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Global Energy Conversation 3 Nurturing Energy Innovation


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This report invites a group of energy experts to explain their views on technologies and policies to meet the world’s energy challenges. It builds on two reports: Transitions from West to East, which examined the economic and political circumstances surrounding energy consumption, and Solutions to 2050, which explored solutions to meet rising energy demand and tackle climate change. The report was edited by Zoe Tabary.

To support the research, the Economist Intelligence Unit conducted a global survey in September 2012 of 731 senior executives from a range of industries to gauge their views on ways to stimulate energy innovation. Half of respondents are from firms with US$500 million or more in global annual revenue. The executives participating in the survey were drawn from Europe (22%), North America (20%), Asia-Pacific (19%), Latin America (19%) and Middle East & Africa (19%).

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Global Energy Conversation 3 Nurturing Energy Innovation

  1. 1. The Global EnergyConversatioN PART 3NURTURINGENERGYINNOVATION
  2. 2. PART III: NURTURING ENERGY INNOVATIONCONTENTS 2 N UC T IO Introduction IN TROD 4 Changing Nurturing behaviours Energy Alex Laskey Innovation Infographic 3 6 7 Gas can Why gas isn’t fuel Asia’s the answer to energy future climate change Duncan van Bergen Keith Allott Clean up Pragmatic solar with solar Gregor MacDonald Mark Kenber 8 9 11 The prospects for The wind offshore wind energy boom Ronan O’Regan Steve Sawyer 10 12 Developing The newcarbon capture energy and storage landscape Howard Herzog Sam Botterill 13 14 15 Biofuels and The biofuels the role of equation innovation Anandajit James Wilde Goswami The outlook Keeping for nuclear the nuclear power option open 16 Peter Kiernan Phil Burns 18 |1|
  3. 3. PART III: NURTURING ENERGY INNOVATION introduction I t seems apparent that innovation will be required across the energy sector in order to help it meet the twin challenges of rising energy demand and climate change. But seemingly well-meaning policies can turn out to have an adverse effect on innovation and the world’s current economic woes may limit the pace of investment. In which energy sources is innovation most needed? How can governments get the policy framework right for stimulating innovation, and then put it to work? Research carried out for this report highlights technologies and policies to meet the world’s energy challenges. According to an Economist Intelligence Unit (EIU) poll of 731 business executives, most technological advance in energy will come from solar, wind and biofuels. But nine in ten respondents say the cost of renewables must come down if they are to replace fossil fuels as the major source of energy. To facilitate this, 70% of executives think new technologies should be exonerated from trade barriers. Over three-fifths (62%) also say rewarding energy-efficient behaviour is the best way to increase energy innovation. However, just over a third of respondents (35%) think their government is doing enough to raise public awareness of energy and environmental challenges. Against this difficult backdrop, the experts contributing to this report have been set the task of debating various energy technologies, including solar, wind, gas, nuclear, biofuels and carbon capture and storage (CCS). As an overview, Alex Laskey, president and founder of Opower, an energy efficiency SaaS company, explains how to address the growing demand for global energy through behavioural efficiency programmes. According to Mark Kenber, chief executive officer of The Climate Group, an international NGO, solar power will bring a step change in global energy markets in the next decade. For Gregor MacDonald, an energy journalist, solar has become too cheap for governments to ignore. Duncan van Bergen, general manager global gas & LNG market development at Shell, believes natural gas should become the backbone of Asia’s energy system, not just a transition fuel. Keith Allott, head of climate change at WWF-UK, disagrees and thinks gas will fail to deliver on high hopes. Ronan O’Regan, director of renewables and cleantech at PwC, argues that offshore wind will need to become cheaper and find new sources of financing if it is to live up to expectations. Steve Sawyer, secretary-general of the Global Wind Energy Council (GWEC), explains why wind power is a central part of the EU’s strategy to reach 20% of final energy consumption from renewables by 2020. Peter Kiernan, energy analyst at the EIU, explains why emerging economies will continue to drive nuclear power growth in spite of Fukushima. For Phil Burns, director at Frontier Economics, a think tank, nuclear energy policy should be informed by trade-offs between cost, safety and reliability. Howard Herzog, senior research engineer at the MIT Energy Initiative, highlights how CCS needs reliable investment to unlock its true potential. For Sam Botterill, technical project manager for CCS and power utilities at the Energy Institute, CCS is a safe and reliable way to reduce carbon emissions. James Wilde, director of innovation and policy at the Carbon Trust, argues that bioenergy has the potential to decarbonise electricity generation, heat and transport globally. Finally, Anandajit Goswami, coordinator at The Energy and Resources Institute, discusses the economic and environmental challenges posed by biofuels. ABOUT THE REPORT The Global Energy Conversation Part 3: Nurturing Energy Innovation is an Economist Intelligence Unit report, sponsored by Shell, which invites a group of energy experts to explain their views on technologies and policies to meet the world’s energy challenges. It builds on two reports: ‘Transitions from West to East’, which examined the economic and political circumstances surrounding energy consumption, and ‘Solutions to 2050’, which explored solutions to meet rising energy demand and tackle climate change. The report was edited by Zoe Tabary. To support the research, the Economist Intelligence Unit conducted a global survey in September 2012 of 731 senior executives from a range of industries to gauge their views on ways to stimulate energy innovation. Half of the respondents are from firms with US$500m or more in global annual revenue. The executives participating in the survey were drawn from Europe (22%), North America (20%), Asia-Pacific (19%), Latin America (19%) and Middle East & Africa (19%). We would like to thank all those who participated in the research.|2|
