Technological Innovations That Could Change Energy

The challenges facing the global energy industry are more complex than ever before. Today’s companies must navigate not only heightened environmental concerns, but also uneven globalization, regulatory restrictions, investment risks, and other issues. In this interview, Harvard Business School (HBS) professors Rawi Abdelal, Forest Reinhardt, and Richard Vietor discuss how these challenges—along with ongoing technological advancements and recent political developments in the Middle East—are shaping the future of the global energy marketplace.

What are the key technological innovations that could change how energy is developed and distributed?

Reinhardt: I think the most interesting technological innovations in the energy sector have to do with the integration of the oil-to-transportation-fuels value chain, and the other energy value chain that starts with coal, gas, nuclear, or hydro at the top and ends with electricity at the bottom. While wind, solar, and ethanol have been getting headlines, they have been drop-in substitutes in one of those value chains. But what’s more interesting is the convergence of the two, which allows cars to run on electricity and substitutes gas, coal, or hydro for oil. Gas-to-liquid and coal-to-liquid technologies offer the same kind of convergence at a point that’s further upstream in the value chain.

Vietor: The technologies in the solar and wind sectors are also fascinating. In the wind sector, a couple of firms have just announced that they are working on a 10-megawatt wind turbine. The standard two years ago was 1.5 megawatts. And GE has made an acquisition to use direct-drive turbines, which do not have gear boxes and therefore don’t have to be serviced as extensively offshore. In solar, the competition to improve efficiency is heated. Companies are all trying to reach 13 or 14 cents per kilowatt hour, and it’s fascinating to see the money and research that are going into this effort.

Abdelal: One of the big challenges is also the way in which these technological innovations are financed. Traditionally, they’ve been financed from within firms. But we’ve learned at past energy seminars that venture capitalists and private equity investors want to finance these innovations. Mostly they’ve been disappointed by the initiatives they’ve seen. It will be interesting to see if that continues—whether firms will need to use their own capital to fund innovations or a financing market will develop.

Vietor: The stimulus package and the Waxman-Markey legislation had billions of dollars in subsidies for nuclear and for carbon capture and sequestration. It’s not clear that the capital markets will make that money available. On the other hand, the governments of China and Germany are willing to make it available directly.

In the wake of Japan’s nuclear crisis, what lessons can be learned and applied to the future of the energy markets?

Reinhardt: Because nuclear power accidents are so dreadful, we tend to think of the damages they cause in a different way than we think about the damages caused by coal. But coal is dirty and dangerous. People die every year in mines, and people die every year from inhaling particulates caused by coal plants. And this is independent of the CO2 problem. So the idea that the Japanese tragedy will cause us to take nuclear power off the table is not an appropriate way of thinking.

Vietor: I agree. But I do think that the Japan problem is going to require a couple of years of serious study and a number of changes. The industry has already learned things about auxiliary power and safety from the Japan lesson. And that’s even before the Japanese government, the Nuclear Regulatory Commission, and the international nuclear organizations have begun to study it. We’ll learn some things, but the key concern is whether society is so alarmed that nuclear ends up being set back by another five years or more. If we don’t want carbon, we’ve got to develop nuclear.

Abdelal: One of the things that’s very difficult to know in advance is how national societies and governments learn lessons from these disasters. It’s clear that they learn very different lessons based on where they are and what their traditions of policymaking are. Think of the difference between France and Germany. The French government was intent on nuclear power and didn’t really care what the French people thought about it. France developed nuclear in a big way and by most accounts was tremendously successful. This would have been impossible in Germany, where the public is very skeptical. Concerns about the reliability of natural gas imports have led some Germans to reconsider nuclear, but it looks like the Japanese disaster is having a big impact on the debate in Germany on this issue.

In response to these issues, Harvard Business School Executive Education has developed the Global Energy Seminar, an opportunity to explore new ways to capitalize on global growth opportunities.

What will participants take away from the Global Energy Seminar?

Abdelal: One of the most important things they will experience is exposure to other industry executives. We prepare the cases and manage the discussion in a very open way, but much of the learning comes from the interaction among peers. Our audience tends to be experts in the subject matter. They teach each other—across energy sectors and across the vertical value chain, from small entrepreneurs to state-owned companies. In day-to-day business, an upstream nuclear professional doesn’t interact with a downstream wind professional. We provide opportunities like that. Overall, it’s a wonderful opportunity for them to talk with each other.

Reinhardt: We bring together people from big firms and little firms, from the oil business and the wind business and the nuclear business, from rich countries and not-so-rich countries, from producer nations and consumer nations. And we give them an opportunity to learn from one another in a relatively unstructured way. We understand that there is no shortage of opportunities for people to squint at someone’s PowerPoint in a dark room. But we’re not interested in providing that kind of seminar.

Who should attend the Global Energy Seminar?

Vietor: This program is ideal for a broad range of executives, from large companies to startups, from different functions, and from many countries around the world. These include finance executives, regulatory executives, professionals who are involved in technological innovation, and those focused on exploration.

Learn more and apply.