December 2, 2016
OPEC as energy transition platform?
December 2, 2016
It was a victory for OPEC this week – but how long will it last? The OPEC producers, and even major non-OPEC producers (Russia) agreed on production cuts – but will they carry them out? And won’t US shale oil producers seize their chance to fill the gap? After all, back in 2014 Saudi Arabia turned the spigot loose to get the better of the American shale oil guys.
And what about the longer term? What role will there be for OPEC in a world that’s slowly but surely moving away from oil?
Thijs Van de Graaf, professor at the Ghent Institute for International Studies, and a long-time observer of international energy institutions such as OPEC and the IEA (International Energy Agency), writes in a new analysis that OPEC has a fundamental problem. It is squeezed “between the revolution in shale oil, which has increased global supply and brought down prices, and the prospect of a global peak demand stemming from climate policies and falling costs of alternatives.”
It’s not just OPEC that is in for more difficult times: “The new geopolitics of energy”, notes Van de Graaf, “is characterised by abundance rather than scarcity, even at low prices. Key trends in efficiency, fuel-switching and market saturation are pointing into the direction of a demand peak for oil instead of a supply peak.”
What this means then is that “Oil producers are coming to realise that oil in the ground is not like ‘money in the bank’ but that these resources might someday be less valuable than oil produced and sold in the short term.” In other words, as the renewables revolution takes hold, electric cars continue their advance, and developing countries try to limit pollution, the market for oil will run up against limits that are likely to be lower than today. And since, as a result of the shale oil revolution, there seem to be few limits on the supply side, there will be constant temptation for producers to go for short-term market share rather than long-term high prices.
This inevitably points to a diminished role for the OPEC cartel in future, writes Van de Graaf. But that does not necessarily mean that the end of OPEC is near. In fact, surprisingly perhaps, Van de Graaf points out that OPEC was never a cartel to begin with and has hardly functioned as a cartel at any time during its history – despite all the media reports suggesting otherwise.
OPEC was founded in 1960 and only enacted its first production cuts only in 1982, notes Van de Graaf. Thereafter, whenever the members managed to agree on output quota, they rarely kept to them. In fact, OPEC “overproduced a staggering 96 percent of the time in the period 1982-2009.” Not a very good record for a cartel.
What most observers fail to realise, writes Van de Graaf, is that OPEC is just as much as a platform for the exchange of views as an output-setting cartel. For its members it is “useful as a forum to share information, a forum for deliberation, and most notably, a source of prestige.” In other words, it is an influential international political organisation in its own right, regardless of the success of its production agreement.
As such, OPEC is not about to go away, Van de Graaf thinks. It may even reinvent itself as the energy world is slowly changing: “as the world shifts away to cleaner fuels, OPEC could provide a valuable framework for exchanging critical information among member states about the implications of this shift. This could be technical cooperation on technologies such as CCS, which may play their role in the transition and prove to be another source of income for OPEC countries out of their depleted oil and gas wells. But it could also entail the sharing of best practices of how to make a national economy less dependent on the revenues from the foreign sales of crude. Despite many attempts to diversify petro-economies, there are only scant examples of success (e.g., Indonesia, Malaysia and Dubai), and it can be questioned whether these models can be replicated. OPEC’s Secretariat could become an information clearing-house to share information on what works and what does not in particular circumstances.”
“Electricity sector underestimates technical risks of renewables”
December 2, 2016
You may be as naïve as I was and may think that of course manufacturers, network operators and service providers are completely on top of the digital revolution that is sweeping over the electricity sector. They know what they are doing, right?
Well, it turns out that things are not quite that simple. In fact, one important player in the electricity industry, technical consultancy DNV GL, is raising the alarm over what it sees as the increasing risks of power electronics in the electricity system.
Theo Bosma, who is Program Director Power Systems & Electrification at DNV GL, one of the largest technical consultancies in the world, whose energy division (it has five divisions) is headquartered in the Netherlands, explained to Energy Post that the spread of new software-driven components and systems requires new ways of testing. They are currently not adequately tested, says Bosma: “We are still testing individual components. But we should be testing the brains of these systems, the software that is behind them. That’s the only way we can predict how will they behave in the system.”
