energy-efficient technologies for carbon such us integration gasification combined cycle (IGCC) and carbon capture and storage (CCS) technologies, in addition to smart grid development and awareness programs.
Increases in population, economic growth, energy independence, innovation to zero, and the need for increased energy supply and sustainable sources are mega trends connected and intertwined, suggesting the presence of “synergetic” opportunities between them. It is important to understand this synergy and interrelation between trends to maximize growth opportunities. In order to understand all encompassing factors that boost top line growth, the U.S. policy must focus on meeting energy needs, gaining energy independence and reducing environmental impact.