  4. 4. PART III: NURTURING ENERGY INNOVATION human behaviours and energy efficiency Alex Laskey, president and founder of Opower, explains how to address the growing global demand for energy through innovative behavioural efficiency programmes.t he global middle class is Historically, utilities have favoured predicted to swell by 172% cost-effective programmes with low beween 2010 and 2030. Though barriers to customer participation, such increasing the quality of life for as subsidies for compact fluorescenthundreds of millions, this population lighting (CFLs). However, as theboom will also result in growing pressure energy-efficient lighting standards are Taking advantageon energy infrastructure and demand raised in the US, the effectiveness offor reliable, affordable and cleaner CFLs on reducing overall consumption of the increasedenergy supply. decreases. As a result, behavioural data collected energy-efficiency programmes haveWhile this could pose a threat, it equally through smart become a compelling option. Takingpresents a huge opportunity for those advantage of the increased data meters, utilities canwho can unravel the complexities ofhow we use energy and how usage collected through smart meters, detect patterns in utilities can detect patterns in usepatterns can be influenced to deliver and opportunities for customers to use and opportunitiesreal and lasting behaviour change. Truly save energy and money through simple for customers to saveembedding this change will also bereliant on support from policymakers changes to their behaviour. energy and moneywho can develop innovative Characteristics from the successful through simplebehaviour-based energy-efficiency programmes include measurable andprogrammes that reduce consumer predictable savings for customers, changes toenergy use through cost-effective cost-effectiveness, sustained impact their behaviour.measures. and overall customer satisfaction. What the example from the US has shown isThankfully, it seems the wheels are that as utilities engage their customersalready in motion. In October 2012 the with more information about theirEU established the European Energy Alex Laskey is president energy use and potential savings in aEfficiency Directive (EEED) to respond and founder of Opower and timely manner, their participation andto this challenge. Through a common responsible for engaging utility satisfaction increase, resulting in higherframework of measures, the directive and government partners with energy savings.aims to remove barriers in the energy Opower’s purpose and and promote efficiency in the Taking these as key learnings, He was invited to the White Houseuse and supply of energy, to achieve a it would be advantageous for European to meet with President Barackheadline target of reducing energy use counterparts to begin testing and Obama to discuss innovation andby 20% by 2020. exploring the potential of behavioural job creation in the green economy energy-efficiency programmes. While and to testify before the USOne of the measures that the directive cleaner generation supply will be a Senate. He has been a Technologywill specifically promote is the key element in the world’s ability to Pioneer at the World Economicempowerment of consumers to better meet the growing demand, the lesson is Forum in Davos and serves as amanage their energy consumption. In that the most environmentally-friendly Commissioner on the Alliancethe US, there are several examples of and cost-effective kilowatt is the one National Commission on Energysuccessful programmes that are already not used. Efficiency Policy.being implemented. Twenty-six stateshave set Energy Efficiency ResourceStandards (EERS) to deliver efficiencysavings of between 10% and 20% by2020. Over 90% of US states with thesestandards are currently meeting orexceeding them. |3|
  5. 5. PART III: NURTURING ENERGY INNOVATION Technologies and resources In which energy sources do you expect to see the most technological advance in the next 10 years? most popular least popular 71% 5% 7% 9% solar oil Coal hydro 38% biofuels 36% wind 69% say governments aren’t doing enough to make fossil fuels cleaner of people think renewables need to become cheaper if they are to replace fossil fuels as the major source of energy|4|
  6. 6. GLOBAL ENERGY CONVERSATIONPOLICIES Growth 62% of people think rewarding energy-efficient behaviour is the best way to increase 91% of people think energy innovation is a driver of economic growth energy innovation But... 44% are supportive 20% are supportive of subsidies of subsidies think the world’s current for gas for oil economic problems will limit the pace of energy innovation 52% Ineffective regulatory frameworks 45% Lack of 36% Unwillingness government support in energy of consumers innovation to pay higher prices for 70% energy rs ld hi o What are the biggest u e e nk n sh t xo ew technologies arrie barriers to increasing rates b n er ated fr trade b of energy innovation om in your country? Unless otherwise indicated, infographics depict the results of a survey of 731 people conducted in September 2012. |5|
  7. 7. PART III: NURTURING ENERGY INNOVATION Gas can fuel Asia’s energy future Natural gas should be the backbone of Asia’s energy system in the future, not just a transition fuel, argues Duncan van Bergen, general manager global gas & LNG market development at Shell. A ccording to the UN, by 2050 our planet will be home to “Natural gas is set to play Duncan van Bergen is general 9bn people—2bn more people a unique role in fuelling manager global gas & LNG than we have today. It is also developing countries’ rapid market development at Shell. estimated that three in four people economic growth.” Mr Van Bergen’s prior work will live in urban centres, with Asia’s at Shell includes a variety fast-growing cities absorbing much of and cleaner energy source that can of commercial and business that growth. That’s like building a new be realised fast, not just a back-up or development roles in Europe, Singapore every month for the next transition fuel. Asia, the US and Latin America. 40 years. Prior to Shell, he led the Asian Asia, for example, has seen a sweeping Gas & LNG practice at McKinsey The combination of population growth, rise in natural gas production and & Co. Mr Van Bergen’s expertise urbanisation and vast expansion of consumption. Malaysia, Indonesia lies in energy markets, global the middle class will lead to significant and Brunei all serve as long-term energy and sustainability growth in energy demand, which is suppliers of liquefied natural gas (LNG). challenges and issues, energy forecast to double between 2000 and Thailand started importing LNG in 2011, market policy and reform. 2050. At the same time, the world will peninsular Malaysia and Indonesia have to find ways to cut C02 emissions commenced this year. By the end of the more drastically to avoid the impact decade, it is expected that six of the ten of serious climate change. In Asia, the Association of South-East Asian Nations challenge will be even more acute – (ASEAN) countries will be importers urban populations will grow from 1.9bn of LNG. today to 3.3bn in 2050 and energy According to the International Energy demand will continue to escalate. Agency’s (IEA) Golden Rules set out in Human ingenuity, innovation and 2012, between 2010 and 2035 primary technology, combined with the natural gas demand could increase by up sustainable development of natural to five-and-a-half times in China, and by resources, hold the key to unlocking the over three times in India. Asia and the energy needed today and in the future. rest of the world are exploring multiple Globally, this will include increased uses of natural gas including the more energy efficiency and the ramp-up traditional use in power generation and of renewable sources, as well as the as petrochemical feedstock, as well as utilisation of hydrocarbons which will the increasingly popular applications continue to provide a large part of the for highly-efficient and new uses world’s energy supplies, over 60% in in industrial heat, land and marine 2050. transportation. Natural gas is uniquely suited to be Natural gas is set to play a unique the cornerstone of a more sustainable role in fuelling developing countries’ energy future—one that can meet rising rapid economic growth. Renewables energy demand rapidly and securely, and energy efficiency will enhance in a way that also reduces both air that prosperity if the right investment pollution in dense urban areas and decisions are made in time. global CO2 emissions. It should be the backbone of future energy systems as natural gas offers a reliable, competitive|6|