He gives an example of where the use of the new electronics led to problems. In the southern part of Germany solar panels would all shut down when the frequency exceeded 50.2 Hz (this happens when the sun starts shining and all panels together produce too much electricity), and would all start producing again once the frequency went back to 50 Hz, after which they would all shut down again. This yo-yo effect was the result of many inverters reacting simultaneously to signals from the system. “Individually they all did what they had to do”, says Bosma, “but in combination the result was not what was expected or wanted.”
As power electronics, such as these inverters, are used ubiquitously in solar panels, wind turbines, batteries and smart grids, such risks in the energy system will increase. For this reason, a fundamental change is needed in testing practices in the electricity sector, says Bosma.
In fact, researchers have already developed new techniques that enable the testing of components at a systemic level. This is called hardware-in-the-loop testing. What this amounts to, says Bosma, is that you simulate in the lab the real-life environment in which the components will be functioning. “In this way you are able to test the behaviour of the software. If you don’t do this, you will get what we call rogue software entering the system. This can have serious consequences down the line.”
Such hardware-in-the-loop testing makes use of supercomputers which operate at the tremendous speeds that are required to be able to calculate the behaviour of smart systems. DNV GL has one, as do several other labs in the world.
But hardware-in-the-loop testing is far from standard industry practice at the moment, says Bosma. “It has been developed at the academic level. What we at DNV GL would like to see is that this becomes the new normal in testing. If the industry remains stuck in old-fashioned component testing, we see great risks.” What kind of risks? “Anything you can imagine that may go wrong.”
Bosma also calls for the IEC standards of the International Electrotechnical Commission to be upgraded to make them fit for power electronics. Contrary to what one might think, these standards are not imposed by governments or regulators, but developed by the industry itself through this international platform, in which different stakeholders from just about all countries in the world are represented. But apparently the IEC community has not caught on to the power electronics revolution yet. Surprising perhaps, but this is the story that DNV GL told us. They should know.
By the way, Bosma does stress that it is technically possible to have an electricity system dominated by variable renewable sources, such as solar and wind power. That’s not the issue. The issue is how to implement it safely.
Blockchain: the next big disruption in the energy sector
December 2, 2016
Last week I attended the InnoEnergy Business Booster in Barcelona, an event for sustainable energy startups, around which Energy Post published a number of interviews over the past few weeks, e.g. with the CEO of Lumenaza, a new German software platform, and investor Peter Carlsson, ex-Tesla, who is looking to build a gigafactory for batteries in Sweden.
In Barcelona, I had some great conversations with Mohamed Anis, who manages investments in startups for Infosys, one of the biggest technology providers in the world. He told me why he believed blockchain technology would be the next big disruption in the energy sector. It would allow peer-to-peer trading of renewable energy (especially solar power) without any need for a utility or bank.
I confess that I didn’t quite understand what Anis was talking about – but I have since learned a great deal more.
Blockchain technology is at the basis of bitcoin transactions. A blockchain, according to Wikipedia (where would we be without it?), is “a decentralized digital ledger that records transactions on thousands of computers globally in such a way that the registered transactions cannot be altered retrospectively. They are authenticated by mass collaboration powered by collective self-interests. The result is a robust workflow where participants’ uncertainty regarding data security is marginal. The use of a blockchain removes the characteristic of infinite reproducibility from a digital asset. .. Blockchains have been described as a value-exchange protocol. This exchange of value can be completed more quickly, safely and cheaper with a blockchain. A blockchain can assign title rights because it provides a record that compels offer and acceptance.”
The “exchange of value” that Wikipedia refers to can be a money transaction, but it can also be an exchange of solar power on a (micro)grid. And this is exactly what we may expect to happen in solar power markets, writes Giles Parkinson of the Australian website Reneweconomy in a new article describing this trend.
According to Parkinson, “The new technologies will allow for smaller and smaller participants to transact energy in the retail and wholesale markets, through peer-to-peer rating and community-focused energy systems – such as micro-grids – and in some instances may by-pass some incumbents altogether.”
Parkinson spoke with Lawrence Orsini, the principal of US-based firm LO3, and a team at Accenture Australia, led by Ann Burns and Simon Vardy, about the topic. LO3 is involved in the Brooklyn micro-grid project in New York, part of their “reshaping the power vision” project, and in Germany.
