June 10, 2016
ENERGY WATCH by Karel Beckman
Back to reality
June 10, 2016
BP Statistical Review: the hard energy facts
German and Danish backtracking on renewables
Renewables support: let’s move to auctioning
North Sea full of wind turbines
There are times when it suddenly seems that all one’s great ambitions are nothing but fantasies. I get this feeling sometimes when I think about the idea of a low-carbon or zero-carbon future. Isn’t that just a fantasy?
This week I ran into one reality check after the other. Take the interview I had with Joan MacNaughton, Executive Chair of the World Energy Trilemma report of the World Energy Council. The annual Trilemma report looks at how countries can balance the triple challenges of energy security, affordability and sustainability. MacNaughton, who has held positions at the UK Department of Energy, the International Energy Agency, the Energy Institute and Alstom, rejects the idea, often voiced by renewable energy enthusiasts, that the energy transition is all a matter of win-win. “To say that all you need to do is expand renewables and the rest will follow, is an oversimplification. If it were as simple as that, it would happen much faster.”
She notes there are trade-offs to consider on the road to a low-carbon future. “When you are implementing new systems, you are going to have the costs of the change.” She does not agree either with the idea that we know all we need to know about renewable energy technologies, and that all that matters now is get the market design right. “That’s another oversimplification. We do still need progress in renewable energy.”
Useful reminders. I recommend this interview – and the World Energy Trilemma report – to anyone involved in energy policymaking.
A reality check of a different kind is a peer-reviewed scientific paper by Cambridge professor M.J. Kelly, “Lessons from technology development for energy and sustainability”, published at the end of May.
Kelly challenges much of the conventional wisdom on renewable energy and the energy transition and even on climate change itself – in no uncertain terms. He writes that “all the actions taken together until now to reduce our emissions of carbon dioxide will not achieve a serious reduction, and in some cases, they will actually make matters worse.”
According to Kelly, “The scale and the different specific engineering challenges of the decarbonization project are without precedent in human history. This means that any new technology introductions need to be able to meet the huge implied capabilities. An altogether more sophisticated public debate is urgently needed on appropriate actions that (i) considers the full range of threats to humanity, and (ii) weighs more carefully both the upsides and downsides of taking any action, and of not taking that action.”
Kelly notes, for example, that the “energy return on investment” (EROI, i.e. the useful energy produced by a power source divided by the energy need to build, operate and maintain it) of renewable energy is too small to make renewables a feasible alternative to fossil fuels or nuclear energy. The same goes for the “energy density” of solar and wind power.
Energy efficiency is another great dream, says Kelly, but he argues that “the global retrofitting project” required to meet the energy efficiency projections in climate scenarios is far too large ever to be realised.
I think the paper is a bit tendentious here and there, yet it certainly deserves to be read. Kelly may be too pessimistic, but he is surely right to say that the sheer scale of the low-carbon transition is unprecedented and not appreciated sufficiently by many.
The BP Statistical Review of World Energy is an annual exercise in reality checks. This week the 65th edition was published of this statistical Bible for the global energy/oil sector. Every year the Review gives a great overview of consumption, production and reserves of oil, gas, coal, nuclear and (nowadays also) renewables by country. I use it almost daily in my work (and that includes the handy energy conversion table in the back!).
By the way, what the BP Review does for world energy statistics, Energy Post is trying to do for EU energy statistics with our EuEnergy App, which we launched this year with Shell. This is a much humbler effort, but then, as BP’s Chief Economist Spencer Dale said at the presentation of the BP Review on 8 June: “the first Review – produced by the somewhat ominous sounding Central Planning Department of the then Anglo-Iranian Oil Company – amounted to just six typewritten pages plus a hand-drawn chart.”
You have to start somewhere. And look where the BP Review is now. Dale said that although “it may not have quite the glamour of the Chelsea Flower Show or the tension of Wimbledon tennis”, the BP Review “has established itself as one of the fixtures of the Great British summer.” (Think smiley here.)
