Decision Making Under Deep Uncertainty in the Energy Sector: Observations and Suggested Areas for Research Part 1 of 3: Anecdotal observations regarding the present decision making culture in the energy sector – the need for an adjustment?
The rational for the ERP Horizon Scanning exercise was to attempt to characterize what drivers of change the energy sector would reasonably have to consider managing or addressing in the 21st-century and whether they would be incremental or disruptive. Concerns that were considered included exogenous factors such as the shift in system state or collapse of environmental systems like weather and climate or nitrogen and carbon cycles, biodiversity, and resources – which all have preceded interaction with the human system of energy provision. The energy sector is also being subject to enormous endogenous disruptive change such as the impact of falling costs of decentralised energy systems which in turn is questioning the longevity of the centralised utility business model around which many of the decarbonisation agendas have been orientated.
During the exercise that it became very obvious that the project, rather than being a process of seeking insights as to what future drivers of change might be, was actually as much about how the energy community makes decisions under uncertainty. With almost all industrial sectors and domains considering the 21st century as being characterized by the most complex challenges ever faced by human civilization there appears to be a crisis of confidence in how to navigate the unprecedented turbulence of possible futures. Indeed these extracts from a Charted Institute of Management Accountants[1], suggests a lack of capacity to address this complexity by modern leaders and their tendency to fall into the habit of `group think’:
“mind-sets, behaviour and systems are currently not yet adequately calibrated for the new reality…..With good reason, questions are being asked about why executive expertise within institutions and corporates no longer seems able to provide its leaders with reliable and comprehensive horizon scanning that will prevent the surprise or shock from ‘unthinkables’.”
This newsletter article, part 1 of 3 seeks to outline anecdotal observations regarding the present decision making culture in the energy sector and suggests why it needs to adjust to deal with possible futures. Parts 2 and 3 seeks to set out an agenda as to what needs to be considered both generically and also within the energy sector to understand and make decision making better – based on a number of workshops that have recently been organized in this space.
The first observation is that the body of knowledge in the energy sector is made up of engineers and economists which tends towards quantitative methods and is not terribly inclusive both in terms of gender and beyond European and N. American practitioners – see figure 1.
This tends leads to the second observation that the energy sector relies heavily on modelled scenarios to assist in developing insights as to possible future options for decision makers to attain energy and climate targets. Though it is largely accepted that models provide a powerful tool for analysing future energy systems and policy interventions. They have some common limitations both as a tool to provide insight and the way that they have been employed in decision support – especially the tendency for the inputs and bounding to be insufficiently audacious[2], [3].
This leads to the third observation that modelling lends itself to implicitly conjuring perceptions that futures can be well characterised. They also therefore tend to lead decision makers to frame problems in a predict and decide framework as they suggest, due to the precise characterisation of possible futures, that a discrete figure round ‘maximum expected utility’ or `selected optima’ might be realised.
Figure 1: Disciplinary, gender, methodological, and geographic trends in energy studies research, 1999–2013[4].
These cultural observations very much jar with the complexity and uncertainty to which the energy sector is being subjected. When the conditions of the problem being looked at have high levels of uncertainty and are not predictable or hard to predict it is often termed ‘Deep Uncertainty’ in the literature. Deep Uncertainty is defined as: “circumstances when the parties to a decision do not know—or agree on—the best model for relating actions to consequences or the likelihood of future events” – indeed such futures are `out of sample’ in that reliable data does not exist to inform possible futures. The traditional prediction-based decision analysis in such circumstances is problematic. Firstly, because predictions are often wrong, and relying on them can be dangerous – especially those beyond the 10 year time horizon. Secondly, decision-makers know that predictions are often wrong; causing them to discount or ignore the crucial information the analysis provides. Therefore, when policymakers and decision-makers face a hard-to predict, deeply uncertain future, they need more than traditional prediction-based decision analysis to help them choose among alternatives. Furthermore, uncertainty can be characterised very differently requiring the application of a very different suite of tools to address the decisions that are sought and the uncertainty that is sought to be dealt with. In a non-systematic survey by UKERC[5] found the following amongst the energy community:
- Most analysts supporting decision makers do not take the time to characterise their decisions and therefore may lack an appreciation for the level, location and nature of uncertainty they encounter;
- It is likely that analysts supporting decision makers will apply tools and techniques that are not well suited for the problem at hand. In fact, analysts supporting decision makers would use whatever techniques are available to them, rather than identify the most appropriate tool; and
- Moreover, under conditions of uncertainty, decision makers will often rely on doing what others have done before them, revert to guessing or, under considerable uncertainty, procrastinate and wait for more information to become available.
These observations explain the tendency for mixed outputs from different energy decision support activities and the inclination to defer decisions to wait and see resulting in greater uncertainty.
This article, the first of three has attempted to sketch out the present cultural tendencies of the energy sector when making decisions to consider uncertainty and why they might not be appropriate for considering possible futures in the modern age. Parts 2 and 3 will seek to establish a set of suggestions and research requirements to assist in making better decisions in deeply uncertainty futures including the need to be more participatory.
[1] http://www.thinkunthinkable.org/
[2] MacLean et al., 2015. A Critical Time for UK Energy Policy: What must be done now to deliver the UK’s future energy system. RAEng
[3] McDowall et al., 2014. UKERC Energy Systems Theme: Reflecting on Scenarios. Working paper dated June 2014. Found on: http://www.ukerc.ac.uk/publications/ukerc-energy-systems-theme-reflecting-on-scenarios.html
[4] Sovacool, B. et al., 2015. Integrating Social Science in Energy Research. In Energy Research and Social Science 6 (2015) 95-99.
[5] UKERC 2014. Energy Strategy Under Uncertainties. Identifying techniques for managing uncertainty in the energy sector UKERC/WP/FG/2014/001