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EU election risk: policymakers should go for real decarbonisation now while efficiency savings can help

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EU election risk: policymakers should go for real decarbonisation now while efficiency savings can help

by Joe Mitton, March 15, 2019

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With elections in May, the balance of opinion in Parliament is a climate policy risk factor on the minds of many in Brussels. The national draft 10-year energy plans, just in to the Commission, project widespread growth in costlier renewables. But populists who see climate as a globalist rather than nationalist-first agenda may prove hard to bring on side with an expensive and disruptive transition. The public will be influenced by climate awareness, leadership and their wallets. The EU’s efficiency-first programme won’t be enough in the long term but while it’s delivering savings there’s a chance to use that to support real decarbonisation. This could be crucial to keep citizens supportive in a more climate-hostile political landscape. Political observer, Joe Mitton considers the opportunities and threats ahead…

EU energy policy has so far accommodated an expanding gas sector, and has tolerated the coal sector, while focusing on efficiency and subsidised renewables. This has helped keep household energy prices relatively low. But as the 2020s dawn, difficult choices will need to be made in order to meet the EU’s carbon reduction goals. Balancing the drive for decarbonisation with the need for public support will become trickier in the next decade.

Recent events show that when prices rise, environmental concerns quickly give way to popular indignation. The gilets jaunes protests started as a revolt against a planned increase in the tax on diesel. Even in environmentally-conscious France, the government had misjudged public willingness to accept a higher fossil fuel tax.

The threat of climate change denialism and “anti-European forces”

First, let us consider the threat that political climate-scepticism could pose to decarbonisation policies if prices rise steeply. At the 5th annual EU Energy Summit last week (5 March), former Polish Prime Minister and former President of the European Parliament, Jerzy Buzek, raised the need for social acceptance of the energy transition. He warned that the transition could be threatened by “anti-European forces”.

Buzek made an important point there. Beyond the simple economics of consumers preferring cheap energy, there are also political forces at work in several countries against energy transition. Some examples:

  • Russia has strong economic and political interests in Arctic resources and in European dependence on its gas exports. President Putin has questioned climate science.
  • Some high-profile pro-Brexit politicians in the UK have argued the planet may be cooling, not warming.
  • The United States’ leadership denies the existence of man-made climate change.
  • In Europe, climate scepticism is popular with right-wing parties such as the German AfD and the Sweden Democrats.
  • The Polish labour union, Solidarity, issued a joint statement with a US climate change denying think-tank, Heartland Institute, rejecting the UN IPCC reports on the risks of climate change. Poland currently relies on 60 percent of its energy from coal.
  • A recent study by Professor Martin Hultman shows a strong correlation between right-wing nationalist views and climate change denialism among Norwegianmen. Among the right-wing, addressing climate change is often viewed as putting global interests ahead of national interests.
  • Australia is very dependent on coal and has climate-sceptic ministers in its government.

Climate change denialism in not a mainstream opinion in Europe yet, but if energy prices go up, more citizens could move to populist parties on the right. In recent German state elections, voters showed increased polarisation. The Greens did very well, but so did the far-right AfD. The same may happen in May’s European parliamentary elections.

More of the same policies?

To date, the EU has accommodated an expanding gas sector and has not picked a political fight with its more coal-dependent Member States. All 28 Member States (even the UK) have recently submitted their draft National Energy and Climate Plans (NECPs) to the Commission. These plans include many laudable proposals for renewable energy sources, but also a continued reliance on gas. Seventeen of the plans say natural gas is necessary to meet the 2030 goals. In Germany, the nuclear and coal sectors will be completely shut down and the Nord Stream 2 gas pipeline from Russia will supply much of Germany’s energy in the next decade.

“the EU needs to help governments such as in Poland and the Czech Republic avoid a public backlash if they decarbonise”

The Commission’s European Decarbonisation Pathways Initiative (EDPI) delivered a report in November 2018. The report includes just one short paragraph on phasing out coal. It says the need for near-term phasing out of coal is “obvious and necessary” but concedes that “such an objective is of course more ambitious and difficult for countries which rely heavily on coal”. This suggests that the EU needs to help governments such as in Poland and the Czech Republic avoid a public backlash if they decarbonise. The report also explains that “from an economic viewpoint”, it makes sense to still use gas while creating negative emissions by other methods.

