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Energy efficiency, innovation and technologySolving the global energy challengeDr Ivan MartenGlobal Leader Energy Practice...
Solving the global energy challenge 1       Global                   • The global energy system faces a range of fundament...
1    Energy challenges: Demand growth    Global energy demand will continue rising fast        Global demand will rise 47%...
1    Energy challenges: Supply constraints    Todays energy sources will struggle to meet rising demand              Forec...
1    Energy challenges: Environmental    Meeting climate challenge requires action on many fronts         Worldwide annual...
21    Supply innovation    Our energy supplies aim to balance three objectives     1                                     •...
2    Supply innovation: Oil & gas (I)    Innovation has created a shale gas boom in the US           US Shale gas producti...
2     Supply innovation: Oil & gas (II)    The boom was enabled by innovative well technologies                           ...
2    Supply innovation: Renewables (I)    The challenge: becoming cost effective without subsidies    Levelised cost of el...
2    Supply innovation: Renewables (II)    Wind and Solar costs are falling continuously                      Wind turbine...
2    Supply innovation: Generation efficiency    Efficiency of fossil fuel power generation has increased      Increased e...
2    Supply innovation: Nuclear power    Despite technological evolution, nuclear faces challenges         Generation I   ...
2    Supply innovation: Emerging technologies    Emerging technologies are progressing very slowly               Technolog...
3    Energy efficiency: Savings potential    Efficiency Potential in EU Energy Demand       EU energy demand       savings...
3    Energy efficiency: Domestic sector    Major scope for improvement in domestic sector           The biggest efficiency...
3    Efficiency: Transport (I)    Carmakers have achieved major efficiency advances                              1972 BMW ...
3    Efficiency: Transport (II)    Many competing vehicle technologies are emerging                                       ...
3    Efficiency: Transport (II)    Higher oil prices drive more efficient vehicle choices                        49 mpg   ...
4    Policy & Partnership: Kyoto    Kyoto process has failed to curtail global CO2 emissions                              ...
4    Policy & Partnership: Investment    Need for financing new energy is larger and more complex                         ...
4    Policy & Partnership: Investment    Financing new energy is increasingly challenging            Utilities and commerc...
Conclusions1                 • The global energy system faces a range of fundamental challenges      Global         – Risi...
Energy efficiency, innovation and technologySolving the global energy challengeDr Ivan MartenGlobal Leader Energy Practice...
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Solving the global energy challenge with energy efficiency, innovation and technology

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Dr. Ivan Marten, Global Leader of the Energy Practice, The Boston Consulting Group. was one of the keynote speakers of the 9th Annual Global Energy Summit. Marten delivered a very interesting presentation on how energy efficiency, innovation, technology and policies can solve the global energy challenge.

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Transcript of "Solving the global energy challenge with energy efficiency, innovation and technology"

  1. 1. Energy efficiency, innovation and technologySolving the global energy challengeDr Ivan MartenGlobal Leader Energy PracticeNovember 30, 2012
  2. 2. Solving the global energy challenge 1 Global • The global energy system faces a range of fundamental challenges Challenges 2 Supply: • Innovation and technology are extending the frontiers of supply innovation Copy right © 2012 by The Boston Consulting Group, Inc. All rights reserv ed. 3 Demand: • Improvements in efficiency can have a major impact on demand efficiency 4 Policy & • Effective public-private partnership needed to ensure progress Partnership 1
