Energy – A Cross-Cutting Component

Dr Derrick Fielden

The IEA was first formed as a reaction to the first ‘oil shock’, and the ensuing ‘energy crisis’ turned ‘fuel policy’ into ‘energy policy’. The world has moved on since then and, as Robert Priddle, Executive Director of IEA mentioned in March 1999 in Austria, ‘the first task of government is to create a stable framework for decision making’. In the developing world this is a real challenge, but we have an opportunity to look to the future; informed by the past and consider prevailing changes.

A paradigm shift

The liberalisation process around the world involves a paradigm shift from a public-sector to a private-sector way of thinking; with a focus on ‘deal doing’ and balancing risks and rewards.

The challenge for developing countries in this regard relates to the restructuring of hitherto predominantly public sector monopolies, devising strategies to increase the proven indigenous energy resource base, and the requirement for a massive mobilisation of resources (energy, capital, manpower).

The future shape of energy is being shaped by the private sector which is profoundly influencing the shape of human society; while we talk the unseen hand is at work. As this evolves in the developing world, what decisions must be made and who makes them is surely a central question. We have seen international organisations (the providers of halo) perhaps being naïve and not being vocal enough; but the invisible hand must be acknowledged as a truth. This reform process is highly variable across many different countries.

Of concern must be those people that are on the margins; the entrepreneurial millions who have no access to electricity in the developing world; watching from the sidelines in the rural areas, waiting. It is here where the private sector has a real role to play, if we can attract them.

The need for clear strategic thinking

Governments started it; they did so for their own reasons; but evidence seems to suggest that no governments undertaking liberalisation were looking very far ahead. The perceived resource constraint usually identified is a shortage of capital (which is true), the approach being one of ‘this is not an energy crisis but an investment crisis; the time is ripe to seize the private sector financing initiative, through quick reforms in policy and modus operandi’. ‘Opportunity stands knocking at the door, and this must not be turned away, for it knocks but once’.

Although such investment should be welcomed, it is true to say that the developing world has failed to adequately reflect efficient energy use; energy is a major resource constraint for most developing countries. There is a significant lack of capacity within developing countries at governmental level, with inadequate knowledge and skills to deal with this paradigm shift; incredibly naive and usually represented by junior people; the private sector on the other hand is usually well represented in negotiations.

There has widely been a political climate in which privatisation and extended use of market mechanisms become the principal means of change in the developed world. Indeed, market mechanisms are an essential discipline, but energy is a cross-cutting component, and for a more energy efficient outcome there may be a need for a different approach; one of Systems Thinking; but such governments need support.

Systems Thinking

Systems thinking is still at a relatively early stage of development, rarely used in the energy sector (see Fielden D et al; ‘Changing the management perspective on energy systems’, International Journal of Energy Research, Vol.21, 767-786, 1997). A diversity of interests are involved in the provision of energy (not just electricity), with the debate on energy issues often confused and conflicting; a piecemeal approach is therefore very unsatisfactory; a holistic approach is essential.

The terms hard and soft are used frequently in most explanations of the systems approach. Much of the original systems thinking work was carried out in the context of the engineering of complex physical systems; such structural problems are what hard systems thinking are concerned with. Greater difficulty is experienced as problems become less structured, which results in sets of inter-dependent problems. These (problems) are often described as ‘problematical’ or ‘messy’ (or ill-structured problem situations); the energy situation in developing countries is an example of this type.

Infrastructure has traditionally been the preserve of the public sector, particularly in developing countries, partly on account of the perceived strategic importance to the economy, and partly because of the large investment costs and long lead times associated with such projects were thought to be a serious disincentive to private investors. Governments are beginning to assist this process by creating new opportunities for private investors but important, is that private sector participation does not end government involvement, rather the character of that involvement is changed.

Systemic understanding

Such an approach differs markedly from those built upon the training presently provided by higher education solely on science or economic understanding for example, which was the schooling of most of those currently in positions of power in government and commerce. The problems we face as we enter the 21^st century are not being adequately solved by methods derived either from political economics or from the natural and physical sciences, used alone; a new way of looking at the world is required; a systemic approach can better address this.

The systems approach cautions us against falling into the trap of sub-optimisation; the whole of a system is always more than the sum of its parts. It is uncommon for engineers or economists (or the politicians whom they advise) to recognise that their answers may be in the main, addressed to the wrong questions. The roots of many problems lie across the spectrum of energy, trade, industry, agriculture, finance, transportation and so on; only if this inter-relationship is recognised can a total system viewpoint be attained.

The ability of many experts to ignore anything but their own world view is interesting; maybe engineers and economists are perhaps more to blame than most in this context. Narrowness of vision and understanding are failings which are commonly found in all of the professions, and indicate the dangers in inherent specialisation. But things are beginning to change; lawyers are becoming energy experts; engineers are becoming accountants (for some reason accountants do not seem to want to become engineers?).

It is going to be a brave new world

Market liberalisation has set the energy sector on its head, particularly in the developing world, but surely liberalised markets should not mean ‘anything goes’; they require framework and organisation. We are not seeing this, where framework and organisation are at best incoherent (if not contradictory), at worst a ‘free for all’.

Profitability, growth and return on investment are all important and common measures at the business level, but at the country level a more systemic view is essential. Rather than ignoring other vital processes, such a view accounts and embraces them; at the country level a true sense of energy priority can be achieved. In the developing world there exists a profligate waste of energy; in order to correct this situation it is necessary to set the process of energy strategy-making in this brave new world in a much wider mould.

To the question ‘should energy strategy be led by markets or driven by governments’, the answer is quite clear, it is both (governments influence markets anyway). The goal of a sensible energy strategy should surely be to blend market forces and government action so as to best achieve optimum use of resources; a systems approach encompasses both.

Dr Derrick Fielden is with the Commonwealth Development Corporation, One Bessborough Gardens, London, SW1V 2JQ; tel: 44 020 7963 3873; fax: 44 020 7963 3956; e-mail: dfielden@cdc.co.uk