The report prioritises an “energy efficiency first” principle. Greater efficiency in lighting, heat insulation, energy delivery and storage will lower prices for consumers, after initial investment costs. This achieves both the aims of supporting decarbonisation and being popular, but efficiency has its limits. The popularity of those savings will be an important political asset to offset any price rises from “an increasingly restrictive carbon space”. Particularly because although consideration is given to “an inclusive and just transition”, the report leaves aside the question of the funds required, and who exactly will pay for it.

Towards a citizen-led strategy

Energy efficiency programmes can only reduce carbon emissions so far. Eventually the sources of that energy, no matter how efficient, will need to be renewable and clean. The EU may introduce a “citizen-led” strategy for popular support for its policies. The concept of “citizen-led” policy is already in Commission reports. For EU politicians, the lesson from Brexit has been not to assume that the wisdom of their policies will translate automatically into popular support.

Good progress is being made towards affordable renewables, and eventually for renewables to operate in the market without subsidies. But it remains to be seen whether current policy will deliver the carbon reduction required by the EU’s goals, while also keeping energy prices affordable and keeping citizens supportive.

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Joe Mitton is an independent political consultant, former diplomat and former adviser to the Mayor of London.

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EU can help bring far-ranging benefits of a meaningful energy transition

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South East and Eastern Europe: Part II

EU can help bring far-ranging benefits of a meaningful energy transition

by Komila Nabiyeva – February 11, 2019

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In Part 1 of this special report, Komila Nabiyeva demonstrated how investment conditions in South East and Eastern Europe, South Caucasus and Central Asia make it almost impossible to justify development of renewables infrastructure on any great scale. That being the case, she calls on the EU to play a greater role. Their initiatives are already making a difference. This is encouraging because it shows that with more EU engagement, a more meaningful energy transition is possible. As well as getting the region on the road to Paris targets, that would help solve their pressing energy security and health issues, boost economic growth and contribute to democratisation and peace building.

Background

Energy infrastructure in the countries of South East and Eastern Europe, South Caucasus and Central Asia is largely inherited from the Soviet era. This has led to fossil-fuel based monopolies where policy-makers and energy industry see little advantage in creating the conditions for a transition to renewables.

High fossil fuel and nuclear subsidies (including the complete over-looking of the cost to health and the environment) going hand-in-hand with artificially low electricity prices hinder investments in renewables capacity and infrastructure. As a result, the region as a whole is missing out on a whole raft of fundamental long-term economic, environmental and health benefits.

Benefits of an energy transition

An energy transition would be extremely beneficial from social, economic and political standpoints, and a number of drivers and opportunities could foster the process.

The region remains extremely dependent on fossil fuels and nuclear in its total primary energy supply (see figure 1). Most countries are net energy importers, heavily dependent on oil and/or gas imports. (For instance, in Armenia, Belarus and Georgia net energy imports account for over 60% of total energy use and in Moldova as high as 90%.) The deployment of renewable energy and energy efficiency measures could help solve pressing energy security and energy poverty issues.

Meanwhile, the economies, heavily dependent on revenues from local fossil fuel energy production (e.g. Russia, Azerbaijan and Kazakhstan) can increase their resilience to external shocks, such as volatile oil prices, by diversifying their energy supply.

Power generation, transmission and distribution infrastructure across the region is poorly maintained and often operating beyond its design life. In the coming years, many countries will have to replace their aging and inefficient fossil fuel and nuclear energy infrastructure (operating beyond its design-life), opening up a great opportunity for advancing the switch to clean energy.

In 2013, about 37 million emigrants came from countries in this region[1] – 16% of all international migrants in the world and nearly 10% of the total population in the countries of origin. Investment in renewable energy will create new domestic jobs, helping slow the rising rural depopulation, labour emigration and brain drain.

Deployment of decentralised renewable energy could also help to significantly advance the democratisation process. Investments and support for renewable energy projects by energy cooperatives, communities and citizens can help significantly to reduce oligopolistic control of large conventional power plants and levels of corruption.

