“We can make all kinds of policies and laws and regulations, but no legal system is powerful enough to violate the laws of physics,” says Dean Oskvig, President and CEO Black & Veatch Energy, part of Black & Veatch, the US-based global engineering and consulting company. In this exclusive interview, he urges policymakers to focus on infrastructure resilience, cybersecurity and responding to distributed and off-grid electricity generation. Batteries will probably be competitive in 3-5 years, CCS is technically viable but expensive – “I don’t think it’s going to occur quickly at any scale” – and distributed energy resources and the grid don’t have to compete, they can complement one another. This interview was first published in World Energy Focus, the World Energy Council’s monthly magazine.
What should policymakers and industry leaders be doing to mobilise the huge investment that will be needed over coming decades to meet energy demand fairly, securely and sustainably? In this exclusive interview Dean Oskvig – President and CEO of Black & Veatch Energy, part of Black & Veatch, the US-based global engineering and consulting company – gives his views based on four decades of experience in the energy industry. He sets out what policymakers should be doing to mobilise the US$50 trillion in investment needed for the energy transition, how this transition is progressing in different countries, and the potential for different technologies to make a difference.
Q: We are witnessing an accelerating transition in the production and consumption of energy, especially in electricity. What, in your view, are the fundamental drivers?
A: The fundamental drivers of energy consumption, and consequently production, are population, economic activity and regulation. For instance, the world’s population is growing by about 80 million people per year and is becoming increasingly urban-based. What is new in electricity is the implementation of renewables that require two-way power flows. Over the past century or so our electricity system has evolved according to a central plant concept. But if you’re past the edges of this integrated system of central plants, and bulk transmission and distribution, your access to it is limited. With renewables comes the opportunity for more self-generation and the need to integrate these resources into the grid.
Another major driver in North America is the shale gas revolution, which has pushed down gas prices – and a big primary use of gas is in electricity generation. To the extent that North America is going to export LNG to other places, shale gas will change the economics of gas throughout the world.
Q: How is the energy transition likely to play out in industrialised and emerging economies?
A: The industrialised world and emerging economies have different drivers and contexts. In the industrialised world we have low economic growth, high household incomes and aged infrastructure – so a lot of focus is on optimisation, energy efficiency and resilience. In emerging economies, there are high economic growth rates but low household incomes – so the challenge is demand for capacity. The latest World Energy Council Trilemma Report lays out the regional differences and priorities in the context of climate change and balancing the trilemma – ensuring energy equity, energy security and environmental sustainability.
For instance, in Europe it’s about efficiency and low-carbon energy. In North America it’s about innovation, technology deployment and gas. In Sub-Saharan Africa it’s about tapping the potential for renewables and gas to meet demand from people beyond the edges of the traditional grid.
It’s been projected that more than $50 trillion of investment will be needed to balance the energy trilemma while limiting the rise in global temperatureto 2°C. Having said that, there’s money looking for a good place to go. But if there’s uncertainty – particularly regulatory uncertainty – that money will be timid.
Q: What should policy-makers be doing to prepare the ground for investment on that scale?
A: Policymakers should ground all this in science and math. Because we can make all kinds of policies and laws and regulations, but no legal system is powerful enough to violate the laws of physics. So start with the math and science, understand the economics, and then set about balancing the trilemma.
I also like the World Energy Council’s Jazz and the Symphony scenarios. Scenario thinking helps the decision-making process by defining the edges of possibility. Also, if you look at the World Energy Council’s Issues Monitor you can see the concerns of energy leaders on the various energy components.
Q: How are advances in telecoms, automation and data analytics changing the way in which energy utilities and customers interact? And how far are we from seeing the vaunted concept of “smart cities” become a reality?
A: As the generation mix changes and becomes more distributed, the means for managing, coordinating and controlling energy sources have to change. Data analytics is important because we now have the ability to gather lots of data. But then you have to do something with it. Analytics drives this process at two levels: firstly, insights on how to best to manage grid costs and resiliency, and meet sustainability goals; and, secondly, how to manage owners’ assets and customer participation in generation and demand response programmes.
Smart cities, in the biggest context, centre on quality of life and increased urbanisation. As I’ve said, we’re adding 80 million people a year to this earth and becoming more urbanised, which emphasises the need for cities to be much smarter.
The timeline for this will vary from city to city. It’s going to be an evolution. We have technology now to give us a good start on it. And we have in this world a whole generation of young people that really want to embrace these capabilities.
