November 14, 2017
ENERGY WATCH #1 by Karel Beckman
The IEA’s World Energy Outlook – or is it Donald Trump’s Energy Outlook?
November 14, 2017
The International Energy Agency (IEA’s) World Energy Outlook (WEO), which came out today on 13 November, is arguably the most influential and authoritative market report in the global energy sector.
It’s also often viewed – especially by NGOs and renewables enthusiasts – as the voice of the established energy industry, especially the oil and gas industry. Which is true up to a point, but that’s also what makes it useful.
The WEO’s central scenario – the so-called New Policies Scenario – shows how energy markets will develop if the countries of the world adopt all their existing and currently planned energy and climate policies.
Of course the IEA can’t predict the future, so there is no guarantee this scenario will come true. But it does show what is most likely to happen based on current economic and technological trends in combination with current energy policies.
But the WEO also presents two other scenarios: a Current Policies scenario (essentially “business as usual”, which I won’t discuss because if that comes true we are all done for anyway) and a Sustainable Development scenario (formerly called the 450-scenario). This is a “backcasting” scenario: it assumes climate and other sustainability goals are met in 2040, and then shows how the energy system should develop to make this scenario comes true.
The most striking thing about the WEO (and this is nothing new, it has been like this for years), is the frightening gap between the New Policies Scenario (NPS) and the Sustainable Development Scenario (SDS).
In fact, reading the NPS is rather off-putting for anyone who is concerned about climate change. The NPS projects an extremely slow transition moving just a little bit away from fossil fuels, but not like anything on the scale that we need to contain global warming. Since the scenario is described in a dry, factual way, it seems like this is the IEA’s “prediction” of the future – a future that is clearly not sustainable. But it’s only a prediction in the sense that it describes what will happen if a) we don’t ramp up climate policies and b) no breakthrough developments take place in the energy sector.
Much of what this year’s NPS shows will not be news to our readers. Solar and wind are getting cheaper, electrification of the energy system is expanding, the gas market is globalizing – etc. You have heard it all before.
But there are some elements that are truly new and others that have not been getting much attention in the past. Here are what I regard as the most important noteworthy findings in the WEO2017.
The most important bit of news is probably that the United States is rapidly becoming “the undisputed oil and gas leader in the world” thanks to the shale oil and gas revolution. This revolution has been going on for many years of course (since 2009), but the IEA has yet again significantly increased its projections of future U.S. shale oil and gas production.
As the WEO puts it: “A remarkable ability to unlock new resources cost-effectively pushes combined United States oil and gas output to a level 50% higher than any other country has ever managed; already a net exporter of gas, the US becomes a net exporter of oil in the late 2020s. In our projections, the 8 mb/d rise in US tight oil output from 2010 to 2025 would match the highest sustained period of oil output growth by a single country in the history of oil markets. A 630 bcm increase in US shale gas production over the 15 years from 2008 would comfortably exceed the previous record for gas.”
“Expansion on this scale is having wide-ranging impacts within North America, fuelling major investments in petrochemicals and other energy-intensive industries”, notes the WEO. “It is also reordering international trade flows and challenging incumbent suppliers and business models. By the mid-2020s, the United States becomes the world’s largest liquefied natural gas (LNG) exporter and a few years later a net exporter of oil – still a major importer of heavier crudes that suit the configuration of its refineries, but a larger exporter of light crude and refined products.”
“In our projections, factoring in extra volumes from Canada and Mexico, North America emerges as the largest source of additional crude oil to the international market (growth in refinery capacity and demand in the Middle East limits the supply of extra crude from this region). By 2040, around 70% of the world’s oil trade ends up in a port in Asia, as the region’s crude oil imports expand by a massive 9 mb/d. The shifting pattern of risks implies a significant re-appraisal of oil security and how best to achieve it.”
Ironically, as the US is becoming a major gas and oil exporter, the Middle East, says the WEO, is becoming an ever more important importer of oil and gas. It will become third largest oil importer after China and Europe and the second largest gas importer after Europe! A significant “re-appraisal of oil security” indeed.