  8. 8. Why gas isn’t the answer to climate change Gas will fail to deliver on high expectations, says Keith Allott, head of climate change at WWF-UK.L istening to the optimists in the rise to less than 2°C. gas—need to stay safely in the ground. gas industry, you would think Dashing to develop new reserves is To illustrate the point, the International that the world is on the cusp of steering the world towards a massive Energy Agency’s (IEA) Golden Age of a “shale-gas revolution” which climate crash, and risks creating hugely Gas report compared two alternativewill tackle climate change, keep energy expensive stranded assets. energy scenarios, one of which seesbills down and enhance energy security. a rapid expansion of unconventional Dr Fatih Birol, chief economist ofLarge parts of the UK government— gas production. In this scenario, the IEA, remarked earlier this yearincluding, it seems, Chancellor George global temperatures rise by at least that “a golden age for gas is notOsborne—are keen to promote a vision of 3.5°C, which would be devastating for necessarily a golden age for thethe UK as a “gas hub” and reposition gas people and nature. The difference in climate”. He is spot a wonder fuel. Unfortunately, this new levels of warming between emissionsstoryline pays little respect to the facts. in this scenario and one in whichThe UK, for example, is now dependent unconventional gas expansion is much “Only with decisive policies byon imports for 65% of its gas supplies slower and gas prices are higher is governments to dramaticallyand this is set to increase despite any negligible. improve energy efficiency andfuture shale-gas production. So any attract investment in low-carbon So why does this gas scenario fail toclaim that more gas dependence is deliver significant carbon savings? In generation such as renewablesgood for energy security looks highly the IEA’s report, more unconventional can we have a hope of limitingdubious. Unlike renewable energy, gas leads to lower gas prices. This leads temperature rises to 2°C.”where costs are declining rapidly, gas to less investment in energy efficiencyprices are expected to rise. Deutsche and genuinely low-carbon forms ofBank has said that shale gas is unlikely generation which offset the majorityto be a game-changer, concluding that Keith Allott is head of climate of the savings made by gas.“we do not expect the impact of change at WWF-UK, where heshale-gas production on EU gas prices to The gas industry used to describe gas as leads a team working on UK andbe anywhere near as great as has been a “bridging” fuel—it now talks of it as a EU climate change and energythe case with US shale-gas production”. “destination”, while renewable energy policy, international climate is frequently portrayed as an emerging negotiations, aviation policyOn the climate question, there are valid niche that cannot deliver at scale. and climate change adaptation.concerns about leaking, venting and Yet, according to the UN Environment Before joining WWF-UK in 2006,flaring of gas at various stages of the Programme, in 2011 investment in Mr Allott spent much of his careerextraction process. Setting these to renewable power sources rose to $257bn working in various senior editorialone side, the carbon intensity of power and non-hydro renewables accounted roles for ENDS, the leading UK andgeneration from gas is around half that for 44% of all new power capacity. Quite EU publisher of environmentalfrom coal. The UK’s “dash for gas” in the simply, we should see the gas industry’s intelligence for business. He1990s and rapid shale gas expansion in self-promotion for what it is: a turkey also worked for the UK’s Royalthe US have both helped to cut those voting against Christmas. Commission on Environmentalcountries’ emissions by displacing some Only with decisive policies by Pollution, including contributingcoal generation, although expansion governments to dramatically improve to its influential report in 2000 onof renewables and the economic energy efficiency and attract investment energy and the environment.downturn also contributed in the UScase. Environmental NGOs aren’t blind to in low-carbon generation such asthese potential carbon savings but they renewables can we have a hope ofare nowhere near enough to address the limiting temperature rises to 2°C. Andthreat of climate change, let alone meet as the IEA’s most recent World Energythe internationally-agreed objective of Outlook made clear, the vast majoritylimiting the average global temperature of all fossil fuel reserves—coal, oil and |7|
  9. 9. PART III: NURTURING ENERGY INNOVATION Clean up with solar Solar power will bring a step change in global energy supply in the next decade, claims Mark Kenber, chief executive officer of The Climate Group. I t is easy to be distracted by of electricity (the cost distributed decision-makers should set a clear negative news headlines about over a project’s lifetime - LCOE) for low-carbon energy strategy which has solar energy these days: solar conventional silicon PV declined from an decarbonisation targets at its heart companies going bankrupt, average of $0.32/kwh in early 2009 to and is backed up by policy instruments. photovoltaic (PV) supply much higher $0.17/kwh in early 2012, while thin-film This will scale up the solar and other than demand and solar panels causing PV dropped from $0.23/kwh to renewable industries, further lowering a new trade war. Still, much of the news $0.16/kwh over the same period. As for costs and making them even more agenda misses the wider point: the the first quarter of 2012, BNEF pegs the competitive. vast potential of solar power is already levelised cost range at between changing the energy outlook of many $0.11/kwh and $0.25/kwh. countries and promises to be the global “Policy decisions should This means that PVs are now rapidly energy success story of the next decade. becoming competitive with fossil not be based on news The solar PV sector is already a huge fuels. Countries with higher electricity headlines or influenced success. From a small industry primarily prices, such as Germany, Denmark, by incumbents’ resistance centred in Germany, it has managed to Italy, Spain and parts of Australia, have become a global $100bn industry with already reached grid parity. Countries to change but on installed capacity exceeding like Japan, France, Brazil or Turkey accurate, up-to-date 65 gigawatts (gw) in 2011, up from are expected to reach it by 2015. The information and data on 5.4 gw in 2005—a 1,200% increase in six Middle East and North Africa region is solar energy’s costs and years. In Europe, despite heavy cuts in close to grid parity. In the US, solar PV