April 10, 2017
Proposal I: We need an Energy System Architect
April 10, 2017
Malcolm Keay and David Robinson of the Oxford Institute for Energy Studies (OIES) have written a very interesting paper comparing the measures taken by the UK and Spain in support of the decarbonisation of their electricity sectors.
They conclude that the “UK seems to have managed” its decarbonisation project “more effectively than most”, but what is more interesting is the general principles they derive from their study. They write that energy and climate policy should be based on three broad principles:
- To insulate climate change policy from short term political pressures.
- To set clear, binding long term goals so that investors and consumers understand the emissions trajectory the country intends to follow.
- To base decisions as far as possible on technical advice from expert bodies.
What is more, they observe that in both countries policies tend to be fragmented: “governments are coming up with responses to particular challenges more or less in isolation, often creating new challenges as a result.” What is needed instead is “a more coherent framework … if the countries concerned are to avoid a significant misallocation of resources.”
As an example, they take the growing need “of meeting demand peaks” in a future characterized by increasing penetration of renewables. The problem is that there are “at least six different options” to do this:
- Central generation
- Decentralised generation
- Network reinforcement –
- International interconnections
- Demand response
However, they note, “at present, each of these options is subject to a different system of regulation and each therefore faces different incentives. Nor have they been integrated into any overall strategy.”
The different approaches can be illustrated as follows:
- Central generation – is mainly driven by market forces as far as operation is concerned. But some systems, such as the UK, have also introduced capacity payments. There is no wider strategy underlying these capacity payments (…)
- Decentralised generation – growth of decentralised plant is driven to a large extent by support schemes, such as the FiT payments which incentivise much embedded renewable generation. The schemes are designed to meet carbon targets, not to optimise the system and minimise overall costs (…)
- Network reinforcement – is subject to regulation. The regulation is to an extent flexible (as discussed in the networks section) but still gives a largely guaranteed return on investment. There is also some encouragement for innovation but this is explicitly experimental. There is no overall vision for the network of the future and a number of significantly different scenarios are conceivable (…)
- Interconnections – are also in practice usually subject to regulation, at least in the UK, though in a different form (mainly via the cap and floor approach, which helps underpin investment by reducing risk) and the regulator adopts a case-by-case approach to considering proposals. While there is general acceptance that more interconnection is needed, there is no overall strategy. Furthermore, like some other issues, this one requires an international approach to optimisation. (…)
- Demand response – a number of experiments are under way with different approaches (some linked with capacity mechanisms, some with network regulation) and there is no clear picture of how large a role demand response will play in the future system or what form demand response will take. Nor do current wholesale or retail prices give adequate incentives for demand response, and neither government nor regulator has given a clear idea of how such price signals could be created (beyond hoping that the introduction of smart meters will enable greater resort to time-ofuse pricing). (…)
- Storage – little progress has been made in policy terms in considering how to realise the opportunities thrown up by the reduction in technology costs. In practice, although some experiments with storage are taking place, it remains largely a forgotten area for policy makers. Indeed, there is no clear regulatory definition of storage; it is not treated as a separate service and faces significant regulatory barriers. (…)
This admirably illustrates the current “market design” conundrum faced by countries today!
But Keay and Robinson also have a solution. They “suggest that there may be space for a new body – a sort of energy agency or system architect. The goal would be to have a body broadly similar to the UK CCC [Climate Change Committee], but with a more specific focus on the policies needed to deliver the outcomes which the CCC identifies as necessary to keep the country on track to its emissions objectives. Like the CCC, the body should be independent and outside the political process. Its recommendations should have weight and authority so that governments could not simply ignore them – for instance, they might have to justify any departure from the recommendations to national parliaments.”
They acknowledge that “it is difficult to identify an exact precedent for the sort of body we have in mind, but it would be somewhere between the US Federal ‘Energy Advisory Board’ (which, as its name suggests, is mainly advisory in nature) and the California Energy Commission (which has a number of functions in relation to policy delivery). It would be a permanent body with its own staff and analytical capacity (like the UK CCC) and it would not directly advise government but inform the process more widely by its publications, outreach and status. Its task would be to examine the policies, institutions and market structures needed to deliver a low carbon energy system, and to make recommendations to government and parliaments. One of its key functions would be to engage consumers and communities in the process and ensure that its recommendations reflected their concerns.”
The authors refer here to the UK in particular but add that each country will have to find a solution of its own. “New approaches are needed for the new era”.
Proposal 2: we need a Carbon Buyers’ Club
April 10, 2017
Georg Zachmann of the think tank Bruegel Institute has written a paper about how international emissions trading could be developed internationally in the coming years.
The Paris Climate Agreement explicitly provides for the possibility of international emissions trading, the rules governing trading still need to be determined. “In the absence of strict rules”, writes Zachmann, “international emissions trading might become a loophole leading to reduced climate ambition.”
He warns that “because of the lack of clarity about what emissions trading activities would comply with Article 6 of the Paris Agreement, a race to the bottom in terms of the rigour of bilateral emissions trading might emerge. Sellers might offer emissions units that do not correspond to additional emissions reductions, and buyers might knowingly accept them because they are cheaper or because they want to support the selling country. Because emissions trading is complex, it would be very difficult to draw a line determining what is acceptable.”
In addition, “because of its consensus requirements, the United Nations process is unlikely to lead to comprehensive rules”, notes Zachmann.
