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Spain shows political will to hit 2020 target and acknowledge coal miners too

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Spain shows political will to hit 2020 target and acknowledge coal miners too

by Arasan Aruliah

January 24, 2019

Spain’s largest independent supplier of electricity is committing to delivering an extra 3,000 GWh of renewables in a deal with Norwegian renewables giant Stakraft. When Prime Minister Pedro Sanchez took over last June, he promised to reverse the policies of his predecessor and commit to EU targets on renewables. Substantial social measures and a €250m fund have been agreed to try and make it a just transition. By getting everyone to the table, Spain can now embark on an ambitious plan that may just mean they hit their 2020 target after all.

FORTIA ENERGIA, the Spanish energy sourcing platform for large industrial consumers, and Statkraft, the Norwegian producer of renewable energy, have signed the first long-term power purchase agreement (PPA) for large industrial customers in Spain.

For a period of ten years Statkraft will supply 3,000 GWh of electricity to FORTIA. That’s enough to manage the power supply of large industrial companies in the steel, cement, metallurgy, chemical, paper and industrial gases sectors in the Iberian market (Andorra, Portugal and Spain). The energy will be sourced from Statkraft’s Spanish portfolio and primarily consists of new wind and solar projects already under construction.

At the end of 2018, mainland Spain had 98.65 GW of power generation capacity with demand estimated at 254,074 GWh this year. The additional 3,000 GWh brings hope that the country will now meet the EU’s 20% target for renewable energy generation by 2020. It currently stands at 17%.

It’s not just about the gigawatts, it’s about transition

FORTIA has annual sales of 11 TWh and is the largest independent supplier in the Iberian Electricity Market. Their press release says this is part of FORTIA’s strategy to provide industry with “competitive, diversified and balanced access to energy markets through new contractual models such as PPAs which are an opportunity for producers and consumers in the context of the energy transition.” They expect to announce more such PPAs “in the coming months.”

“We very much look forward to taking that next step in the energy transition together with our customers.” – Juan Temboury, Managing Director at FORTIA

Hallvard Granheim, Executive Vice President Markets & IT at Statkraft said the contract underlines “our commitment to powering major industrial companies across Europe with renewable energy.” Statkraft, owned by the Norwegian Government, is one of the largest managers of renewable assets on behalf of third parties in Europe, with a portfolio of circa 16,000 MW.

Prime Minister Sanchez has said that legislation on climate change was often unpopular with the general public. In particular, the recession of the last ten years made the energy transition a luxury that was hard to afford. But, going forward, he said it must not only happen, it must be “socially just”. Transition must not leave anyone behind, including coal miners that lose their jobs in the shift from fossil fuels.

The 2008 recession hit Spain’s renewables installations

The government now plans to invest €235bn from 2021-2030 as part of its energy and climate initiative. A new climate change law will be submitted to parliament by the end of this month. Last November they published a draft bill which included targets to cut its greenhouse gas emissions by at least 90% below 1990 levels by 2050, and to produce all of its electricity from renewable sources by the same date.

Stark contrast with the last government

This amounts to a reversal of the attitude of the administration in Madrid. Former Prime Minster Mariano Rajoy created a “sun tax” that imposed hefty taxes on small-scale renewable producers while ending payments for pumping their excess electricity back into the national grid. Sanchez scrapped it.

Rajoy’s administration also experienced clashes between the environment and energy ministries. For example, the Energy Ministry was working to prevent coal mine closures. Now, environmental and energy issues come under one single ministry, and 26 coal mines are being shut down.

Big blow to mining communities

Under an EU directive, all coal deposits that no longer make money and receive public funds were ordered to stop production by January 1 2019. Those mines that do not meet the deadline to cease production are supposed to hand the money back. It makes good economic and climate sense but comes at a high price for thousands of miners and their families.

To soften the blow to workers and the communities dependent on coal, Sanchez’s socialist government agreed to a deal with unions last October to smooth coal workers’ access to benefits such as early retirement and earmarked a €250m fund for aiding business ventures and re-purposing disused mines. The industry employed around 100,000 people in the 1950s but this has  dwindled to around 2,000 today.

The continued decline of coal is also showing up in the annual statistics. In December, grid operator Red Electrica de Espana presented provisional data for 2018, saying that nuclear remained the number one source of electric power for Spain in 2018, with a share of 21.4%. Wind was again second at 19.8%. Hydro increased the most, going from 7.4% in 2017 to 13.7% in 2018. Coal’s share reduced by 2.6% to 14.5% of the total.

Spain is now clearly pointing in the right direction, with a particularly impressive performance from hydro. Given the country has only 12 months to get from 17% renewables to 20% by 2020, the new deal between Fortia and Statkraft is a welcome step forward.

As I reported earlier this week, the economics and technology already stack up in most cases. But when the established method of power generation, in this case coal, gets displaced by renewables it is always an extremely difficult decision for responsible governments. Having the political will to manage the transition in a way that considers everyone is what’s required to keep voters onside. Spain’s new government seems to have found it.

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Falling cost of renewables means the gift of independence to poorest nations

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Falling cost of renewables is the gift of independence to poorest nations

by Mike Scott – in Abu Dhabi for Energy Post

January 18, 2019

Iceland's former President; Olafur Ragnar Grimsson

When oil became the dominant form of energy in the 20th century, it not only had a huge impact technologically – it defined the shape of geopolitics for decades as well, giving outsize power and influence to a few countries that were lucky enough to be sitting on top of oil (and later gas) reserves.

Now that influence is set to wane as the world switches from fossil fuel to renewable energy and it presents a huge opportunity, particularly for some of the world’s poorest countries.

Because every country in the world has some renewable resources, and the cost of renewable energy is falling so drastically, there will be a democratisation of the energy landscape, according to a new report from the International Renewable Energy Agency’s Global Commission on the Geopolitics of Energy Transformation.

Ólafur Ragnar Grímsson, the former president of Iceland, who chaired the commission, said that his own country is an example of how renewables can transform a country’s fortunes. “We have seen leadership in renewables come even from small and medium-sized countries. One is my own, thanks to its geothermal resources, while Denmark has become a leader in wind.”

During the 20th century, Iceland went from being one of Europe’s poorest countries, highly dependent on imported coal and oil, to a country with a high standard of living, which derives 100% of its electricity from hydro and geothermal energy, the report points out.

“The effective development of its renewables has enabled Iceland to bolster its energy security, widen its economic base, and attract new industries to the country, including aluminium smelting, data storage and greenhouse agriculture,” it adds.

The shifting sands of the energy landscape now present a real opportunity for those emerging markets that are not blessed with fossil fuel resources. “The geopolitical transformation will enable countries in parts of Asia, Africa and Latin America to reduce their energy imports,” Grimsson told Energy Post. “Countries all over the world will, for the first time, be energy independent.”

“Countries all over the world will, for the first time, be energy independent.” Ólafur Ragnar Grímsson, former president of Iceland

In Africa particularly, the opportunities are huge, said Carlos Lopes, former executive secretary of the UN Economic Commission of Africa and a native of Guinea-Bissau. The first one is for several countries that have reserves of strategic minerals that are vital for the production of renewable energy technology such as wind turbines and batteries. The Democratic Republic of Congo will play a key role.

“There are a number of minerals, such as cobalt, copper, graphite and coltan, that will be essential for renewable energy and that are highly concentrated in a few countries, a lot of which are in Africa,” Lopes said. “Those countries will be incredibly geo-strategically important in future. This is a huge opportunity for the continent.”

The other opportunity is for countries to wean themselves off reliance on the fossil fuel producers. “Every country can tap into one renewable energy or another to produce energy domestically and become more energy independent,” he added. “In Africa, almost half (48%) of the population don’t have access to electricity. Giving them that opportunity will be a major push factor for growth across the continent.”

Most countries in Sub-Saharan Africa will benefit from reducing fossil fuel imports and generating renewable energy domestically, because this will boost job creation and economic growth. “In the long-term, African countries have a unique opportunity to leapfrog the fossil fuel-centred development model despite recent discoveries of oil and gas,” the report says.

However, Lopes warns that African countries still face a number of challenges in benefiting from the rise of renewables. “What will really change the landscape will be industry, and Africans are latecomers to the clean energy sector. As a result, they face skewed intellectual property regimes and don’t have the knowledge base that others do. The globalisation of value chains has already distributed roles to different regions. There is a skills deficiency in sub-Saharan Africa, too.”

But Africa is growing fast – faster than renewable energy can keep up with, as Energy Post reported recently. It will be cheaper, initially, for Africa to use fossil fuels to drive its development, which is why their use is growing in the region at the moment.

For renewables to thrive, “Africa must create its own regional value chains to serve its growing markets. It’s not going to happen immediately, but it should be on the agenda.”