It totally confirms Michael Klare’s analysis, written in August of this year, that Donald Trump’s foreign policy is strongly based on the idea of the U.S. as the new global fossil fuel supplier.
Some experts are predicting an early oil demand peak (around the mid-2020s) or even an energy demand peak around 2030, but the NPS does not see that happen at all: “The world’s consumers are not yet ready to say goodbye to the era of oil. Up until the mid-2020s demand growth remains robust in the New Policies Scenario, but slows markedly thereafter as greater efficiency and fuel switching bring down oil use for passenger vehicles (even though the global car fleet doubles from today to reach 2 billion by 2040.”
“Powerful impetus from other sectors is enough to keep oil demand on a rising trajectory to 105 mb/d by 2040: oil use to produce petrochemicals is the largest source of growth, closely followed by rising consumption for trucks (fuel-efficiency policies cover 80% of global car sales today, but only 50% of global truck sales), for aviation and for shipping.”
Another important new element in the WEO is that China’s energy re-orientation is taking place even faster than the IEA anticipated until recently.
The WEO notes that the Chinese “president’s call for an ‘energy revolution’, the ‘fight against pollution’
and the transition towards a more services-based economic model is moving the energy sector in a new direction. Demand growth slowed markedly from an average of 8% per year from 2000 to 2012 to less than 2% per year since 2012, and in the New Policies Scenario it slows further to an average of 1% per year to 2040. Energy efficiency regulation explains a large part of this slowdown, without new efficiency measures, end-use consumption in 2040 would be 40% higher. Nonetheless, by 2040 per-capita energy consumption in China exceeds that of the European Union.”
But it’s not just about China anymore. India is becoming a new global energy superpower. The largest contribution to demand growth – almost 30% – comes from India, whose share of global energy use rises to 11% by 2040.
Solar power is “on track to be the cheapest way to produce power”, notes the WEO.
Since 2010, costs of new solar PV have come down by 70%, wind by 25% and battery costs by 40%, according to the report.
Still, in the NPS all renewables together account for only 40% of global electricity supply in 2040. Mind you, that’s just electricity supply. In the heating and transport sectors the renewables share is much lower.
The main source of new electricity demand growth in China and India will be for cooling purposes. Air-conditioning is becoming a very big part of global power use.
Wind power, incidentally, is becoming the largest source of electricity in Europe.
As a result of the ongoing electrification of the energy system, electricity spending for the first time ever is approaching expenditures on oil.
The use of coal will go down from 27.2% in the total energy mix to 22.3%, but in absolute terms it will still increase slightly. Whereas since 2000, some 900 GW of coal-fired power has been built in the world (56 GW a year), the NPS notes that “net additions from today to 2040 are only 400 GW”. Only?
China will add “one U.S.” and India “one E.U.” to their respective electricity generation capacities.
When all is said and done, this is what world energy demand trends will look like in the NPS:
The table below shows energy demand trends by fuel in the NPS compared to the other two scenarios:
Clearly, as I stated above, the NPS is not a “sustainable” scenario, as this chart makes abundantly clear:
And it’s not just about CO2 emissions. The WEO also baldly notes that “Premature deaths worldwide from outdoor air pollution rise from 3 million today to more than 4 million in 2040 in the New Policies Scenario, even though pollution control technologies are applied more widely and other emissions are avoided because energy services are provided more efficiently or (as with wind and solar) without fuel combustion.”
If this is the case, one may ask, why are we even looking at this New Policies Scenario? We simply can’t afford it.
ENERGY WATCH #2 by Karel Beckman
The European Commission’s last-ditch effort to stop Nord Stream 2: how likely is it to succeed?
November 14, 2017
On 8 November the European Commission took “steps to extend common EU gas rules to import pipelines”, it said in a press release. The Commission introduced an amendment to the EU Gas Directive to ensure that “the core principles of EU energy legislation (third-party access, tariff regulation, ownership unbundling and transparency) will apply to all gas pipelines to and from third countries up to the border of the EU’s jurisdiction”.