Since the BP Review is based on facts, not fictions, it always provides healthy reminders of reality. For example, this year’s edition notes that “the slower growth of energy demand together with the shift in the fuel mix away from coal towards lower carbon fuels meant carbon emissions from energy use were essentially flat last year (0.1%).” And this means “the slowest growth in nearly a quarter of a century (other than in the immediate aftermath of the financial crisis).”
That sounds good. The stagnation in carbon emissions, notes Dale, equates “to a fall in the carbon intensity of GDP – the average amount of carbon emissions per unit of GDP – of 2.8%. In the past 50 years, there have been only two other occasions in which carbon intensity of GDP has fallen by as much, and they both coincided with sharp upward movements in oil prices.”
So “real progress” there, said Dale. However, he added: “Before we take too much comfort: the IEA 450 scenario – which is used by many as a benchmark scenario for the progress we need to make to achieve the goals agreed at Paris – suggests that the carbon intensity of GDP has to fall at an average rate of close to 5.5% p.a. on a sustained basis for the next 20 years. So almost double the rate of decline achieved last year, each year for the next 20 years!”
He added that “It’s possible to find a few isolated countries which have achieved average rates of decline of this magnitude for 10 years or so, but these tend to be countries undergoing significant economic transitions and account for only a tiny fraction of global GDP. So certainly a step in the right direction towards meeting the goals agreed at Paris, but a relatively small step given the scale of the challenge.”
This rather confirms the point that Professor Kelly was making.
As to renewable energy, the BP Review records another year of strong growth of non-fossil fuels (3.6%; wind and solar grew over 15% in the power sector to 213 TWh), but here too Dale notes that there is still a long way to go: “The key lesson from history is that it takes considerable time for new types of energy to penetrate the global market. Starting the clock at the point at which new fuels reached 1% share of primary energy, it took more than 40 years for oil to expand to 10% of primary energy; and even after 50 years, natural gas had reached a share of only 8%. Some of that slow rate of penetration reflects the time it takes for resources and funding to be devoted in scale to new energy sources. But equally important, the highly capital-intensive nature of the energy eco-system, with many long-lived assets, provides a natural brake on the pace at which new energies can gain ground.”
On the same day that Spencer Dale presented the BP Review, the German government approved plans to reform Germany’s renewable energy law – the biggest renewables support scheme in Europe.
As Reuters reports, “Germany will move away from feed-in-tariffs to a competitive auction system where producers of renewable energy will only receive payments for their power if they win a tender. Under the proposals, the amount of onshore wind will be limited to 2.8 gigawatts per year until 2019. After that 2.9 gigawatts of capacity will be auctioned annually. To avoid overburdening the grid, the amount of new onshore wind capacity for northern Germany will be set at a lower amount than elsewhere. The draft law will now go to the Bundestag lower house of parliament for approval and is due to come into force at the start of 2017.”
The reasons for the reform are (obviously) to limit costs and also, as Reuters notes, to give the government better control over the future expansion of renewables.
Now it should be noted that the reform of the German feed-in-tariff is hardly the disaster that some sceptics of renewables are making it out to be. Most people recognise that Germany’s programme did a lot to catapult the global solar power revolution, but it can’t be kept up forever. At this stage in the development of renewable energy, auctioning is a much better option, as countries like the UAE, Chile, Mexico and Peru are showing. They are now in the lead forcing down solar power prices to ever lower levels.
Personally I believe that it is high time Europe started following their example. Germany is not the only European country curtailing public support for renewables after all. Countries like Spain and the UK did so earlier.
Even Denmark is now on the point of changing tack. The center-right Danish government of Lars Loekke Rasmussen is abandoning “some of the policies that once helped make it an international poster child for green energy”, as Bloomberg reports. Specifically, Denmark intends “to scrap an electricity tax that has helped subsidize wind turbines since 1998.”
In a response, Jan Serup Hylleberg, chief executive officer of the Danish Wind Association, said that “investors are struggling to interpret the latest signals from Denmark. ‘Political uncertainty is poison. It’s more of a headache to investors than predicting how the wind will blow’.”
Hylleberg no doubt has a point, but supporters of the measure point out that Denmark already derives over 40% of its electricity from wind power, “evidence of a mature industry that no longer needs state aid.”
