Insight Report Fostering Effective Energy Transition A Fact-Based Framework to Support Decision-Making With analytical support from McKinsey & Company March 2018 World Economic Forum® © 2018 – All rights reserved. No part of this publication may be reproduced or Transmitted in any form or by any means, including Photocopying and recording, or by any information Storage and retrieval system. REF 201218 Contents 5 Foreword 6 Executive summary 8 1. context 10 2. effective energy transition 13 3. energy transition index (eti 14 General findings 15 Recent performance trajectory 17 Different transition pathways 22 4. country energy transition roadmaps 22 Peer group comparison 25 Transition roadmaps 26 5. way forward 27 Appendices 27 Complementary efforts 29 Addendum on the methodology 31 Selected country examples 34 Weights, measures and abbreviations 35 Acknowledgements 36 Endnotes A Fact-Based Framework to Support Decision-Making 3 4 Fostering Effective Energy Transition Foreword A platform for effective energy transition global dialogue on energy transition. The Forum considers this project as the starting point of a multi-year effort with Energy is a key element of the modern economy. The the aspiration to: availability of secure and reliable energy supply is essential for industrial processes and the provision of public – Establish an insight-rich framework and fact base to services such as lighting, heating, cooking, information foster an understanding of both systemic and country- and communications technology, and mobility. The level readiness for effective energy transition that energy system is undergoing unprecedented change. incentivizes leaders to accelerate energy transition within The geopolitical landscape of energy is quickly shifting their respective countries and globally and environmental concerns have shaken the system’s – Convene all relevant stakeholders to foster a common foundations. At the same time, the economics of competing and inclusive understanding on national energy transition energy sources have changed, and the advent of Fourth priorities, which will provide long-term value to society Industrial Revolution technologies have enabled new and businesses business models and made others obsolete. The latter – Curate and facilitate an inclusive platform for has created significant uncertainty about the pace and public-private collaboration to catalyse the creation of destination of the transformation, making a strong case predictable yet flexible long-term policy roadmaps for a systemic, multistakeholder approach that increases – Highlight good practices from global peers and the transparency on the enablers and reforms needed for Forum’s expert community to accelerate local energy countries to achieve an effective energy transition. transition efforts and to enable public-private sector collaboration The diverse challenges facing the energy system today cannot be addressed by a single government, industry, company or other institution alone. A broader variety of The key to effective decision-making on energy expertise, convictions and resources are required for transition effective action. Moreover, relevant actors and initiatives must be organized to understand and prepare to Leaders in the energy system have highlighted the need successfully leverage the underlying transformational forces for: and direction of energy transition. 1) An effective and inclusive platform for action-oriented dialogue To progress in energy transition, the world requires a 2) A fact-based framework that supports an unbiased collaborative platform that fosters a systemic approach approach to energy transition to solving problems and capturing opportunities. As the international organization for public-private collaboration, Over the course of the last year, the Fostering Effective the World Economic Forum is applying its organizational Energy Transition project contributed to these two capacity – its top decision-maker-level multistakeholder requirements by: communities, convening and facilitation capabilities, knowledge resources and interaction technology – to this – A multilevel dialogue series, addressing energy purpose. transition at the global, regional and national levels: This series created a better understanding of The System Initiative on Shaping the Future of Energy of countries’ transition imperatives and challenges. It the World Economic Forum is creating a platform to foster a initiated a network of actors to enable concrete action common understanding of four aspects of energy transition: within selected regions and countries. Ultimately, 1) destination; 2) imperatives; 3) enablers; and 4) human these interactions with approximately 200 key impact. Through this understanding, the aim is to support stakeholders of energy systems across the world aim the design and accelerate the development of effective to create local platforms to facilitate country-specific policies, corporate actions and public-private collaboration transition visions and to support the creation of for an inclusive, affordable, sustainable and secure energy predictable yet flexible long-term policy roadmaps – future essential for economic and social development. an element critical for effective energy transition. – The Energy Transition Index (ETI), linking the The aspiration performance of countries’ energy systems today with their readiness for the future. This new index highlights Previous efforts of the System Initiative on Shaping the countries’ comparative strengths and improvement Future of Energy explored emerging macro trends in areas and allows private stakeholders to compare the energy system and their implications for different countries’ relative system performance and transition stakeholders (Game Changers in the Energy System1) readiness to identify opportunities and threats to their and the creation of a global index to benchmark country- business. level energy system performance (Energy Architecture Performance Index2). The project, Fostering Effective Energy Transition, builds on the insights from these undertakings and adds a forward-looking framework to transform the A Fact-Based Framework to Support Decision-Making 5 Executive summary Background Key findings Globally, energy systems are experiencing significant There are three major findings from the ETI: and fast change, driven by forces such as technological innovation, changes in consumption patterns, supply 1. Over the last five years, more than 80% of countries dynamics and policy shifts. These forces offer opportunities improved their energy systems, but further effort to resolve the challenges that the global energy system is needed to resolve the world’s energy-related faces today, namely: providing energy access to the more challenges. than one billion people who lack it, and meeting demand for an additional two billion people by 20503,1 while also – Current performance and recent improvement in delivering that energy at an affordable cost and with a environmental sustainability has been the lowest among declining carbon and emissions footprint. the three triangle dimensions. Particle emission levels deteriorated in more than 50% of countries, carbon This poses two key questions for decision-makers: what intensity stayed flat and energy productivity improved is required for an accelerated improvement in countries’ by 1.8% per annum, falling short of the 3% per annum energy systems and how can the right conditions be put in threshold believed to be required to meet the Paris place that will allow these systems to seize the opportunities climate change agreement.4 from this energy transition. No stakeholder in the energy – Security and access remains the area with the biggest system can drive such improvement alone. Many actors gap between highest- and lowest-performing countries. in businesses, government and society will need to come Almost all countries without universal electricity access together, bringing their different viewpoints, priorities and have seen progress. However, at the global level, the sentiments. To facilitate effective dialogue between those absolute number of people without access still exceeds parties, a common fact-base and understanding of the one billion.5 challenges are required. – Household electricity prices have been rising in real terms since 2013 in more than one-half of countries The Forum constructed an analytical framework, which globally,6 despite an overall fall in primary fuel prices. describes the imperatives of an effective energy transition, These developments increase pressures to improve the as well as a set of enabling dimensions. These are affordability of energy. required to support the improvement of countries energy system along these imperatives. The newly developed 2. Countries can foster progress in three ways by: Energy Transition Index (ETI) allows the assessment of establishing favourable conditions for energy system 114 countries’ energy systems within this framework, by stakeholders, targeting improvement across all three providing benchmarks across: triangle dimensions, and by pursuing improvement levers with synergistic impact across the system. – System performance: This measures current performance, based on the delivery of the energy – The presence of enablers (transition readiness in the system on the imperatives of the energy triangle, namely ETI) is a strong indicator of the increased performance promoting an energy system that supports inclusive of countries’ energy systems. The countries