competitiveness.” feed-in tariffs in a number of countries, technology is expected to reach grid deployment in 2011 increased by 54% parity for some projects in 2014, while compared with the previous year, to China could achieve it in most of its 28.7 gw. This is ten times the build level regions by 2015-16. of 2007. At current growth rates, solar Mark Kenber is chief executive The dramatic fall of PV prices and energy could be providing 10% of global officer of international NGO The installation costs, and their increased power generation by the end of the Climate Group. He has worked competitiveness with fossil fuels will decade. on climate change for 15 years bring a step change in energy supply. and is an expert on international There is no doubt that government In developed economies, PVs have the climate policy. He advised former subsidies have played a significant role potential to disrupt the regulated utility UK Prime Minister Tony Blair in the in the expansion of PVs. But as subsidies industry. In developing economies, PVs joint policy initiative, Breaking dry up around the world it is the dramatic could bring electricity to remote rural the Climate Deadlock, which fall in PV prices and installation costs, areas and improve the standard of living produced a series of high-level and the medium-term cost certainty of millions. In an increasing number of reports outlining the economic solar provides, that are driving growth. countries, from Saudi Arabia to India and technological rationale for and Japan, solar energy is now a vital A recent McKinsey & Co report found a global climate deal and its key part of future energy strategy and can that by the end of the decade, PV costs components. drive a clean energy revolution forward. could decline to $1 per watt peak (wp) for a fully-installed residential system The onus is now on decision-makers. by 2020. Even if costs fall to $2 per wp, Policy decisions should not be based the industry is still likely to install an on news headlines or influenced by additional 400-600 gw of PV capacity incumbents’ resistance to change, but between now and 2020. on accurate, up-to-date information and data on solar energy’s costs and According to Bloomberg New Energy competitiveness. More importantly, Finance (BNEF), the levelised cost|8|
  10. 10. Pragmatic solar The time has come for governments to seriously consider solar energy, argues energy journalist Gregor MacDonald.I t is almost certainly the case that India, where hundreds of millions of humanity has entered a third, citizens remain unserved by the power “Long considered too historic energy transition. The grid and constraints on coal-fired power expensive to consider, first two, from wood to coal in the capacity are formidable, solar is now18th century and then coal to oil in the gaining ground as a quicker, simpler way solar may now be too20th century, in retrospect seem obvious to add capacity. cheap to ignore.”in their outcomes. But no such benefit of The stagnation of nuclear power,hindsight exists today as economies— meanwhile, provides a useful lenswestern in particular—struggle with the through which to compare the rise of Gregor Macdonald hasend of cheap oil. Left to cast about for solar. Global consumption of nuclear written for the Financial Times,the next primary energy source, energy power was almost perfectly flat between The Oil Drum and The Harvardfuturists have probed everything from 2001 and 2011 at just over Business Review. He hasalgae to thorium as industrialism limps 2,600 TWh. Governments should take appeared on MSNBC in the US,slowly away from fossil fuels. But one notice because, priced in terms of future BNN in Toronto and the Keisertechnology offers promise: solar. liability, nuclear power’s enormous Report out of Paris. His writingsLong considered too expensive to risk and expensive waste are ultimately and views have been cited inconsider, solar may now be too cheap borne by the public. If nuclear’s long The Washington Post, The Newto ignore. Solar panels, employed to construction timelines and heady cost York Times, the Los Angelescapture the diffuse rays of the sun, have overruns are now a headache, perhaps Times, WIRED and Foreigncrashed in price in recent years, causing government support of solar is no longer Policy, among others. In 2011havoc among solar manufacturers. utopian but a practical choice. Mr MacDonald was named in thePanels are now barely one-quarter Top Twenty Tweeps for Keeps by Solar, like other technologies whichof the price they were in 2008. The Barrons as people to follow on capture diffuse energy, can neverbenefits have accrued instead to users, the markets and the economy. replace the energy density of fossilas efficiency of photovoltaic capture fuels. Oil, for example, with its 5.8m btucontinues to advance, while prices (british thermal units) per barrel, is acontinue to decline. The result? Nearly veritable miracle substance comparedexponential growth in installed, global with biofuels, wind power and capacity. But as the world economy continuesBut solar’s emerging price its migration from liquid energy tocompetitiveness does not explain the power grid, differentiation amongfully why world consumption has energy sources will heighten. Againstmoved in just five years from 5 TWh natural gas, solar offers power without(terawatt hours) to over 55 TWh. A environmental extraction costs. Tomyriad of government inducements coal, solar offers the 5bn people in theand incentives, which have admittedly developing world, already suffering fromdrawn criticism, have indeed provided terrible coal-fired pollution, a cleana running start to the nascent solar alternative. Importantly, solar offers theindustry over the past decade. But more least complex on-ramp now to the powerrecently, solar’s ability to provide a grid. In a world where simplicity itselfmuch less complex energy alternative, will command a premium, solar offerssay, compared with nuclear power, surprising and tremendous value.has drawn interest, especially in thedeveloping world. In countries such as |9|
  11. 11. PART III: NURTURING ENERGY INNOVATION The prospects for offshore wind Offshore wind will need to become cheaper and find new sources of financing if it is to live up to expectations, argues Ronan O’Regan, director of renewables and cleantech at PwC. T he deployment of offshore wind these challenges, the need to reduce its growth potential. to date has been focused on the cost of offshore wind and to access north-west Europe, particularly new sources of finance in the longer the UK and Germany. Globally, term will be central to ensuring that countries such as China and the US have the technology achieves its growth ambitions for significant deployment ambitions. of offshore wind but have made limited The current cost of offshore is The need to progress. c €180/mwh, which is almost three times reduce the cost The primary driver for investment in offshore wind continues to be higher than the wholesale cost of power. These incremental costs for offshore of offshore wind governments setting energy policy wind are well above the incremental and to access new with a commitment to reduce carbon costs of onshore wind but below newer emissions. This is reflected in the technologies such as wave and tidal. sources of finance medium term, where