In a separate Q&A “fact sheet”, the Commission rhetorically asks, “Is this about Nord Stream 2? Will the proposal prevent Nord Stream 2”, and answers that “The proposal concerns all gas pipelines to and from third countries and is not aimed at preventing the construction of any new gas pipelines”. Everyone knows this is nonsense of course. The proposal would never have been made if it had not been for Nord Stream 2. Applying to the Gas Directive to “import pipelines” has never been an issue before.
Ironically, by introducing this amendment, the Commission admits that currently the Gas Directive does NOT apply to Nord Stream 2, contrary to what some opponents, such as Alan Riley of City Law School in London had been arguing. In December 2015, Riley wrote: “For almost 100 kilometers, the pipeline goes through the territorial seas of both Denmark and Germany. It also goes through the exclusive economic zones of Denmark, Germany, Poland, Sweden, Finland, Estonia, Latvia, and Lithuania. It is difficult to see how the rules of the Gas Directive and accompanying EU legislation do not apply to gas pipelines running through the territorial seas of the member states.”
In 2016, the Commission asked its own Legal Service to advise on the applicability of the Third Energy Package (to which the EU Gas Directive belongs) to Nord Stream 2. But, as Severin Fischer of the Center for Security Studies at ETH Zurich notes, “In an internal document, the Commission’s legal service denied the applicability, since the EU’s regulatory framework would not cover offshore pipelines from third countries up to the entry point in the EU system some kilometers inland, where natural gas is distributed by connecting pipelines further into the internal market.”
The European Commission has made it repeatedly clear that it is opposed to the planned pipeline. The reason it has given for its opposition is that Nord Stream 2 would be detrimental to “the EU’s strategy of security of supply” as Miguel Arias Cañete, Commissioner of Climate Action and Energy, has put it. Cañete said diversification of routes and sources is key to this strategy and “Nord Stream 2 does not follow this core policy objective. On the contrary, if constructed, it would not only increase Europe’s dependence on one supplier, but it will also increase Europe’s dependence on one route.”
This does not quite make sense, however, since it is difficult to see how re-routing Russian gas supplies could make Europe “more dependent” on Russia. It is true that Europe will be more dependent on the route through the Baltic Sea, where Nord Stream 1 is already functioning, but that would seem to be a safer route than the current route through Ukraine.
The real reason for the Commission’s stance has to be found in the strong opposition to Nord Stream 2 from Eastern Europe and Ukraine, who stand to lose substantial transit fees, and perhaps even worse for them, their strategic position in the Russian gas supply route to Europe. Brussels, moreover, is wrestling with Russia over its occupation of Eastern Ukraine and is therefore not inclined to accommodate any initiatives that make life easier for Gazprom.
But those are political considerations that do not give the Commission a legal handle to stop the project. With this new proposal, Brussels is trying to create such a handle. The question is whether this has any chance of success.
What is the idea behind the proposal? Clearly, the EU cannot make EU law apply outside its jurisdiction. i.e. at the Russian end of the pipeline or outside its territorial waters. What the Commission wants to do, therefore, is to make it apply to the part of the pipeline in the territorial waters of Denmark and Germany.
Once this has been accepted, a problem will have been created: the pipeline will be subject to two different regulatory regimes, one on the EU side and one on the Russian side.
The next step is that the Commission then offers to solve this problem. The Commission has earlier asked the Member States for a “mandate” to negotiate an Intergovernmental Agreement (IGA) with Russia which, if the Commission has its way, would include all the important elements of the Gas Directive. The European Council (the Member States) has yet to decide on this request for a mandate.
The Commission neatly summarizes its strategy in its Q&A: “The proposal clarifies that EU law applies in EU jurisdictions. There is therefore no extraterritorial application. Nevertheless, the Commission recognises that in the case of cross-border pipelines it is not practical to have different regulatory regimes apply to the two ends of the same pipeline. In such a situation of “conflict of laws” it is customary to initiate international negotiations to agree on the operational principles of the pipeline in question. The EU stands ready to work out such agreements with third-countries, if requested.”
