December 16, 2016
BRUSSELS INSIDER by Sonja van Renssen
Gas sector saved by liquid hydrogen
ETS saved by compromise
Heating, cooling saved by generation Z
December 16, 2016
Can liquid hydrogen save the European gas sector?
Norway exported 114 billion m3 of natural gas in 2015, up from just 2.7 billion m3 back in 1977. It covered almost a quarter of EU gas demand. It also made more money from gas than oil: NOK227 billion (some €25 billion) vs. NOK200 billion in revenues. And all that’s just with one-third of its estimated gas reserves produced so far.
“We take it for granted,” said Mona Mølnvik, Research Director at SINTEF, the largest independent research organisation in Scandinavia, at her opening of the 4th Trondheim Gas Technology Conference on 5 December. “We need to look 50 years ahead.”
This conference was different to previous editions because it went beyond the classical applied science presentations. It kicked off with a much broader, policy-led debate about the future of gas in Europe. “The interest and support for gas-related research and technology development is declining,” explained organisers SINTEF and NTNU, the Norwegian University of Science and Technology, both based in Trondheim.
Gas is facing hard times in Norway. Prices are low, production is costly and new fields are small, remote and often packed with more gas than oil (making the economics less attractive). On top of this, there is the decarbonisation agenda.
“No matter how efficiently we produce, the problem really starts when people burn our product,” said Johan Leuraers, Governmental and Regulatory Affairs at Statoil, at the conference. “Gas is no longer an automatic sell. We need to earn our right in the energy mix going forward.”
In other words, gas needs to decarbonise. This is a new narrative for the gas industry. Until now, the pitch has generally been: “gas is cleaner than coal” and “we’re the ideal partner to renewables”. The only prospect of decarbonising the gas sector is carbon capture and storage (CCS) – and that technology is going nowhere fast in Europe.
Well, CCS is back but in a different guise. Norway, whose government’s income dropped by 30% in 2015 due to lower oil prices, is thinking about how to make gas a desirable product for decades to come. “Saying gas is not as bad as coal will make you a loser in the long-term debate on climate change,” said Sverre Aam, Chairman of Energi21, an advisory Board for Norway’s Ministry of Petroleum and Energy on energy R&D, in Trondheim.
Instead, the idea is to “reform” natural gas to produce hydrogen, siphoning off and storing the CO2 that this produces, to create a carbon-free gas that can be exported to a carbon-free Europe. The energy for the process could come from Norway’s abundant hydroelectric power or even renewables such as offshore wind in future.
Some, such as David Berstad, a research scientist at SINTEF, believe that liquid hydrogen could become an energy carrier much like liquid natural gas is today. Through projects such as Hyper, which is running from 2016-19 with a variety of industrial partners including Statoil, Shell and Mitsubishi, he is investigating the large-scale production of liquid hydrogen.
Ultimately, Berstad believes that hydrogen production could shift from reforming natural gas to water electrolysis with surplus wind/hydro power. Demand for renewable gas – and other derived fuels such as synthetic methane and methanol – could drive more deployment of renewables.
Of course Norwegian power-to-gas (P2G) would have to compete with local P2G – there is interest in this in countries such as Germany, which have excess renewables power and a decarbonisation drive extending beyond electricity to heating and cooling, and transport.
“Germany will have excess electricity. It’s obvious that it will be turned into renewable hydrogen,” Professor Emmaouil Kakaras, who works on R&D for Mitsubishi Hitachi Power Systems Europe, told Energy Post in an interview. “The question is what to do with it?” Mitsubishi is investigating P2G options to produce synthetic fuels or ammonia as well as hydrogen.
“The transport market is the obvious starting point,” he answers his own question. This sector needs decarbonising and existing fuels are already expensive. Kakaras points out that renewable hydrogen could be combined with CO2 from industry – helping decarbonise that sector in parallel – to produce synthetic fuels.
After transport, comes heating and cooling. “If we want to decarbonise heating, we cannot get around P2G,” said Eva Hennig, Head of Policy at Thüga AG, Germany’s biggest network of local utilities, in another interview. The power sector comes last: P2G2P is far too expensive for the current power market, although the gas industry in Brussels is beginning to talk about “green gas” as a way of decarbonising gas plants.
Carbon capture and use (CCU) is viable in conjunction with P2G, says Kakaras because it is the value of the carbon-free fuel, not a price on carbon that becomes its driver. He concludes: “Definitely this has more potential than CCS on gas power plants. This is a carbon-free gas supply. Forget the power sector. The future of gas will be heating, transport and industrial processes.”