in Germany, the In any event these costs are currently in the longer term UK and France alone, ambitions for recovered from end users through 30 gigawatts (gw) of offshore by 2020 higher energy bills. In the current will be central have been set, with further growth economic climate, there is even more to ensuring that expected beyond 2020. With regard scrutiny of the costs of energy and the to the longer term, the EU recently offshore wind industry accepts that it the technology set out its ambitions for renewable will have to reduce its cost base over achieves its energy through to 2050 in its 2011 time. It is hoped that a combination Energy Roadmap, which puts renewable of new technology (increasing turbine growth ambitions. energy at the heart of the shift to a size, performance and reliability) and decarbonised power supply. optimising the supply chain for cost-efficient delivery of projects, This commitment to increase deployment can bring the costs down to a level of renewable energy has been most Ronan O’Regan has been that minimises the required support. evident with EU governments in working in the European power particular, where they have supported As the size of offshore wind projects sector for the past 20 years, the sector through a variety of has increased, so too have the required both in industry and in PwC’s measures, the most important being levels of capital to deliver these energy team. He works with a revenue support commitments. While projects. It is expected that new wide range of clients, including budget deficit issues have forced a sources of capital will be required to project developers, lending rethink on support for renewables in supplement the current providers of banks, utilities, traders and some EU markets, the primary offshore capital (primarily large utilities). It can pure play generators. wind regions have retained their be expected that these sources of capital commitment and indeed in Germany will be unlikely to take certain risks their commitment has increased (for example, construction) until the following the announcement of a phased industry has a better track record of on- withdrawal from nuclear power. time budget delivery. However, the offshore wind sector is Policymakers are currently considering not without its challenges and these how they can facilitate solutions to both will need to be addressed if the sector cost reduction and financing challenges is to fulfil its longer-term potential. Of to ensure that the industry can realise|10|
  12. 12. The wind energy boom Steve Sawyer, secretary-general of the Global Wind Energy Council, explains why wind power is a force to be reckoned with.W ind power plays a central worldwide were outside technologies. In comparison, politicians role in an increasing the OECD, driven both by clear policies seem reticent to scale back on the number of countries’ and growing electricity demand. $600bn subsidies (according to the immediate and longer-term International Energy Agency) that are Wind industry is a central part of the EU’senergy plans. After 15 years of average expected to go to fossil fuels in 2012. strategy to reach 20% of final energycumulative growth rates of about consumption from renewable energy by Wind power is a central player in our28%, global commercial wind power 2020, and a central part of its emissions energy future. Whether it will supplyinstallations in about 80 countries at the reduction strategy. Already providing 15%, 20%, or 30% or more of ourend of last year averaged 240 gigawatts over 6% of the EU’s electricity, this electricity by 2050 will depend on a(gw). They are expected to reach number is set to more than double by the complex set of forces.280 gw by the end of 2012, providing end of the decade. However, the recent2.5% of global electricity supply and upheaval within both the commercialsaving approximately 400m tons of CO2 banking sector and the euro zone haveemissions. Mid-line projections have slowed its progress in southern Europe.the industry supplying 8% of globalelectricity supply in 2020, saving Due to both technology improvementsover 1.1bn tons of CO2 annually, and and market forces, wind equipment costsdepending on the pace of economic have come down significantly in the pastgrowth and new emissions reduction few years. This is making wind farmstargets, it could well top 10 or even 12% cost-competitive and allowing themof global electricity supply by the end of to compete for market share againstthe decade. subsidised incumbents. Offshore wind Wind industry isChina is now firmly established as the is, in development terms, where onshore a central part of wind was 15 years ago—as it scales up,world’s leading market, installing nearly costs will come down. the EU’s strategy18 gw in 2011 to bring its total capacityto over 62 gw, and the government has The growth of wind power is taking to reach 20%ambitious targets for the future. The US place against the backdrop of a highly-publicised and often politicised of final energyis the world’s second biggest market andis expected to have had a banner year in debate about support for clean consumption from2012, though with a precipitousdrop-off in 2013 due to highly- energy technologies in the absence of an effective price on carbon, air renewable energypoliticised energy policy. India and pollution, water pollution or fresh by 2020.Brazil are the two fastest-growing water consumption—these total aboutmarkets globally. In fact, in both 2010 $600bn per year globally, about halfand 2011, the majority of installations of which goes to renewable electricity Steve Sawyer, secretary-general of the Global Wind Energy Council, has worked in the energy and environment field since 1978, with a particular focus on climate change and renewable energy since 1988. He spent many years working for Greenpeace International, representing the organisation at intergovernmental and industry levels primarily on energy and climate issues. At GWEC he is focused on working with intergovernmental organisations to ensure that wind power takes its rightful place in the energy options for the future, and with opening up new markets for the industry in Latin America, Africa and Asia. |11|
  13. 13. PART III: NURTURING ENERGY INNOVATION Developing carbon capture and storage Carbon capture and storage (CCS) needs reliable investment to unlock its true potential, argues Howard Herzog, senior research engineer at the MIT Energy Initiative. T here are truths that cannot To adequately address these goals, be denied. First, nature will the world will need to invest tens of determine how serious a problem billions of dollars over the next decade. climate change is, not our However, traditional funding from politicians. Second, it is always cheaper government and industrial investment, to vent CO2 into the atmosphere than revenues from selling carbon permits, The most important to capture and store it. Therefore, it are proving inadequate. New, reliable thing one can do is unreasonable to expect CCS to be sources of funding are required. One to accelerate the deployed on a large scale without strong possibility is a small surcharge (less than climate policy to drive it. $0.001/kwh) on all fossil-generated development and The most important thing one can do electricity. adoption of CCS to accelerate the development