His solution: “the European Union should engage with other nations to determine a set of rules that can serve as a gold standard for emissions trading anywhere in the world.”
In fact, he believes the EU should even go one step further, namely to set up “a club of carbon-buying countries that would regulate only imported mitigation outcomes.”
According to Zachmann, “a rigorous reference ruleset determined by a group of countries would … be very valuable. Countries committed to this ruleset would benefit from a liquid and predictable emissions trading scheme, that meets (and in fact defines) the international standards. Countries that accept less-rigorous rules for international emissions trading would then have to explain how they ensure the general provisions of the Paris Agreement.”
He writes that a ‘gold standard’ of emissions trading established by a club of countries should meet four criteria:
- The members must together amount to a critical mass in terms of share of global GDP, population and emissions.
- They must all share an interest in a rigorous emissions trading system.
- They must be open to welcome new members (otherwise they would have no legitimacy in terms of developing rules that would become a global reference).
- They should start out with a proposal that is rigorous but that also allows members to pursue sovereign decisions on their national emissions reduction policies.
The major advantage of such a gold standard club is that “it would allow very different types of emission reduction units to be traded between countries in a way that preserves the integrity of the Paris Agreement architecture. Every country would be able to issue any type of carbon unit in line with its own legislation, and any country would be allowed to accept (or not) whatever foreign unit is offered. The proposal is thus comparatively light in terms of harmonisation requirements”.
Surely an interesting proposals. All it takes now is for a sufficient number of countries to take it up – and to agree on a set of rules.
Renewable energy jobs start counting
April 10, 2017
“Renewable energy jobs” are likely to become an increasingly important factor in energy policy debates. This has become clear in the U.S., where the renewable energy sector now employs 3 million people, making it too big now to be killed off politically. But it’s the same in Europe.
The UK government has just revealed that 234,000 full-time employees were working directly in “low-carbon” and renewable energy activities in 2015. According to the latest UK Low Carbon and Renewable Energy Economy Survey (UK LCRE), CRE activities generated a total £43.1 billion turnover in 2015, accounting for 1.3% of the UK’s non-financial turnover.
The renewable energy sectors generated £14.9 billion in turnover in 2015, accounting for 34.7% of all LCRE turnover. The energy efficiency products sector generated £13.9 billion in turnover and accounted for almost half of all LCRE employment, with 102,500 full-time equivalent jobs.
The UK’s bioenergy sector accounted for the largest proportion of the sector’s turnover, 34.9% in total. The solar sector generated £3.2 billion, or 7.3% of all LCRE turnover in 2015, and employed a total of 16,000, or 6.8%. The offshore wind and onshore wind sectors accounted for 5.1% and 6.7% of all LCRE turnover respectively, and employed 1.3% and 3.4% of all LCRE full-time equivalent jobs.
Scotland’s renewable energy sector generated almost half of all LCRE turnover generated in the country in 2015, with more than half of this turnover being generated by the onshore wind sector.
As to the EU as a whole, the European Commission’s latest official figures appear to be from 2014. The renewable energy sector then employed over one million people in Europe and created a turnover of around €143.6 billion in 2014, according to the State of Renewable Energies in Europe 2015, published by EurObserv’ER.
E-Med line to support Southern Gas Corridor?
April 10, 2017
Critical questions have been raised about the concept of the Southern Gas Corridor – including here and here on Energy Post – in particular with regard to the feasibility of obtaining additional gas supplies from Azerbaijan and the wider Caspian and Central Asian region. But what if gas could come from the Eastern Mediterranean?
In recent years large gas discoveries have been made off the coasts of Israel and Cyprus (not to mention Egypt). This has led to plans having been developed for a 2,200 km subsea pipeline to take the gas to the European continent. Now, on 3 April, for the first time an official declaration was signed by the energy ministers of Cyprus, Greece, Italy and Israel, plus EU Energy Commissioner Miguel Arias Cañete, promoting the construction of such a new gas pipeline from the Eastern Mediterranean to Italy.
“This is the beginning of a wonderful friendship between four Mediterranean countries – Israel, Cyprus, Greece and Italy,” Israeli Energy Minister Yuval Steinitz said at a press conference in Tel Aviv. “This is going to be the longest and deepest subsea gas pipeline in the world. It’s a very ambitious project.”
Gas infrastructure developer IGI Poseidon – a 50-50 joint venture of Italian energy company Edison and the Greek DEPA Group – has prepared a feasibility study (partly financed by the European Commission). It hopes that a final investment decision on the €6-7 billion project can be reached by 2020, said IGI Poseidon CEO Elio Ruggeri. The pipeline should become operational in 2025.
Italy, in particular, Ruggeri stressed, will have a shortage of gas supply contracts starting that same year, so “opening a new route adds reliability of supply to the Italian and European market.”
IGI Poseidon is open to potential new partners, though the company remains the project owner until a final investment decision occurs, according to Ruggeri.
“We strongly support the development of the region as a future gas supplier,” said European Commissioner for Climate Action and Energy Miguel Arias Cañete. “It is clear that the potential resources of this region are very significant. We support the East Med project and look forward to the rapid completion of the study phase.”
Clearly there is a long way to go on the project, but incentives are strong both from the producers (Cyprus, Israel) as well as the consumers (Italy, EU) sides. We could have a real “gamechanger” in our hands for the European gas market.