An Agile Strategy for Climate Action - Episode 100

Paul reflects a bit on having just completed the second year of hosting Eight Minutes, and takes a moment to indulge in how the process of developing climate strategy needs to change if we are to keep up with the rapid advances in climate industries. Long term strategic planning may need to be replaced by "agile" strategic processes.

For more research:

"CCUS Market Outlook 2023: Announced Capacity Soars by 50%" - Bloomberg New Energy Finance

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Transcript

This is Eight Minutes – a podcast helping you understand the energy and climate challenge in just a few minutes – I’m your host, Paul Schuster.

I can’t believe that this is the 100th episode of Eight Minutes. After launching this series two years ago, I had no idea what this would bring – but I’ve had a lot of fun discussing these climate and energy problems with you all, meeting and debating great topics with some amazing speakers. And we’re now at around 500 listeners a week, and growing. The response has been fantastic and I hope you’ve had as much fun as I have as we gear up for our third season.

To cap off this year’s show, though, I thought I would take a step back and talk climate strategy. Specifically, how we should be thinking about strategy in a constantly changing environment. I had a conversation last week with a company that hadn’t updated their sustainability plan since 2017 …  and, well, a lot has changed over that timeframe?

It's a bit of a self-indulgence on my part to pontificate on this, but hopefully you’ll allow me an indulgence once a season or so!

Eight Minutes – it’s how long it takes the sun’s rays to hit earth – or about how long it takes me to navigate this year’s community haunted house … nah, I’m kidding – I’m a scaredy cat and you wouldn’t find me anywhere near one of those attractions around Halloween time.

For the one -hundredth time, Let’s get it on!

I’ve been working with utilities for over 20 years and, well, utility strategy hasn’t changed much during that time. It’s a slow moving machine, for good reasons, and investments are carefully considered over decades. In fact, these long, deliberate considerations are literally spelled out in such strategic reports as the Long Term Resourcing Plan used by many utilities.

And then, on the other side of the house, are a host of decarbonization industries that are moving at such speed that it seems like new advancements are coming out every other week or so.

How do we marry these two? How should we be thinking about strategy when our traditional approach is slow and steady – but the world is suddenly shifting at warp speed under our feet?

Regardless of whether you work within a corporations aiming for net zero, in policy adapting to changing technologies, or at a utility or some other infrastructure company – the way we THINK about “strategy” probably needs to change.

Consider one small corner of the climate space – that of carbon capture, utilization and sequestration. Bloomberg New Energy Finance released a report in 2022 estimating that the global CCUS market would be removing around 280 metric tonnes of carbon per year by 2035. 

Just one year later, the analysts revised their prediction upward – to 420 million tonnes per year, based on an extraordinary investment spurt over the previous year. And, with that, a big reduction in anticipated costs, as well.

The pace at which climate technologies are adapting and improving is wonderfully fast. And that has implications. For instance, policy makers often use a tool called a marginal abatement cost curve to evaluate differing climate solutions. What the MACC does is essentially compare different solutions by the marginal cost that it takes to reduce 1 tonne of carbon emissions. For a CCUS facility, that cost may be north of $100 for each tonne of carbon – whereas $100 could be invested into new solar projects and have almost twice as much impact on overall carbon abatement.

The MACC is a powerful mechanism to help direct policy incentives toward climate activity that can have the most immediate and valuable impact – in fact, SOME solutions such as energy efficient lighting or appliances actually have a NEGATIVE cost per abatement – meaning we actually see cost SAVINGS while ALSO reducing carbon emissions.

That MACC, though, should NOT be a static view of the market. Conditions are changing far too frequently. In the case of battery storage or EVs, those costs are dropping quickly – but the opposite can be true as well. Consider offshore wind prices. A few years ago, the PPA price negotiated for Massachusetts’ offshore wind power was in the mid eighty dollar range. Today, after those revised, renegotiated contracts are around $150. 

Does offshore wind still make sense when viewed across the marginal abatement cost curve? Or does flowing more money into advanced nuclear or green hydrogen or long duration storage make more sense?

Who knows? But our old way of thinking about strategy as a “set it and forget it” program probably doesn’t work anymore.

Instead, maybe we should be thinking about a more “agile” approach to strategy setting.

Borrowing from the world of software programming, AGILE development flipped the creation of new programs on its head. Instead of setting a development cycle once a year or so and handing off responsibilities to different coders – an agile method adopts a “sprint”, typically as short as two weeks, where developers are able to modify and flex their workstream to adapt to changing market conditions or issues within their process. Agile programming has been a huge success in enabling a faster, more nimble approach to software development – and there are corrolaries to how climate strategy may want to think about things, too.

For instance, a typical review of a net zero strategy or a decarbonization roadmap may take place once every five years. And that playbook probably has actions to be taken around everything from building weatherization to renewable energy procurement to EV fleet investments to any host of other activities.

In more ambitious circles, it may even include a capital investment into thermal energy solutions such as replacing an industrial gas furnace with a hydrogen or electrified thermal source.

That five year plan guides the decarbonization actions of the company. But a LOT can change in five years. Consider offsite power purchases. The price of that power has more than doubled over the past few years – does an offsite PPA still make sense for your company or would those dollars be more efficiently invested into a different development project?

Or consider a company looking to invest in carbon capture technology. That’s a really new and nascent market right now – how should the company be thinking about a capital investment where the costs for the technology could fluctuate (both down AND up) a lot over the next few years?

Long term strategy plans simply don’t give a lot of flexibility to decision makers on how to adapt to changing market conditions.

My suggestion in getting into a more Agile mindset? A couple of things – first: Review your strategy every 4 months. I know, I know – that sounds brutally short. But with the pace of change, it’s necessary. 

Consider a company that I spoke to about electrifying their fleet. Under current conditions, they simply couldn’t justify the investment into the power infrastructure upgrades and charging equipment necessary to even begin to electrify their fleet – much less the capital costs of the vehicles themselves. 

But an agile approach shifts that mindset. Instead of focusing on the entirety of the challenge, the company could break it down into smaller chunks (working with the utility for power infrastructure needs, for instance, first). And then, as costs started to come down, they realized that they could start to incrementally invest into different pieces of the puzzle over time. 

Which brings me to my second suggestion – understand what signposts you want to be evaluating every four months so that you can start to take advantage of opportunities as they arise. Costs are coming down for batteries but are going up for hydrogen? How does that affect your investment strategy? What incremental, no regrets actions could be taken in order to take advantage of those changes while leaving yourself open for future shifts as well?

And that’s not just for companies – as policy makers should be evaluating changing conditions on a far more frequent basis as well. Hydrogen costs haven’t moved as much as you expected over the past year? How can policy or regulatory changes help to influence that market? Do you even want to, anymore?

Look – there is a LOT going on in climate action, with a lot of new, fairly untried technologies trying to grow entire industries from scratch. Not all are going to be as successful as we hope (or predict) right now. And organizations that set their strategy based on today’s market and today’s forecast – are likely to be caught flat footed when the ground shifts tomorrow. Adapting our own ways of doing things can help us keep pace with that change. 

I’m Paul Schuster – and this has been your eight minutes.