The Future of Energy: Global regulatory macro trends June 2023

Here are some of the energy regulatory macro trends that are having the biggest (hopefully positive) impact on the energy transition:

The ESG agenda is escalating at a rapid pace, with regulators being most proactive in their monitoring and enforcement of corporations’ climate-related obligations.

Climate change is wrecking livelihoods, damaging property and imposing incalculable economic loss – this creates immense pressure on every government to deliver meaningful climate mitigation actions. The ESG agenda is escalating at a rapid pace, with regulators being most proactive in their monitoring and enforcement of corporations’ climate-related obligations. In particular, the ongoing dialogue on ESG is being used as a tool for regulators to push for climate related disclosures. Although disclosure obligations and sustainability reporting directives are currently being imposed on large enterprises or listed companies, we believe that companies of all sizes should be prepared for mandatory climate related disclosures in due course. The upside is that as companies gain a better understanding of climate risks and opportunities, they can invest in adaptation and resilience measures which ultimately preserve their business and competitiveness.

Cross border interconnection is challenging but extremely effective in enhancing energy security and economies of scale.

A secure and reliable supply of energy is critical to every nation’s survival and economic competitiveness. With the ongoing Russian war and the burden of high energy price, no government is taking its energy security for granted. The good news is that energy security and climate action can co-exist, and it is in this vein that we expect a proliferation of regulations around regional power grids along with policies to increase renewable energy in power supply. EU nations are witnessing first-hand the immense difficulties in trying to develop interconnection capacity between energy hungry and energy producing areas of the world with differing legal standards and energy policies(e.g. Europe vs. Africa). For instance, EU regulators have all the tools to regulate, procure and build cross-border infrastructure inside the EU, but are much less equipped when interconnects are needed between EU and Africa. In Asia, for instance, the ASEAN Power Grid which is ASEAN’s vision to integrate the national power systems of its ten member states has been so slow to take off that it is largely now left to commercial bilateral power import projects with G2G support. Cross border interconnection is challenging but necessary to enhance energy security and encourage economies of scale.

Regulators are very much alive to the need to achieve just transition in terms of land use,  sustainable production and preserving biodiversity.

Even as countries battle climate change, regulators are very much alive to the need to achieve just transition in terms of equitable land use,  sustainable production and preserving biodiversity. The ongoing and constant struggle between energy production and other productive use of the land and sea – especially in temperate regions of the world – is likely going to result in increasingly complex regulatory attempts to identify and promote optimal use combinations, rather than selecting one exclusive use. A good example is the “agrivoltaic” approach which combines solar electricity generation with agricultural production in the same land location. There are also ongoing efforts to integrate offshore wind farms with maritime and fishing industries. This is not just a assignment for the city planners, but a conversation for all stakeholders.

Regulators continue to push for digitalisation of energy infrastructure including interoperability and cybersecurity requirements to improve grid management, operations and resilience.

Regulators continue to look to the digitalisation of energy infrastructure in order to improve grid management, operations and resilience including the development of digital twins to better understand and balance energy supply and demand of powergrids. It is key to such digital twins that data and systems are interoperable and that access and communications networks are secure. Regulators also anticipate that consumers will like to have more control and to make better decisions in their energy usage as new digital tools and services from energy suppliers and other services providers emerge. Robust policies may be put in place to facilitate the use of such tools and services, along with the digitalisation of traditional energy infrastructure. Data generation and consumption are growing exponentially and the digitalisation of energy infrastructure will contribute to this growth. Regulators are keeping a close scrutiny on the energy consumption by the ICT sector as well as imposing mandatory efficiency standards and exploring cooling solutions for data centres. The regulators are also keenly watching the outcome of trials of new cooling solutions and seeking to raise the operating temperatures within data halls without impacting uptime or warranties. 

Regulation is often seen as a barrier to innovation. However, if done properly, it can actually serve as a driver of the level of innovation needed for the green transition. 

This article is produced by our Singapore office, Bird & Bird ATMD LLP. It does not constitute as legal advice and is intended to provide general information only. Information in this article is accurate as of 23 June 2023.