An effective transition would help to dramatically reduce air pollution and to solve numerous health and environmental problems in the region, resulting from fossil fuel and nuclear energy generation. For instance, coal power plants in five Western Balkan countries are among the most polluting in Europe, causing about 7,200 premature deaths per year. Depending on weather and wind conditions, air pollutants can travel more than 1,000 km and cause damage to health in neighbouring EU countries and beyond.

Last but not least, renewable energy deployment can foster regional cooperation through the expansion of interconnection capacities to neighbouring countries and cross-country trade and help to end conflicts over limited and unevenly distributed fossil fuel energy and water resources.

EU engagement

Until the conditions for renewables investment are addressed in the region, its neighbours in Western Europe and the rest of the world cannot expect much in the way of a contribution to global efforts to reduce greenhouse gas emissions.

EU engagement is especially important in light of China’s controversial “Belt and Road” initiative which includes plans on construction of new coal power plants across the region. These would lock the countries into coal assets for decades, further damaging people’s health and the environment, and aggravating climate change.

It should focus on know-how transfer and dialogue on favorable sustainable energy legislation and investment climate, as well as technical capacity-building on integration, planning and operation of renewable energy.

With the targeted and concerted technical and financial cooperation of the EU and other international organizations, the countries in the region could significantly accelerate their currently slow pace of energy transition, improving their own social-economic situation and contributing to global efforts to stop global warming.

Part one: Subsidised fossil-fuel power blocking the way for renewables

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This article is based on the report “Energy transition in South East and Eastern Europe, South Caucasus and Central Asia: Challenges, opportunities and best practices on renewable energy and energy efficiency”, published by the Friedrich-Ebert-Stiftung in December 2018. http://library.fes.de/pdf-files/id-moe/14922.pdf

About the author: Komila Nabiyeva is a freelance journalist, reporting on climate change and energy issues. She has worked as a communications consultant, moderator and trainer and has organized workshops on climate and energy issues for the United Nations and other organizations. Currently, she is coordinating the work of the Energy Watch Group, an international network of scientists and parliamentarians.

  1. The figures refer to the entire region covered in the article plus Turkey and Israel. ↑
Graphic produced for and first printed at the publication of the Friedrich-Ebert-Stiftung: Nabiyeva, Komila (2018): Energy Transition in South East and Eastern Europe, South Caucasus and Central Asia Challenges, Opportunities and Best Practices on Renewable Energy and Energy Efficiency

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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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Aviation needs a Tesla moment. Rolls-Royce could deliver it

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Aviation needs a Tesla moment. Rolls-Royce could deliver it

by Arasan Aruliah

January 17, 2019

Rolls-Royce is promising to launch an all-electric plane by 2020 that can fly London to Paris, and break the electric aircraft speed record. Is this one-seater the first step towards an airliner that can carry hundreds? The aviation sector needs all the good news it can get as it struggles to find an alternative to kerosene fuel.

The Rolls-Royce project is called ACCEL, short for “Accelerating the Electrification of Flight”. They’re calling this the beginning of the third wave of aviation, and Rolls-Royce wants to be its champion.

The company traces its history back to the luxury car maker established by Charles Rolls and Henry Royce in 1904. Today its jet engines are widely used by the likes of Airbus and Boeing. They are also a major player in the marine and power generation sectors.

The world speed record for an electric plane is in their sights

They’ll need to build the most powerful battery ever built for flight. Yet it has to be light enough to fly, and stable enough not to overheat. And it has to be powerful enough to fly the new plane at 300 mph (483 km/h) and more. That’s because they want the aircraft to break all records and become the fastest all-electric plane in history. By comparison, the current record for an all-electric plane, set by Siemens in 2017, is 210 mph.

ACCEL is partly funded by the UK government and involves a host of partners including electric motor and controller manufacturer YASA and the aviation start-up Electroflight.

YASA’s standard electric motors have been used in several high-performance cars such as the Drive eO PP03, Jaguar C-X75, Koenigsegg Regera, and a Lola Le Mans Prototype converted by Drayson Racing, which set a world electric land speed record in 2013.