These are all markets that Norway could tap into. It could become an exporter of carbon-free or renewable gas, but also of petrochemicals or even electricity, some at the conference suggested. Yes, Norwegian gas may be cleaner than that of its competitors and yes new technologies may yet extract more from easy-access mature fields, but in a world with cheap and abundant fossil fuels, Norway nonetheless has to look 50 years ahead.
EU ETS vote: sigh of relief as MEPs find unexpected compromise
“And it is done. #EUETS is on its way.” tweeted UK MEP Ian Duncan, who has been leading the European Parliament’s debate on the EU Emission Trading Scheme (ETS) after MEPs in the environment committee came to an agreement on its reform on 15 December.
The vote – 53 in favour, 5 against and 7 abstentions – for Duncan’s report is a resounding victory for the Scottish right-of-centre MEP, who had his work cut out for him to get all political groups on board. The vote, originally scheduled for 8 December, was postponed by a week because of lingering disagreement. It now goes from the environment committee to the Parliament’s full plenary in February – and you can expect another fight there.
The deal voted through by environment committee MEPs on Thursday closely resembles the emerging compromise that we reported on, on 2 December. The three key points are:
- MSR: The outtake rate of a new “market stability reserve” (MSR) will be doubled to 24% from 2019, when it starts, to 2022.
- Cancellation: A lump sum of 800 million carbon allowances will be permanently retired from the MSR in 2021 (with a potential top-up of 200 million).
- Linear reduction factor: The rate at which the annual emissions cap declines will be increased from the Commission’s proposed 2.2% to 2.4% from 2021.
The point of all three reforms is to shrink the number of carbon allowances in the market to push up the carbon price above its lacklustre €5 a tonne (where it stayed put on Thursday, like a wilful child). In exchange for conceding greater ambition, the Parliament’s largest political group, the centre-right EPP, won more free allowances for energy-intensive industries at risk of “carbon leakage” (i.e. non-EU competition). The parliament’s second largest group, the Socialists, insisted on the 2.4% emissions cap decline.
Rather unexpectedly, the reactions that poured in after the vote were overwhelmingly positive. Rare is the compromise that makes everyone happy. Or perhaps businesses and NGOs alike were simply relieved that the EU ETS reform has made it to another milestone.
Within the Parliament, the EPP said the vote struck the “right balance” between climate efforts and jobs and competitiveness. The Socialists celebrated their 2.4%, which they said at least brings the scheme into line with an 80% emission reduction in 2050. The Liberals (Alde) welcomed “moderate improvements” and the cancellation of up to one billion allowances. Even the Greens embraced “tentative steps” towards aligning EU policy with the Paris Climate Agreement. Green MEP Bas Eickhout called it a “marked improvement” on the Commission’s original proposal.
The carbon price may not have budged, but market analysts were also positive about the deal. “Today’s vote sends a clear signal that policymakers in the European Parliament’s environment committee are serious about strengthening the EU ETS,” said Hæge Fjellheim at Thomson Reuters Point Carbon. “If finally adopted, such a deal would significantly tighten the ETS market balance and support prices both in the short and long term.”
Like Alde and the Greens, she applauded the move to end free allowances for cement and clinker production. Instead, importers would in future have to pay for their carbon emissions. “This implies that the cement sector would be exposed to a real carbon cost without being at risk of carbon leakage as products coming from outside Europe will face the same cost,” said Fjellheim. She added: “It would free up allowances to other sectors assumed to be more exposed to the risk of carbon leakage.”
In a sign that business also got what it was looking for (read: more free allowances), John Cooper, Director General for FuelsEurope, said he was “pleased” that the environment committee “realised that industry will need more space for growth”. He didn’t even reject the 2.4%, merely saying that it needs to be “carefully assessed”. Glass for Europe called it “a genuine move to reconnect the carbon market with the realities of industrial actors”. Eurelectric, which had lobbied for all three of the main reforms, welcomed “an important step towards delivering a credible carbon price in the short and longer term”.
Only CEPI, representing the paper industry, lamented “game over” for the tiered approach, originally proposed by Duncan himself, which would have better directed free allowances towards those sectors that need them by identifying different degrees of carbon leakage risk.
Eurometaux welcomed a move by MEPs to create a European fund for compensation for indirect carbon leakage – or the effects of the carbon price passed on to the electricity price – but said it “ultimately falls short” of what’s needed to keep Europe’s non-ferrous metals competitive. It wants the Parliament’s plenary to remove a call for compensation levels to decline over time.
