“The world is undergoing a Grand Transition driven by a combination of factors including the fast-paced development of new technologies, an unstoppable digital revolution, global environmental challenges and changing growth and demographic patterns”, according to a statement from the World Energy Council, a UN-accredited global energy network with over 3,000 member organisations in over 90 countries. According to the World Energy Council, the energy sector is faced with 7 “new realities”, including peak energy demand and a serious risk of stranded assets.
The World Energy Council, which published its statement on the first day of the World Energy Congresss in Istanbul (9-13 October), hosted by Turkish President Erdogan and visited by political and business leaders from across the world, including Russian President Vladimir Putin, sees 7 “new realities” for energy. They are the following:
1. From Peak Oil to Peak Demand
The new reality: The peak oil debate belongs to the past: the reality is that per capita demand for energy will peak before 2030. Energy intensity reductions supported by primary energy substitution effects are set to increase at a faster rate than the demand increase from a growing global middle class. This therefore shifts the discussion from peak oil to peak demand with anticipated growth limited to only a 20% increase over the next 45 years. This will have significant implications for energy companies in terms of their ability to achieve their growth expectations, which will need to be factored into investment strategies.
2. Spending the Carbon Budget
The new reality: We haven’t done enough to decarbonise our economies: the world will have to accelerate the decarbonisation of the global GDP to a rate of 6%/yr in order to remain within the carbon budget associated with 2oC global warming. This will take considerable effort since with current trends we could reach and surpass the carbon budget between 2045 and 2055, even with optimistic assumptions on energy intensity reductions. The Nationally Determined Contributions (NDCs) agreed at COP21 provide about 1/3rd of the required ambition level. Rapid and successful transitioning of global transport to low carbon solutions presents the biggest obstacle or opportunity in achieving climate goals.
Current market signals alone are not enough to improve critical areas such as energy efficiency, improved electrical storage, penetration of clean transport and much needed adoption of Carbon Capture, Utilisation and Storage (CCUS). Clear, focused and unambiguous policies and institutional frameworks are required to reinforce a wider deployment of solutions that accelerate the transition and drive consumer choice towards the most carbon and cost effective solutions.
3. From Stranded Assets to Stranded Resources
The new reality: Changes in the way we produce energy define a risk for existing assets to end up stranded. But looking ahead we can see a growing number of primary resources, particularly in coal, possibly in oil, remaining unused. While fossil fuels will continue to have a significant role in the energy mix, contributing between half and two third of our energy needs in 2060, coal could potentially only represent 5% in the overall mix. Oil will still be needed for transportation providing over 60% of energy needs but overall oil demand will flatten out. The golden age of gas will continue, with expected output growth between 25% and 70% by 2060.
With stagnating growth potential in the oil sector and with coal likely to be of little importance by 2060, there will be a shift in the discussion from stranded assets (predominantly enterprise owned) to stranded resources in oil & coal (predominantly state owned). This has the potential to cause significant stress to the current global economic and geopolitical equilibrium and will need to be part of a broadened carbon and climate dialogue.
4. Shifting System Resilience
The new reality: We have seen a fourfold increase in extreme weather events over the past 30 years, increasing pressure on use of water in energy production and increasing levels of cyber threat that are all contributing to a new reality for the energy sector.
With increasing systems integration, resilience is no longer just about building systems stronger and returning single assets to full operation after a disruptive event. When interdependent systems are blacked out, by extreme weather or cyber-attack, the system as a whole is at risk of being deadlocked. Black-starting capability, decentralised decision autonomy and local empowerment have become key concepts of a new “soft resilience” approach as opposed to the traditional “hard resilience” practice of simply building systems stronger. Operating in this new landscape requires different tools and new approaches to manage risk.
5. A Path of Innovation
The new reality: We are beyond the tipping point of a technology revolution in the energy sector. Energy markets are further increasing in complexity, accelerated by fragmented energy policy, fast moving technological innovation, and shifting consumer expectations. New realities are increasingly characterised by growing zero marginal cost supply, low entry barriers, greater focus on decentralisation and local empowerment, digitalisation and commoditisation of technology, more flexible and rapid pay back solutions, increasingly active investors and servicing of emancipated consumers.
Solar and wind power will continue their rapid growth with the electrification of energy use an unstoppable trend. As a percentage of total final production, electricity could reach penetration levels by 2060 as high as 30%, with up to 98% coming from non CO2 emitting technologies, a 3-fold increase over the current share with 40% coming from solar and wind technologies alone, representing a 10-fold increase over current share. Current market designs and business models are unable to cope with these new realities and will require entirely new skills-sets, business models and financing solutions. Meanwhile, we will still depend on up to 45% of our generated electricity being provided from fossil fuels supplemented by CCUS.