YASA workshop

Rolls-Royce wants to think like an entrepreneur

But why would Rolls-Royce partner with a tiny start-up like Electroflight? In an interview with The Telegraph, Rob Watson, director of Rolls-Royce Electrical, explained: “We are a world-class engineering organisation but on an industrial scale, and we’re used to developing gas turbines, so we wanted to see [what happens] if we thought completely differently about an electric propulsion system.” So Rolls-Royce have taken a stake in this small entrepreneurial company to learn a thing or two “[to] see how they go about fixing these problems.” Aviation propulsion certainly needs fresh thinking.

Electric planes are aerodynamically superior

Forget about emissions: electric planes will have a huge design advantage over planes powered by kerosene. The traditional gas turbines have to be hung under the wings on an aircraft to be near the rotating blades, and for safety. That affects the aerodynamics and drag of the design. The electric battery can be placed anywhere in the aircraft. In fact, you can distribute the weight of the batteries across and within the aircraft. This should mean dramatic improvements in the aerodynamic design.

This is just a first step in the emergence of electric planes. Gas turbine technology will remain the propulsion system of choice for the aircraft industry because of the extremely high power density of kerosene, needed to fly hundreds of people thousands of miles. Rolls-Royce’s new single-seater electric plane will use 6,000 battery cells and will have a 200-mile range, enough for a London to Paris flight.

Of all sectors, aviation is struggling the most to transition

Compared to road transport, buildings, marine, and the other major categories, the aviation sector is under the least pressure from legislators to curb its emissions, because of the practical difficulties of finding a power-dense alternative to kerosene. That means aviation’s emissions projections are among the worst. The latest European Aviation Environmental Report states:

  • Number of flights has increased by 80% between 1990 and 2014, and is forecast to grow by a further 45% between 2014 and 2035.
  • CO2 emissions have increased by about 80% between 1990 and 2014, and are forecast to grow by a further 45% between 2014 and 2035.
  • NOX emissions have doubled between 1990 and 2014, and are forecast to grow by a further 43% between 2014 and 2035.

Direct emissions from aviation account for about 3% of the EU’s total greenhouse gas emissions and more than 2% of global emissions. If global aviation was a country, it would rank in the top 10 emitters.

By 2020, global international aviation emissions are projected to be around 70% higher than in 2005 and the International Civil Aviation Organization (ICAO) forecasts that by 2050 they could grow by a further 300-700%.

“Regular production of aviation alternative fuels is projected to be very limited in the next few years, and thus it is unlikely that the roadmap 2020 target will be achieved”

The European Aviation Environmental Report looks at three alternatives to conventional jet fuel: Fuels from hydroprocessing of vegetable oils and animals fats such as Hydroprocessed Esters and Fatty Acids / Hydrotreated Vegetable Oils (HEFA/HVO); Fischer‑Tropsch fuels obtained from biomass (Biomass to Liquid‑BTL); Synthetic iso‑paraffin fuels obtained from the conversion of sugars. But progress is extremely slow. As the report says, “regular production of aviation alternative fuels is projected to be very limited in the next few years, and thus it is unlikely that the roadmap 2020 target will be achieved” for aviation. There is simply no mention of batteries.

Electric aviation needs an EV boost

It doesn’t look good. Then again, electric cars didn’t look very promising when they started on their transition journey, and now they are widely available. Today it’s hard to keep up with the news from car manufacturers of new models and new multi-billion investments.

So before you buy that ticket to your cousin’s wedding across the Atlantic, remember that someone flying from London to New York and back generates roughly the same level of emissions as the average person in the EU does by heating their home for a whole year. Instead, you could wait a couple of years and take a much more eco-friendly and enjoyable trip on an electric plane to Paris. Think of the carbon emissions, the wine, the cheese…

Blockchain – makes transition more efficient for producers and fairer for consumers

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Blockchain

makes transition more efficient for producers and fairer for consumers
by Arasan Aruliah
January 15, 2019

Scientists from Heriot-Watt University in Scotland have done an in-depth study of blockchain solutions in the energy sector that can “further facilitate smart grid applications and decarbonisation”. Blockchain’s distributed monitoring of services and transactions could be a good match for a renewable energy world of multiple energy sources and customers who can sell their surplus energy back to the grid.