Mari Pangestu, Indonesia’s Minister for Trade

The change will cause serious problems for fossil fuel producing countries that fail to prepare for the transition, said Grimsson, with those most dependent on oil the most vulnerable. The report cites countries such as Iraq and Libya, along with Nigeria and Angola as particularly vulnerable.

Even countries that have a lot of renewable resources will not necessarily make the most of them if the political will is not there, former Indonesian trade minister Mari Pangestu told Energy Post.

While China and India have started tackling air pollution because of growing pressure from citizens, the same is not yet true in Indonesia, one of the world’s biggest coal producers, she said. But with 70% of the population set to be living in cities by 2030, that will surely change. “People won’t take living in polluted cities any more. If we don’t invest in sustainable infrastructure now, it is going to cost us in the future.”

Better risk data is catalyst for transition

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ENERGY WATCH #3 - December 13, 2018

Better risk data is catalyst for transition

by Mike Scott

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Investors are becoming increasingly pivotal in the climate change debate as the risk data available improves in quality and quantity. That data points towards growing risks to high-carbon companies they are invested in and therefore to their returns. It provides an important counterpoint to the efforts by some of the world’s largest fossil fuel producers – the US, Russia, Saudi Arabia and Kuwait – to water down climate commitments. The reality is, these companies must either plan in the risk arising from climate policies or see the money go elsewhere.

On many issues, business bends with the political wind because it knows that opinion will swing one way or the other depending on who is in power. On climate change, though, they know it’s happening, and that action is needed. If it doesn’t happen now, it will have to happen later, and it will likely cost more and be more disruptive.

The dangers, increasingly evident in extreme events such as this summer’s global heatwave, including in the Arctic Circle, are backed up by the Intergovernmental Panel on Climate Change’s most recent report, which shows that there are huge benefits, socially and economically, from keeping average temperature rises as low as possible.

That’s why more than 400 global investors with assets under management of $32 trillion – Boston Consulting Group calculated that the global total at the end of 2017 was $79.2 trillion – have called on governments around the world to address the “ambition gap” and step up action to address climate change, in particular by phasing out thermal coal power, putting a meaningful price on carbon and phasing out fossil fuel subsidies.

Investors are starting to take their own action to minimise their risks, in part by divesting from high-carbon companies and investing in lower-carbon alternatives. New York State Comptroller Thomas P. DiNapoli, who runs the $207 billion New York State Common Retirement Fund, says: “Despite the misguided policies of the Trump Administration, global efforts to address the very real threat climate risk presents to the economy, financial markets and investment returns are ongoing. Investors who ignore the changing world do so at their own peril.”

But while the world’s largest emitters are firmly in the spotlight thanks to initiatives such as Climate Action 100+, and are starting to respond (see last week’s story about Shell’s new climate targets), investors have been warned that they may be missing risks in many ‘overlooked’ industries, which are indirectly affected by the transitional risk of climate change, but not being recognised – and that means that companies in these sectors will soon come under increasing pressure to change.

MSCI says these ‘overlooked’ carbon-dependent industries are those which have low direct carbon emissions, but high revenue dependence on companies with carbon intensive operations and/or products. These industries include oil & gas equipment and services, heavy electrical equipment e.g. steam turbine manufacturers, and auto-parts and equipment.

One of the most striking illustrations of this is the recent reversal of fortunes at GE, which has had to write off billions of dollars and has cut thousands of jobs, including that of its CEO, after its bet on fossil fuel power generation – purchasing the power assets of Alstom – went bad as demand for steam turbines plummeted. Its rival Siemens, despite facing many of the same issues, has fared much better because it recognised much earlier that there would be a switch away from fossil fuels.

Remy Briand, head of ESG at MSCI comments: “Companies in these overlooked industries could pose an equally high risk to investors as those from the more traditional high carbon industries. Climate change risk is no longer simply determined by assessing historical carbon footprints.”

However, part of the problem for companies is that the signals from investors are inconsistent, with Influencemap pointing out that the world’s largest asset management groups – with a combined $40 trillion in capital market assets – have actually increased the holdings of thermal coal reserves in their funds by more than 20% (with fund inflows accounted for) since the Paris Agreement. They include investors that have very publicly called on companies to reduce their impacts, such as Blackrock and State Street.

A lot of this is to do with the rise of passive investing, where “universal” investors buy into entire benchmarks, regardless of companies’ carbon commitments. But Influencemap found that even some funds marketed as low-carbon have significant amounts of fossil fuel assets in them.

“Both index providers such as MSCI and S&P and the asset managers that use them to market climate themed funds are likely to be more carefully scrutinized on these funds and fossil fuel reserves contained within them in light of the IPCC’s latest statements on thermal coal,” the research group says.

Michael Liebreich, founder of Bloomberg New Energy Finance, says that what’s going on in Katowice is just a sideshow. “Climate economics precede climate diplomacy, not the other way around, and the economics keep looking better and better…shareholders and lenders are becoming increasingly uncomfortable with high-carbon business models,”

The signals from investors may be unclear for the moment, but with improved data bringing greater clarity on who is investing in fossil fuels and what the risks are, energy companies will face tough questions from their shareholders about how they are tackling climate change.

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Coal own goal in Japan

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EXPRESS #4 - December 7, 2018

Coal own goal in Japan

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Life is tough being a coal lobbyist in Europe. I’d move to Japan.

Japan has more than 30 new coal-burning power stations planned or under construction. It’s the only G-7 country still planning new coal-fired power stations.

This should come as a surprise to Japan’s Prime Minister Shinzo Abe. After all, he wrote an op-ed for the Financial Times in September bearing the headline “Join Japan and act now to save our planet.” In it he said: “We must save both the green of the earth and the blue of its oceans.”

Confused? Japan isn’t. In fact, its pro-coal power policies extend overseas. Japan is funding coal-fired power plants from Vietnam to Indonesia. The Japan Bank for International Cooperation in the last three years has announced plans to provide up to $5.2 billion in financing for six coal-related projects.

“reliance on fossil fuels has risen to 84% of Japan’s energy mix in 2016 from 65% in 2010”

Under the Kyoto Protocol, Japan pledged to cut greenhouse gas emissions by 6% between 2008 and 2012, but they began rising in around 2011. This is due, in part, to the Fukushima disaster. Halting the country’s nuclear reactors has led to an increased reliance on fossil fuels, which rose to 84% of Japan’s energy mix in 2016 from 65% in 2010. Greenhouse emissions increased by about 7% between 2010 and 2012, according to data from the Ministry of Economy, Trade and Industry.

More nuclear could reverse the trend. But Japan would need about 30 operating reactors by 2030 to achieve its goal of generating 22% of power from nuclear. However, only nine are currently working. As a result, experts say coal’s share of Japan’s energy mix may actually rise over the next decade.

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IPCC climate alarm: what next for energy? (Oil industry: don’t call us, we’ll call you!)

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ENERGY WATCH #1 - October 16, 2018

IPCC climate alarm: what next for energy? (Oil industry: don’t call us, we’ll call you!)

by Karel Beckman

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Bob Dudley CEO of BP addresses Oil & Money conference

The latest IPCC “special report on the impacts of global warming of 1.5°c above pre-industrial levels”, which came out on 8 October, has been all over the news of course – you won’t have missed it.

Yet I do want dive into it for a moment, as it contains many important implications for the energy sector which have hardly been covered in the media.

Perhaps the key part in the report, as far as the energy sector goes, are the four “illustrative model pathways” that it outlines which, if they are followed, will limit warming to 1.5°C with no or limited “overshoot”.

The IPCC notes that all these pathways “use Carbon Dioxide Removal (CDR), but the amount varies across pathways, as do the relative contributions of Bioenergy with Carbon Capture and Storage (BECCS) and removals in the Agriculture, Forestry and Other Land Use (AFOLU) sector.”

The pathways are summarized in the following graph:

Some points to note. Although some commentators have said that “carbon removal”, e.g. in the form of CCS (carbon capture and storage), is essential to contain warming, the first scenario (P1) actually does not include CCS. However, this scenario does assume a 32% reduction of final energy demand in 2050 – a tall order.

Note also that the use of coal and oil will have to be reduced drastically in all scenarios, while natural gas shows growth until 2050 in only one scenario (P3). This scenario also assumes a huge expansion of nuclear power (501%), and a very large growth of BECCS (bioenergy with carbon capture and storage). In other words, the gas industry might do well to encourage nuclear power!

***

Scientists have drawn different conclusions from the IPCC report. Professor Jan Minx, Head of the “applied sustainability science” working group at theMercator Research Institute on Global Commons and Climate Change, concludes (on the website Carbon Brief) that “we will need to suck billions of tonnes of CO2 out of the atmosphere during the second half of the 21st century – permanently and verifiably. Hence, the big message is: we need to be good at both – emission reductions and CDR. If the two are contradictions as some people claim, we will not be able to move along the safest pathways for climate protection.”

