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The New Reality for Energy Projects

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This item is part of the Special Issue - 2021-01 - State of the Industry, click here for more

In today’s mid-pandemic world, business as usual is anything but. From job loss to social isolation, the feeling of powerlessness has led thousands of individuals across the globe to rise up and take matters into their own hands. People are angry, frustrated and consumed with anxiety. They feel a monumental loss of control over their own lives, and they are compelled to voice their opinions. They demand to be heard. Surviving the pandemic hasn’t created social unrest, but it has undeniably amplified it.

People have become fully aware of the power they hold. This major structural shift in our communities now requires companies to rethink their strategies when it comes to launching new projects.

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Historically, project managers would simply announce their project in the media, expecting no one to protest or create roadblocks. This old traditional model of “design, propose and defend” will not be effective in the post-pandemic world. The pathway to project success now relies on integrating an equitable social, cultural and economic framework that builds and supports a “community first” strategy. Understanding the role of citizen engagement is crucial.

The Intrusion Impact

By their very nature, energy-related projects are perceived as intrusions by the local community. When individuals are surprised by a new project launch, they react. They voice their issues and if ignored, they protest and often generate negative media backlash. Yet, their issues are not taken seriously unless they’re loud enough to block a project’s schedule.

Let’s face it, any project that brings change to a community is considered intrusive. The impact of the pandemic has only compounded this “sensitivity to intrusion.” It has given power to individuals because they’ve learned to harness their influence. This power shift now requires companies to rethink the way they operate.

Now is the time to address the new dynamics of the cultural, social, economic and political world with which they must engage to secure project approval. For a project to succeed, project managers and corporate executives will need to pivot from the old model of “design, propose and defend.” Energy companies can achieve far greater success by adopting an empowerment model based on “learning, engaging and listening.” Think of it as collaborating with the local community and prioritizing the wellbeing of residents—up front during the planning phase. Listening to the concerns of people before a project is finalized and announced has proven to save billions of dollars at the back end.

The Financial Impact

The money lost by energy companies in conflict is incredible. A study conducted by the U.S. Chamber of Commerce in 2018 called “Infrastructure Lost: Why America Cannot Afford to ‘Keep it in the Ground,” examined 15 energy infrastructure projects that were stopped, delayed or cancelled in the last six years because of citizen resistance. The study documented:

  • The costs of project investment dollars lost at $57.9 billion
  • Gross domestic product lost at $91.9 billion
  • Lost tax revenue to local and state governments at $20.3 billion[1]

Not one of these 15 infrastructure projects, which included Keystone XL, Dakota Access Pipe Line and Atlantic Coast Pipeline, invested major money up front in a program to live with and understand the citizens that the projects impacted. Instead, they spent billions of dollars trying to push their project approvals through using an outdated ineffective approval process.

Breaking With Tradition

There is an emerging movement in the corporate arena designed to understand the shifting dynamics that are changing the way business is conducted. Jamie Dimon, the CEO of JPMorgan Chase, recently experimented with a new kind of business investment in Detroit, Michigan. His idea of community engagement was to test out a process for addressing urban poverty by applying the “same kind of expertise and analysis to the community issues that his bank uses to advise big corporations.” That was a major shift in resource allocation.  

Dimon spent over $200 million learning that it is not the money spent on formal requests that leads to success, but rather the help, advice, reflection, face-to-face interactions and social capital generated by the company’s presence. In an CBS 60 Minutes interview in November 2020 with reporter Leskey Stahl, he explained that “this is nontraditional banking…venture banking.”

As part of his commitment to the community, Dimon assembled “teams of experts from the bank who spend weeks at a time ‘living and working’ in the city and providing a lot of practical advice.” Allowing this citizen-based process to evolve gave local residents the opportunity to have a seat at the table. They were able to serve as equal partners with JPMorgan as the bank made investment decisions that were community centered.

For those who believe that the $200 million spent on “learning community” was excessive, consider the billions of dollars lost due to project resistance, reaction and opposition. Not to mention the potential loss of goodwill. The benefits to the Detroit community were enormous, from assisting in the creation of new businesses to helping persuade Fiat Chrysler to build a new plant providing 5,000 new jobs in the area. That is a great social and economic return on a $200 million up-front investment. 

The problem is, such a change is counterintuitive to the current business model, where companies claim they don’t have the budget to prevent disruption up front. Yet, they are perfectly capable of finding billions of dollars to address a project under citizen attack and resistance at the back end. It is a wise move to prevent those costly attacks from occurring in the first place, and even wiser to see citizen caretakers and informal networks as a means to prevent or marginalize disruption in the decision making process.[2] Energy companies will benefit greatly by spending some of those dollars upfront.