  3. 3. 1 Energy challenges: Demand growth Global energy demand will continue rising fast Global demand will rise 47% to 2035, with Non-OECD demand will rise 76% to 2035, non-OECD countries driving about 90% of this driven by China and India Primary energy Primary energy demand (Btoe1) +47% demand (Btoe) 20 15 +76% 18.2 17.0 12.2 14.9 11.2 15 12.4 10 9.3 4.4 67% 4.1 66% Copy right © 2012 by The Boston Consulting Group, Inc. All rights reserv ed. 10 62% 7.0 3.5 8.6 1.7 56% 1.4 2.4 47% 5 1.0 4.1 0.7 5 0.9 0.3 0 0 1990 2010 2020 2030 2035 1990 2010 2020 2030 2035 NON OECD OECD China Other Asia Mid. East & Africa India Latin America E. Europe/Eurasia 91% of new growth is forecasted to come from non-OECD countries 1. Btoe: billion tonne of oil equivalent Source: IEA WEO 2011 – Current Policies Scenario, UK Department of Energy and Climate Change 2
  4. 4. 1 Energy challenges: Supply constraints Todays energy sources will struggle to meet rising demand Forecast oil production reliant on ...but volumes discovered have declined production from "yet-to-find" fields... significantly in recent decades Total resources discovered on World oil production (M bbl/d1) conventional oil fields (B bbls2) 394 100 400 Field size: Yet-to-find 10-100 M bbls (crude) 80 100-1000 M bbls Copy right © 2012 by The Boston Consulting Group, Inc. All rights reserv ed. Unconv. oil 300 1-10 B bbls >10 B bbls 60 NGLs 200 40 115 Discovered 100 20 (crude) 0 0 1990 1995 2000 2005 2010 2015 2020 2025 2030 1900s 10s 20s 30s 40s 50s 60s 70s 80s 90s 2000s 1. bbl/d: billion barrels per day 2. Data is for Estimated Ultimate Recovery (EUR) of conventional oil fields only Source: IEA, Rystad UCube, BCG Analysis 3
  5. 5. 1 Energy challenges: Environmental Meeting climate challenge requires action on many fronts Worldwide annual CO2 emissions "New Supply Demand (billion MT3) Policies" initiatives initiatives 50 +50% -50% 14 43 7 40 36 3 +38% 4 29 1 30 7 21 22 Copy right © 2012 by The Boston Consulting Group, Inc. All rights reserv ed. 20 Emission reduction levers 10 0 1990 2009 Increase 2035 Savings 2035 CCS Renewables 2 Nuclear Energy 2035 without "New "Current with "New "New efficiency "450 Policies" Policies Policies 1 " Policies Scenario" Scenario" Scenario" Meeting the climate challenge necessitates action on both the supply and demand side 1. New Policies Scenario assumes policies announced to date are implemented 2. Renew ables including Biofuels 3. MT: million ton Sources: IEA World Energy Outlook 2011 4
  6. 6. 21 Supply innovation Our energy supplies aim to balance three objectives 1 • The relative economics of our alternative energy sources Cost - Finding, development, production and transport costs 2 • The availability of these sources Availability - Both on an absolute level – do we have enough? Copy right © 2012 by The Boston Consulting Group, Inc. All rights reserv ed. - ...and on a national level, to support energy independence 3 Sustainability • Their relative environmental, health and social impacts All sources have advantages and drawbacks; our energy mix results from the trade-offs we choose 5
  7. 7. 2 Supply innovation: Oil & gas (I) Innovation has created a shale gas boom in the US US Shale gas production US Natural gas price (Bcf/d2) Henry Hub ($/MMBtu1) 25 24.4 10 8.9 US natural gas 8.7 total: 69bcf/d 20 8 15 6 Copy right © 2012 by The Boston Consulting Group, Inc. All rights reserv ed. 10 4 2.5 5 2 1.4 0 0 2005 2006 2007 2008 2009 2010 2011 2012E US shale gas production US natural gas price 1.MMBtu: million British Thermal Unit, 1BTU = 1.055 kjoules. 2012 Henry Hub gas price is YTD average 2.bcf/d: billion cubic feet per day Source: EIA; Rystad, LCI Energy Insight 6
  8. 8. 2 Supply innovation: Oil & gas (II) The boom was enabled by innovative well technologies Horizontal drilling... Forecast Footage drilled (mil) Surface to TD 1 Financial crisis & 400 drop in oil price 396 Other 340 334 Vertical 300 219 Copy right © 2012 by The Boston Consulting Group, Inc. All rights reserv ed. 200 149 ...and hydraulic fracturing 70% Horizontal 100 57% 22% 35% 0 5% 2003 2004 2008 2012 2013 2017 2000 2001 2002 2005 2006 2007 2009 2010 2011 2014 2015 2016 2018 1. TD: total depth Source: Spears and Associates 7