Others are more pessimistic. Professor Govindasamy Bala of the Center for Atmospheric and Oceanic Sciences, Indian Institute of Science concludes that “Achieving the CO2 emission reductions to limit the warming to 1.5C is simply not going to happen. Annual emissions have increased by an average of about 2% since Kyoto. If we reverse the course at the same 2% rate, which by itself is an uphill task, it would take about 35 years to cut the emissions by 50%. Hence, the 45% reduction by 2030 for the 1.5C goal, as suggested in the report [shown below], is nearly impossible. Unless a miracle happens, we are going to miss 1.5C or even 2C.”

***

The response from the oil industry to the IPCC findings has been downright lukewarm. As it happens, oil executives got together in London at the Oil & Money Conference on 9-11 October, right after the IPCC report came out.

Ben van Beurden, the CEO of Shell, seems to have been the only oil executive to take the IPCC report at least half-seriously. Van Beurden came up with an appropriately original (desperate?) solution. He suggested that “a huge tree-planting project the size of the Amazon rainforest would be needed to meet a tougher global warming target, as he argued more renewable energy alone would not be enough”, reports The Guardian.

“You can get to 1.5C, but not by just by pulling the same levers a little bit harder, because they are being pulled roughly as fast and as hard as we are currently imagining”, said Van Beurden. “What we think can be done is massive reforestation. Think of another Brazil in terms of rainforest: you can get to 1.5C,” he told an oil and gas industry audience in London.

“It’s not what some people sometimes think: we’ll just do a little bit more solar, a bit more wind and we’ll get there,” he added.

That’s an interesting remark in itself: does anybody really believe “we will get there” with “a little bit more solar and a bit more wind”?

At the same conference, Van Beurden also said, “Let’s stop quibbling in society about whose fault it is and who should do more.” Sorry, Ben, it doesn’t work that way. You won’t be let off the hook as easily as that!

BP Chief Executive Bob Dudley appeared to be even in greater denial than Van Beurden at the Oil & Money conference.

Dudley, according to a BP press release, “outlined why continued investment in the oil and gas industry is essential to meeting the dual challenge of providing billions of people with more energy while drastically lowering carbon emissions.”

“Arguing against divestment in his keynote speech at the Oil & Money Conference today, Dudley said the energy industry is facing a fork in the road. ‘We could go the way of people who want to drive a wedge between the energy industry and investors. They push for potentially confusing disclosures, raise the spectre of a systemic risk to the financial system from stranded assets and campaign for divestment − all in an effort to squeeze oil and gas out of the fuel mix. They are driven by good intentions, but my concern is that their suggested recommendations could lead to bad outcomes, particularly for some of the most vulnerable people in the world’.

What about the “bad outcomes” from climate change “for some of the most vulnerable people in the world”? Dudley did not seem to have considered those.

“We could take a different, more innovative and collaborative path; one that recognizes that many fuels must play a part in meeting the dual challenge − albeit, made much cleaner, better and kinder to the planet”, he added. Better and kinder? Collaborative path? You wonder what sort of wishful thinking is going on inside the BP offices.

So what “pathway” does Dudley see going forward, concretely? He listed the following actions that we should take:

  • Investing in all kinds of renewables − solar, wind, bioenergy, battery technology, and enabling electrification of vehicles.
  • Producing natural gas as the perfect partner for intermittent renewables − gas emits half the carbon emissions of coal in power generation.
  • Working as part of the Oil and Gas Climate Initiative to develop carbon capture use and storage (CCUS) and to set an ambition to keep methane intensity at 0.20%. 
  • Promoting well-designed carbon price systems that incentivize everyone − consumers and energy producers alike − to cut emissions.
  • Improving energy efficiency in collaboration with automobile manufacturers, working to improve engine-design and manufacture advanced fuels and lubricants. The International Energy Agency says energy efficiency could make the biggest contribution to meeting the Paris goals.

The problem with this little list is of course that it commits to absolutely nothing. It’s business-as-usual with some climate action thrown in, but as Dudley’s colleague Van Beurden admits, that won’t be enough.

Dudley of course knows quite well that, as Reuters reported from the Oil & Money Conference, “demand for oil continues to climb. The International Energy Agency (IEA) estimates global oil demand will hit 100 million barrels per day (bpd) for the first time this year. Without a major shift in policies, the IEA expects world oil demand to rise for at least the next 20 years, heading for 125 million bpd around mid-century.”

Another colleague of Dudley, chief executive of Abu Dhabi oil company ADNOC Sultan al-Jaber said bluntly that “The era of oil is far, in fact, very far from over. There is healthier demand for our product, which is undeniably good news for our industry.”

Similarly, Qatar Petroleum CEO Saad Al Kaabi said in London that it was too much to expect a dramatic reduction in the use of oil and gas, given demand vehicle fuel and petrochemicals. “Oil is not going to completely go away but it is going to reduce,” he said.

“Unless you give me a solution that’s different than just ‘renewables’, or say you want to do away with nuclear power also and so on, unless there is another way of getting there, it’s difficult to comprehend how we’ll achieve it,” Al Kaabi added, echoing Van Beurden’s remark that “a little bit of solar and wind” won’t do the trick.

The fact that the IPCC has just given us four pathways to limit warming to 1.5°C has apparently been lost on the oil executives. It does not harbinger well for the climate – or for the oil industry.

***

Is there a solution, then, to get the world onto one of the pathways outlined by the IPCC?

What is clear is that any solution has to come from policymakers, who, however, can only be successful if they are massively supported by the public.

In that case, though, they have a very simple instrument that they could use, which won’t require any “targets” or treaties or subsidies: they can set a price on carbon.

That at any rate is what economist William Nordhaus has been advocating for many years: and as it happens, Nordhaus got awarded the Nobel prize on the very same day that the IPCC came out with its report, on 8 October!

As Andrew J. Hoffman and Ellen Hughes-Cromwick write on the website The Conversation, in his book Climate Casino, Nordhaus “explained the many interrelated topics when talking about climate change, from science and energy to economics and politics, while clearly identifying the steps necessary to prevent catastrophe.”

“A premise of his research was that the environment is a public good, shared by all and yet not paid for in any adequate or appropriate way. In other words, we all benefit from it, though we don’t necessarily pay for it. And we are all harmed by its degradation though the value of that damage is not captured in standard market exchange.”

“Nordhaus argued a tax on carbon – say US$25 a ton – or a cap and trade scheme that allows companies to exchange pollution credits – offers the best and most economically efficient way of putting a value on that public good and thus doing something about the problem.”

“Nordhaus showed this by perfecting models that simulated how such taxes and other inputs affect both the economy and climate, depicting how they co-evolve.”

Thus “he was able to show, with great clarity, that the most cost effective way to reduce greenhouse gas emissions is by lifting the price of fossil fuels with a carbon tax. This in turn would provide the appropriate incentives for consumers and businesses to use less of those fuels.”

“Nordhaus was also able to estimate the economic damage from climate change if such policies weren’t adopted. He found that the people who would lose the most were the poor and those living in tropical regions.”

Got that, Mr Dudley?

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Dutch parliament sets target of 95% CO2 reduction

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EXPRESS #2 - July 3, 2018

Dutch parliament sets target of 95% CO2 reduction

Dutch economy minister Wiebes announces end gas production from Groningen

The Netherlands has long been a laggard in the EU in climate policy (especially in renewable energy), but recently it has been showing a lot of climate ambition.

Last year, a new centre-right coalition government surprised friends and enemies alike with an accord that included a 49% CO2 emission reduction by 2030 (more than the 40% EU member states agreed on after Paris) as well as closure of all coal power stations by 2030. It also included a carbon price floor of €18/ton starting in 2020, rising to €40/ton in 2030.

Now, a cross-party coalition of 7 parties in Parliament, representing 75%, have said they will agree on a law requiring the Netherlands to cut greenhouse gas emissions by 95 percent by 2050, compared with the level in 1990.

The law also targets a 49 percent reduction in emissions by 2030, and requires the electricity supply to become carbon neutral by 2050, reports Reuters.

The proposed bill, expected to come into effect next year, did not give an estimate for the cost of reaching the goals, nor an indication of how they might be achieved, Reuters adds.

“Politicians can’t deny climate change,” said Jesse Klaver, leader of the environmentalist Green Left party, at the presentation of the draft bill. “This makes clear which targets we should meet,” Socialist Party leader Lilian Marijnissen added. “These can no longer be discussed.”