Blockchain is better known for being used to underpin cryptocurrencies like Bitcoin and Ethereum. In its simplest form, blockchain is a ledger that can securely store digital transactions without the need for a central point of authority and can be shared across a network of computers. Once a block is added to the chain, it is difficult to change, making the ledger secure without a central authority.

The scientists conclude that blockchain offers significant potential for developing the way electricity is traded and dispatched. They reviewed results from over 140 projects, start-ups and initiatives, covering all areas of blockchains in energy, from transactive community energy models to balancing and trading emission certificates.

The era of the centralised grid is coming to an end

For most of the grid’s existence, all energy companies needed to do was generate electricity at a central power station and pump it out to customers with as few interruptions as possible. But now the grid is under pressure to become more intelligent, because the situation is more complex.

It has to incorporate intermittent energy sources such as wind turbines, plus an increasing number of consumer-owned power generation and storage devices. It has to manage significant extra demand from electric cars. And it has to meet customer desires for real-time energy-use data. In short, the system is decentralising, and the number of transactions it will have to process quickly, cheaply and securely is increasing.

Dr Valentin Robu, associate professor at Heriot-Watt University, said: “Blockchains are often described as holding the promise of enabling a more decentralised, transactive energy system. If we can enable energy generation and use them at a local level, this could allow system operators to reduce expensive network reinforcements, as well as make local communities more energy self-sufficient and resilient to outside shocks in power supply.”

Detailed producer and customer data, available to all

In energy applications, blockchains are often deployed in combination with artificial intelligence techniques such as multi-agent systems and machine learning, which enable smart micro-contracts and local energy exchanges. This can potentially enable building systems and energy service providers to identify consumer energy patterns and develop energy products tailored to the needs of individual consumers. The paper cites a report by Deloitte which states that blockchain-enabled transactional digital platforms could offer operational cost reductions, increased efficiency, fast and automated processes, transparency and the possibility of reducing capital requirements for energy firms.

 

Governments can also benefit, and help win over the public during the energy transition. The paper states that potential gains in transparency and competition could benefit key policy targets related to energy affordability and fuel poverty.

The cost saving potential is not restricted to government and the utilities: it is “relevant to energy consumers and prosumers (someone who both consumes and produces a product) who are facing increasing energy prices and removal of renewables incentives, respectively. Solutions promised by blockchains, such as peer-to-peer trading in local or consumer-centric marketplaces could potentially lead to cost savings for energy consumers“.

Learn from Bitcoin’s growing pains

However, the paper cautions that blockchain technologies need to address several issues before achieving widespread adoption. These include legal and regulatory challenges, security and scalability of computation, as well as privacy concerns.

But as these hurdles are overcome, “Blockchain could potentially be used for automated and secure communication of such smart devices that would further facilitate smart grid applications and decarbonisation of the energy sector,” said Heriot-Watt research associate Merlinda Andoni.

The EU has set a target of replacing 80% of traditional electricity meters with smart meters by 2020 wherever it is cost effective to do so. As more and more homes install smart meters and smart devices, and system operators increasingly adopt information and communication technologies, the volume and quality data needed for blockchain to work is getting closer.

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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Heating and cooling: big opportunity to reduce energy demand

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EXPRESS #1 - December 7, 2018

Heating and cooling: big opportunity to reduce energy demand

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Heating and cooling (H&C) of buildings is responsible for 50% of final energy consumption in Europe. So, on 28 November 2018, policymakers and industry gathered at the Committee of the Regions for the High-Level Round Table on the Decarbonisation of the Heating Sector, a joint event organised by the European Commission and the Decarb Heat Initiative partners to discuss plans for reducing emissions.

At present, most of the heating is produced from fossil fuels, only 19% is supplied from renewable energy sources, and heating is used inefficiently in 75% of Europe’s buildings.