and We also need to rethink our development technology is to adoption of CCS technology is to create strategy. We need to concentrate on commercial markets. While some fewer projects rather than spreading create commercial markets exist for the utilisation of the funding out too thin (in many cases markets. CO2, most notably CO2 for enhanced for political reasons). We will need to oil recovery (EOR), they have their trade quantity for quality, ensuring limitations. Specifically, the cost for that a limited number of demonstration capturing CO2 from power plants is projects produce maximum return. between two and four times the cost Howard J. Herzog is a senior In summary, CCS is critical for a research engineer in the MIT that EOR operators are willing to pay. secure, clean energy future. It is the Energy Initiative. Since 1989 he Therefore, in the longer term, there is only technology that can allow the has been on the MIT research staff, no substitute for climate policy that continued use of our large fossil energy where he works on sponsored puts a high enough price on carbon to resources while drastically reducing research involving energy and the create robust markets for CCS. Since their greenhouse gas emissions. environment, with an emphasis the implementation of climate policy However, progress to date has been on greenhouse gas mitigation is moving at a very slow pace, these much slower than desired, not because technologies. He was awarded climate markets may need a couple of of the limitations of the technology, the 2010 Greenman Award by decades to become reality. The key but because of lack of funding to the IEAGHG “in recognition question then becomes what should we develop and deploy them. Whether our of contributions made to the be doing now to develop CCS so it can be expectations for CCS will be met in the development of greenhouse gas ready when called upon. future depends on our commitment to control technologies”. The two key overarching goals for a invest in it now. global CCS research and development strategy are (1) proving the viability of large-scale storage and (2) lowering the cost of capture. Without demonstrating the safety of long-term, large-scale storage, the public is unlikely to ever accept using subsurface formations to store large amounts of CO2. Without lower costs, CCS will not be able to unlock its true potential as a mitigation technology.|12|
  14. 14. The new energy landscape The UK government’s Electricity Market Reform (EMR) bill is likely to drive carbon capture and storage (CCS), says Sam Botterill, technical project manager for CCS and power utilities at the Energy Institute.T he coming of the long-awaited The realisation of a scaled EMR bill poses a most interesting demonstration project will require prospect for the new year, as it guidance that can be understood by began progress in the House of both the current industry and the “nextCommons in November 2012. The bill industry” to come. The concept of theaims to provide certainty to investors next industry lies in the fact that in The idea toand bring forward the investment in the course of time, companies that may combine severalnew infrastructure needed to movetoward a diverse, low-carbon economy as not have previously had a history in the CO2 or offshore environment could technologies intoaffordably as possible. The intent is that potentially move into this space. These CCS is barely 15this will also support the creation of over companies should be able to benefit from years old and while250,000 energy-related jobs. a mature process of developing good practice. more progress isAccording to the Department of Energyand Climate Change (DECC), the amount Globally, there are some major projects needed, it is worthof market support to be available for underway. Shell is pressing ahead with noting how far itlow-carbon electricity investment the Quest project in Alberta Canada,(under the Levy Control Framework) up and in Saskatchewan the Boundary Dam has come in such ato 2020 has been set at £7.6bn in 2020, project is also progressing well with short space of time.which corresponds to £9.8bn nominal its build programme, which on December2020 prices. This will help diversify 20th 2012 completed a deal for theour energy mix to avoid dependency on off-take of piped CO2. The project,any one energy technology, increasing managed by SaskPower, will be thethe amount of electricity coming world’s first commercial-scale plant.from renewables from 11% today Australia continues apace with the Sam botterill manages theto around 30% by 2020, as well as Gorgon Project, while its Global CCS Energy Institute’s work in thesupporting new nuclear power and CCS Institute (GCCSI) now has nearly 75 area of carbon capture andcommercialisation. projects registered across the globe. storage through the CCS TechnicalThe final announcement on the The idea to combine several technologies Committee, which looks atgovernment’s CCS competition adds into CCS is barely 15 years old and while hazards and technical issuesanother significant layer to the UK’s more progress is needed, it is worth relating to the introduction ofenergy story. The Energy Institute noting how far it has come in such a this technology to both thebelieves that this is one of the key short space of time. Practitioners in the on-and offshore environment.areas where the UK can demonstrate area have accepted that the priority is Mr Botterill has written for Newits leadership on health and safety to engage the public, demonstrating Energy World Network and Thinkissues. Due to the knowledge-share CCS is a safe and reliable method to Africa Press on a range of politicalapproach involved in a government remove CO2 from the world’s developing and financial issues.funding model of the type set out power systems.under the last competition, it will leadto a wide dissemination of knowledgedemonstrating how CCS can be executedin a low-risk environment. |13|
  15. 15. PART III: NURTURING ENERGY INNOVATION Biofuels and the role of innovation We must continue to unlock the potential of bioenergy, argues James Wilde, director of innovation and policy at the Carbon Trust. U nfortunately, there is no and refine the technologies that can silver bullet that will solve convert these, as well as waste, to the challenge of climate useful energy outputs. Analysis by change. This means that the Carbon Trust for the government low-carbon technologies will be required found that innovation has the potential The debate around to significantly reduce carbon emissions. to reduce UK energy system costs by Many see this transformation as a cost to £42bn by 2050. International business bioenergy has moved the economy, but responding to climate development is calculated to provide on in recent years change represents a huge commercial further economic value to the UK to the from “can this be done business opportunity through the tune of £19bn. creation of new markets. Bioenergy has sustainably?” to “how So where to innovate? When looking the potential to decarbonise electricity at priorities for innovation in biofuels much of this can we generation, heat and transport in the UK in the UK, we found that the highest deploy sustainably and and globally. priority comes from woody and grassy equitably?” Liquid biofuels used for transport crops with