“The ministry of Economic Affairs has asked all sectors involved in the reduction of greenhouse gasses to come up with plans to meet the climate goals in the coming weeks”, notes Reuters. “But progress has reportedly stalled as large industrial companies fear they will become less competitive if the Dutch want to take on climate change faster than other European countries. Industry is responsible for a quarter of the total CO2 emissions in the Netherlands, with 12 large companies responsible for 75 percent of that amount.”

The change in Dutch climate policy is partially related to the problems of the Dutch gas sector, long a mainstay of national energy policy, which held back more ambitious renewable energy targets. The government announced in March that it will end production from the giant Groningen field by the end of the next decade, in an effort to stop a string of relatively small, but damaging earthquakes caused by gas extraction.

On 25 June, the government announced it had made a deal with Shell and ExxonMobil, the two partners in gas production company NAM, which operates the field. The companies will not submit a claim for missed revenue due to the Dutch government’s decision to halt gas production, reports Reuters.

“A lot of gas will be left in the ground,” Economy minister Eric Wiebes said at the presentation of his deal with the oil majors responsible for extracting Groningen gas. “That gas is the property of the oil companies, but they will not submit a claim and the government is not required to compensate them.”

Some 450 billion cubic meters (bcm) of gas will be left in the ground, Wiebes said, with an estimated value of approximately 70 billion euros.

NAM will be required to pump as much gas as the government says is needed in the coming years. In return, it will see its share of the revenue from Groningen rise from 10 to 27 percent, Wiebes said, starting this year.

As part of the deal, NAM will also contribute a total of 500 million euros to strengthen the economy in the Groningen region, with the government another 500 million.

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Exclusive interview: Ilaria Conti, Florence School of Regulation

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Poland goes green(er)

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EXPRESS #1 - July 3, 2018

Poland goes green(er)

Sheikh Mohammed bin Rashid Al Maktoum ruler of Dubai met Polish President Duda in 2015

Poland’s upper house of parliament approved an amendment to the renewable sources of energy law on Friday meant to remove obstacles to green energy investment and help Warsaw meet EU renewable energy targets, reports Reuters.

The Polish president, Andrzej Duda, still has to sign the bill.

The new law represents a change of direction in Poland’s climate and energy policy. Poland’s conservative Law and Justice (PiS) party won the 2015 election partly with promises to sustain the coal industry.

In 2016, “the government banned construction of new wind farms close to dwellings and imposed new taxes on investors that made many wind farms loss-making”, notes Reuters. “It also took Poland off the track to meet an EU target of 15 percent of energy from renewables overall in gross final energy consumption – with sub-targets including renewable electricity, green heat and transport – by 2020.”

Now, “as part of a wider plan to ease tensions with the EU, which has criticized the PiS over its politicisation of the judiciary, and in light of falling production of high-polluting coal, Poland changed direction towards green energy this year.”

In March the government “proposed the amendment to remove the tax disincentives and kick off auctions under a new subsidy system in which renewable producers would be assured a stable price for their energy in any given period.”

“This is why we are doing the law…The intention is that we come closer to this 15 percent. This 15 percent is at risk, but if we show that we are getting closer then our actions will be positively assessed,” Deputy Energy Minister Grzegorz Tobiszowski said earlier this month.

According to the Polish Wind Energy Association (PWEA), Poland had a 13.9% share of electricity consumption through renewables last year, short of a target of 14.7 percent.

“We are very glad about this bill and that it has taken into account many of the industry’s proposals,” PWEA chief Janusz Gajowiecki told Reuters. “The biggest positive element is the tax issue,” he said, adding that more improvements to green energy rules would be welcome as the situation with existing wind farms was critical.

Poland recently also announced very ambitious e-mobility plans. For more on the apparent Polish green turnaround, see this article on Energy Post.

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Exclusive interview: Ilaria Conti, Florence School of Regulation

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Cybersecurity: the knock-on cost of digital efficiency

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OPEC is driving itself to irrelevance with farcical aplomb

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Transition funding: can Eastern Europe follow Lithuanian lead?

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EU oversight of foreign investment in energy projects lacking

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Europe is – finally – starting to deal with the losers of the energy transition

by

BRUSSELS INSIDER #2 - June 26, 2018

Europe is – finally – starting to deal with the losers of the energy transition

by Sonja van Renssen

Ptolemaida power plant in Greece

The EU and national governments are stepping up to help Europe’s coal regions find a future in a low-carbon economy. New lignite plants cannot make up for planned closures, is the lesson from Greece. Failure on jobs could doom climate action, is the warning from Germany. “Advanced coal technologies” (with CCS) still merit attention, is the belief at the European Commission, which has created a Platform for Coal Regions in Transition.

“We want to be at the table, not on the menu,” said Benjamin Denis, an advisor at the European Trade Union Confederation (ETUC), at an event on a “just”- in other words, fair – transition for coal mining regions in the EU at the European Parliament in Brussels on 21 June.

The event was organised by WWF and Globe, a network within the Parliament that campaigns to mainstream sustainability. With speakers from Greece, Germany, Bulgaria and Brussels, the aim was to discuss the challenge that European coal mining regions face as Europe commits to decarbonise completely, and how they might respond.

Ten European countries have now announced coal phase-outs – Austria, Denmark, Finland, France, Ireland, Italy, the Netherlands, Portugal, Sweden and the UK – and the EU as a whole has just signed up to a fresh bout of climate action with two more deals on its Clean Energy Package (see accompanying article). In a new energy governance regulation, it asks Member States to draw up strategies to reach “net zero” greenhouse gas emissions “as soon as possible”.

Europe is only starting to deal with the less glamorous side of the energy transition, however: its potential losers. “Transition” means change and inevitably as some move forward, others are left behind. Coal miners are emblematic of this plight, although many energy-intensive industries such as steel and cement are also struggling to adapt.

Both in Brussels and at national level, governments are waking up these problems, but help remains slow and uncertain.

New lignite vs. new activities

The challenge that coal mining regions face in Europe was set out by Nikos Mantzaris, Head of Energy and Climate Policy at WWF Greece, in a presentation on Western Macedonia at the Parliament event. WWF is running a “Just Transition” project in Germany, Greece, Bulgaria and Poland, funded by the German environment ministry. The NGO is developing “quantitative” transition plans for coal regions in Bulgaria and Poland – i.e. calculating potential impacts on jobs and GDP – based on a Greek blueprint for Western Macedonia and best practices in the Ruhr region in Germany.

In Western Macedonia, a lignite heartland, nearly half the GDP and jobs depend on coal mines and power generation. But 3500MW of coal are due to close between now and 2030. Inaction is not an option, Mantzaris stressed: that would result in the loss of over 6,000 jobs and €1.1 billion in GDP. Nor is the construction of new lignite plants going to solve the problem: the one that is already being built (Ptolemaida V) will only recover 20% of the losses, WWF calculates. Add aspirations for a second (Meliti II) and the recovery rate rises to 30%. And that for a price tag of €2.5 billion.

Instead, WWF suggests a series of alternative development scenarios that target non-coal activities from developing renewables to saffron production to eco-tourism. The most ambitious of these would require a comparable investment to the Ptolemaida V + Meliti II plan, but it would create twice as many jobs and more than double the GDP that will be lost from plant retirements. And no, a decision to forego new coal plants would not cause problems for the energy system, Mantzaris said in response to a question from Energy Post – a separate WWF study shows that technically, the system can handle it and economically, energy would actually become cheaper.

Mantzaris welcomed a new “just transition fund” announced by the Greek government that will be based on EU carbon allowance sales, the first in Europe, he said, but pointed out that the €20 million per year foreseen is much less than that for energy-intensives (€50 million) or electricity providers (€100 million). Lefteris Ioannidis, the Mayor of Kozani, capital of Western Macedonia, added that municipalities have been asking for such a fund since 2015.

Societal task

The country that everyone is looking to however is Germany. Germany is Europe’s wealthiest nation and its lignite powerhouse. The country’s climate targets demand a coal phase-out. It is the job of a new “Commission on growth, structural change and employment” – informally called the “Coal Commission” – to work out by when Germany should do this and how to deal with the consequences.

As German environment minister Svenja Schulze said as she opened the 9th annual Petersberg Climate Dialogue in Berlin at the start of last week, failure on jobs could doom climate action: “I am firmly convinced that the transition must be socially just to be successful, otherwise it will fail.”

The Coal Commission was officially created on 5 June and is due to hold its first meeting today, 26 June.

It’s not just about coal either, noted Stefan Gärtner, head of “spatial capital” research at the Institute of Work & Technology in Gelsenkirchen (the Ruhr) in Germany, at the Parliament event: it’s also about associated industries such as steel production. Germany is looking to learn from past experience of change in the Ruhr region to meet these new challenges.

Structural change is a “societal task”, Gärtner said. The later we leave it, the more expensive and disruptive it usually is. He suggested that the finite nature of lignite supplies could help make the case for action.