Dominique Ristori, Director-General for Energy at the European Commission, outlined the fact that “the heating and cooling sector represents the largest source of energy demand in Europe. Our present system is often inefficient, polluting and based on old technologies. Making it smart, modern, clean and performant is instrumental for global decarbonisation and will be beneficial for our economy and all Europeans.”

“For buildings, we have just one shot at getting things right before 2050” said Jan te Bos, Director General of Eurima. “Given their expected lifetime, buildings are only likely to be renovated once, between now and 2050”. To make these renovations count, we need to look at the whole of the building. This means an energy-efficient “envelope” (the roofs, walls, floors and windows making up buildings) with properly planned heating and cooling systems, and an effective integration of renewable-energy systems and technologies”.

“Getting out of fossil fuels is pure politics – we still have politicians asking for support for coal mines… in 2018!” Bendt Bendtsen, Danish MEP

While the rest of us insulate our walls against the cold, someone needs to insulate us against the politics. Bendt Bendtsen, Danish MEP for the EPP group and rapporteur for the European Performance of Buildings Directive, stated: “Unfortunately, most national ministries see energy efficiency as an expenditure, not an investment.” He added: “Getting out of fossil fuels is pure politics – we still have politicians asking for supporting coal mines… in 2018!”

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Oil majors gently embrace clean energy

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ENERGY WATCH #2 - November 29, 2018

Oil majors gently embrace clean energy

by Mike Scott

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Shell New Energy Challenge finalists get their cheques

For many years, oil and gas companies downplayed or outright denied the dangers of climate change and worked on the assumption that they would be able to continue with business as usual for the foreseeable future.

Going into this year’s COP24 climate conference, they have changed their tune.

This year has seen a slew of investments by the oil majors into renewable energy and electric vehicle infrastructure – Shell has announced it plans to invest $1bn-$2bn a year in its New Energies division in areas including wind and solar power, charging points for electric vehicles and biofuels, while BP has returned to solar with the purchase of Lightsource Energy.

Total, ExxonMobil and Chevron, along with Repsol, Enel and Eni, have all made significant investments in clean energy, charging points or energy storage, and even the US oil majors, in a market where the President openly doubts the existence of climate change, have started making changes.

In September, Occidental, Chevron and ExxonMobil, long the most outspoken climate-sceptic company in the sector, announced they would join the Oil and Gas Climate Initiative (OGCI), a group of global oil and gas groups that has committed to invest $1 billion initiatives.

Why change

There are a number of reasons for the change in heart. Firstly, since 195 countries signed up to the Paris Agreement on climate change in 2015, it has simply not been credible to deny or downplay the existence of man-made climate change, while a host of natural disasters around the world – from multi-year droughts to more intense hurricanes and heatwaves in the Arctic – have reinforced anecdotally the increasingly certain science behind climate change warnings.

Another impact of Paris was that governments – currently with the notable exception of the US, where Donald Trump has pledged to withdraw the country from the agreement (something he cannot do until 2020, after the next presidential election) – agreed to put in place policies to decarbonise their economies.

This has led to moves such as the UK, Canada, Denmark and Spain, as well as the European Union, considering the introduction of a net-zero emissions target by 2050, Germany committing to phase out coal power and China meeting its target to cut its energy intensity by 45% in 2017, three years ahead of schedule.

One reason governments are making these pledges is that they have become increasingly possible because the cost of renewable energy has fallen so quickly. The latest report on the levelized cost of energy from Bloomberg New Energy Finance says that “solar and/or wind are now the cheapest new source of generation in all major economies, except Japan. This includes China and India, where not long ago coal was king. In India, best-in-class solar and wind plants are now half the cost of new coal plants.”

In India, best-in-class solar and wind plants are now half the cost of new coal plants

In markets as far apart, in every sense, as India and Texas, onshore wind is now as cheap as $27/MWh, without subsidy. “In most locations in the US today, wind outcompetes combined-cycle gas plants (CCGT) supplied by cheap shale gas as a source of new bulk generation,” BNEF adds, cutting off one way that the energy giants hoped to compensate for lower oil sales.

