While the two superpowers are pumping huge amounts of money into developing new technologies to reshape the future fuel mix, Accenture’s report entitled “The US and China: the race to disruptive transport technologies”, has found that adoption is not, however, completely dependent on technology development. The study shows that it is also influenced by individual countries’ domestic agendas. This includes a balance of economics, energy security, climate change and legacy (or lack of legacy) infrastructure.
What is clear is that both the United States and China are aggressively pursuing these “disruptive” transport technologies. Given the current activity and outlook, the report examines how their trajectories line up and what trade-offs it is anticipated the two countries might make. “Whoever wins the race to commercialise technology first may have unique advantages, such as intellectual property ownership and opportunities to provide jobs to their domestic population,” says the report’s authors.
In addition, the outcome will have implications for energy companies. Depending on which technologies scale first, oil and gas companies may experience significant competition from biofuels, electrification and next-generation engine technology. This will likely impact their business models, portfolio planning and asset rationalisation.
On the other hand, utilities will likely see new opportunities in distribution and retail as electrification develops and takes shape. Their challenge will be understanding individual markets and investing quickly enough to establish their dominance before new competitors aggressively pursue this space.
China to win, but US may find breakthrough solution
Who will win the race? “The oversimplified short answer is that, assuming continued long-term government support for alternative energy and allocation of funds to R&D and deployment, our expectation is that China will be able to achieve its targets faster, but in a narrower field of technologies,” says Accenture. “While the United States may be slower in its development, its openness to new and disruptive technologies is more likely to generate a breakthrough solution.”
“The US already has a competitive advantage in agriculture and conditions that make it the home of completely new technologies, but China’s policy decisiveness will allow it to scale specific new transport technologies more rapidly,” said Melissa Stark, global lead of the Clean Energy Practice at Accenture. “However, these respective strengths will not guarantee long term competitiveness and policy makers and investors in both countries will need to put in place major structural changes to ensure their industries adapt and can compete globally.”
The assumption of continued government support (however fragmented, in the case of the United States) is critical. The scale of funding needed to deliver the capital projects that will deliver these new fuels and infrastructure is enormous. However, investment will come only if policy signals are clear and long-term. But assuming this policy stability, the current activity in the United States and China will fundamentally change the future of transportation fuels.
Accenture has also revealed that, although important, greenhouse gas emissions are not the key driver in either China or the US. Instead, what is important for governments is the domestic agenda and setting policy that balances three key objectives: energy security, improving economics and climate change.
Accenture has also found that trading relationships and trade flows will change as the transport industry evolves towards a greener model. The ramifications of these technologies scaling could lead to potential shifts in power around the globe and a changed picture of trade with and between the United States and China with greater levels of collaboration between the two superpowers in areas around alternative transport fuels. The Joint US-China Collaboration on Clean Energy (JUCCCE) is one example of this may work.
Oil companies and electric utilities should collaborate
After analysing the current and prospective situation, Accenture issues a number of recommendations in its report for oil companies and electricity utilities to exploit new opportunities. For oil companies, these include reviewing operating models to create closer links with agriculture to secure supply of biofuel feedstock, and the disposal of marginal assets that hold back competitiveness. As China’s oil companies expand globally, they will need to improve their merger and acquisition strategies and post merger implementation.
Accenture also recommends that electricity utilities proactively manage the opportunities and challenges presented by electrification of transport. “Given uncertain consumer demand, utilities will have to improve their understanding of consumer preferences for electric vehicles to mitigate the high risks associated with infrastructure investments,” suggest the authors.
Electricity distributors should also increase low-voltage energy storage investments to mitigate the volatile demand of EV charging and the intermittent supply of renewable energy. Proactive management on this level will further position utilities to capture market opportunities related to electrification of transport.
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