April 3, 2017
The Southern Gas Corridor revisited PLUS update on last week’s Shale Gas and Climate article
South Australia needs new market design and more flexible grid
April 3, 2017
On 23 March the Australian Energy Market Operator (AEMO) came out with its fourth and final consolidated report about the South Australian state-wide power outage on 28 September 2016 . It provides compelling reading for policymakers and regulators in Europe and other places that, like South Australia, are moving to a low-carbon electricity system characterized by high levels of intermittent renewables.
Contrary to reports in some of the Australian media (“the Murdoch media”), AEMO does not put the blame for the outage on wind power nor does it recommend higher levels of fossil-fueled power back up. Rather, the report “highlights a number of challenges and valuable lessons relevant to improving power system security and customer supply reliability, particularly as the power system responds to extreme circumstances, as the NEM [national energy market] generation mix changes and Australia makes the transition to high levels of renewable energy sources.”
“The generation mix now includes increased amounts of non-synchronous and inverter-connected plant”, says the AEMO. “This generation has different characteristics to conventional plant, and uses active control systems, or complex software, to ride through disturbances. With less synchronous generation online, the system is experiencing more periods with low inertia and low available fault levels, so AEMO is working with industry on ways to use the capability of these new types of power generation to build resilience to extreme events.”
“As the generation mix continues to change across the NEM, it is no longer appropriate to rely solely on synchronous generators to provide essential non-energy system services (such as voltage control, frequency control, inertia, and system strength). Instead, additional means of procuring these services must be considered, from non-synchronous generators (where it is technically feasible), or from network or non-network services (such as demand response and synchronous condensers). The technical challenges of the changing generation mix must be managed with the support of efficient and effective regulatory and market mechanisms, to ensure the most cost-effective measures are used in the long-term interest of consumers.”
“AEMO is continuing to work in association with its stakeholders to resolve these challenges, including through the established Future Power System Security (FPSS) program, and collaborative engagement with the Australian Energy Market Commission (AEMC) and the Council of Australian Governments (COAG) Independent Review into the Reliability and Security of the NEM, led by Dr Alan Finkel. AEMO has also begun work with the Australian Renewable Energy Authority (ARENA) and others on proof-of-concept trials of promising new technologies, starting with use of the new Hornsdale Stage 2 wind farm to provide grid stabilisation services. These projects can deliver engineering solutions to make the grid more resilient and protect customer supply as the transformation of Australia’s energy system continues.”
Giles Parkinson of the website Reneweconomy concludes that “rather than calling for a halt in what many describe as the inevitable energy transition, it underlines the need to embrace it”. In fact, the AEMO’s brand new CEO, Audrey Zibelman, who started on 20 March and previously headed New York State’s “Reform the Energy Vision” program, which has a target of 50% renewables, said in public comments that Australia above all needs “a flexible network” that can respond in “real and truly real time”.
Chevron: stranded assets? What stranded assets?
April 3, 2017
U.S. oil company Chevron last month informed investors of the risks the company is facing from “stranded assets”, i.e. from the transition to a low-carbon economy. According to the company, these risks are, in a word, zero.
The Chevron report, “Managing climate change risks, a perspective for investors”, takes the familiar line (from the oil industry) that the world will need oil and gas for a long time to come, and that any transition to a renewables-system will take place only very gradually. “There are still 1.2 billion people in the world without electricity and more than 2.7 billion people who burn solid fuels, such as wood, crop residue and dung, to cook their food. The delivery of affordable and reliable energy to these people is critical to global economic growth and stability. This will drive far more energy demand than can possibly be met by renewable sources using today’s technology.”
Chevron does take into account the IEA’s 450 Scenario, which describes a trajectory that would keep warming limited to 2 degrees scenario, but even this, it says, does not pose a threat to its business. “Even in its 450 Scenario, which models a much higher level of emissions reductions, oil and natural gas will meet 44 percent of global demand in this same time frame, with coal providing an additional 16 percent. By comparison, wind and solar generation are expected to increase, meeting about 3 percent of such demand by 2040, up from less than 1 percent today.”
The figure of 3 percent given by Chevron for wind and solar in 2040 in the 450-Scenario is wrong, by the way. It is not 3%, but 11%, as this table from the World Energy Outlook (2016) shows (other renewables = wind and solar):
As to the possible consequences of implementation of the 450-Scenario for Chevron’s business, the company notes that such a scenario would lead to low oil and gas prices (“the low end of the price trajectory range being used throughout Chevron’s various planning processes”). As a result, “certain high-cost assets around the world could be impacted by the hypothetical GHG-constrained case.”
But the overall impact would be minimal: “Given the reduced demand and pricing impacts of this hypothetical modelling scenario, this is an expected modelling outcome. In the event that this GHG-constrained case were to manifest itself, these high-cost assets, for which a final investment decision has yet to be made, would not find a place in our investment portfolio given our risk management processes. However, even applying this hypothetical scenario, given the ongoing demand for energy, lower-cost assets remain competitive, including those assets already producing, which would continue to produce (see chart to the right, below).”
