5 Major Dynamics to Watch Regarding America’s Energy Future

In many arenas, President Obama is attempting to cement his legacy, and America’s energy future is one of those areas. In his recent amplification of his energy policy, the president has continued to try to weaken the coal industry and buttress “green” fuels such as wind and solar, mainly because of his views on the role of carbon-dioxide emissions in climate change.

But some market forces are even bigger than the power of the highest office, and so, as CEOs plot their own companies’ future energy moves, these market forces must be taken into account. Also, with a Republican Congress already in place, many of the federal government’s energy stratagems could shift considerably should next year’s GOP candidate win the presidency.

In the meantime, business leaders will have to account for the net effects of these often-conflicting forces and how they’re reflected in the dynamics of their own companies’ energy needs and strategies.

Here, according to McKinsey prognosticators, are five important areas CEOs will be confronting:

“Crashing prices for photovoltaic technology may be the key to bringing power to more than 1.3 billion people around the world who now do without.”

1. Changes in the auto industry will be significant. Changes in the automobile will be most important, as electric vehicles, hydrogen power and other alternatives slowly but inexorably make significant inroads, even in an era of cheap gasoline. Western regulator agencies will dictate that, if nothing else, as well as the millennial generation’s shift to a new paradigm in automobility, which invites all-electrics and plug-ins, as well as ideas and services that will reduce demand for new vehicles, such as Uber and other car-sharing companies.

2. Natural gas will increase in importance. President Obama didn’t do natural gas any favors in his refined policy because he wants the Environmental Protection Agency to accommodate a large transition from coal power directly to renewables, skipping over natural gas altogether. But McKinsey is among experts who point out that the future is bright for natural gas. Market demand keeps expanding, as supplies—mostly from the U.S. fracking belt—remain ample and prices quiescent. Cities in California, Illinois, New York and elsewhere are equipping their fleets with gas-powered vehicles, and natural gas has become a favored fuel for generating electricity and for heating homes.

3. Solar growth eventually cross a tipping point. Despite the billions of dollars in incentives the federal government has thrown at solar power in the U.S., its pickup by companies remains limited. But McKinsey said that, in the near future, “crashing prices” for the photovoltaic technology required to convert the sun to electricity “may be the key to bringing power to more than 1.3 billion people” around the world who now do without.

4. Coal will remain huge. No new coal-power plant is likely to be built in the United States for a long time, if ever, as Obama has been trying to make good on his goal of killing the domestic coal industry. Low natural-gas prices also are undercutting coal’s role in the U.S., where it still accounts for 39 percent of electricity generation, down from about 50 percent a decade ago. In foreign markets such as China, however, coal demand remains robust despite more discussion of cleaner energy.

5. Distributed generation is big. Another force chipping away at conventional energy sources is the rise of distributed generation, “dispatchable demand,” and the digital grid, McKinsey said. Distributed disrupters are cutting out traditional utilities as new technologies let customers opt out of traditional energy suppliers and generate energy, through various means, where and when they want it.

CEOs’ decisions affected by these trends range from what power sources will run their businesses and their fleets to where to place their factories for optimal energy utilization. The energy future remains is poised for a paradigm shift, but business leaders must stay on top of it no matter how wild the ride.


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