Post coal vs. clean coal

The good news is that governments are moving. And not just the Greek or German governments, but the EU as a whole. At the end of last year, the European Commission launched an “EU Platform for Coal Regions in Transition” with the explicit aim of making sure no regions are “left behind” as the EU moves away from fossil fuels.

It’s another brainchild of Klaus-Dieter Borchardt, the Commission’s straight-talking internal energy market Director. He reportedly came up with the idea in a brainstorming session with Poland’s energy minister. Saxony (Germany) heard about it and wanted in and others followed.

The Platform held its first meeting in February this year. A second is due on 12-13 July. The Commission has identified 42 regions across 11 Member States that work with coal. The sector provides direct employment to about a quarter of a million people, most of those (about 40%) in Poland. Brussels wants to get countries thinking about how to transition out of coal and come up with concrete projects to make this happen. Industry and NGO stakeholders are supposed to be part of the process.

The Platform has two working groups: “Post coal economy and structural transformation” and “Clean air, eco-innovation and energy system transformation”. The former is for “those regions that want to stop coal”, in the words of Anna Colucci, who heads up the Platform in DG Energy; the other is “more dedicated to technologies”, for example to help countries improve air quality. These technologies must be compatible with long-term decarbonisation, Colucci stressed at the Parliament’s just transition event.

That doesn’t stop NGOs like WWF from worrying about the Commission’s reference to “advanced coal technologies” however. Carbon capture and storage (CCS) comes to mind. Skeptical NGOs argue that this a dangerous fantasy that we have no time for.

Colucci acknowledged that there is a tension between working groups one and two in the sense that the first is clearly about moving away from coal, while the second could extend its lifespan, for example through CCS. She said that the two groups “encapsulate the situation in Member States”. As things stand now, the Commission’s official view is that “clean” coal could be part of a Paris-compatible European energy mix. Although a flagship European CCS demonstration programme has gone nowhere.

New narrative and funds

Transition is not a foreign concept to many in Europe. Svetoslav Malinov, a Bulgarian MEP, reminded the Parliament’s event about the transition from state to market in Central and Eastern Europe. And identified one big problem: “Those reforms were easy to sell. The Paris Climate Agreement is a much more difficult sell than EU membership.”

The coal sector generates “good” jobs, Malinov argued. Denis from ETUC agreed: a Polish coal miner typically earns 7000 zloty (€1600) gross a month vs. an average salary of just over 4000 zloty (€900). Changing jobs could entail a serious pay cut. Coal miners are strongly unionised too, which helps put a spotlight on their plight. “We lost 80,000 jobs in the last decade in renewables, but no one knew i.e. cared,” said Juliette de Grandpré, a Senior Advisor on climate and energy at WWF Germany.

The Commission is inviting pilot regions to present coal transition strategies and projects. In response, it is creating “operational country teams”. So far there are four: in Slovakia, Poland, Greece and Romania. The Czech Republic will follow this month, and Bulgaria and Spain are next in line. The Commission intends to create a central secretariat for its Platform this year.

Critically, there are no dedicated funds for this just transition work in either the current EU budget or the next one. The Commission is dipping into regional development funds and the EU’s R&D programme, Horizon 2020, for the moment. For the next multiannual financial framework, which will run from 2021-27, Colucci pointed to a stronger focus on climate action as a good sign. She noted too that the Parliament may yet try to secure a dedicated just transition fund (as they tried – and failed – to do in the EU ETS reform).

Denis held up Canada as an example of a country that’s taking the just transition seriously. It has a dedicated task force, deadline and budget (€23 million), and Europe needs the same, he said. If policymakers don’t take the lead, populism will decide what kind of transition we get.

back to menu

Exclusive interview: Ilaria Conti, Florence School of Regulation

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Cybersecurity: the knock-on cost of digital efficiency

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OPEC is driving itself to irrelevance with farcical aplomb

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Investing in renewables in China: relatively good times

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Grid-scale batteries: further price drops result in concrete investments

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Germany’s gas plan: diversify, increase, clean

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Net Zero UK: chance for Parliament to restore international leadership credentials

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Russian – EU – Ukrainian gas talks: don’t believe the hype, it’s (almost) business as usual

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Cement emissions: GCCA’s Claude Lorea sets out concrete plans

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Transition funding: can Eastern Europe follow Lithuanian lead?

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“Battery boom will transform energy” – but will Europe get left behind?

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ENERGY WATCH #2 - June 26, 2018

“Battery boom will transform energy” – but will Europe get left behind?

by Karel Beckman
European carmakers invest more in EVs in China than in Europe

“Batteries boom enables world to get half of electricity from wind and solar by 2050”, according to the New Energy Outlook 2018 just published by think tank Bloomberg New Energy Finance (BNEF).

BNEF notes that “wind and solar are set to surge to almost ‘50 by 50’ – 50% of world generation by 2050 – on the back of precipitous reductions in cost, and the advent of cheaper and cheaper batteries that will enable electricity to be stored and discharged to meet shifts in demand and supply”.

This is an interesting projection, because it can literally make you wonder whether the glass is half-full or half-empty. As we noted elsewhere on Energy Post Weekly (see “The mixed prospects of solar power in Europe – and the hottest trends”), the transition to renewable energy is a matter at least four or five decades rather than two or three – and this (upbeat!) study from BNEF confirms that.

The New Energy Outlook (NEO) “draws on detailed research by a team of more than 65 analysts around the world, including sophisticated modeling of power systems country-by-country, and of the evolving cost dynamics of different technologies”, according to BNEF.

This year’s edition is the first “to highlight the huge impact that falling battery costs will have on the electricity mix over the coming decades. BNEF predicts that lithium-ion battery prices, already down by nearly 80% per megawatt-hour since 2010, will continue to tumble as electric vehicle manufacturing builds up through the 2020s.”

Seb Henbest, head of Europe, Middle East and Africa for BNEF and lead author of NEO 2018, said: “We see $548 billion being invested in battery capacity by 2050, two thirds of that at the grid level and one third installed behind-the-meter by households and businesses.”

“The arrival of cheap battery storage will mean that it becomes increasingly possible to finesse the delivery of electricity from wind and solar, so that these technologies can help meet demand even when the wind isn’t blowing and the sun isn’t shining. The result will be renewables eating up more and more of the existing market for coal, gas and nuclear.”

NEO 2018 sees $11.5 trillion being invested globally in new power generation capacity between 2018 and 2050, with $8.4 trillion of that going to wind and solar and a further $1.5 trillion to other zero-carbon technologies such as hydro and nuclear.

This investment “will produce a 17-fold increase in solar photovoltaic capacity worldwide, and a sixfold increase in wind power capacity”, says BNEF.

Note that a 17-folf increase in today’s solar capacity (of 400 GW) would lead to 6800 GW of solar power installed in 2050. That compares to a projection of just 2000 GW of solar capacity by the IEA in 2040. That’s ten years earlier, but it is clear that the IEA’s projection is much more modest. (See “The mixed prospects of solar power in Europe – and the hottest trends” on Energy Post Weekly.)

According to BNEF, the levelized cost of electricity (LCOE) from new PV plants is forecast “to fall a further 71% by 2050, while that for onshore wind drops by a further 58%. These two technologies have already seen LCOE reductions of 77% and 41% respectively between 2009 and 2018.”

Coal emerges as “the biggest loser in the long run”, according to the report.

“The role of gas in the generation mix will evolve, with gas-fired power stations increasingly built and used to provide back-up for renewables rather than to produce so-called base-load, or round-the-clock, electricity. BNEF sees $1.3 trillion being invested in new capacity to 2050, nearly half of it in ‘gas peaker’ plants rather than combined-cycle turbines. Gas-fired generation is seen rising 15% between 2017 and 2050, although its share of global electricity declines from 21% to 15%.”

Fuel burn trends globally are forecast “to be dire in the long run for the coal industry, but moderately encouraging for the gas extraction sector. NEO 2018 sees coal burn in power stations falling 56% between 2017 and 2050, while that for gas rises 14%.”

“The bearish outlook for coal means that NEO 2018 offers a more upbeat projection for carbon emissions than the equivalent report a year ago. BNEF now sees global electricity sector emissions rising 2% from 2017 to a peak in 2027, and then falling 38% to 2050.”

However, “this would still mean electricity failing to fulfill its part of the effort to keep global CO₂ levels below 450 parts per million – the level considered by the Intergovernmental Panel on Climate Change to be consistent with limiting the rise in temperatures to less than two degrees Celsius.”

Matthias Kimmel, energy economics analyst at BNEF, commented: “Even if we decommissioned all the world’s coal plants by 2035, the power sector would still be tracking above a climate-safe trajectory, burning too much unabated gas. Getting to two degrees requires a zero-carbon solution to the seasonal extremes, one that doesn’t involve unabated gas.”

