October 14, 2016
What did the World Energy Council say?
October 14, 2016
The idea of Energy Post Express is that you get all the new insights published on Energy Post during the week in a nutshell – enriched by our editorial team’s interpretations.
This week on Energy Post we focused fully on the World Energy Congress (9-13 October) taking place in Istanbul. We will try to sum up the main insights we took away from the Turkish capital.
Why is the World Energy Congress important?
It is one of the biggest energy events in the world, takes place every three years, organized by the World Energy Council, which is the largest network of energy (especially utility) professionals in the world (almost 100 national member committees, UN-accredited).
What did the World Energy Council have to say?
The World Energy Council (WEC) specializes in large global energy studies that are prepared by major consultancies in collaboration with specialists from the WEC’s global network.
At the World Energy Congress, two major studies were published: the World Energy Scenarios, and the Road to Resilience.
World Energy Scenarios: main conclusions
This is the WEC’s flagship publication, a triennial study that attempts to present credible scenarios of our energy future up to 2060.
Some of the main takeaways from the new edition:
-Per capita energy demand will peak before 2030. This is in stark contrast to historic growth levels, which have seen global demand for energy more than double since 1970.
-A shift in final energy consumption with demand for electricity doubling by 2060.
-Solar and wind will represent between 20 and 39% of power generation in 2060.
-Fossil fuel usage could fall to as little as 50 percent of the primary energy mix in one of the scenarios, with very differing futures for coal, oil and natural gas.
-However, in all scenarios the carbon budget is likely to be broken within the next 30 to 40 years.
-Oil will continue to play a significant role in the transportation sector representing over 60 percent of the mix in all three scenarios to 2060.
-Natural gas will continue to increase at a steady rate.
-“The underlying drivers will re-shape the economics of energy. We are entering a world where the concern is no longer just about stranded assets but also the impact of stranded resources on nations.”
Road to resilience: main conclusions
This is a series of three reports, launced in September 2015 and completed now, on three critical emerging risks for the energy sector: extreme weather events, energy-water-food nexus and cyber threats.
-Emerging physical, financial and virtual risks pose an ever-greater threat to the security and supply of energy.
-Energy systems must be made smarter, not just stronger, to withstand diverse emerging risks and be more resilient.
-Energy is the second-most water intensive industry after agriculture, with 98% of power supply dependent on the availability of water
-Extreme weather events have increased by a factor four over the past thirty years. Frequent and severe weather events can affect energy infrastructure across the value chain, and often lead to higher demand
-The sophistication and frequency of cyber-attacks is growing. By 2018, the oil and gas industries could be spending US$1.87 billion each year on cyber security.
Full article on Energy Post: World Energy Scenarios show: strong government policies needed to limit climate change
What did the CEOs of Enel and EDF say?
October 14, 2016
For the World Energy Congress, Energy Post produced a magazine, World Energy Focus, for which we were able to interview a number of CEO’s of big utility companies.
They included Francesco Starace, CEO of Italian utility Enel and Jean-Bernard Lévy, CEO of French utility company EDF.
What did Starace have to say?
Starace displayed a very interesting vision on the utility of the future, which Enel is evolving into.
Enel tends to get much less attention than its German counterparts Eon and RWE. This is unujustified, because Enel faced up to the energy transition long before Eon (and later RWE) did.
According to Starace, the utility of the future owns and manages a digitised grid that connects up decentralised green energy sources and is at the centre of a whole new system of energy products and services.
Enel wants to be both renewable energy producer and grid operator. It has probably the largest renewable energy portfolio in the world (much of it outside Europe) and also operates grids in many cities across the world (in addition to Italy and Spain).
This vision has also been embraced by Eon and RWE-spin-off Innogy. But Starace goes a step further. He is radically reorganising the company to reflect its new strategic vision. Most importantly, he has stopped all investment in long-term projects.
If you build a big power plant that will be completed in ten years or even five years, you may find the world has changed so much that your investment turns out to be wasted, says Starace. For this reason Enel has decided to stop investing in projects that take more than two or three years to be completed.
“This is a big management challenge,” Starace points out. “You have to invest in many more smaller things. This means you need more smart people. But what you gain is huge flexibility. We have €10.5 billion invested in growth and all of this investment will be completed around 2018. This means we will have cash again from 2018 to invest. This freedom is a great value for the company.”
What did Lévy have to say?
EDF is a somewhat different beast from its European rivals Eon, RWE and Enel for a simple reason: it has a large nuclear power capacity in France. Yet apart from that EDF’s strategy is not dissimilar to that of the other utilities. It is also banking on renewables and grids (including customer solutions) in addition to its nuclear arm. Lévy sums up EDF’s “2030 strategy” as “a combination of nuclear and renewables”.
EDF’s nuclear activities may be seen either as a source of strength, in that they provide the company with an additional source of revenue, reducing risks on its renewables and grids activities, or as a source of weakness, in the sense that they provide an additional risk. As everyone knows, EDF’s new EPR technology has yet to be proven anywhere, with great delays and cost overruns in its projects in Finland and France. EDF will now invest heavily in two EPR reactors at Hinkley Point C. If these fail, it could bring down the company.
Interestingly, Lévy says EDF is developing a “New Model” EPR, which will be less costly. Let’s hope for the company that this new model does not come too late.
You can download the complete World Energy Focus 2016 here.