It adds that the “proposal is complementary to the Nord Stream 2 mandate. Given that Union law cannot be directly applied in third countries an agreement with Russia remains the best instrument to establish a clear, coherent and stable regulatory framework for the operation of Nord Stream 2.”
What are the chances that this approach will succeed? It is pretty clever, in some ways, but it also concedes quite a lot. As Severin Fischer notes, “the Commission has created a fundamental friction in its own argumentation. If Brussels sees the need to change the directive to apply EU energy market regulation to the parts of the pipeline that run in territorial waters, [its earlier] claim about a “legal void” is obviously unjustified. There cannot be a conflict of law systems, if a change to the law is required in order to make the EU law applicable in the first place.”
The proposal is in effect a last resort. It is the only way left for the EU to put obstacles in the way of Nord Stream 2. But it is a highly uncertain route.
First, it is questionable whether the European Council will give the Commission the mandate it is looking for. Many Member States support Nord Stream 2 and even those who don’t might not feel comfortable ceding this power to Brussels.
Secondly, even if the Commission gets a mandate, it will only be able to try to start negotiations with Russia. The Russians could resort to delaying tactics until the pipeline is built. And they don’t necessarily need to agree with the EU’s demands that the pipeline be subject to all requirements of the Gas Directive. After all, to get an agreement it takes two sides to agree.
Thirdly, if it ever gets to an IGA, this would not necessarily stop Nord Stream 2 from being built. On the contrary, an IGA after all is intended to facilitate the building of the pipeline, not to stop it!
Note also that the proposal creates a problem with regard to existing and planned import pipelines. If it is adopted, it would need to be applied to all import pipelines obviously. The Commission proposes that Member States will be allowed to “grant derogations for existing pipelines from certain key requirements of the Gas Directive 2009/73/EC. This would include unbundling, third-party access and tariff regulation, provided that the derogation would not be detrimental to competition, the functioning of the market and security of supply in the Union.” Hardly what you would call fair and equal treatment.
In addition, the proposal will create a problem for any newly to be built gas pipelines, e.g. through the Mediterranean. The Commission notes that the Trans-Adriatic pipeline (TAP) project, which is as advanced as Nord Stream 2, “already has an exemption pursuant to Article 36 Gas Directive, and would, hence, not be affected by this legal change.”
Other potential new pipeline projects, “e.g. from Russia to Bulgaria, or in the Mediterranean, would be covered by the proposal and thus subject to the requirements set out in the Gas Directive”, but, the Commission adds reassuringly, “New pipeline projects to and from third countries can apply for an exemption for new infrastructure pursuant to Article 36 of the Gas Directive.” If they can get an exemption, why not Nord Stream 2?
Katja Yafimava, Senior Research Fellow at the Oxford Institute for Energy Studies, who has followed the Nord Stream 2 dossier for years and has published extensively about it, is not optimistic about the proposal’s chances of success. “In my view”, she writes in an emailed statement, “the European Commission is simply creating a conflict of laws so that the Third Energy Package would apply on the EU/German end of the pipeline whereas the Russian law would apply on the Russian end of pipeline, so that the EC could then argue that there is the conflict of laws and hence the legal rationale for the Nord Stream 2 mandate, and on that basis ask the Council for the mandate to ‘reconcile’ that conflict by attempting to impose the TEP on the Russian end of the pipeline. So the mandate and the acquis change should be seen jointly but at the end of the day, if the Russian government says ‘no’, the EC would fail. In my view the Russian government would be certain to say ‘no’ to full application of EU energy law provisions to the pipeline.”
The fundamental problem for the Commission seems to be that it is attempting to make a political move through legal means, which is bound to fail. The only way Nord Stream 2 could be stopped, it seems, is if EU leaders declare that they won’t allow it, not so much because of energy security reasons, but because of Russia’s occupation of Ukraine. Nord Stream 2 would somehow have to become part of the sanctions regime.