Reform, in other words, is inevitable,but it should be done in a predictable, transparent way. Wouldn’t it be great if the EU were able to agree on a European-wide auctioning scheme that would stay in place for the next 20 years? Or is this another fantasy?
A note on German CO2 emission data, as there is some confusion about these sometimes.
Last year, as the German Environment Ministry reported earlier, German CO2 emissions rose 0.7%. The Ministry notes that compared to 1990, CO2 emissions declined 27.2%, but this is of course when German re-unification happened and the heavily polluting East German industry started crumbling.
More to the point, over the last five years, since the nuclear phase-out started, German CO2 emissions have been static:
In other words, German climate policy has not been a great success so far, although this has to do more with the nuclear phase-out than the support scheme for renewables.
As one European country after the other has curtailed its support for renewable energy, usually haphazardly and unexpectedly, investors have naturally been scared away, with the result that Europe has lost its status as global clean energy leader.
Already in January, Bloomberg New Energy Finance (BNEF) reported that clean energy investment surged last year across the world, but that Europe stayed behind. This is now confirmed by the Renwables 2016 Global Status Report published by REN21, a UN-affiliated coalition of governments, trade associations and financial institutions, including the World Bank.
The REN21 report has even lower figures for European renewable energy investment than BNEF reported earlier: $48 billion compared to BNEF’s $58 billion. In 2014 spending was still at $62 billion.
The good news is that elsewhere in the world clean energy investment is going up, particularly in China. According to REN21, “an estimated 147 gigawatts (GW) of renewable power capacity was added in 2015, the largest annual increase ever, while renewable heat capacity increased by around 38 gigawatts-thermal (GWth), and total biofuels production also rose…. For the sixth consecutive year, renewables outpaced fossil fuels for net investment in power capacity additions.
REN21 notes that “this growth occurred despite tumbling global prices for all fossil fuels, ongoing fossil fuel subsidies and other challenges facing renewables, including the integration of rising shares of renewable generation, policy and political instability, regulatory barriers and fiscal constraints.”
This does not mean that renewable energy is not facing any setbacks outside of Europe. What about this piece of news: on Tuesday (7 June) the Saudi Arabian energy minister Khalid al-Falih announced that Saudi Arabia is cutting back its renewable energy target for the power sector from 50% to 10%! Some change.
Saudi Arabia had previously come out with plans to become a world leader in solar power, but apparently has now decided to shift to gas. Talking about unpredictable policies. “Our energy mix has shifted more toward gas, so the need for high targets from renewable sources isn’t there any more,” Al-Falih was quoted as saying. “The previous target of 50 percent from renewable sources was an initial target and it was built on high oil prices.”
Next time you hear Saudi Arabia announce another great plan, keep in mind that the desert brings forth many mirages.
I don’t want to leave you with sombre thoughts, so let me finish with three pieces of what most readers I think would consider good news.
First, consultancy GTM Research reported last week that “the price of building big solar-power farms will drop below $1 a watt by 2020.” As MIT Technology Review notes, “that’s a big deal because it’s seen as the threshold below which building solar power arrays becomes competitive, without subsidies, with the cost of fossil-fuel plants. It’s also the target set in 2011 by the U.S. Department of Energy’s SunShot Initiative.”
Second, at a meeting of the EU Council of Ministerson 6-7 June, a group of nine countries around the North Sea signed a memomarndum of understanding and a work programme to cooperate in the planning and building of offshore wind farms in the North Sea. The Dutch Energy Minister, Henk Kamp, said that “the North Sea will be covered many thousands of wind turbines in the future”. He said the Netherlands would build wind farms in the North Sea that would be able to deliver electricity to 5 million households.
Finally, you may find it interesting to hear that the Chinese company Rongke Power is building the world’s largest battery with 800 MWh of capacity – a vanadium flow battery developed by US company UniEnergy Technologies. “This visionary project is a watershed moment for the energy storage industry, vaulting China’s electric grid into the 21st century, supplying tremendous resilience and enabling seamless deep penetration of renewable energy,” Rick Winter, UET’s president and COO, said in a statement.