The Energy Triangle

UTKU GULMEDEN - HAKAN IRGIT

The rise of the steam engine, the discovery of oil in the 1800s and widespread electrification in the 1900s have driven profound changes in the global economy. Today, we are again at the brink of profound change. The discovery of shale gas is transforming the American energy markets with the promise of low-cost energy, which may have global implications. Rapid growth of emerging countries such as China and India is driving up energy consumption, and may put a strain on energy sources. There is also a push toward cleaner renewable sources of energy across the world.

In light of these undergoing and rapid changes, decision makers will need to consider their nations’ future energy needs, and address three key energy objectives: 1. Promote access to secure energy sources 2. Leverage energy for economic growth 3. Do these in a sustainable, environmentally responsible manner. We call these three objectives the “Energy Triangle.” In a joint report, Accenture and the World Economic Forum (WEF) found that developing policies in light of these objectives is challenging, as policymakers will need to make trade-offs and difficult choices. The report also notes that the path countries take will vary according to their stage of economic development.

Accenture and the WEF have created the Energy Performance Index1, to analyze the performance of various countries against the Energy Triangle. The 2013 index assessed 124 countries. The Energy Performance Index measures a series of metrics, and ranks countries along the three objectives.

While the index shows metrics and priorities, it does not show who has the “right” energy policies. Each country has its own set of opportunities and challenges, and who has the best policy is best left to the reader’s interpretation.

One of the key findings is that while no country achieves top scores in any dimension, wealthier countries tend to score well. The top performers are mostly European countries, such as Norway, Sweden and France. Norway, where a strong energy policy has coupled with multiple energy resources to deliver clean power and generate large national revenues, ranks first on the index.

The US bucks the trend toward higher GDP levels. Despite having some of the lowest energy prices and the benefit of shale gas (a recent IEA study claims US will be much less dependent on foreign oil, and will become a net exporter of natural gas by 2020), the US falls short on most of the sustainability metrics vs. Europe. Fuel economy standards are low, and the US does not fully benefit from renewable sources. Nearly 40 percent of US electricity is generated from coal – though the share of natural gas has been increasing, and a significant portion of the US coal fleet may retire due to new environmental regulations. Nowadays, Americans are engaged in a hot debate about their energy future.

In some regions, particularly Sub-Saharan Africa, countries struggle to provide their citizens with basic energy. Many African countries exhibit low electrification rates and limited energy resources. They have high sustainability scores, because they overwhelmingly depend on burning wood and agricultural residues for energy.

Turkey has two major weaknesses on the energy front. It is highly dependent on energy imports and has one of the highest electricity and fuel prices in the world. This means an energy import bill that impacts the current account deficit and high energy costs in manufacturing that make Turkish industry less competitive. While high gasoline prices keep the number of SUVs on congested Istanbul roads at bay, they thwart growth. Access to energy sources will be an increasingly important topic for Turkey, since a developing country like Turkey needs low-cost energy to fuel its growth. Questions around energy imports, nuclear energy, increased oil and gas exploration and building the right market structures for energy will continue to come up.

There is tremendous uncertainty in the global energy landscape, and no easy formula for managing trade-offs. Countries at different levels of development have different needs; decision-makers will need to weigh choices, and design a portfolio of policies that will create the ideal energy strategy for their countries. This is all the more important for developing countries like Turkey that are dependent on energy imports.

*Utku Gulmeden is a Senior Manager with Accenture’s Strategy and Resources Industry Practice in New York. Hakan Irgıt is a Managing Director with Accenture in Istanbul, and the Resources Industry Lead in Turkey.