That would of course take the issue to a higher political level and risk creating a major international crisis. How likely this is to happen may depend to a large extent on the attitude of a new German government.
Meanwhile, European attempts to diversify its gas supplies and routes are continuing. A lot of attention is going to the idea of the Southern Gas Corridor, which will take gas from Azerbaijan through Turkey to Greece and then on via the Trans Adriatic Pipeline (TAP) to Italy.
But there is another EU-backed diversification project going on in Eastern Europe: the Vertical Gas Corridor. This would be a pipeline going from Greece (connected with TAP) to Bulgaria, Romania and Hungary and presumably on to Slovakia and Poland to tap into LNG supplies.
A new report from the Washington-based Caspian Policy Center (CPC), published on 25 October, notes that “a series of series of developments over the past few weeks regarding the Vertical Gas Corridor concept have demonstrated a consolidated approach to ensure interconnectivity on the South-North axis and to promote integrated gas transmission systems, hopefully in a more competitive price environment, for Southeastern and Central and Eastern member-states, as well as for Eastern European and Western Balkan countries aspiring to EU entry.”
CPC notes that “to start with, the fourth meeting of the Central and South-Eastern Europe Connectivity (CESEC) High Level group, held on September 28, resulted in the establishment of two working groups, consisted of the involved gas transmission system operators and supported by the European Commission, one of which will assume responsibility for putting into effect the idea of a vertical gas pipeline route extending from Greece to Bulgaria, Romania and Hungary. As for the other, it will oversee implementing reverse flow on the Trans-Balkan pipeline system.”
“A few days earlier, the 182km-long Interconnector Greece-Bulgaria (IGB), the first link in the Vertical Corridor northward supply chain, had been issued the sought-after construction permit on Bulgarian territory by the Ministry of Regional Development and Public Works. What’s more, Greek Public Gas Corporation (DEPA) formally agreed with utility company Gastrade on participation in the development of a floating storage and regasification unit (FSRU) in Alexandroupolis, northern Greece, projected to serve as an entry point for US LNG into the Balkans. Houston-based Tellurian Energy and state-owned Bulgarian Energy Holding are said to also eye a stake in the project, upon which will depend the utilization of IGB’s full capacity in the next phase of the market test, as both pieces of infrastructure are directly complementary to each other.”
Thus, ironically perhaps, it seems that Nord Stream 2 is giving a push to other diversification and reverse flow projects in Europe. This commercial approach may in the end do more for European energy security than any attempts to stop Nord Stream 2.
ENERGY WATCH #3 by Karel Beckman
The European Commission’s non-binding transport plan
November 14, 2017
On 8 November the European Commission introduced a new Clean Mobility Package under the name “Driving Clean Mobility.”
In press reports, most attention was paid to the proposal in this package to lower average CO2 standards for passenger cars and light-duty vehicles by 30% in 2030 compared to 2021 (with an intermediate target of -15% by 2025). But the package actually contains five different elements. In addition to the CO2 standards, there is, among other things, an Action Plan to stimulate “alternative fuel infrastructure” as well as a proposal for a Clean Vehicles Directive, which aims to promote clean vehicles in public procurements.
The package is a follow-up to the European Strategy for low-emission mobility introduced in 2016, which “reaffirmed the objective of reducing greenhouse gas emissions from transport by at least 60% on 1990 level by 2050”.
In a Memo (fact sheet) on the package, the Commission notes that “in the past 25 years, transport emissions have steadily increased as demand for mobility grew. Today, transport accounts for around a quarter of the EU’s greenhouse gas emission, with road transport alone responsible for 22%. Further emission reductions from road transport are therefore indispensable to achieve the EU’s commitments under the Paris Agreement and the EU’s climate and energy framework to reduce CO2 emissions by at least 40% in 2030.”
With regard to the newly proposed CO2 standards, perhaps the most important thing to note is that the Commission has decided not to ask for binding targets or mandates. The proposal states that the Commission considered two types of incentives:
- Binding mandate: The same ZEV/LEV [zero-emission vehicle, low-emission vehicle] share would be required from all manufacturers.