  9. 9. 2 Supply innovation: Renewables (I) The challenge: becoming cost effective without subsidies Levelised cost of electricity €ct/kWh1 20 16-18 16,0 15 13,5 10 9,0 9,0 8,0 7,0 7,0 (?) 2 6,5 13,0 wholesale 11-12 Copy right © 2012 by The Boston Consulting Group, Inc. All rights reserv ed. 5 electr. price 7-9 7-8 5,5 5,5 6,0 5-6 5,0 0 Nuclear Lignite Hard coal CCGT R-o-r hydro Wind Biomass Biogas Wind PV utility (< 5MW) onshore offshore scale4 Conventional Renewables 2010 20203 (Increasing up) Fuel Poverty a highly important issue in the UK. How to balance energy costs and the demand for renewables? (Decreasing down) 1. Including financing at 5% WACC, CapEx, O&M and CO2 cost 2. Effects of increasing safety requirements in the future not yet foreseeable 3. Assumed annual cost increase for coal and gas: 2% for O&M and 5% for fuel and CO2 cost 4. Average European insolation level Note: Calculations do not include additional transmission or storage capacity for stabilizing intermittent renew ables Sources: IEA (2010); Fraunhofer ISE (2010); EPIA (2010); IRE Univ. Stuttgart (2008); BMWi; BCG analysis 8
  10. 10. 2 Supply innovation: Renewables (II) Wind and Solar costs are falling continuously Wind turbine price index, The Solar PV module experience curve, 1984–2011 1976–2012 Log (M€/MW) Log (M€/MW) 10 100.0 1976 s = 0.79 1985 10.0 s = 0.95 2003 - 93% Copy right © 2012 by The Boston Consulting Group, Inc. All rights reserv ed. 1984 1990 s = 0.89 -48% 2006 2004 1.0 2012 2000 - 56% 2012 2011 1 0.1 100 1,000 10,000 100,000 1,000,000 1 10 100 1,000 10,000 100,000 1,000,000 Log (MW) Log (MW) Historic prices Experience curve Historic prices s= price index as cumulative volume doubles 1 Chinese c-Si module prices Experience curve First solar thin-film module cost Thin-film experience curve 1. S: price index as cumulative volume doubles; S= 0.95 means as cumulative volume doubles, price drops to 95% of before Note: WTPI is w ind turbine price index, WTPI excl comm is adjusted for commodity prices 2002–10, Inflation adjustment using US PPI, R2 of c-Si regression = 0.94, R2 of FSLR regression = 0.98 Source: Bloomberg new energy finance; Extool; Law rence Berkeley laboratory; FSLR filings 9
  11. 11. 2 Supply innovation: Generation efficiency Efficiency of fossil fuel power generation has increased Increased efficiency of fossil fired ...and increased efficiency of generation in major economies Increase in gas role in fuel mix... gas-fired power generation Efficiency, fossil-fired generation (%) Gas share of all fossil-fired generation (%) Efficiency, gas-fired generation (%) 50 60 55 UK & Ireland UK & Ireland 50 50 Germany 45 UK & Ireland US 40 45 Germany 40 Copy right © 2012 by The Boston Consulting Group, Inc. All rights reserv ed. US 30 40 US 35 China 20 Germany 35 30 10 30 China 25 0 25 1990 1995 2000 2005 2010 1990 1995 2000 2005 2010 1990 1995 2000 2005 2010 Continued switching to natural-gas fired power generation will drive efficiency increases Source: Ecofys, Mitsubishi Research Institute 10
  12. 12. 2 Supply innovation: Nuclear power Despite technological evolution, nuclear faces challenges Generation I Generation II Generation III Generation III+ Generation IV Early prototype Commercial power Advanced Evolutionary Designs Nuclear Alternatives reactors reactors LWRs ? Copy right © 2012 by The Boston Consulting Group, Inc. All rights reserv ed. • Shippingport • LWR-PWR, • ABWR • EPR • Liquid metal- • Dresden, Fermi I • BWR • System 80+ • ESBWR cooled reactors • Calder Hall/ • CANDU • CANDU-6 • AP-1000 • Traveling-wave Magnox • VVER/RBMK • AP600 reactors Gen I Gen II Gen III Gen III+ Gen IV 1950 1960 1970 1980 1990 2000 2010 2020 2030 Technology offers improved safety, security and efficiency, but Fukushima disaster a clear setback for nuclear Source: American Academy of Arts and Sciences "Nuclear Rectors, Generation to Generation", Argonne National Laboratory, US Department of Energy 11