higher yields on marginal are particularly controversial. They land, advanced biofuels demonstration, appear to have as many dissenters as proof of integrated gasification systems advocates. Advocates see a dispatchable at scale and high-efficiency biopower renewable energy source, which can systems that are robust to a variety of use existing infrastructure, can be feedstocks and ready for CCS. James Wilde is director of domestically sourced and could be used innovation and policy at the Looking beyond the UK, one sector to generate low-carbon electricity Carbon Trust. The Carbon Trust where we believe biofuels innovation is when combined with carbon capture helps business and the public critical to unlock potential is aviation. and storage (CCS). However, dissenters sector cut carbon emissions and This is a fast-growing sector where very see an energy source that competes supports the development of few alternatives to fossil fuels exist and with food for agricultural land, creates low-carbon technologies for the it represents an ideal market to focus on emissions from land use change, future. Mr Wilde has been at the fast-tracking the commercialisation of generates air quality concerns and can Carbon Trust for nine years, biofuels. The sector is seeking a single impact negatively on biodiversity. The leading policy and markets “drop-in” solution and has a manageable debate around bioenergy has moved on work which has informed the number of major refuelling locations, in recent years from “can this be done introduction of a number of new while its large players are aligned around sustainably?” to “how much of this can policies and spanned a wide range the nature of the challenge we deploy sustainably and equitably?”. of topics in the UK and abroad— and willing to collaborate to find Indeed the UK government’s Bioenergy from the EU Emissions Trading solutions. By focusing on this sector Strategy states that only sustainable Scheme, energy efficiency and we believe biofuels will be able to truly deployment will be acceptable in the UK low-carbon building design through show their worth. and calculates that around a tenth of UK to renewable and low-carbon energy could be provided by bioenergy technology innovation policy. by 2050. That is significant and we must continue to unlock its potential. The key to this, and ensuring sustainable deployment goals are met, lies in innovation. Innovation offers the chance to increase deployment of more sustainable feedstocks and to develop|14|
  16. 16. The biofuels equation Anandajit Goswami, co-ordinator at The Energy and Resources Institute, answers questions about biofuels and explains what environmental and economic challenges they pose.W hat is the current developed countries and tapped into situation in developing biofuel resources in Asia and Africa to and developed countries meet their domestic energy demands, concerning the supplemented by merchandise trade production of biofuels? routes under various bilateral and Investors andIn economic terms, first-generation unilateral agreements.biofuels such as bioethanol and technology producers What, if any, are the environmentalbiodiesel posit divergent stories and economic risks associated have moved awayacross countries. In Brazil, bioethanol with biofuels? from developedproduction costs have declined aftersustained efforts by the government Investments in biofuels frequently countries and tappedsince the mid-1970s, through research disregard the social, economic and into biofuel resources environmental implications of biofueland development, an integrated in Asia and Africa toinstitutional approach and yield production. In countries such as India and China, for example, biofuels have meet their domesticenhancement. The same can’t be said ofIndia’s bioethanol programme, which been a significant element in the rise of energy demands.began in 2003. Bioethanol programmes food accelerate the reduction of carbon This argument is outlined in Biofuelemissions also have a long way to Delusion: The Fallacy of Large Scalego in other developing countries of Agro-Biofuels Production, where authorsSouth Asia, including Sri Lanka and Anandajit Goswami is a Mario Giempietro and Kozo MayumiBangladesh. co-ordinator at the African denounce the overhyped promise of division of The Energy andWithin the EU and the US, biofuel biofuels as a replacement for fossil fuels. Resources Institute, specialisingproduction costs have failed to They highlight the danger of biofuel in first- and second-generationcome down, partly due to a lack of production driven to a large extent by biofuels. He is also working onstandardised germplasm and feedstock profit and of simultaneously ignoring climate policy studies for thevariety to generate adequate biofuel sustainability implications. African Climate Policy Centresupply. Second-generation fuels (cellulosic of the UN Economic Commission ethanol) and the possibility ofWhat are the likely trends for for Africa. cultivating marginal areas, unsuitablethe future? for food production, are cited as morePolicies such as the EU’s Renewable effective ways of using biofuels.Energy Directive (RED) have directed What measures should countries adoptdemand for biofuels towards end-use to fully realise the benefits of biofuels?sectors such as transportation, whichhas been criticised. A study published Biofuels offer a promising alternativeby four environmental groups called to the twin challenges of meetingfor the EU to modify its rules to use rising energy demand and addressingless damaging crop-based biofuels in climate change. Conscious decisionstransport. In October 2012 the European and sharing of information as well asCommission published a proposal to limit financial and technical assistance willthe use of food-based biofuels to meet be necessary to minimise the risksthe 10% renewable energy target of the associated with biofuel production andRED. to enhance its benefits.Therefore investors and technologyproducers have moved away from |15|
  17. 17. PART III: NURTURING ENERGY INNOVATION THE OUTLOOK FOR NUCLEAR POWER Despite Fukushima, emerging economies will continue to drive nuclear power growth, says Peter Kiernan, energy analyst at the Economist Intelligence Unit. T he March 2011 earthquake and caused by the so-called shale gas tsunami which disabled the boom—which has sharply lowered the Fukushima-Daichi nuclear power cost of gas-fired power generation. This plant in Japan sent shockwaves combined with poor euro zone economic around the world about the viability and performance which has depressed safety of nuclear power. High construction energy consumption and slashed access However, the longer-term impact of costs and, more to credit, has also worked against prospects for nuclear power in Europe. Fukushima on the nuclear industry recently, the The decline of US coal-fired power globally may be less than anticipated global economic generation is causing surplus coal to find in the immediate aftermath of the disaster. Certainly lessons are being slump and the its way to Europe, making coal in Europe more price-competitive to gas. learned by the industry and regulators greater availability in several countries, not just in Japan, The outlook for nuclear power in Europe and necessary adjustments in safety of cheaper and North America is sluggish, and