Corporate responsibility

This fall in costs has led to another development – through initiatives such as RE100 and the Science Based Targets, companies are driving demand for more renewable energy so they can meet their own climate targets and show customers that they are acting. In markets where corporate procurement of clean energy is difficult or impossible, such as China and Japan, the business community is forcefully lobbying governments to reform markets.

Meanwhile, the rapid development of the battery storage sector is further undermining the business case for using fossil fuels in power generation and also making rapid progress in making electric vehicles (EVs) more economical.

Pollution concerns

If the move towards EVs were based on cost competitiveness alone, the sector could afford to be reasonably complacent about the trajectory of the transition away from petrol and diesel. But much of the pressure is not climate-related at all – rather cities around the world have proposed banning fossil fuelled cars in response to growing levels of air pollution caused in large part by vehicles.

The industry increasingly recognises that this will hit demand – Shell predicts that demand for oil will start falling as early as 2025, with demand for gas following suit by 2030.

Finally, there is increasing pressure on the oil companies as a result of a number of legal challenges. New York recently sued Chevron, BP, ConocoPhillips, ExxonMobil and Shell, and while that suit was dismissed, a group of Oregon crab fishermen have followed suit while a number of states have launched fraud investigations against ExxonMobil saying that it misled citizens and investors over the impacts of climate change. Other cases are likely in future.

Conditions set

All of this is making it clear that some oil and gas investments could be stranded assets as climate regulations tighten further, the cost of renewables and storage continue to fall and governments increase their decarbonisation ambitions.

So, there are plenty of incentives for oil companies to change their business models, and they have started to do so. Shell may be investing up to $2bn a year in clean energy, but that is only a fraction of its total spending. It aims to spend $25bn-$30bn a year in total. All the majors could do far more given the stakes and the conditions.

The future of power, transportation and heating will be increasingly electric. The oil majors dominated energy in the 20th century, but it is far from guaranteed that they will do so in future with such a long way to go.

Mike Scott is a freelance journalist who has written for the Financial Times, Forbes, Bloomberg and a range of other titles. He specialises in writing about energy, investment and business.

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The irresistible rise and rise of the battery

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ENERGY WATCH #4 - November 29, 2018

The irresistible rise and rise of the battery

by Mike Scott

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Sodium ion battery technology for large scale storage

A combination of spectacular events and decreasing costs has ensured batteries are now a permanent feature in the power and transport sectors. The global battery storage pipeline hit 10.4GW in the first quarter of 2018 thanks to the range of roles the technology can play – not just in providing back-up capacity but also storage, both at utility scale and behind the meter , as well as in EVs. It is this versatility that makes businesses based on batteries so bankable.

Power generation and back up

Coal- and gas-fired power stations are increasingly being priced out of the market by wind and solar projects, but they are also finding that many of the more arcane parts of the power generation system are being undercut by battery storage, which is one of the key energy sector success stories of 2018.

Fossil fuel proponents used to say that they were necessary because only they could provide dispatchable power – the ability to respond to grid requests to increase or reduce output depending on demand, and flexibility – the ability to switch on and off in response to grid shortfalls and surpluses. The old argument being that wind and solar are intermittent sources of generation.

But the role for batteries has evolved to suit this environment. By coupling intermittent technologies with batteries enables them to smooth power output and shift supply that is not needed to peak times, and even on their own, batteries are increasingly cost-effective and able to compete on price with open-cycle gas plants in providing peak power.

Underpinning the transition

Bloomberg New Energy Finance reported in March that the price of batteries had fallen 79% since 2010, and in the summer it said that the battery boom will enable the world to get half of its electricity from renewable energy by 2050.

Prices will continue to tumble as the storage market develops in line with the electric vehicle market, and the market is set to see $620 billion of investment by 2040, it said in November, when it increased its forecast from the $548 billion of investment by 2050 it predicted in June.

Logan Goldie-Scot, head of energy storage at BNEF, added: “We see energy storage growing to a point where it is equivalent to 7% of the total installed power capacity globally in 2040. The majority of storage capacity will be utility-scale until the mid-2030s, when behind the meter applications overtake.” Battery storage is becoming increasingly important as we move to a renewables-based infrastructure. And while the biggest markets are currently Australia, the UK, the US and China, batteries have potential in every market – the development of the market has been boosted not just by the increased focus on electric vehicle charging but also on storage’s role in providing energy access in remote regions where a hybrid distributed energy system combining renewable energy, storage and maybe diesel generators is cheaper than extending the grid network.