  13. 13. 2 Supply innovation: Emerging technologies Emerging technologies are progressing very slowly Technology Functioning Proven application Current impediment • Pre-combustion • Pre-combustion (in • Costs: powergen costs capture gas processing) increase by up to 75% CCS • Post-combustion – Sleipner & • Delays to commercial- (scrubbing) Snøhvit, scale power plant • Oxy-fuel combustion Norway demonstration projects • Barrier / Fence: • Utility scale only for • Other technologies Copy right © 2012 by The Boston Consulting Group, Inc. All rights reserv ed. block current tidal barrier: only small scale / • Turbines: absorb – France 240MW, prototype phase Tidal current Rance River • Barriers / fence require • Oscillating: absorb (1966) special geo. conditions current with aerofoil • "Pelamis" snake • Large (non-utility) • Proof of concept for module: waves scale: utility scale still Wave induce hydraulic – 2.25MW missing movement driving a Aguçadoura, generator Portugal Source: Global CCS Institute, "The Global Status of CCS: 2012", BCG Research 12
  14. 14. 3 Energy efficiency: Savings potential Efficiency Potential in EU Energy Demand EU energy demand savings potential (Mtoe) -42% 1,250 1,188 187 1,000 26% 156 88 750 71 686 32% 500 Domestic Copy right © 2012 by The Boston Consulting Group, Inc. All rights reserv ed. 29% Transport 250 Industrial 13% Services 0 Baseline Domestic Transport Industrial Services Reduced 2030 demand 2030 demand Efficiency savings potential by sector Domestic and Transport sectors offer greatest potential for EU energy efficiency savings Source: Federal Ministry for the Environment, Germany; Fraunhofer ISI 13
  15. 15. 3 Energy efficiency: Domestic sector Major scope for improvement in domestic sector The biggest efficiency savings lie with ...and the elements and materials needed to refurbishing & updating existing buildings upgrade existing buildings already exist 1 10 6 7 5 Efficient lighting 5% Electric appliances 6% 8 Sanitary hot water 7% 2 Copy right © 2012 by The Boston Consulting Group, Inc. All rights reserv ed. New buildings 20% 9 4 3 Exist. buildings - heating 23% 1 Fenestration1 6 Ducts (HVAC) Exist. buildings - refurb. 41% 2 Doors 7 Ceiling Total potential savings 187 3 Fencing 8 Siding 4 Pipes 9 Metallic Frames 0 50 100 150 200 5 Blind and shade 10 Roofing Energy demand, savings potential (Mtoe) Efficiency improvements on buildings could also have wider implications on fuel poverty issue 1. Fenestration include w indows and curtain walls Source: Federal Ministry for the Environment, Germany; Fraunhofer ISI; Electro Magazine; EAA; BCG analysis 14
  16. 16. 3 Efficiency: Transport (I) Carmakers have achieved major efficiency advances 1972 BMW 520i 2012 BMW 520i More powerful... ...heavier... ...and more economical Copy right © 2012 by The Boston Consulting Group, Inc. All rights reserv ed. Power (HP) Weight (kg) Fuel Efficiency (mpg) 200 +31% 2,000 +31% 60 +45% 150 1,500 40 100 1,000 170 1,635 130 1,250 20 41.5 50 500 28.5 0 0 0 1972 2010 1972 2010 1972 2010 Source: BMW 15
  17. 17. 3 Efficiency: Transport (II) Many competing vehicle technologies are emerging Conventional Diesel, hybrid, electric Aerodynamics ICE technology ICE technology Electric Transmission Hybrid and mass (Gasoline) (Diesel) vehicle Levers • Design • Vaporization • Better automation • Vaporization and • Power train • Battery and optimization and combustion of transmission combustion technology power (resistance optimization • Continuous optimization • Battery and management coefficient and • Reduction of variable • Reduction of power technology • Recharging Copy right © 2012 by The Boston Consulting Group, Inc. All rights reserv ed. front area) energy loss transmission energy loss management • Tire optimization (pump, friction, • Double clutch (pump, friction, technology infrastructure heat) heat) • Lower weight CO2 emission ~10-11% ~40% ~5-10% -40% -65% -100% reduction potential Cost per ~$ 600 ~$ 2,000-2,500 ~$ 100-200 ~ $ 4,000 ~ $ 5,000 $ 10, 000 vehicle Note: ICE: Internal combustion engine 16