- Crediting system: This incentive would take into account a manufacturer’s share of ZEV/LEV when setting its specific CO2 target. A manufacturer exceeding a certain benchmark level of ZEV/LEV would be rewarded by getting a less strict CO2 target.
The Commission decided to go for a crediting system. According to the proposal, “manufacturers achieving a share of zero- and low-emission vehicles, which is higher than the proposed benchmark level of 15% in 2025 and 30% in 2030, will be rewarded in the form of a less strict CO2 target. For determining that share, account is taken of the emission performance of the vehicles concerned. As a consequence, a zero-emission vehicle is counted more than a low-emission vehicle.”
Brussels-based NGO Transport & Environment (T&E) is very critical of this decision. In a press release, it says that “The target for zero emission vehicles of 30% of new sales in 2030 is welcome; but the failure to apply penalties for missing the goal renders it largely ineffective.”
According to T&E, the rules were weakened at the last minute following a call between President Juncker’s office and Matthias Wissmann, head of the German car lobby association (VDA). Greg Archer, clean vehicles director at T&E, said: “The Commission have gifted the car industry an ineffective regulation after they came calling. Removing the penalty for failing to meet zero-emission vehicle targets is an own goal. It amounts to handing the global leadership on electric cars to China, which will be delighted to export their models to Europe, jeopardising jobs in Europe’s auto industry.”
As regards the 30% target, the Commission defends it as “ambitious and realistic”. It is “the result of a thorough impact assessment” (see here for Part 1 and part 2 for the impact assessment and here for the Executive summary of the impact assessment). It notes that:
- A 30% target for cars will help Member States in meeting their 2030 targets for the non-ETS sectors. It will deliver emissions reduction in road transport in line with its cost-effective potential, while leaving space for additional policies, in particular for trucks.
- A 30% target will bring economic benefits for all consumers. The increase in upfront cost to purchase more efficient vehicles is outweighed by increasing fuel savings. The net savings are up to around €600 for new cars bought in 2025 and up to about €1500 in 2030. The user of a second hand vehicle will benefit as much as the owner of a new car.
- The overall impact on employment of a 30% target is positive, as it allows a smooth transition to low and zero emission vehicles. More than 80% of the new vehicles will still have an internal combustion engine in 2030. Plug-in hybrid vehicles which have the highest labour intensity as they have both a classical internal combustion engine and an electric engine, are also incentivised. This approach will ensure sufficient time for the re-skilling and up-skilling of workers in the current automotive supply chain.
T&E, however, argues that it is not sufficient: “The draft law requires CO2 emissions from new cars to fall by just 30% between 2021 and 2030; with an intermediate target of 15% for 2025. This covers less than a third of the road transport emission cuts that are needed by 2030. As a result, EU countries will have to resort to much more difficult measures such as restricting traffic, banning combustion cars or very steep fuel tax increases.”
Eurelectric, the association of the European electricity industry, also says that the 30% target “falls far short of the level of ambition required to cut emissions from transport in a 2050 perspective.”
Eurelectric notes that “the level of ambition is too weak to trigger the necessary paradigm shift to electric mobility across Europe. We acknowledge the Commission’s positive intention to promote low-and zero emission vehicles, however the design of this system does not ensure that such vehicles will actually enter the market.”
Eurelectric is positive about the “technology-neutrality” of the proposal.
The NVGA (Natural Gas Vehicles Association) also welcomes the technology-neutrality of the proposal, but regrets that it is not based on a “well-to-wheels” approach, but on “tailpipe emissions performance”. It says that “for light-duty vehicles the definition of clean and low emission vehicles setting at 2025 a maximum level of 25 g/km CO2, measured as tailpipe emissions, means, “de facto”, to only allow PHEV [plug-in hybrids] and BEV [battery electric vehicles] to be considered as clean vehicles”.