Among the other highlights of NEO 2018 are “high penetration rates for renewables in many markets (87% of total electricity supply in Europe by 2050, and 55% for the U.S., 62% for China and 75% for India). It also highlights a shift to more ‘decentralization’ in some countries such as Australia, where by mid-century consumer PV and batteries account for 43% of all capacity.”

NEO 2018 also “estimates that electric cars and buses will be using 3,461TWh of electricity globally in 2050, equivalent to 9% of total demand. About half of the necessary charging is forecast to be done on a ‘dynamic’ basis, taking advantage of times when electricity prices are low because of high renewables output.”

***

One point to note: the projection of 87% of renewables penetration in European electricity supply in 2050 seems rather high, in view of the lacklustre performance of solar PV in Europe. (Again, see “The mixed prospects of solar power in Europe – and the hottest trends” elsewhere on Energy Post Weekly.)

Likewise, when it comes batteries, Europe has some catching up to do, as we discussed on Energy Post Weekly last week. (See “Should Europe build or buy batteries”.)

On 21 June, Brussels-based NGO Transport & Environment (T&E) released a report with another “reality check” for the EU. T&E showed that European carmakers invest seven times more in EV production in China than at home.

China has secured €21.7 billion of investment in the past year to manufacture electric vehicles (EV) while Europe secured only €3.2 billion, notes T&E, basing itself on European carmakers’ public announcements.

China produces a third more cars than Europe does (23.5 million passenger cars manufactured in 2017 versus 17 million in Europe), notes T&E, “and thus the market size can’t explain the huge disparity in investment.”

The reason for the disparity, according to T&E: “China’s ambitious mandate – requiring carmakers to manufacture electric vehicles in its territory – is a key driver of investment in EVs, one which Europe currently lacks.”

China’s clean vehicle policy – the ‘new energy vehicle mandate’ – requires carmakers to obtain credits for the production of EVs that are equivalent to 10% of the overall passenger car market in 2019 and 12% in 2020, notes T&E. “Considering the credit structure, the 2020 goal would translate to zero-emission vehicles being around 4% of actual vehicle sales. In November last year, the European Commission proposed new car CO2 reduction targets of 15% and 30% in 2025 and 2030 respectively, but fell short of any meaningful sales target for zero-emission vehicles.”

EU environment ministers were meeting on 25 June (at the time of this writing) to discuss the ambition of the proposal with many countries expected to push for a strengthening of it.

Julia Poliscanova, clean vehicles manager of Transport & Environment, said: “China bet decisively on electric cars and is winning the race. It understood that production follows demand, and demand is created with smart, ambitious industrial policy. But Europe still can’t shake off its dirty diesel legacy. The EU ministers have two choices: either we set an EV sales target to keep auto jobs at home, or allow European carmakers to go on selling dirty diesels here while investing the earnings into EV production abroad and importing back made-in-China electric cars.”

In particular, “Volkswagen, Daimler and Renault-Nissan are racing to invest in Chinese EV production”, writes T&E. “The largest European carmaker, the Volkswagen Group, leads the pack with a €10 billion joint venture with Chinese Anhui Jianghuai as part of its Roadmap E initiative to increase EV sales to 1.5 million globally by 2025. Nissan has pledged €8 billion as part of a ,joint venture with Renault and Dongfeng in a bid to become the dominant EV maker in China. Daimler AG teamed up with China’s BAIC in a venture worth €1.6 billion to expand the production of Mercedes-Benz EVs to a new facility in Beijing.”

Carmakers “have been clear that the strong Chinese vehicle mandate is the driver of their investments”, says T&E. A VW spokesperson told Bloomberg that the policy ‘perfectly fits our recently announced roadmap for electric vehicles.’ Following its decision to produce the electric Mini in China, BMW said it was following a key business axiom: ‘Production follows the market.’”

The T&E report further notes that “a recent study by Cambridge Econometrics – endorsed by BMW, Renault-Nissan, Valeo, ABB, trade unions, consumer group BEUC and green NGOs – concluded that 206,000 net jobs could  be created in the EU through a shift from fossil-fuel powered vehicles to ones driven by renewable energy by 2030. But for this to happen strong regulations are needed to drive the industry to invest here. T&E estimates that if electric cars are largely imported into Europe by 2030 a third of manufacturing jobs could be lost.”

Julia Hildermeier, electromobility officer of T&E, said: “The EV race has just started. The Chinese have a headstart because of their ambitious zero-emission vehicle mandate. But it was only last year when China introduced the law. Europe can catch up quickly too. The European Parliament and EU governments can do so by setting a binding 20% CO2 reduction target for 2025 coupled with an EV sales target.

back to menu

Exclusive interview: Ilaria Conti, Florence School of Regulation

Read more

Cybersecurity: the knock-on cost of digital efficiency

Read more

OPEC is driving itself to irrelevance with farcical aplomb

Read more

Investing in renewables in China: relatively good times

Read more

Grid-scale batteries: further price drops result in concrete investments

Read more

Germany’s gas plan: diversify, increase, clean

Read more

Net Zero UK: chance for Parliament to restore international leadership credentials

Read more

Russian – EU – Ukrainian gas talks: don’t believe the hype, it’s (almost) business as usual

Read more

Cement emissions: GCCA’s Claude Lorea sets out concrete plans

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Transition funding: can Eastern Europe follow Lithuanian lead?

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EU oversight of foreign investment in energy projects lacking

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More trouble for the Energiewende as utilities call for rapid coal phase out and citizens oppose wind farms

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EXPRESS #1 - June 19, 2018

More trouble for the Energiewende as utilities call for rapid coal phase out and citizens oppose wind farms

The Bundesnetzagentur reports record costs for grid stability in Germany

While German utilities urge the government to speed up policymaking on the Energiewende, public resistance to Germany’s ambitious energy shift seems to be growing stronger. The costs of stabilizing the grid last year reached record levels. 

Clean Energy Wire reports that according to utility association BDEW, “Germany’s policymakers have not kept pace with the energy industry’s rapid transformation caused by the Energiewende, and must catch up urgently. The utilities also say that Germany needs a coal exit that is fast enough to reach its climate target for 2030.”

“We are at a standstill, and we cannot afford this,” the executive director of the utility association BDEW, Stefan Kapferer, told the group’s annual conference in Berlin. “The industry has already entered the path of reducing its coal use, this process is well underway.”

BDEW head Kapferer urged energy minister Peter Altmaier, who was scheduled to address the conference later on 13 June, “to speed up the renewables build-up, as well as the extension of the power grid, rather than continuing with the current spat between the two coalition parties about which of the two needs to go first. The industry also needs a more secure future for the combined heat and power plants, as well as rules on storage that would allow this key element of the Energiewende to play a more prominent role.”

Energy minister Peter Altmaier mostly reiterated known government positions in his speech at the conference. “The country had to step up the extension of power grids in order to speed up the roll-out of renewables as envisioned in the government coalition treaty, Altmaier said. Cabinet should pass a law to speed up grid extension after the summer recess.”

“The government stands by the 2030 climate target,” he said. “We haven’t given up on the 2020 target,” he also said. “But there is a gap of 8 percentage points,” he said referring to the government’s latest climate protection report. “Anyone who looks into this seriously knows that you cannot close such a gap with the push of a button.”

Germany’s new coalition government has been under pressure since its decision to postpone the long-standing 2020 goal of reducing greenhouse gas emissions by 40 percent compared to 1990 levels. The coalition has also faced criticism for the delays in establishing a commission tasked with charting a path toward the country’s coal exit, and has further irked environmentalists by dragging its heels on more ambitious climate and renewable targets for the European Union.

Perhaps a bit paradoxically, Kapferer “reiterated the industry’s long held view that the country was heading into difficulties in terms of supply security in the 2020s, once the nuclear phaseout is completed and the coal exit gets under way. In his opinion, Germany should not just rely on backup capacity from other European countries, as many of its neighbours are also about to shut down their nuclear and coal-fired power plants. Kapferer said Germany would need new gas-fired power plants to provide backup to the fluctuating renewable energy sources, such as wind and solar. The discussion about fixes, which could include a capacity market for back-up power plants, needed to start early enough, he said.”

Energy minister Altmaier defended the government’s decision to bet on a so-called energy only market without payments for power plants on stand-by. “Any debate about supply security must not lead to the introduction of a capacity market through the backdoor, he said. The government’s goal to cut emissions by 55 percent by 2030 meant that about half of Germany’s coal-fired generation capacity had to shut down by that date.”

Altmaier acknowledged that the phase-out path to be determined by the coal commission would have to take the shut-down of the final nuclear power plant in 2022 into account. “We will need a pause for thought to see what this does to grid stability,” he said.