  18. 18. 3 Efficiency: Transport (II) Higher oil prices drive more efficient vehicle choices 49 mpg Larger personal vehicles1 Fuel efficiency (mpg) share of light vehicle production (%) 24 45 Fuel efficiency (mpg) 22 40 20 mpg 20 35 18 30 16 Large personal vehicle production share (%) 25 Copy right © 2012 by The Boston Consulting Group, Inc. All rights reserv ed. 14 20 12 15 11 mpg 1975 1980 1985 1990 1995 2000 2005 2010 • Oil crisis • Prolonged period of lower fuel prices • Oil price rises • Dramatic rise • Rising share of inefficient trucks in US light vehicle • Buying shifts to in fleet fuel fleet greater efficiency efficiency Not just about technology: efficiency impact affected by energy prices and regulatory framework 1. Larger personal vehicles includes: Pick ups, passenger vans and large SUVs. Small 2 w heel drive SUVs are categorized as cars Source: EPA 17
  19. 19. 4 Policy & Partnership: Kyoto Kyoto process has failed to curtail global CO2 emissions Variation CO2 emissions 1 (1990-2009) Decrease Increase China 5,437 Middle East 958 LatAm 496 USA 384 Copy right © 2012 by The Boston Consulting Group, Inc. All rights reserv ed. Kyoto bound Japan 51 Europe -238 Russia2 -464 -2,000 0 2,000 4,000 6,000 Mt CO2 Top-down global policy alone will not solve the worlds energy challenge 1. IEA estimates only include emissions from fossil fuel combustion. 2. Decrease due to the partial closure of Soviet Unions industry. Source: IEA emissions database, World Resources Institute 18
  20. 20. 4 Policy & Partnership: Investment Need for financing new energy is larger and more complex Global new investment in renewables (US$bn) 300 Government R&D 258 Corporate R&D 10 VC/PE 220 Public markets 200 CAGR: +31% 76 Small distributed capacity 167 161 Copy right © 2012 by The Boston Consulting Group, Inc. All rights reserv ed. 133 97 100 158 Asset finance1 61 39 0 2004 2005 2006 2007 2008 2009 2010 2011 Challenge for industry and governments is to ensure capital directed towards most effective solutions 1. Adjusted for re-invested equity Source: Bloomberg New Energy Finance, UNEP 19
  21. 21. 4 Policy & Partnership: Investment Financing new energy is increasingly challenging Utilities and commercial banks only capable to Can financial investors be attracted in finance ~58% of required investments sufficient scale to close the gap? GW 40 6 18 Balance sheet 8 financing 4 Project Copy right © 2012 by The Boston Consulting Group, Inc. All rights reserv ed. 3 financing 3 ? 17 ? ? ? 40 GW Already Additional trad. Gap Direct equity Project bonds Public equity Remaining gap EU target financed funding sources 2020 investors PF equity Investment decision will depend on PF comm. banks risk-return-profile of wind offshore parks PF public banks Source: BCG analysis 20
  22. 22. Conclusions1 • The global energy system faces a range of fundamental challenges Global – Rising demand, constrained supply and environmental issues Challenges • These challenges can only be met by sustained action on multiple fronts – Including both new sources of supply, and more efficient consumption2 • Innovation is extending the frontiers of energy supply Supply: – Major advances are transforming prospects for natural gas and renewables innovation • Other technologies remain promising, but lack investment momentum – Nuclear faces challenges post-Fukushima; CCS awaits commercial testing Copy right © 2012 by The Boston Consulting Group, Inc. All rights reserv ed.3 • Energy efficiency has great potential to reduce demand and emissions Demand: – Particular scope to achieve savings in domestic and transport sectors efficiency • However, implementation of efficiency measures remains challenging – Perverse incentives have undermined policy aims in the past4 • Global-level policy alone is not solving the worlds energy challenges Policy & – World-wide attempts to curtail carbon emissions have so far failed Partnership • The outlook is challenging, but significant scope for progress – Public-private partnership to align incentives through efficient regulation 21
  23. 23. Energy efficiency, innovation and technologySolving the global energy challengeDr Ivan MartenGlobal Leader Energy PracticeNovember 30, 2012
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