measures and maintenance procedures alternatives—such the Fukushima disaster will compel will be made. The International Atomic as natural gas and regulators worldwide to monitor Energy Agency forecasts that global industry practices more aggressively. expansion of nuclear power coal—are likely to Growth in the sector will be slowed as a post-Fukushima will slow moderately. be more influential few countries phase-out nuclear power All is not lost for nuclear power, with the in restricting the completely, while others slow the rate of further approvals or decide not to start impetus for capacity growth coming from growth of nuclear up with nuclear power at all. The KRICs, Korea, Russia, India and China (KRICs). China and India are fast-growing power among however, will continue to drive the economies that face rapidly-growing OECD economies. capacity growth in nuclear power. energy needs. They also depend heavily on coal. Following Fukushima, China suspended approval for new plants and conducted inspections on its operating and under-construction reactors. The nuclear power generation had reached Peter Kiernan is energy pace of further approvals may slow, but something of a plateau. However, the analyst at the Economist nearly half of the nuclear reactors being fallout of Fukushima was felt the most Intelligence Unit. He has built today are located in China. India, in Europe, with Germany bringing a Master of Arts degree in which faces a growing energy import forward its complete phase-out plan to International Political Economy bill, also needs to avoid a repeat of the 2022 and Switzerland deciding to shut and Development from Fordham power blackout that wreaked havoc in down its reactors by 2034. In Europe, University, New York, and since July 2012. In Russia and Korea, nuclear only a handful of reactors are under then he has worked in energy power is a long-established source of construction or planned, and countries journalism and in consulting—in electricity supply and this will continue, that have excluded nuclear power so far Washington DC and in London. with further construction of reactors. are unlikely to change policy. In Europe and North America the story The US, which has the most number is different. Nuclear power already of reactors (104), only has one plant represents a large share of electricity under construction. Future growth in supply—especially in France, Belgium, capacity will likely be curtailed by the Switzerland, Sweden and Hungary—and rapid growth in natural gas supplies—|16|
  18. 18. Keeping the nuclear option open Nuclear energy policy should be informed by trade-offs between cost, safety and reliability, argues Phil Burns, director at Frontier Economics.A t the end of 2011, the European are costing German customers over Commission published the €6bn per year. And neither solar Energy Roadmap 2050, which nor wind power can provide security explores the challenges posed of supply delivering the EU’s decarbonisation Estimates of the costs of In the wake of theobjective while at the same timeensuring security of energy supply and nuclear-generating capacity vary Fukushima disaster, dramatically, both in desk studies andcompetitiveness. It is clear that to in real life. Take the Olkiluoto 3 plant in a reaction againstachieve these levels of decarbonisation Finland which started out with a €3bn nuclear power ismajor investments will be needed toreplace the current carbon-intensive estimate and then ran into massive understandable, delays which have already cost a furthergeneration park. €2.65bn. EDF’s Flamanville plant in but it is likely thatThese investments will focus on France started with a €3.3bn price this comes at a cost,low-carbon generation. This includes tag—recent estimates stand at €8bn. which politiciansrenewables, potentially carbon capture However, it is important to bear in mindand storage (CCS) plants and, most that Olkiluoto 3 is the first Generation and voters need tocontroversially (post-Fukushima, at III+ plant in the world and Flamanville is understand.least), perhaps nuclear. the first in France. Their costs have to be considered in this context.Before the Fukushima disaster therewas much talk of a nuclear renaissance, So renewables are intermittent andand projects were mooted in several expensive. Nuclear power involves bigEuropean countries. Sentiment switched engineering projects with resulting cost Phil Burns is a director atfollowing the disaster in Japan, with uncertainty and will always bring with Frontier Economics, specialisingGermany accelerating its plant closure it safety concerns in the public’s eye. in regulatory and competitionand Switzerland deciding on a cap of But it looks likely to be cheaper than analysis in the energy sector. He50% of nuclear’s share in production. many renewable options. Traditional is an expert on utility regulation fuels such as gas, coal and oil will remain and liberalisation policy, andEnergy policy is, inevitably, a political “dirty” until CCS technology is proven at has shaped policy throughmatter. This is particularly the case industrial scale. Even then, they will be his work with clients and hiswhere nuclear power is concerned. But expensive until CCS technology matures published work, which extendsin setting energy policy, politicians and reduces in cost. across sliding scale regulation,can’t ignore real-world constraints. comparative efficiencyEveryone would like to have an energy All of this means there is no single measurement and incentivesystem which delivers safe, secure and silver bullet. Energy policy needs to be design to align commercial andcheap energy produced with minimal informed by the trade-offs. In the wake policy objectives.emissions. But, at least with today’s of the Fukushima disaster, a reactiontechnology, such systems don’t exist. against nuclear power is understandable, but it is likely that this comes at a costEuropean policy currently subsidises which politicians and voters need torenewables heavily. Earlier this year understand. Future generations mayGünther Oettinger, the European not thank us for pressing on regardless,commissioner for energy, endorsed which is what a further bindingthe idea of a new binding target for renewables target post-2020 mightrenewables after the existing 20% target just represent.for 2020. At what cost? Solar subsidies |17|
  19. 19. Economist Intelligence UnitThe Economist Intelligence Unit (EIU) is the world’s leading resource for economic and business research, forecasting and analysis. It provides accurateand impartial intelligence for companies, government agencies, financial institutions and academic organisations around the globe, inspiring businessleaders to act with confidence since 1946.Economist Intelligence Unit20 Cabot Square,London,E14 4QWTelephone + 44 (0) 20 7576 8181Fax +44 (0) 207 576 8472E-mail© 2013 The Economist Group. All rights reserved. Neither this publication nor any part of it may be reproduced, stored in a retrieval system, ortransmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without prior permission of The EconomistGroup. Whilst every effort has been taken to verify the accuracy of information presented in this document, neither The Economist Group nor itsaffiliates can accept any responsibility or liability for reliance by any person on this information.