The head of the German Association of Local Utilities (VKU), Katherina Reiche, seconded Kapferer’s view on supply security, urging the government to move cautiously with the coal exit. “I can only warn against hoping that we will find a kilowatt hour of electricity somewhere in Europe in the case of a bottleneck.”

An industrialised country like Germany must be able to generate enough electricity for itself at every minute of the day, even in an extreme situation,” she told the business daily Handelsblatt. The guiding principle in determining the order in which coal power should be phased out must be the carbon intensity of the affected plants, which would rank combined heat and power plants further down in the list.

Meanwhile, the Federal Network Agency (BNetzA) has reported that “the costs for power grid stabilising measures rose to a record 1.4 billion euros in 2017 (880 million euros in 2016).”

This was due to lagging grid expansion, a Europe-wide cold spell at the beginning of 2017 and a record feed-in of wind power, among other things. “Only the grid expansion can lower the high costs for grid and system security in the long run,” said BNetzA president Jochen Homann in a press release. Costs include re-dispatch measures, the use of power plants in the reserve, and power feed-in management.

The Zeit Online newspaper noted recently that public resistance to onshore wind parks in Germany is increasing. According to the Berlin-based anti-wind power grassroots association Vernunftkraft, there are now some 900 local groups active opposing wind power projects. The Zeit says that the figure is more likely to be around 500 according to experts.

What is certain is that the number of permits for wind power parks is decreasing sharply. In 2016 more than 3100 licenses were granted, last year just 450. An important reason for the decline is the switch from feed-in tariffs to auctions.

Contents – June 19, 2018

Energy Watch:
Many steps back, few forward as we move into the New Gas World
What else can we do? Suck CO2 out of the sky? Store it underground?
Bill Gates makes a small bet on energy storage – China a large one
Should Europe buy or build batteries? Or have the Asians build batteries in Europe?
Brussels Insider:
EU transforms the European energy sector
Interview Jean-Marc Leroy, President Gas Infrastructure Europe: “Green gas is paramount for us, but we are still in the experimentation phase”
Express reads:
More trouble for the Energiewende as utilities call for rapid coal phase out and citizens oppose wind farms
Oil stocks: from rock-solid blue chips to speculative investment
Is the Energy Charter Treaty the Dark Lord of the energy sector?
Renewables: Innogy expands in U.S., EnBW in France, Norway mulls offshore wind expansion

Many steps back, few forward as we move into the New Gas World

by

ENERGY WATCH #1 - June 19, 2018

Many steps back, few forward as we move into the New Gas World

by Karel Beckman
Spencer Dale of BP puts a positive spin on sombre figures

BP’s Group Chief Economist Spencer Dale tried to give a positive spin on the results of the 2018 edition of the BP Statistical Review of World Energy, published on 13 June.

“Two steps forward, one step back”, is how he described developments in the global energy market in 2017 – that is, from a climate perspective.

“I would caution against being too alarmed by the recent data”, said Dale. However, that conclusion seems doubtful, even somewhat propagandistic.

What did he base his conclusion on? He actually saw two cases of “two steps forward, one back”.

The first one:

  1. Forward: China’s energy consumption grew by over 3% in 2017, almost three times the rate seen over the past couple of years. This sharp pickup was driven by a rebound in the output of some of China’s most energy-intensive sectors, particularly iron, crude steel and non-ferrous metals.
  2. Forward: Despite this increase, the growth of China’s energy demand in 2017 was still significantly slower than its 10-year average;
  3. Back: China’s rate of decline in energy intensity was more than twice the global average.

That’s as it may be, but Dale here ignores the fact, which he also observed, that “global energy demand grew by 2.2% in 2017, up from 1.2% last year and above its 10- year average of 1.7%”, which is partly explained by “a slight slowing in the pace of improvement in energy intensity (or energy productivity): the amount of energy needed to produce a unit of output.”

That seems a pretty clear step back, or even two.

Secondly, he notes that:

  1. Forward: “The forward progression can be seen in that around 60% of the increase in primary energy was provided by natural gas and renewable energy. Natural gas (3.0%, 83 Mtoe) provided the single largest contribution to the growth of primary energy, buoyed by exceptional growth in China.
  2. Forward: “This was closely followed by renewable energy (including biofuels) (14.8%, 72 Mtoe), which again grew rapidly driven by robust growth in both wind and solar power.”
  3. Back: “The step back was coal (1.0%, 25 Mtoe), which grew for the first time since 2013. This was largely driven by India, but it’s also notable that Chinese coal consumption increased after three years of successive falls.”

What this ignores, very conveniently from the perspective of BP, is that the growth in natural gas demand is not necessarily a step forward. Indeed, it may well be considered a step back too. We will come back to this below.

Let’s first look in a bit more detail at some of the key findings from the Statistical Review. (If you don’t know the BP Statistical Review – this has been an industry benchmark report since the 1950s. It is well worth keeping a copy handy on your desk for reference, as it provides a very useful oversight of key energy numbers per fuel and per country going back ten years.)

I will focus on some of the more surprising or significant results.

Oil: OPEC doesn’t rule alone anymore

  • OPEC had a target for production cuts of almost 1.8 Mb/d (1.8 million barrels per day), relative to the base month of October 2016. In practice, the production cuts have far exceeded that, with cuts totalling nearly 2.5 Mb/d in April 2018.
  • The production cuts were instrumental in increasing the pace at which oil stocks fell back to more normal levels last year. 
  • That said; the impact of the production cuts would have been even bigger had it not been for the response of US tight oil and NGLs (natural gas liquids), which have grown by almost 2 Mb/d since October 2016. Indeed, the pace of this second wave of growth in US tight oil seen over the past 18 months or so is comparable to the rapid growth seen in 2012-2014, even though prices in the earlier period were materially higher.
  • The scale of the increase in US tight oil meant the impact of the production cuts was increasingly offset as we moved through 2017. The speed and scale of OPEC’s actions mean that it continues to have the ability to smooth temporary disturbances to the oil market. But the relatively rapid response of US tight oil reinforces the limits on OPEC’s power. If OPEC tries to resist more permanent or structural changes in the market, there is an increasing risk that these actions will quickly be cancelled out by the responsiveness of US tight oil.

Natural gas: Iran and Russia expand production

  • 2017 was a bumper year for natural gas, with consumption (3.0%, 96 bcm) and production (4.0%, 131 bcm) both increasing at their fastest rates since the immediate aftermath of the financial crises.
  • The growth in consumption was led by Asia, with particularly strong growth in China (15.1%, 31 bcm), supported by increases in the Middle East (Iran 6.8%, 13 bcm) and Europe.
  • The growth in consumption was more than matched by increasing production, particularly in Russia (8.2%, 46 bcm), supported by Iran (10.5%, 21 bcm), Australia (18%, 17 bcm) and China (8.5%, 11 bcm).

King Coal is back

  • After several years of free-fall, the coal market experienced a mini-revival last year, with both global consumption and production increasing.
  • Global coal consumption rose by 1%, (25 mtoe), with India (4.8%, 18 Mtoe) recording the fastest growth, as demand both inside and outside of the power sector increased.
  • Interestingly, after three years of successive declines, China’s coal consumption (0.5%, 4 Mtoe) also ticked up. This is despite the substantial coal-to-gas switching in the industrial and residential sector, as increases in power demand in China sucked in additional coal as the balancing fuel.
  • World production of coal increased more strongly (3.2%, 105 mtoe), driven by notable increases in both Chinese (3.6%, 56 Mtoe) and US (6.9%, 23 Mtoe) output. Interestingly, the increase in US production came despite a further fall in domestic consumption, with US coal producers instead increasing exports to Asia.

Power sector: standing still for 20 years

  • Global power generation increased by 2.8% in 2017 close to its 10-year average. Almost all that growth came from the developing world.
  • The increase in global power generation was driven by strong expansion in renewable energy, led by wind (17%, 163 TWh) and solar (35%, 114 TWh), which accounted for almost half of the total growth in power generation, despite accounting for only 8% of total generation.
  • Global solar generation increased by more than a third last year. Much of this growth continues to be underpinned by policy support. But it has been aided by continuing falls in solar costs, with auction bids of less than 5 cents/KWh – which would have been unthinkable for most projects even just a few years ago – now almost common place.

BP’s Chief Economist notes that “the most striking – and worrying – chart in the whole of this Statistical Review is the trends in the power sector fuel mix over the past 20 years. Striking: because despite the extraordinary growth in renewables in recent years, and the huge policy efforts to encourage a shift away from coal into cleaner, lower carbon fuels, there has been almost no improvement in the power sector fuel mix over the past 20 years. The share of coal in the power sector in 1998 was 38% – exactly the same as in 2017 … The share of non-fossil in 2017 is actually a little lower than it was 20 years ago, as the growth of renewables hasn’t offset the declining share of nuclear…”

Dale concludes that as “the power sector is the single most important source of carbon emissions from energy consumption, accounting for over a third of those emissions in 2017 … there will need to be significant improvements in the power sector. But this is one area where at the global level we haven’t even taken one step forward, we have stood still: perfectly still for the past 20 years.”