What did IEA and BP say?
October 14, 2016
For World Energy Focus 2016, we also interviewed two of the most prominent energy analysts in the world: Fatih Birol, Executive Director of the International Energy Agency (IEA) and Spencer Dale, Group Chief Economist of oil multinational BP.
Their visions appear to be not too dissimilar, yet they contain subtle but important differences.
What did Spencer Dale have to say?
BP is known for its annual Statistical Review of Energy, a very convenient overview of reserves, production and consumption of oil, gas and other forms of energy of the previous year. But it also produces an Energy Outlook, like the IEA’s World Energy Outlook, although much less ambitious.
As one might expect perhaps from an oil company representative, Dale emphasizes that the world will continue to depend heavily on fossil fuels until at least 2040, which is as far as BP’s Outlook looks.
Dale notes that “history tells us that it takes an awful long time for new energies to gain market share”. His team looked at “the evolution of different fuels from the point at which they achieved 1% of the world’s energy supply and then looked at how that share increased over the next 50 years.”
Conclusions: “It took more than 40 years for oil’s share to rise from 1% to 10%. Gas, even after 50 years, still didn’t provide 10%. In our Energy Outlook, we have renewable energy – meaning wind, solar and biomass – growing more quickly than any fuel in history. It still struggles to reach 10% of the world’s energy supply by 2035.”
Yet Dale concedes that the energy transition could happen faster than BP thinks. “It’s possible that we will see forces leading to a faster transition coming from a number of different fronts – and they may all operate together”, he says. “One is policy. What was striking about Paris was not only the Intended Nationally Determined Contributions (INDCs) that governments pledged but also the commitment to come back and review those pledges, to find further policy support in the future. Another is technology, which is likely to change very dramatically, both on the supply side and the demand side.”
What did Fatih Birol have to say?
More than Dale, Birol of the IEA likes to emphasize the importance of climate change policy and the need for a transition away from fossil fuels.
Nevertheless, the IEA’s projections do not differ too much from those of BP. The IEA too projects continued dominance of fossil fuels and a modest role for renewables into the future. For this it often gets criticized by renewable energy enthusiasts.
Yet Birol says this criticism is not justified. He says the IEA bases its projections on existing government policies. If these don’t point in the direction of more renewables, it won’t happen.
This defense is only half convincing, though. It ignores purely economic forces, such as declining costs.
In the upcoming World Energy Outlook the IEA will come with updated projections for renewable energy, in which “we will happily show stronger growth”, Birol reveals in this interview. “What we see now is that governments are increasing their support, so that’s why our projections are going up. In addition, costs are also coming down sharply, which reinforces this positive trend.”
The question remains, though, how fast renewable energy will grow in the years ahead. There is a school of thought that argues that the world will not be able to move away from fossil fuels for a long time to come, and a school that is much more upbeat. Birol offers a third alternative. “There are fossil fuels and fossil fuels”, he says. “I would not lump them all in one basket. Natural gas will continue play an important role even in our most stringent climate scenarios. But the use of oil and especially coal can decline.”
What does Energy Post say?
October 14, 2016
Naturally we attended the World Energy Congress in Istanbul. What did we learn from it?
The Congress this year was dominated by oil companies and oil states, with the CEO’s of companies like Saudi Aramco and BP in attendance, as well as Ministers and even Presidents of countries like Russia, Azerbaijan, Saudi Arabia and Venezuela. This was a bit surprising as the World Energy Council has a background in the utility rather than the oil sector. Its partners and “patrons” are companies like EDF, EON and Enel, not oil companies like BP, Shell and ExxonMobil.
Part of the explanation was the location: the Congress was organised by the Turkish Committee of the World Energy Council and the whole event turned out to be strongly controlled and even manipulated by the Turkish government (including a lot of nationalistic propaganda which visitors had to endure). Turkey is strongly interested in becoming an oil and gas hub and is also investing heavily in coal power plants. President Erdogan, who took part in the Congress, did not invite the presidents of Russia and Azerbaijan by coincidence.
This left a strong mark on the Congress. These government and business leaders all stressed the importance of continued investment in oil and gas and they all declared that “access to energy” for the world’s poor can’t be realised without increased production of oil and gas. OPEC’s new Secretary-General Mohammed Barkindo even had the audacity to say that policymakers should not “discriminate” against oil! “We should not use the Paris Agreement to discriminate against any energy source”, he said.
How the world can reduce greenhouse gas emissions without “discriminating” against energy sources seems a bit of a mystery.
The messages of these speakers contrasted sharply with the message put out by the World Energy Council itself, which stressed the need for a “Grand Transition” away from fossil fuels.
The WEC’s Secretary General Christoph Frei even – for the first time – clearly embraced the philosophy of “stranded assets” (the “carbon bubble”), saying that “If you look at how much we have in proven reserves globally [of fossil fuels], this equates to about 2800 gigatonnes of carbon dioxide emissions. The carbon budget we have [to maintain global temperature rise to within two degrees Celsius] is 1,000 gigatonnes.”
Clearly something will have to give. The oil companies appeared to be unconcerned for now about the effects of climate policies on their businesses. They are also convinced that they will be able to stay in control of our energy future one way or the other. Whether that’s justified or not, remains to be seen. But for its next Congress, the World Energy Council might do well to look much more “beyond petroleum”.