NGOs were more mixed in their responses. “We are finally on the right track”, said WWF while Carbon Market Watch headlined with “EU ETS lives to fight another day”. The one reaction that stood out however, came from NGO Sandbag. It welcomed the reforms, but warned that “these are not enough to restore the supply and demand balance”. They do not make the EU ETS compatible with the Paris Agreement.
Sandbag was most critical of MEPs’ failure to switch to actual emissions, rather than 2020 targets, as a basis for the emissions cap from 2021. Head of Policy Adam Whitmore said: “By failing to realign the scheme to where emissions will be in 2020, it is likely to lead to the EU ETS having been in place for 25 years by 2030 without giving the impetus to decarbonisation that it should.” He added: “We expect that EU Member States will be forced to resort to national measures to address the challenges of cost-effective decarbonisation.”
Next Monday, 19 December, it will be the turn of EU environment ministers to grapple with EU ETS reform at their final Council of the year. The Slovak EU presidency, which hands over to Malta on 1 January 2017, issued a progress report on Wednesday that summarises the state of play. In a nutshell, after 11 meetings and several compromise texts, the Slovaks say that Member States are not yet ready to agree a position.
A glance through the progress report reveals that Member States are discussing similar issues to the Parliament, notably a doubling of the MSR outtake rate, which the Presidency proposes. Permanently cancelling allowances is only suggested as an option for a future review however. And there is no mention of changing the Commission’s proposed 2.2% rate of cap decline. Indeed, Fjellheim believes “it is very unlikely” that Member States will be willing to go beyond this figure agreed by European leaders back in October 2014.
Ahead of Monday’s Council, 24 European utilities sent a letter to environment ministers on Thursday urging them to embrace the Parliament’s “pragmatic” position. Their message was unequivocal: “The ENVI Committee position offers to breathe life into the EU ETS.” Only after the Council has adopted a position and the Parliament has had its plenary vote, will negotiations between the two institutions, plus the Commission, begin.
Generation Z: a forgotten industry quietly prepares for the future
“Have you ever heard of generation z?” Eureka 2016, an inaugural conference organised by the European heating, cooling, ventilation and refrigeration (HVACR) industry in The Hague on 13 December, was designed to get tired pre-Christmas minds thinking out of the box. And after some mandatory talk around the latest climate and energy policy – notably the European Commission’s “winter package” of 30 November – it worked!
The HVACR industry is centred on buildings – think boilers, heat pumps, building control systems, air conditioning, fridges, ventilation and so forth – and the point of the conference was to think about how people might live in 2050. “What do future generations need and what can we do [for them]?” said Andrea Voigt, director general of the European Partnership for Energy and the Environment (EPEE), which represents the heating, cooling and refrigeration industry. EPEE hosted the event together with the European Ventilation Industry Association (EVIA).
This is a sector that deals in comfort, yet lives below the radar. Voigt and her counterpart at EVIA, Russell Patten, describe themselves as “Cinderella” and “the forgotten industry”. Seen from their perspective, energy efficiency is enviously sexy. All the more exciting then, this plunge out into the open, expressly in The Hague (away from the stuffy corridors of Brussels) and with a healthy mix of industry, academia and at least eight member states present.
“Long term we are the biggest energy sector in the EU,” announced Jürgen Göller, EPEE’s Chairman, at the start. One of the most relevant initiatives for this industry in the winter package is the proposal for a revised energy performance of buildings directive (EPBD). To illustrate: the sector is happy there’s a plan for a new “smartness” indicator in there (to assess the readiness of a building to interact with its occupants and the grid), but says more could be done to promote good indoor air quality (often a casualty of energy efficiency as houses are more tightly wrapped).
The best part of the day was not the policy debate however, but a series of brainstorming sessions in small groups that returned to the opening generation z question (generation z is a different term for post-millennials) and tried to imagine life in 2050. It was uncanny how similar the imaginings between different groups turned out to be. Here are five key conclusions that emerged:
- Well-being – this is what people will care about, more than simply health or comfort
- Interconnection – this is a plug and play generation that expects high levels of digitalisation; expect integration of different HVACR products
- Results – think about selling services not products (e.g. “clean air”, not a ventilation system), and make it simple to use and fun
- Personalisation – users want to be in control; residential buildings may become more important as people do more from home
- Enforcement – it will be more about enforcement of existing policy than new legislation
None of this may come as news to you but for delegates on the day, it was this vision of the future – and being part of its creation – that they said they would take away with them. The ins and outs of indoor air quality and finer points of the EPBD were old hat to this crowd.