Source: BP Statistical Review of Energy 2018

 

And then another “step back” pops up from the BP Review: “The backward step in last year’s data is most stark in carbon emissions from energy consumption, which are estimated to have increased by 1.6% in 2017. That follows three consecutive years of little or no growth in carbon emissions. So, on the face of it, a pretty big backward step.”

So “how worried should we be?” Dale asks. He ascribes the disappointing  results partially to “short-run factors” such as “The unusually strong economic and industrial growth in the OECD and the extent of the bounce back in power demand in China” and concludes that “some of the deterioration in 2017 relative to the previous three years will persist, but not all of it. So I’m a bit worried, but not overly so. Personally, I am more worried by the lack of progress in the power sector over the past 20 years, than by the pickup in carbon emissions last year.”

This seems a highly ambivalent message. After all, every year’s short-run factors together determine long-term trends. Where does Dale see any reason to suppose that the long-term trend will be positive? Even  if growth in the OECD or China may decline again, it could pick up in other regions. What seems clear is that the global economy is not hard-wired for low-carbon growth. The steady rise of renewable energy helps, just as the steady improvement in energy intensity does, but it won’t be enough.

Oil Change International: stop the G20’s dash for gas

One important reason, ignored by BP, why the world is not on course for any substantial emission reductions is the continued expansion of natural gas. Oil companies are betting heavily on natural gas, as a relatively low-carbon fuel source – which is already having results as BP’s Review makes clear, with growth of 3% last year.

A new report from NGO Oil Change International – Debunked: the G20 Clean Gas Myth – which focuses on gas investments in the G20 countries, shows that these major economies are together host to $1.6 trillion in new gas projects currently being planned. If these materialize, emissions from gas would consume nearly two-thirds of the two-degree global carbon budget, according to the report.

As it happens, the G20 energy ministers (G20 includes the EU, US, China, Russia) just met in Argentina (14-15 June). Argentina, Oil Change International points out, is “poised to unlock vast quantities of gas within its shale gas formations, with the help of billions of dollars in both international and national public finance.”

“Argentina’s push to open massive shale gas deposits to investment risks undermining its commitment to the Paris Agreement”, notes the report. “If exploited to its fullest extent, Argentina’s shale gas could consume as much as 15 percent of the remaining carbon budget that offers a 50 percent chance of limiting warming to below 1.5 degrees Celsius.”

But Argentina is not the only one going for gas: “Five countries – the United States, Russia, Australia, China, and Canada – are projected to host 75 percent of capital expenditures in gas production in G20 countries from 2018 to 2030. The United States, Russia, and Australia alone comprise nearly 60 percent of total G20 projected capital expenditures in gas production.”

The gas industry defends gas as a “bridge fuel”, but Oil Change International disagrees: the report “finds that given the climate implications of expanded fossil gas supply and the pace of the energy transition required to meet the aims of the Paris Agreement, the idea that fossil gas can effectively function as a ‘bridge fuel’ towards a low-carbon future is a myth,” for the following reasons:

  • Climate goals require the power sector to be decarbonized by mid-century. This means fossil gas use must be phased out, not increased. 
  • Wind and solar are now cheaper than coal and fossil gas in many regions. This means new fossil gas capacity often displaces new wind and solar rather than old coal. 
  • Claims that fossil gas supports renewable energy development are false. The cheapest fossil gas generation technology, Combined Cycle Gas Turbine, is designed for baseload operation, not intermittent peaking. Regardless, most grids are far from renewable energy penetration levels that would require back up. Storage and demand response technologies will be ready to step in by the time they are required.
  • Companies building multibillion-dollar fossil gas infrastructure today expect to operate these assets for 30 years or more. Emissions goals mean this expectation cannot be met. 
  • The coal, oil, and fossil gas in currently producing and under-construction projects are enough to exceed climate goals. Opening new fossil gas fields is inconsistent with the Paris goals.

Oil Change International concludes that “there is an urgent need for G20 leaders to use climate goals as a starting point for decisions around energy and fossil fuels in particular, and fossil gas is no exception.”

G20 confirms: we go for natural gas

So what did the G20 energy ministers conclude in Argentina? Nothing of the sort.

On the contrary, the communiqué they released on 15 June says:

  • Natural Gas: We recognise the key role that natural gas currently plays for many G20 countries, and its potential to expand significantly over the coming decades, supporting transitions towards lower emission energy systems. We will endeavour to improve the functioning, transparency and competitiveness of gas markets, with a strategic view of the supply chain – including Liquefied Natural Gas (LNG) and storage facilities – at a global level. We will encourage an expanded dialogue with relevant international organisations on more effective and flexible use of natural gas.

Clearly, at the highest political level, a decision has been made for the world to greatly expand gas production. We are moving into a New World of Gas.

In fact, the G20 does not even appear to be against oil and coal. Under the heading “Other fossil fuels”, the communiqué says:

  • Other Fossil Fuels: For those G20 countries that opt to continue utilising fossil fuels will endeavour to spur innovation through the use of advanced and cleaner technologies which will contribute to reduce emissions and encourage investment and financing in advanced and cleaner fossil fuels technology options (including Carbon Capture, Utilisation and Storage). We reaffirm the importance of using the most advanced and cleaner technologies in order to address the environmental impacts, including GHG emissions, of the production, transport and consumption of fossil fuels. We encourage countries to enhance cooperation in developing and applying best available technologies.

This sounds pretty much like “business as almost usual”.

Baker Institute: “Climate policy must focus on developing world”

That we are still very much on an unsustainable path, from a climate perspective, is confirmed by a new “policy brief” written by Anna Mikulska and Michael D. Maher of the Baker Institute for Public Policy, who have examined “the trends in energy demand patterns that have been highlighted by three 2018 energy outlooks prepared by the US Energy Information Administration (EIA), the International Energy Agency (IEA), and BP”.

To be sure, they focus on the “business as usual” scenarios in the outlooks, which should not be the standard, but nevertheless can serve as a warning. They conclude that “under the base case scenarios, the growth in fossil fuels in absolute Mtoe terms [is] approximately [double] the growth in renewable energy in non-OECD countries through 2040, per the IEA and EIA outlooks. Also, the lower demand for fossil fuels in the developed world is more than compensated for by the higher demand in non-OECD countries.”

This may not come as a big surprise,  nevertheless the “policy implications” that the authors draw from these conclusions are important.

They note that “climate agreements with no enforcement mechanisms to limit emissions or transfer funds from OECD nations to the developing world to support renewables will face difficulties in implementation and achieving set goals. Thus, if global CO2 emissions are to decline, compliance will have to become the focus of future climate negotiations.”

Unfortunately, they add, “the likelihood of such global agreement is probably not very high given the vast disparities in incomes, energy use, and capabilities, and the lack of goals that motivate governments around the world.”

They further note that “Current climate commitments, including the Paris Accord, feature another significant flaw. They reflect the developed world’s narrow focus on shifting from fossil fuels to renewables. Such an approach considers neither the role of economic and industrial growth in poor and very poor nations nor the critical role fossil fuels are more likely to play as the 7+ billion residents in these nations aspire to advance into the middle class.”

Thus, they say, “strategic investment in technological research and development (R&D) innovation is needed in the OECD. This includes increased R&D funding in the developing world—similar to that offered to farmers in Asia and Africa by the European Commission and the Bill and Melinda Gates Foundation. The funding would improve the economics of low or no carbon fuels and provide the price drivers for a declining carbon content. It would also remove the need for subsidies or government regulatory regimes that are largely beyond the capability or interest of governments in much of the developing world.”

Contents – June 19, 2018

Energy Watch:
Many steps back, few forward as we move into the New Gas World
What else can we do? Suck CO2 out of the sky? Store it underground?
Bill Gates makes a small bet on energy storage – China a large one
Should Europe buy or build batteries? Or have the Asians build batteries in Europe?
Brussels Insider:
EU transforms the European energy sector
Interview Jean-Marc Leroy, President Gas Infrastructure Europe: “Green gas is paramount for us, but we are still in the experimentation phase”
Express reads:
More trouble for the Energiewende as utilities call for rapid coal phase out and citizens oppose wind farms
Oil stocks: from rock-solid blue chips to speculative investment
Is the Energy Charter Treaty the Dark Lord of the energy sector?
Renewables: Innogy expands in U.S., EnBW in France, Norway mulls offshore wind expansion