Industrial Decarbonization: Three Strategies for Utilities to Help Unlock This Opportunity

Special thanks to my colleague, Rob Hopkin, managing director, Utilities, Accenture, who helped provide some of the perspectives in this article.

The global effort to reach net zero by 2050 faces a huge challenge. Our recent research identified five hard-to-abate, carbon-intensive sectors that are not decarbonizing at the speed required to get net zero back on track. Instead of coordinating the large-scale investments in green infrastructure that are required, each industry is waiting for the others to move first.

If heavy industries like steel, metals and mining, cement, chemicals and freight and logistics fail to decarbonize, their Scope 1 and 2 emissions become Scope 3 emissions for other industry groups. Simply put, if heavy industry fails to get back on course for net zero, all industry fails.

The utility industry has a key role to play in making industrial decarbonization affordable. It is vital because currently, the costs of low-carbon power and hydrogen are too high to enable green industrial products to compete with higher-carbon alternatives. Without urgent action, it is unlikely they’ll be price-competitive any time soon.

In addition to bringing down prices, utilities also need to massively increase supply of low-carbon power and hydrogen to give heavy industry confidence that their demand will be met. Without certainty of supply, investments in decarbonizing heavy industry are hard to make.

Power sector investments need to be huge

The World Economic Forum’s Net Zero Industry Tracker 2023 Report, produced in collaboration with Accenture, estimates that $13.5 trillion will be needed to build the clean power infrastructure required to decarbonize eight production, energy and transport sectors. New energy infrastructure, will include a mix of renewables, nuclear power, green hydrogen, blue hydrogen and broader carbon management solutions.

Decarbonization also relies on a massive expansion of the electric grid. The Department of Energy cited independent analysis that estimates U.S. transmission systems will need to expand by 60% by 2030 and potentially triple by 2050.[1] They also need to be deployed on time to meet heavy industry’s future demand. That is a huge ask. Never has the need for grid investments been so high, nor the need to balance security of low-carbon supply with affordability.

In this article, I want to discuss some important strategies that will help navigate this balance and help get industrial decarbonization on track to net zero. First, reducing the costs of new infrastructure will be critical, and digitalization plays a huge part. Collaboration is equally important. A ‘Systems Thinking’ approach will help utilities coordinate their investments in lockstep with heavy industry. Finally, better community engagement can improve local acceptance of new infrastructure build, taking years off planning and permitting approvals.

Address affordability: maximize efficiencies to keep costs down

There’s much that can be done to reduce the cost of new infrastructure. As low carbon technologies mature, their costs will naturally come down. The market is already factoring in some significant cost reductions to 2050. However, our ‘Powered for change’ analysis shows that there’s much more value to be gained by pulling additional cost levers. This is true across the board, from green hydrogen and ammonia, to green steel, wind, solar and battery storage.

Take offshore wind as an example. The market expects the cost of European offshore wind to fall to $47/MWh in 2050. But we believe pulling those key levers could cut costs further, to $33/MWh. Digitalization underpins many of these cost levers, improving turbines’ capacity factors, enabling more efficient maintenance programs, and increasing asset utilization. Digitalization also lays the foundation for future innovation in system flexibility and network optimization, once this infrastructure is in place.

Address Collaboration: take a whole system view

Our ‘Powered for change’ research found that a lack of coordinated investments across the value chain has led to a vicious circle of inaction. Currently, companies either invest individually or in small groups. To reach the scale we need, utilities’ investments in low-carbon infrastructure must align with heavy industry. That requires a much closer, purposeful collaboration.

The future energy system will be more complex, distributed, flexible, smart and interconnected. It will also be more interdependent. To build this future, many parties—often with different interests—must work toward a common goal.

This kind of collaboration is already happening in a few pockets. The hydrogen hubs that have been forming in the U.S. are a case in point. ARCHES is a prime example—built on California’s long-standing renewable energy leadership, this public-private partnership, comprising The State, together with local government, academia, non-profit organizations and industry partners, will utilize local renewable resources to produce hydrogen with the objective to fully decarbonize the regional economy, while prioritizing environmental justice, equity, economic leadership and workforce development. The industry partners, including key local utilities, will bring deep technical expertise and capability for building a hydrogen network in California and significant in-kind matching capacity. A Systems Thinking framework could help manage this additional complexity and interdependence. It was developed by the UK’s Energy Systems Catapult, an organization dedicated to accelerating the UK to net zero. It sets a course for utilities to work alongside a broad and multidisciplinary range of stakeholders. Applying the Systems Thinking approach should deliver solutions that maximize benefits for all, mitigate the negative consequence of new infrastructure build, and reduce the risk of unintended consequences when plans are modified.

Address acceleration: engage with communities to accelerate permitting

Permitting processes have caused significant delays to the energy transition. Network operators must build new infrastructure at such a scale and speed that they cannot afford to fall into similarly convoluted, years-long permitting disputes. There are parts of the permitting process that government agencies, utilities and construction companies own and could accelerate through automation and collaboration tools, but the tricky bit is winning community trust.

Indeed, winning communities’ trust early in the process might not overcome all issues, but it will certainly help facilitate the process. It is important that the industry focuses on the benefits new projects can bring local communities.

Historically, the communities surrounding heavy industrial clusters have often been underserved. Investments in new infrastructure will be a powerful driver for job creation in these communities. These jobs are expected to be financially rewarding and secure. Not only will the promise of new jobs soften the impact of new builds, but rate cases that benefit local communities are more likely to be approved.

It is something taken seriously by the HyVelocity Hub, a consortium of seven major energy companies which was selected to receive funding from the Department of Energy (DoE) to build 9 hydrogen projects across Texas and Southwest Louisiana.  An important part of the Hub’s strategy is to focus on local job growth, particularly in disadvantaged communities, to meet key community benefits goals set by the DoE. These include ‘Investing in the American Workforce’ and the ‘Justice40’ program, which directs 40% of the benefits from climate and clean energy investments to disadvantaged communities. Indeed, the Hub is collaborating with the Greater Houston Partnership’s Upskill Houston project and the Center for Houston’s Future, a co-organizer of the Hub, with support from Accenture, industry stakeholders, colleges, and non-profits to implement a workforce development program focused on hydrogen training and job opportunities in local communities.

Every utility needs to define their role

Decarbonizing heavy industry will be a decades-long program. Utilities will evolve their strategies throughout that period. It is vital, however, that they have a plan. Crucially, utilities must define the role they want to play in industrial decarbonization and be prepared to collaborate more deeply and more widely than they ever have before. The clock is ticking, and what happens over the next three years will shape overall success in the lead up to 2050.