The energy industry comprises of the petroleum, gas, electrical, coal, nuclear, and renewable energy sectors. In recent times, renewable energy has started taking precedence over non-renewable energy sources such as petroleum and coal. This is because of rising consumer awareness towards global warming and government initiatives to curb pollution. Although both the renewable and non-renewable energy industry is growing at a healthy rate, there are some challenges faced by both these sectors.
Challenges Faced by the Energy Industry
Meeting Decarbonization Targets
In the 2015 Paris Climate Conference, 200 countries committed to COP21, which has identified an ambitious set of goals. In a bid to limit the global warming activities across the world, countries are putting up legislations to curb emissions and provide incentives to businesses with lower or no carbon emission. Numerous reports list that 41% of the world’s total CO2 emissions are caused by the energy industry companies, resulting in initiatives to decarbonize energy supply with renewable energy resources. To show its commitment to COP21, countries such as UAE have vowed to reduce its fossil fuel subsidies and have invested US$163 billion in renewable energy projects. Also, nations and companies having positive carbon balance can sell its carbon credit to companies with higher emissions. Such incentives discourage companies to reduce its carbon footprint and the energy industry players to opt for such alternatives.
Ease of Access and Affordability
Energy access has been largely limited to only the developed and urbanized parts of the world. The accessibility problem is still posing as a significant challenge to the energy industry. The energy prices vary across the globe depending on numerous factors. In multiple regions, the affordability issue seems to be more prominent as it drives the prices of all other consumer goods. For instance, Germany has the highest rate for per kilowatt hour of electricity at 28.18 euros, which is compelling the manufacturing units in the country to outsource production to the low-cost region.
Investment and Returns
The level of investments required for energy generation projects is so significant that it usually has to be backed up by investments from world bank or governments. The typical project cost for energy generation runs over billions of dollars. For instance, in 2005, a conference on renewable energy investment in India had private companies committing around $200 billion in investments into green energy. With such massive investments, the pressure on returns is much higher. The increasing cost of operations and maintenance can reduce the plant availability for power supply to the grid; thereby, diminishing the returns. Additionally, regulatory approvals, construction and technology risks create a significant challenge for the energy industry in delivering energy projects on time, within the stipulated cost and quality targets.