With regard to the Action Plan on alternative fuel infrastructure, this includes “new funding opportunities with up to €800 million being made available for blending of grants with loans or for financial instruments (debt, loans) under the Connecting Europe Facility. This will leverage considerable additional public and private investment into fleets and interoperable infrastructure. In addition, the Commission has launched a flagship initiative on batteries alongside this new proposal with additional €200 million to support European battery development and innovation from 2018 to 2020.”
As regards the Clean Vehicles Directive, the Commission proposes “Providing a definition of clean vehicles based on emission thresholds and setting up minimum procurement target for light-duty vehicles and combining it with a definition based on alternative fuels and setting up minimum procurement targets for heavy-duty vehicles”.
The minimum targets “would be set at the national level”, says the Commission, but they would have to comply with the targets specified in the Annex to the proposal. They vary from 16% in Bulgaria to 35% in a number of other member states, including Germany.
The proposal will now be considered by the European Council and Parliament, which will suggest their own changes before a final compromise is struck in early 2019.
T&E notes that “the European Parliament has previously supported a 18-28% cut by 2025. Nine EU countries have written to the Commission supporting a cut of 40% by 2030.”
Greg Archer of T&E notes: “The car industry may be leading at half-time but the game isn’t over. It is now down to member states and Parliament to make changes to the proposal in order to put Europe on a trajectory to clean up cars and vans and make its auto industry globally competitive. Regrettably, the Commission has failed to do either or learn from past mistakes.”
Many projections have been made on the global growth of EVs over the coming decade, many highly optimistic. See here for an example.
A new study from the Boston Consulting Group, however, “predicts a somewhat slower uptake for all-electric vehicles than some earlier studies have — with the prediction being that all-electric vehicles (EVs) won’t gain “serious traction” in most global markets until after 2025, and that an only 14% of global new vehicle production will be EVs by 2030”, reports James Ayre on the website CleanTechnica.
Ayre writes that “the new study predicts sales of all-electric vehicles (EVs) to rise to 6% by 2025, up from around 1% now — largely on the back of dropping prices, improving battery tech, and increasingly aggressive government mandates and/or incentives.”
“Eventually, we’ll reach a point where we don’t need incentives anymore” to boost EV sales, stated Xavier Mosquet, BCG senior partner and lead author of the new work. Mosquet continued by arguing that by 2030 or so demand for EVs will be driven by market forces themselves rather than by regulation.
“BCG expects battery costs to fall rapidly after 2020, to as low as $80 per kilowatt-hour by 2025, compared with about $150 today and more than $650 in 2010. Total operating costs also will drop, BCG said, until the cost of owning and operating an electric vehicle over 10 years will fall below that of a comparable combustion-engine vehicles by 2021.”
“In addition, more stringent environmental targets in many countries will push vehicle manufacturers to add some form of electrification, including hybrid electric-gasoline powertrains, to reduce exhaust emissions after 2020. Even as costs drop and more advanced technology is introduced over the next 12 years, BCG said it expects 86% of new vehicles to continue using some form of combustion engine by 2030.”
ENERGY WATCH #4 by Karel Beckman
New chances for nuclear?
November 14, 2017
Finally some positive news for the nuclear sector.
The French government has said it will review the planned reduction of nuclear power in France’s power mix. The previous government adopted an energy transition law in 2015 which set a target for reducing the share of nuclear from 75% to 50% in 2025.
Now Environment Minister Nicolas Hulot has said that this will probably take until 2030-2035, according to Reuters. “We will probably have to delay until 2030 or 2035, we will see, at the latest 2035, but don’t ask me to be more precise as that would mean everything has already been decided,” Hulot said on BFM Television.
According to Reuters, “he added that in the coming year, the government would hold public consultations and talks with unions and the energy sector to come up with a new deadline and a program for closing nuclear reactors.”
Hulot said that reaching the 50 percent target by 2025 was not “realistic”.
During his presidential campaign, President Macron had promised to respect Hollande’s target and Hulot, who is known as an environmentalist, said in July France might have to close as many as 17 of its 58 reactors by 2025 to achieve it.