Batteries’ big breaks

Even a couple of years ago, the widespread use of batteries was seen as something that would not happen until the middle of the next decade. Two key events transformed sentiment on the sector. The first was the explosion at the Aliso Canyon gas storage facility in California, the largest emission of gas into the atmosphere ever – or more accurately what happened afterwards.

AES Energy Storage built what was then the world’s largest battery storage facility within six months, with Tesla and Greensmith also building facilities to replace the capacity lost in the blaze. “I was stunned at the ability of batteries and the battery industry’s ability to meet our needs,” said Michael Picker, president of the California Public Utilities Commission. “This was something I didn’t expect to see until 2020. Here it is in 2017, and it’s already in the ground.”

“I was stunned at the ability of batteries and the battery industry’s ability to meet our needs,” Michael Picker, president of the California Public Utilities Commission

Ravi Manghani, senior analyst at GTM Research, added: “By coming on-line in a matter of months from a policy resolution, and a matter of few weeks from finalized procurement, the industry has gained tremendous credibility for ‘coming to the rescue’ of the grid in such a short period.”

This success was backed up by a typically brash move from Elon Musk, Tesla founder and chairman. After South Australia suffered a series of blackouts as a result of a huge storm bringing down power lines, he offered to install a back-up power system within 100 days, or it would be free. The system took 60 days to install and it has been running ever since. And while, according to Digital Journal, Australia’s Resources Minister Matt Canavan supposedly dismissed the big battery as “the Kim Kardashian of the energy world: it’s famous for being famous [but] doesn’t do very much”, the Australian Energy Market Operator told the ABC that “its ability to respond very, very quickly to the different types of conditions that we see on the power system has been very encouraging for us.”

These two incidents illustrated battery storage’s ability to deploy quickly and cheaply, and work reliably, leading to a sea change in views of what battery storage is capable of.

Car manufacturers driving demand

The market for electric vehicle batteries is no less thriving. BIS Research predicts that the global electric vehicles battery market will be worth $93.94 billion by 2026 as the number of electric vehicles on the market increases.

New battery cell production capacity is being added all over the world – the market is currently dominated by the Asian trio of China, South Korea and Japan, but several facilities are being planned in Europe, including Northvolt, which is building a plant in Sweden, while companies including Varta, BASF, VW and Ford are looking at setting up manufacturing plants in Germany.

The two markets reinforce each other, as well, with end of life vehicle batteries capable of providing a further five years or more of service in stationary applications. So as the EV market expands, it will further reduce the price of stationary storage.

Challenges

The main challenges for the sector are that the chemistry of Lithium-ion batteries means they are approaching the limits of the efficiency improvements they can make, and the fact that 70% of the cobalt used in them comes from the Democratic Republic of Congo, where there are issues over child labour and working conditions.

Regulators need to catch up

Batteries are now part of the mainstream of the energy markets, but the market is still in its infancy. The potential is huge, given the range of applications to which batteries can be applied and the global reach of the technology. Energy Storage Networks highlights four key markets to watch:

  • Solar-plus-storage co-location projects currently account for more than 40% of the total utility-side-of-meter pipeline, highlighting the future potential of this market.
  • Behind-the-meter, which will comprise more than half of annual installations, from 2023 onward.
  • Battery energy storage is challenging gas-fired peaker plants to meet California’s capacity needs, leading to a significant increase in the outlook for large-scale energy storage in that state.
  • New energy storage deployment targets, and the inclusion of storage in integrated resource planning across the US, will drive future market growth across multiple states.

However, because power markets around the world are so regulated, for the sector to fulfil its true potential, it will need regulation to catch up with technological possibilities.

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Mike Scott is a freelance journalist who has written for the Financial Times, Forbes, Bloomberg and a range of other titles. He specialises in writing about energy, investment and business.

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