Orsini says the Brooklyn project has already provided some valuable lessons, in particularly the interest from consumers in where their electric power comes from: “I was skeptical that people would have an interest in where energy is coming from, but Brooklyn shook that up a bit. I didn’t understand how much of a driver was renewable energy, for solar on the rooftop, for community projects, and for their environmental benefits. In Brooklyn they want their electrons to be Brooklyn electrons.”
Burns from Accenture agrees that “The consumer will drive the agenda more and more. Sharing and community focused energy is not something that can be prevented.” Vardy notes that blockchain has the capacity to “cut out the middle men” which may include retailers and generators.
Does this mean there will be no role left for utilities in the era of solar-powered community energy? Well, not necessarily – we will have more to say on that next week on Energy Post.
Full article: Why sharing solar is the next big thing in energy.
Ukraine and the Victory of the EU gas market
December 2, 2016
The liberalisation of the EU gas market has been going on for many years now and it’s really quite a success story, even if most people don’t realise it.
I remember discussing things like the “Gas Target Model”, which was developed round about 2011 by organisations like the Florence School of Regulation and which presented the structure that the EU would like to see for the European gas market. The Gas Target Model came out of the EU’s Third Energy Package, which led to a radical overhaul of the European energy market through the mandatory unbundling of supply and infrastructure, and rules such as the requirement of third-party access and abolishing destination clauses.
The idea behind the Gas Target Model was to break up the old monopoly structures, where Gazprom and a few other big suppliers controlled the market together with a few major buyers, and replace it with well-functioning, well-connected wholesale markets with liquid trading hubs. This concept was met with a lot of scepticism and resistance from established parties such as Gazprom, but also its European counterparts (Eon Ruhrgas, Shell, GDF Suez and the like), and from certain think tanks.
However, the EU persisted – and succeeded. The market may not be perfect yet, but a measure of its success came on 25 November. In a remarkable open letter, Naftogaz, the main gas company of Ukraine, declared that Ukraine has become independent of Russian gas supplies for its domestic consumption! Naftogaz is not importing any gas at all from Russia anymore, the company declared in an “open letter”.
This feat – unthinkable just a few years ago – was the result of the successful liberalisation of the European gas market, Naftogaz fully acknowledged, which enabled the company to source gas from alternative suppliers. In its open letter Naftogaz thanks “the European Commission, the Energy Community Secretariat, the governments of Slovakia, Poland and Hungary, the World Bank, the EBRD, President of Ukraine Petro Poroshenko, Ukrainian PMs Arseniy Yatseniuk and Volodymyr Groysman, Ukrainian MPs, customs officers, expert community and civil society” for this result.
For readers of Energy Post all of this should not come as a surprise, since we reported on “the quiet gas revolution in Central and Eastern Europe” over a year ago – but still.
A victory for the EU and Ukraine, therefore.
However, all this is unrelated to the issue of gas transit through Ukraine. Even though Ukraine does not import gas anymore from Russia for its own consumption, it would still like to be the main transit country for Russian gas supplied to Europe. Last year it made $1.7 billion from transit revenues paid by Gazprom.
On this front Ukraine seems to be losing the plot, however, as Thierry Bros, Senior Research Fellow at the Oxford Institute for Energy Studies (OIES) observes in a new paper. Bros notes that Gazprom has been for years diligently working away at getting around Ukraine. It now looks increasingly likely that Nord Stream 2 will be built through northern Europe and Turkish Stream in the south. This would make Ukraine superfluous.
In this context, Naftogaz last month came out with a new transit fee proposal for next year which will probably be counterproductive, notes Bros. It amounts to a steep hike in the rate. This, says Bros, will only stimulate Gazprom – and its western partners – to go ahead with Nord Stream 2.
According to Bros, “Ukraine would be well advised to grasp the fact that economics matters in a level and competitive playing field in the energy sector. In order to maintain the remaining flow (of both revenues and profits) of Russian gas transiting to Europe, Ukraine should therefore shift its transit negotiation strategy away from policy and towards commercial reality. In other words it needs to adapt its negotiating strategy rather than labelling Nord Stream 2 as a Trojan horse for Europe.”
So far, however, this sound advice – which more people have given – seems to be falling on deaf ears in Kiev.