EDF, France’s state-owned utility, had EDF “that it makes no economic sense to close well-functioning nuclear plants and instead wants to extend the lifespan of its nuclear reactors from 40 to 50 years and longer.”
At the same time, in the UK, there are calls for a partial renationalization of the nuclear power sector, which may also be seen as a bit of positive news for the sector.
According to the Final Report of the Industrial Strategy Commission published on 1 November, the UK government should take a ‘significant stake’ in new nuclear power plant projects. The country urgently needs to replace its existing nuclear generating capacity because, of the existing fleet amounting to 8.9 GWe of capacity, all but 1.2 GWe will need to be retired by 2030, the report adds.
As World Nuclear News reports the story, the Commission is a joint initiative between academics at Manchester and Sheffield universities. “Prime Minister Theresa May gave priority to an industrial strategy when she formed a government following last year’s referendum vote in favour of the UK exiting the European Union. She put a green paper out for consultation in January and a white paper is expected from the Department for Business, Energy and Industrial Strategy before the end of the year. The independent commission was set up following the government’s publication of the green paper.”
The report says: “Since 2008, it has been the policy of the UK government, through successive administrations, to support a programme of nuclear new build, to be financed and operated by the private sector. Currently plans exist to build up to 16 GWe of new nuclear capacity, including the 3.2 GWe at Hinkley Point C, at a total capital cost of at least GBP60 billion ($80 billion). This programme is an ideal case study of the way energy policy and industrial policy have been connected in the past, and should be connected better in the future.”
“The stipulation that the nuclear new build programme should not receive direct government funding or subsidies has greatly reduced the government’s degree of leverage over the programme. Yet the government remains financially exposed through loan guarantees, and through contract-for-difference agreements. It indirectly guarantees very long-term revenue flows through commitments to the price consumers and industry will pay for electricity.”
Most of the developers and all the technology vendors involved are based overseas, the report notes, and although the projects will involve large contracts with UK suppliers, the scope for developing UK supply chains for the highest value elements is “seriously weakened by this fact“, and by the fact that the capital funding is sourced wholly from overseas organisations too, including some with substantial shareholdings by overseas governments.
“The selection of different technologies by different owners for the different sites means that each will need to develop its own supply chain independently”, it adds.
The commission therefore “recommends that the government takes a large stake in future nuclear new build projects, and should develop the supply chains for the UK nuclear industry to ensure that UK business is able to supply a higher proportion of the highest value components of new nuclear build.”
As to the impact of Brexit on the UK nuclear sector, World Nuclear News notes – based on evidence given by undersecretary of state at the BEIS department, Richard Harrington, on 25 October in the House of Lords – that “The UK government’s top priority is to agree arrangements with the European Union related to energy – particularly nuclear energy – that are as close as possible to current arrangements.”
When asked about Brexit’s effect on the UK’s energy security, Harrington said: “As far as security of supply is concerned, I do not believe it will affect it because we have a very well-functioning, competitive and resilient energy system now.” He added, “The capacity market, new nuclear, offshore wind and so on have helped a lot to [achieve diversity of supply]. I believe that government intervention generally – with contracts-for-difference and the capacity market options, for example – has made sure that we are not too dependent on any particular source of supply.”
However, he told the committee that the UK benefits from electricity interconnections with other European countries. “Electricity connection is something that we think can deliver benefits in terms of both cost but also security in being part of the larger market.”
What few people realise is that the UK not only has 4 GW of electrical interconnection, but is has a further 9.5 GW of interconnection planned, some of which is has already received approval and and some is still seeking regulatory. Construction of two 4.4 GW interconnectors – with Belgium and Norway – is well advanced, Harrington said.
Since the June 2016 referendum vote in favour of leaving the EU, construction of two further interconnections – both with France – has also started. “It suggests that is a growing area, and obviously trade as part of a broader bloc is a good and efficient way of getting the power we need and supplying the capacity,” Harrington said. “We will always make sure we have sufficient energy security, whether through domestic or imported means, in the capacity market as well.“