To truly realise the potential, we need more focused Research, Development and Demonstration (RD&D). Coordinated innovation initiatives will be critical to the credibility of the decarbonisation agenda.
6. Changing Global Governance
The new reality: The centre of gravity in energy has moved outside OECD countries: China, India and Africa define tomorrow’s agenda for energy and must take their due place in global energy governance. The world is witnessing a trend to more inclusive global energy governance with more global governance tools available than even five years ago: The United Nations have agreed a sustainable development goal on energy (SDG7), the Conference of the Parties (COP) process has achieved a deal in Paris, and organisations such as the IEA have been reaching out to new key energy players, including China. The G20 has energy security on the agenda and the Clean Energy Ministerial is including countries beyond the G20.
Meanwhile, many of the substantive agendas remain a work in progress: minimising international tariff and non-tariff trade barriers for clean energy goods & services to enable clean energy deployment; introducing carbon pricing mechanisms to ensure adequate investment signals; reinforcing regional infrastructure integration and market harmonisation measures to ensure effective resources sharing. Focus will be required in this area, along with improved capability to respond sympathetically to increasing public activism, if we are to enable the energy transformation.
7. Entrepreneurship Driving Access for all
The new reality: Progress has been made, but we still have 1.1 billion people without access to energy. The recognition of energy as the 7th development goal by the United Nations has provided additional focus on high impact opportunities as well as the rapid deployment of best technology solutions. The recent rise of innovative and disruptive business models for rural off-grid power solutions is providing a formidable opportunity to places with greatest need in Sub-Saharan Africa or South Asia. The roll-out of these solutions will define key entry points into tomorrow’s markets and are a great contribution to keep equity gaps from increasing. Empowered trade and climate policy will be important for technology transfer to ensure the mistakes of the past are not repeated. Robust policy and institutional frameworks are urgently needed to de-risk and support entrepreneurial approaches and enable them to access large scale investors.
The Statement from the World Energy Council ends with a “call to action”, noting that “leaders and society need to embrace these new realities and strive for continued innovation while maintaining stable investment frameworks.”
According to the World Energy Council, “Governments, business leaders, investors, and society will have to rethink the energy contract and find new ways to avoid deadlocks, allowing for timely decisions and delivery of integrated, effective and efficient infrastructure. Innovative urban planning solutions, adequate resilience response, as well as enabling policies and trade frameworks will all be required. Solutions will not solely come from within energy but energy has a historic opportunity to provide leadership to power the broader industrial revolution.”
[adrotate group=”9″]
Tilleul says
So the bunch of gray haired oil&gas executives forming the world energy council really think that non existing CCS will keep them in the market ? They can’t even compete against renewables and energy efficiency nowadays with their 1000 billions subsidies, their health damages taken in charge by taxpayers and their rights to pollute for free, how can they expect their business to keep existing if they have to first invent then pay for CCS ?
Karel Beckman says
Do you specialise in misreading articles? Why misrepresent the message as if this is only or mainly about CCS. It is supporting the transition which you seem to support as well.
Tilleul says
Don’t look at the fact they give, look at the conclusions which are never rationals with the fact…
If you look at the figure they gave they basically say there will be absolutely no transition… Thinking that 2/3 of our energy needs in 2060 will be fossil fuel is ridiculous… That’s basically Europe nowadays. Do you think Europe has ended its transition and we will have no more change for the next 40 years ?
Same with the idea that oil and natural gas will stay the same level.
If you take all their point the rational conclusion is that the fossil fuel industry is going bankrupt and that there will be huge stranded assets into the natural gas and the oil industry. What they are trying to do is to convince investors that they still have a future by creating a fairy tale where everything bad is happening to another industry but that does not make sense outside the little world of fossil fuel prospectivists. That’s why there is this focus on coal which is mainly a local energy not owned by majors as it can’t really be traded : it’s just a question of the big sacrificing the small.
(remember that Exxon is currently prosecuted for lying to its shareholders…)
In 2060 no powerplants existing today will still be operational. Today all the new powerplants are renewable, they are the cheapest option and have huge social and political supports : how do they explain their hypothesis their will be a major shift towards fossil fuel considering we basically know they are at the end of their innovation cycle…
Same with the carbon budget : the carbon budget means that there is an upper limit to the carbon we can put in the atmosphere in the next decades. As CO2 stays in the atmosphere for centuries using coal instead of natural gas has no effect on long term global warming as it accumulates the same way. What they aknowledge is that the energy system should be fully decarbonized so in order to do so they need to introduce CCS as a deus ex machina.
