DNV GL’s new 2018 Energy Transition Outlook projects a massive investment shift from fossil fuels to renewables and grids – and this is based mainly on cost considerations. Yet, notes Ditlev Engel, CEO of DNV GL Energy, in an interview with Energy Post, this won’t be enough to meet the goals of the Paris Climate Agreement. He says policymakers will have to take additional actions. “Doing just a little more won’t be enough.” (See here for main article on DNV GL’s Energy Transition Outlook.)
“Cost is not the problem anymore for the energy transition. So what is holding us back? Clearly, we have to rethink the mechanisms of the electricity market.” Commenting on DNV GL’s new 2018 Energy Transition Report, Ditlev Engel, CEO of DNV GL Energy, emphasizes that its projections based on cost drivers. “We are not telling people what they should do, we are saying what we think they will do.”
And they will do a lot – like massively adopting electric cars and taking renewable energy to a 50% share in the global energy system by 2050.
“Why not remove all taxes on everything that is green?”
However, that still won’t be enough to meet the targets of the Paris Agreement. Here is where policymakers will have to come in, says Engel. They will have to make far-reaching decisons, restructuring markets to influence consumers and investors, Engel suggests.
How energy is taxed
What practical steps could policymakers take? “They could take a look at how energy is taxed”, says Engel. “There are examples where we are now taxing the power generation sector as a whole because of its CO2 emissions. But as renewables grow in the power mix, we are actually taxing renewables, which don’t contribute to CO2 emissions.”
An alternative could be to put a price CO2 emissions, says Ditlev, instead of electricity in general. “Or why not remove all taxes on everything that is green?”
This is just one example of how policymakers could take additional steps to accelerate the energy transition. Another example would be to incentivize electric cars or EV charging. “There are many mechanisms that you can put to work”, says Engel. “Doing just a little more is not going to be enough.”
The good news is that the opportunity to act is there, says Engel. “I have been in the renewables industry for 14 years. It was always about how expensive they were, and that they would become interesting when they would achieve grid parity. That has happened. Cost is not the problem anymore. Now that we have moved into bidding instead of feed-in-tariffs, we see very low price levels for solar and wind. The question is how to use market mechanisms to see they are deployed to the maximum level.”
Another piece of good news for policymakers from the Energy Transition Report is that it shows that the energy transition will become more affordable when compared to global GDP growth and investments will shift from fossil fuel to renewable projects and infrastructure expansions.
The transition will also impact investments that have already been made in the energy sector, leading to the risk of stranded assets in all industry sectors
Still, Engel says, “that’s a very high-level view. We will need to invest a lot. Especially in electrification, including transmission and distribution.” But there is also a positive side to that: “This is a growth opportunity. We say that energy demand will fall, but electrification will grow.”
Engel points out that, for example, wind power is the fastest new job creating sector in the United States. “The energy transition will have an impact on traditional industries, such as coal mining, or the car industry. But I believe people would prefer working in wind and solar instead of in a coal mine. The energy transition will lead to jobs. There will be many more jobs in transmission and distribution for example. And in electric cars. That’s how industry evolves.”
The transition will also impact investments that have already been made in the energy sector, leading to the risk of stranded assets in all industry sectors. “That’s a big challenge”, notes Engel. “It’s something we will have to deal with.”
One exciting aspect of the energy transition is that different types of companies are becoming interested in the energy sector. “There will be more players, which means more capital, more competences.”
Engel says he hopes the new Energy Transition Report will generate as much discussion as the previous edition did. “I am amazed by how much has happened in just the last twelve months, since our first report came out. We were somewhat alone in then in our forecast for EVs. But things have been moving very fast. And the cost of renewables and batteries keeps coming down. It’s really starting to happen.”
This interview accompanies our feature article on DNV GL’s Energy Transition Outlook.