The Energy Transition: Overcoming the Blind Spot
Navigating the Path Forward
What actions should leadership take to address the challenges of the transition?
For many leaders, the energy transition is a blind spot. The current management of companies is faced with new challenges due to the complexity of the transition. Discover how you can address both the challenges and opportunities of the energy transition.
This year, the United Nations Climate Conference will take place in Baku, Azerbaijan. During COP29, countries and companies will discuss one of the most pressing challenges of our time: climate change. In 2015, during the Paris Climate Conference, governments agreed on the importance of limiting global warming to 1.5 degrees Celsius.
The Energy Transition Accelerates
To effectively combat climate change, a transformation of our energy system is imperative. This transition requires a sustainable approach to both energy production and consumption. In this regard, the latest innovations are promising: renewable energy sources such as solar and wind power, along with innovative solutions like hydrogen and renewable gas, are gaining traction. These developments have the wind at their backs. For instance, the "solar cell revolution" has made solar energy more accessible than ever. In the first half of 2024, solar and wind energy in the Netherlands even produced more power than all fossil fuels combined, according to research by the energy think tank Ember. These trends provide hope that climate targets can be achieved.
Prosumer
In essence, the energy transition is the shift from a fossil-driven, centrally organized energy system to one that is decentralized, green, and resilient. This transformation also creates the opportunity for individuals and companies to become their own energy producers; for example, by installing solar panels or wind turbines. The new term ‘prosumer,’ a blend of consumer and producer, highlights this shift in role for businesses and individuals within the energy system. While sustainable energy was once an idealistic pursuit, it has now become economically sound policy to generate energy from renewable sources. Unlike the prices of fossil fuels, the price trajectory of renewable energy is heading in only one direction: down. After all, the costs of producing solar panels and wind turbines decrease annually.
A Sustainable yet Unpredictable System
At the same time, the laws of nature remain unforgiving: our energy network must always be in balance—otherwise, failure and outage will occur. In other words, all energy produced must be consumed. The transition to sustainable energy brings a new dynamic, as generation from renewable sources has a greater degree of unpredictability. As supply increasingly exceeds demand due to fluctuations, ensuring balance in our energy system will become more costly and complex. It remains difficult to predict exactly how the transition will unfold; nevertheless, it will not be without bumps, as factors like network congestion and resource scarcity will have a significant impact.
Negative marginal costs
These developments have far-reaching consequences for our energy system. Negative marginal costs are beginning to transform the industry. Thanks to technological advancements, renewable energy has now become cheaper in terms of cost price than fossil energy. This is today’s reality; in 2023, the European electricity market (EPEX) experienced more than a thousand hours where the electricity price was negative. This leads to situations where companies and consumers are paid to use energy, while energy producers have to pay for the energy they produce.
The New Playing Field for Companies and Leadership
For companies and their leadership, this represents a clear shift: leadership now requires not only knowledge of new technologies but also strategic insight to seize opportunities and future-proof businesses in an ever-changing energy landscape. Companies can no longer afford to treat “energy” as a mere afterthought. Instead, they must learn to manage fluctuations in supply and demand - a shift that demands agility from both companies and their leadership.
The question remains: how can leaders prepare their organizations for this new reality and make the most of the opportunities of the energy transition? Companies that harness these technologies effectively can transform energy from a burden into a competitive advantage.
The interplay between supply and demand in the energy market means that energy no longer has to be a burden. On the contrary, by responding proactively to fluctuations in the energy market, companies can actually profit from their energy use. This works in two ways. On the one hand, companies have the opportunity to act as their own energy producers—geothermal energy for horticulture, solar panels on warehouses—while, on the other hand, they can play a stabilizing role for the grid by using energy at key times. Large energy consumers can thus act as a 'sponge' for inevitable surpluses.
Visionary leadership
Leaders must embrace flexibility before they can reap the benefits of the energy transition. Industrial processes need to be organized in such a way that they can easily respond to the volatility of the energy system. Relatively simple solutions, such as continuously adjusting the temperature of refrigeration units or scaling production up and down smoothly, can make a world of difference.
To give a telling example, the greenhouse horticulture sector alone provides over 10% of the total energy demand in the Netherlands. When there is excess electricity, the lights are turned on to accelerate growth. If there is a shortage, that’s the moment to run the combined heat and power system, helping to balance the grid. As Bert van Ruijven, director-owner of Arcadia Chrysanten, describes, he has become more of an energy trader than a flower grower, since energy management has now become a structural part of his work. This agility is already paying off for businesses: some tomato producers now earn more from trading energy than from producing tomatoes.
Looking to the future, such examples are likely to become the norm rather than the exception, driven by the forward-thinking approaches of executives who serve as role models.
While sustainable energy was once an idealistic pursuit, it has now become economically sound policy to generate energy from renewable sources.
Cooperation across the entire energy ecosystem
Sytse Zuidema, CEO of Joulz, and Wieger Droogh, CEO of Equans Nederland, exemplify the visionary leadership needed to drive the energy transition forward. Both leaders help their organizations in pioneering innovative solutions to address the challenges of energy supply and demand in a decentralized and a sustainable energy landscape.
Under Zuidema’s guidance, Joulz has developed collective energy hubs, like the one at Medel, which enable companies to produce, store, and share energy locally. By identifying the exact energy consumption, Joulz gains insights into when peak demands occur, allowing companies to streamline and share energy more effectively. With the use of extensive data analyses, they can for example pinpoint the optimal times for heavy machinery to operate. This initiative empowers businesses to take on a ‘prosumer’ role, transforming them into active contributors to a more resilient energy ecosystem.
Similarly, Droogh is leading Equans Nederland in addressing the challenges of the energy transition through projects like Smart Grid Flevoland. This smart private electricity network integrates 90,000 solar panels, 37 wind turbines, and a 12 MW battery storage facility, supplying green energy to the equivalent of 160,000 households. By balancing local supply and demand, Equans’ approach reduces strain on the public grid and offers a scalable model for other regions in the Netherlands.
Purposeful Leadership
Companies that want to be future-ready need leadership that not only understands the dynamics of the energy transition but also knows how to navigate the complexities of a volatile energy landscape. We can help your company find leaders who can overcome the blind spot and successfully guide your organization through the transition.
Contact Amrop's Global Energy & Infrastructure Practice team in your country.