But wait a minute… Did they not say later that oil will still be the main source of transportation and that we still use natural gas ? So what, they expect us to believe you can capture CO2 from the chimney of natural gas boilers and tailpipes of cars ?
See, you can’t get the carbon buget AND the oil and natural gas hypothesis…
And even if you assume that CCS will exist, then you can’t have CCS and natural gas… because as they aknowledge you need to find new jobs for the coal industry if you want to replace coal by natural gas, there are lot of social issue with that… If CCS is available and profitable, why would any country choose to buy expensive natural gas to a major while they could use their domestic supply of coal form national companies…
If you take their hypothesis of existing CCS and social issue with the closure of coal mines, then you won’t have natural gas growing anymore and no disappearing of coal. Every fossil fuel will be decarbonized with CCS so there are no reason to choose natural gas…
and so on…
You clearly can’t have any rational scenario which takes every of their point and achieve a market for oil and natural gas as large as what they are saying.
Tilleul says
Let me rephrase what they meant by these point of talks and I can guarantee you that if you ask them they will tell you they meant that because these guys leave in their own reality.
1) From Peak Oil to Peak Demand
=>There will never be a problem of availability of fossil fuel
Peak demand is not happening until a long time (between now and 2030)
This is about denying the evidence that the energy demand has already peaked (after correction of fake chinese data) and denying the problem faced by the fossil fuel industry to find new source of cheap oil.
2) Spending carbon budget
=> No technology exist to fight agains climate change, there will be no political will.
Denying the fact that the technology does exist and is affordable (no fossil fuel can win call for tender in the developping world anymore) and that the Paris agreement is actually dwarfed by the corporate commitments and cities commitments.
3) Stranded assets to stranded ressources
=> fossil fuel companies won’t be affected, countries will as they will have to fight to sell their ressources to fossil fuel companies. Fossil fuel will still be dominant in 50 years.
This is where you misread totally what they say.
They are simply denying that there will be more stranded assets : “there will be a shift in the discussion from stranded assets (predominantly enterprise owned) to stranded resources in oil & coal (predominantly state owned)”.
They are now claiming that all the impairment losses from fossil fuel companies will miraculously ceased to exist and will be transfered to states…
What is happenning really is : countries are less and less willing to fight for the privilege to get their environment and health destroyed by fossil fuel because they have more and more other options for economic development which are more reliable (as shown by the boom & bust in Canada). The cost of exploiting fossil fuels will go up because less and less people will be interested. Electric cars will also destroyed the market for oil while CO2 as a feedstock for the chemical industry will eat the margin of the petrochemical products which give the bulk of profits of oil reffinery. The golden age of gas was just the new “nuclear renaissance” : never happened, never happening… LNG terminals are on the verge of bankrupcy
4) Shifting System Resilience
There is an old thinking from the 70s that distributed generation can’t provide blackstart capability and that you need thermal powerplant to “provide inertia to the grid” (though no one who is using this term can explain what they mean by that). So this argument should be read as the usual threat to policymakers that the light will go out if they expand renewables…
The reality is that every network operators are currently surprised by how cheap and fast it is to use distributed generation and batteries in order to increase the reliability of the system and save money on costly reinforcement (the reare ones who are still used to add new lines, thicken the wires and increase the size of substation are basically getting killed by load defection).
5) A Path of Innovation
Ridiculous claim about a severe decrease in the growth of renewables which would save the fossil fuel industry (ExxonMobil has invented the term “the S curve of technology” you’ll soon hear that one). Whenever the fossil fuel lobby is talking about “new market governance” they are asking for subsidies… That’s the case here too.
6) “Changing Global Governance”
Same one : asking for subsidies. New energy players in the developping world don’t have the capability to access the very complexe international financing schemes, that’s why they are asking that. There is also the idea that carbon pricing will make coal producing nations shift to natural gas and not to renewables which is absurd… Of course no one will trade a domestic source of energy for an imported one.
7. Entrepreneurship Driving Access for all
Again another way to halt distributed energy growth : while entrepreneurial approach are good for quick growth of very basic needs like lightning, energy access is mainly about having development banks starting to fund large scale deployement of distributed energy which is the only realistic options to reach the poorest of the world. What they are advocating by promoting entrepreneurial approach is to prevent development banks to use this money there and keep these funds to be used exclusively for funding large centralized powerplants which don’t help in any means energy access as they are only use to power tier1 cities.
Math Geurts says
“Solar and wind power will continue their rapid growth with the electrification of energy use an unstoppable trend. As a percentage of total final production, electricity could reach penetration levels by 2060 as high as 30%”
I fully agree, but who is going to convince Greenpeace et al. that this level of share of electricity and renewables can not be reached much earlier?