Nor does Chevron see any danger from the growth of electric cars: “In the United States, the Energy Information Administration (EIA) expects battery electric vehicle sales to increase by 2040 from less than 1 percent to 6 percent of total light-duty vehicles sold, and plug-in hybrid electric vehicle sales to increase from less than 1 percent to 4 percent over the same period. Although the increasing market share of electric vehicles will be a factor in reducing the demand for oil, the overall demand for oil is still expected to increase because only 10 percent of global oil demand comes from cars. As IEA Executive Director Fatih Birol has noted, only 1 in 100 cars currently sold is electric, so “[e]ven if you assumed that, as of tomorrow, every second car sold was electric, global oil demand would still increase.”
What would worry me as investor is that Chevron is firmly betting on a business-as-usual world going forward, with only slight modifications as a result of climate change policies or technological innovations. It is not prepared for a world that would look different from the world today, e.g. where electric cars would grow much faster and reduce oil demand much more than the Energy Information Administration or the International Energy Agency are projecting.
Biochar “no climate panacea”
April 3, 2017
As the climate continues to heat up and greenhouse gas emissions are not going down, “geo-engineering” type of solutions may be expected to receive more attention in the coming years. One example is Biochar.
This is a type of charcoal that is the product of biomass products undergoing a process of pyrolysis (high-heat chemical reaction) which can be used, according to its proponents, to improve the “soil health” of agricultural land. Not only that: they say it will also take up CO2 in large amounts.
However, according to NGO DeSmog biochar is no climate panacea. At any rate, there is no scientific evidence that it is.
On 24 March, DeSmog released its final findings on what it calls a years-long probe into Biochar and “whether it can put a dent in climate change”. The report is couched in very cautious language: DeSmog is clearly wary of legal action that could be taken by Biochar companies, but it is clear nonetheless that it does not consider Biochar as a viable solution for climate change.
It notes that despite years of efforts (it was introduced to mainstream audiences in a Time Magazine article from December 2008) and support from the oil and gas industry, “its best chances at reaching commercial scales so far have failed.”
This failure is “due to a number of reasons, such as the lack of scientific consensus surrounding its ability to sequester carbon indefinitely, the vast amounts of land needed to produce biochar at a large enough scale to affect the climate, and the lack of legislative or regulatory frameworks required for investment in commercial-level production.”
“While some big money is pouring into biochar”, writes DeSmog, “particularly via the start-up Cool Planet Energy Solutions, the efforts to market the product as a climate solution appear stronger than the current scientific evidence on its CO2 sequestration capabilities. In fact, when the American Carbon Registry, which exists to promote carbon trading markets, analyzed the nascent biochar industry’s business protocol for scaling up, the registry rejected the plan due to lack of scientific support surrounding its claims.”
“Cool Planet’s business plan …appears to be the biochar industry’s best hope of scaling up in the U.S.”, notes DeSmog. “However, its science remains unproven, lacks the scientific standard of peer review, and is considered proprietary business information.”
“The other major effort to scale up biochar in the U.S., led by the company Mantria, ended in a major federal fraud lawsuit. The U.S. Department of Justice charged the company’s executives with promulgating what has been described as the “biggest green scam to date in the United States.”
Can China save CCS?
April 3, 2017
Carbon capture and storage (CCS) remains one of the hopes of the fossil fuel sector to adapt itself to a low-carbon future. In fact, according to projections from the International Energy Agency, a truly massive expansion of CCS is needed if we are to stay within the 2-degree warming limit.
Up to now, the US and Canada have led CCS-efforts, with Europe far behind, but even the North American efforts have been limited. Now however, Bloomberg reports that “China is expected to displace North America and take the lead in the next wave of carbon capture and storage projects after its first large-scale endeavor with the technology advanced.”
China has taken a positive final investment decision on the construction on the Yanchang Integrated Carbon Capture and Storage Project , according to the Global CCS Institute, a non-profit organization that has provided technical and advisory support for the initiative.
Bloomberg notes that “The project was undertaken as a part of China’s 2015 deal with the U.S. to combat climate change. When complete, it will be able to capture 410,000 metric tons of carbon a year. It’s one of eight large-scale CCS projects — in varying stages of evaluation and subject to approval — that China is considering, according to Tony Zhang, senior adviser at the institute.”
Currently, of the 16 large-scale CCS projects operating around the world, “two-thirds are in North America, according to the Paris-based International Energy Agency. Four out of five new projects under construction are also based in Canada or the U.S.”
But “the next wave of projects … is expected to happen in China, which accounts for about half of all CCS projects under serious consideration or planning, IEA analyst Samantha McCulloch said in a presentation in Beijing … In 2020, China will have 330 gigawatts of coal-fired plants that could potentially be retrofitted with emission-reduction technology, she said.”
Bloomberg notes that according to the IEA, CCS “will need to contribute about 15 percent of global emissions reductions in order to achieve the Paris agreement goal of keeping atmospheric warming well below 2 degrees Celsius (3.6 degrees Fahrenheit).” That’s a lot. “Investments in CCS have nevertheless stalled and were unchanged in 2016 at $184.4 billion, according to Bloomberg New Energy Finance.
Large up front capital investment, time lag from achieving returns and lack of sufficient business cases are among concerns holding back investments in CCS, the IEA’s McCulloch said.”
There has been no indication from the Trump administration that they will put more efforts behind CCS. Somehow it seems unlikely they will do so. Europe has also been silent on CCS. This means that as in so many other ways hopes must now be pinned on China.