The takeaway for energy companies is this: consider spending at least as much on community engagement as you do on the technical and legal aspects of the project.

Facing Our New Reality

Successful project development has been on the decline for the last few decades. More and more projects have faced hostile citizen opposition and resistance, creating unrelenting delays, as well as cost overrides and in many cases cancellation. If energy companies want to ensure timely approval of their projects, they must give people and their communities the opportunity to stand on an equal footing with the project. Attaining project buy-in at the local level is ineffective if it’s not integrated up front in the planning phase. Trying to get project approval once everything is ready to break ground is too late… and much too costly.

To facilitate project success will require taking the time to research, analyze and determine the best approach for working within informal networks at the community level. The pandemic has made visible the existing community caretaking systems that mobilized to address and respond to the obvious intrusions it caused. These organizers exist in all communities and are known as “caretakers” in the informal networks.[3]  By using their natural caring processes to address the impacts of the pandemic, they began organizing. With no formal training in community organization, they were still able to figure it out.

There are invisible caretakers that exist within every community, and post-pandemic, they will become indispensable in attaining community support for new projects. These recognizable compassionate leaders represent an enhanced informal network structure, one that is built on social capital. As its foundation, its action is positive, issue-based and solution-oriented.  

Taking care of each other has become the norm for citizens across the globe, thereby giving way to an immense growth of social capital[4].  These natural self-organizers gain strength and support because they possess knowledge of their physical, social and cultural environments, human geography[5] and the profound issues at stake.

Shifting Corporate Strategies

One of the challenges in addressing the new reality is the vertical structure commonly used in the corporate world. That structure focuses on a top-down management approach designed to produce profits for shareholders. This strategy has come under increased criticism by those who believe that a corporation’s contribution to society must be rethought and changed.

Jamie Dimon, JPMorgan CEO, also serves as the Chairperson of the Business Roundtable. In August 2019, he introduced its new mission statement in a report titled, “An Economy that Serves All Americans.” Signed by 181 CEOs, all made a formal commitment “to lead their companies for the benefit of all stakeholders-customers, employees, suppliers, communities and shareholders.”[6]  His influence—to treat communities as partners rather than one-way recipients of corporate operations—is spreading.

The traditional single focus on shareholder profit must change—and is changing— in order for projects to gain approval at the community level of impact. Recognizing the community as a stakeholder has proven to have a profound influence on the operations and profitability of companies who desire to be active, successful and profitable.

The pandemic has made the old “design, propose, defend” strategy obsolete, and energy projects will remain frozen if that formula doesn’t evolve with the times. Our collective survival relies on the ability to understand this new reality and the power shift that has taken place. Working within that shift—to the benefit and wellbeing of the individuals and communities that projects impact—is the current challenge. 


[1] https://www.uschamber.com/press-release/new-analysis-demonstrates-massive-costs-of-keep-it-the-ground-anti-energy-movement.

[2] http://www.jkagroup.com/pdf/IRWA-no39-Restructure-Your-Organization.pdf

[3] For a discussion on informal networks see: http://www.jkagroup.com/pdf/IRWA-no38-Avoiding-the Great-Divide-Part2.pdf.

[4] Social Capital refers to the features of a human community that facilitates coordination and cooperation for mutual benefit. It comprises the community of people in a self-defined geographic area; their survival and caretaking networks of friends, families and associates, and their living patterns routines and approach in which they solve issues that accumulates in building resilience, sustainability and individual wellbeing. (http://www.jkagroup.com/clients/Social-Capital-in-Basalt.htm)

[5] For more on human geography and its use in project siting see: http://www.jkagroup.com/Docs/JKent_MethodsfortheDevelopment.pdf.

[6] https://www.businessroundtable.org/

James  Kent's picture
Thank James for the Post!
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Matt Chester's picture
Matt Chester on Feb 9, 2021

One of the challenges in addressing the new reality is the vertical structure commonly used in the corporate world. That structure focuses on a top-down management approach designed to produce profits for shareholders. This strategy has come under increased criticism by those who believe that a corporation’s contribution to society must be rethought and changed.

This is interesting, especially the shift away from it, in how it parallels with energy as a business somewhat sfhirting from centralized power to decentralized power in almost a democratized kind of way. I think those two ideas will feed off of each other a fair amount moving forward in the coming years

James  Kent's picture
James Kent on Feb 10, 2021

Hi Matt, thank you for your insight as to energy as a business shifting from a centralized to decentralized power at the same time the vertical systems are horizontalizing is right on target.  As a result of your insight I will give some more thought as to the social ecology  aspects of the changes taking place both in the companies and in the communities.

Jim  

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