Q: The past year has seen a rise in concerns over cybersecurity. How can the threats best be managed?
A: Recently, I went to a CEO Forum in Washington DC where one of the main themes was cybersecurity. Energy leaders have a myriad of operational and financial concerns to manage. One strategy for dealing with risk and change is to wait and see what’s going to happen next. You can’t do that with cybersecurity because there are people constantly trying to get into your system and cause problems.
We were told in this CEO forum by some high-level experts that cyber attackers have usually been in your system for 200 days before you start noticing. You can never be satisfied with what you have in place to detect events, fix, recover and get on, because the people on the other side are constantly innovating themselves.
Q: Another issue keeping energy leaders awake at night is infrastructure resilience in the face of threats from, for example, climate change and terrorism. Is enough being done to address these threats?
A: In the past we designed and built our systems primarily on the basis of resistance rather than resilience. Now the thinking is moving towards resilience. That has to do a lot with how to recover when something happens. For example, super storm Sandy in the US was a wake-up call and many utilities are now taking steps to enable them to recover faster.
Are we doing enough? More could be done. Regulators and policymakers need to accommodate the corresponding investments we need to make. We’re doing a lot more now for our clients in the area of resilience planning and implementation, dealing with possible floods, storms or other physical/cyber attacks.
Q: The shale gas revolution has led to a shift towards gas in the US power generation fuel mix. Meanwhile, the US Environmental Protection Agency is working on new rules for carbon emissions from power stations. And we are seeing rapid growth in renewables. How do you see the US power fuel mix evolving?
A: The Energy Information Administration projects that 34% of US electricity will still come from coal by 2040, down from 39% in 2013; not as much of a change as one might picture. Gas goes up to 31% from 27%. Nuclear fadesfrom 19% to 16%. And renewables go from 13% to 18%.
We’ve done some scenarios of our own. In one of them, depending on how prices evolve, over half of generation in 2040 could be from gas. Coal could go down to as low as 9%. Renewables, ifyou include hydro, would be about 17-18%. And nuclear would be at about 15-16%.
Q: Two technologies that could have big potential impacts on the electricity industry are battery storage and carbon capture and storage (CCS). How quickly might this happen?
A: Battery storage will have a major impact on the electricity industry. Right now the price points are such that it’s not near term. But there’s a lot of R&D going on. Battery technology will probably be competitive with other sources of energy in three to five years. Meanwhile, there will be demonstration projects to wring out the operational complexities.
CCS has been demonstrated as technically viable. But it’s expensive to build and operate because it imposes an energy penalty. So you have to oversize your generating facility to accommodate the parasitic load.
I don’t think it’s going to occur quickly at any scale. When there’s a tax or a price on carbon maybe you’ll see more of it happening. But in the developing world there is little incentive to embrace CCS because of the cost; their focus is more about energy access and energy equity. But let me be clear here: we’d be happy to design and build them.
Q: Distributed and “off-grid” generation appear to be set for real growth. How quickly do you expect them to grow?
A: In my 40 years in this industry there have been three distributed resources waves, but when the waves have hit the shore they’ve already flattened out. This time it’s real because of different drivers that have come into play. We now have technology that can accommodate two-way power flows, coupled with low natural gas prices that make deployment of micro-turbines and fuel cells more feasible. Overall, people are still fundamentally going to be connected to the grid.
It’s an opportunity. I have observed that traditional utilities – who some would expect to be resistant to this change – are embracing it. One of the best pieces of work about this subject is a report published by the US-based Electric Power Research Institute, an independent, not-for-profit organisation that does RD&D relating to the generation, delivery and use of electricity, called “The Integrated Grid – Realising the Full Value of Central and Distributed Energy Resources”.
So far, distributed generation, even when it’s been connected to the grid, has not really been integrated. But now we have the technology to integrate it and make those small individual pieces, what I call “good citizens of the grid”. Distributed energy resources and the grid don’t have to be competitors; they can be complementary to each other. But it’s going to require a lot of collaboration.
We’re going to have to have interconnection rules, communication protocols and the technologies all synchronised – because it’s going to have implications for system operation, reliability and power quality.
Dean Oskvig became President and CEO of Black & Veatch’s energy business in 2006. He is also Vice Chair North America of the World Energy Council and Chairman of the Advisory Council at the Electric Power Research Institute (EPRI).
This interview was first published in World Energy Focus, a monthly and annual magazine of the World Energy Council produced by Energy Post for the World Energy Council.