Focused, well-designed energy policy in a robust regulatory environment is key to achieve energy security, sustainability and affordability. That’s the major conclusion from the 2016 World Energy Trilemma report of the World Energy Council, presented at the Clean Energy Ministerial in San Francisco on 1 June. According to Joan MacNaughton, Executive Chair of the study, “it’s still hard for most countries to balance all three aspects of the energy trilemma. Good policy, implemented well, is the key to success, more than a high GDP or great energy resources. You can’t allow a free for all and let the winners seize the market.”
The 2016 World Energy Trilemma report – based on findings from World Energy Council workshops across the world and extensive interviews with hundreds of top leaders from both the public and private sectors – comes at a crucial time. Previous editions in 2012, 2013 and 2014 were based on in-depth interviews with industry executives, policymakers, and financial experts respectively. Last year’s edition focused on what energy leaders wanted to see come out of the COP21 climate summit in Paris.
This year, the World Energy Trilemma team looked back on the findings over the last five years to see what lessons could be drawn to help countries going forward. With the Paris Agreement now signed by 175 countries, the World Energy Council believes the time has come for the nations of the world to start delivering on their promises. The World Energy Trilemma report is meant as a tool to help them with this. It shows how countries can improve sustainability without losing sight of security of supply and affordability of energy.
“To say that all you need to do is expand renewables and the rest will follow, is an oversimplification. If it were as simple as that, it would happen much faster”
According to Joan MacNaughton, who has been Executive Chair of the World Energy Trilemma for five years, “There is going to be a big challenge post-COP21 for countries that have not moved very far to improve on their environmental sustainability performance, while at the same time trying to maintain energy security and affordability.” What countries need above all, she says, is “very good policies.”
Oversimplification
MacNaughton, who has a uniquely broad experience in the energy sector, having held senior posts at Alstom, the UK Department of Energy, the International Energy Agency (IEA) and the London-based Energy Institute, rejects the idea, sometimes pushed by renewable energy enthusiasts, that decarbonisation represents a simple win-win. “To say that all you need to do is expand renewables and the rest will follow, is an oversimplification. If it were as simple as that, it would happen much faster.”
There are trade-offs to consider on the road to a low-carbon society, says MacNaughton. “When you are implementing new systems, you are going to have the costs of the change. You need to make greater investments, which can impact on affordability in the short term. For example, for a country like Germany it’s much cheaper to sweat old coal power plants than to operate much cleaner modern gas plant – and several of them have been mothballed.”
She notes that “if you pursue decarbonisation without taking into account affordability and security of supply, you run the risk of a backlash against your policies. You may also get results that are not well aligned with the market, for example by making big bets on the wrong technologies, or missing out on second-generation technologies. That’s what the Trilemma is about: you have to look at all three elements, but with a strategic sense of direction.”
Recommendations from the World Energy Trilemma to achieve goals within a balanced energy trilemma – “increase nuclear, hydro and renewables and price carbon”
Transform supply by diversifying primary energy supply and electricity generation and drive the transition towards low-carbon energy supply.
Advance energy access by expanding energy infrastructure and enabling connectivity.
Consider prices by enabling consumer affordability and industry competitiveness.
Improve energy efficiency across the whole value-chain by increasing efficiency of energy generation, lowering losses in transmission and distribution networks and ensuring demand response.
Decarbonize the energy sector by increasing the share of nuclear, hydro and renewables in the electricity generation mix and pricing carbon adequately.
MacNaughton does not agree either with the idea that we know all we need to know about renewable energy technologies, and that all that remains to be done is put the right market design in place. “That’s another oversimplification. We do still need progress in renewable energy. There are technologies that have great promise but are not mature yet, such as tidal energy. We also still need to improve solar and wind technologies and our ability to integrate them efficiently into the grid.”
That said, MacNaughton is convinced that in the medium to long term, the transition will deliver benefits. “For example, if you see how costs of renewable energy have come down, this will greatly lower import bills for fossil fuels for importing countries.” In addition, she notes that “the sooner you start on the transition, the cheaper it will be over the long term.”
Silver bullet
When it comes to getting policy right, “we found, not surprisingly, that there is no silver bullet”, says MacNaughton. “There is no one policy that can deliver all three aims of the trilemma. There are always individual circumstances to take into account.”
But what is clear, she adds, is that good policy is key to meeting the three goals of the energy trilemma. “Energy policy choices and their implementation have the biggest impact on performance. Having a high GDP or great fossil fuel resources can help, but good policy, implemented well, is what really matters.”
“The Clean Power Plan adds a layer of complexity for utility companies which are active across different states. A cap and trade system would have been more efficient”
Good policy, says MacNaughton, means a number of things. “It means longevity: policies must be in place for a significant part of the investment period. Predictability. Having clearly defined goals. Transparency. Involving all stakeholders. Taking into account contiguous policy areas, such as transport, environment and industrial policy. And taking into account the specific context of a country. Shooting for something that is high, but achievable.”
Industry, she emphasises, must also take its responsibility. “Industry must share their knowledge and take a strong role in change management – investing in solutions and implementing changes.”
Same track
The good news is that most countries are “on the same track now”, says MacNaughton, “as the success of Paris has shown. Many countries that are now investing in renewables and energy efficiency would have been a real surprise 5 or 6 years ago. A new consensus has emerged.”
Nevertheless, the Trilemma report also concludes that “few countries are as yet fully balanced. Overall progress is usually led in one of the three dimensions”.
The report includes many case studies of countries that implemented policies in one direction at the expense of others. For example, Argentina’s electricity price freeze in 2001 stunted the profitability of the energy sector, with a negative impact on energy security. Germany’s renewables drive has had a negative impact on affordability. In the US there is concern about the costs of the Clean Power Plan, which the Obama administration imposed after an attempt to set up a nationwide carbon pricing scheme had failed. “The Clean Power Plan adds a layer of complexity for utility companies which are active across different states”, says MacNaughton. “A cap and trade system would have been more efficient.”
“Policymakers have a grave responsibility to foreswear short term point scoring”
All of this underlines the importance of well-balanced policies, says MacNaughton. She does add that energy policy is not easy to get right for policymakers. “They face extraordinary challenges. On the one hand, they need to create a market design that encourages innovation in the way energy services are provided and to do this in a way that enables companies to make medium- to long-term bets on their business model. On the other hand, those innovations are going to drive considerable change in the market and in business models, which may make it necessary to adjust the regulations. And at the same time they have to be mindful of the public good of ensuring security of supply. You can’t allow a free for all and let the winners seize the market – you have to ensure that society’s needs for security of supply continue to be met.”
A tall order for policymakers, who, MacNaughton says, “have a grave responsibility to foreswear short term point scoring”. But she is optimistic that it can be done. “We benefit from a sophistication of understanding that is unprecedented. What we must do now is convert that understanding into effective policies”, adding that, “the most successful countries will be those who understand when it is good for the government to set a framework and when it is good to have a hands-off policy.”
Editor’s Note
Joan MacNaughton is Chair of the World Energy Trilemma of the World Energy Council. She is also past President of the London-based Energy Institute. She was Director-General Energy in the UK from 2002 to 2006, Chair of the Governing Board of the International Energy Agency from 2004 to 2006, Senior Vice-President Environmental Policies and Global Advocacy at Alstom from 2007. She is also a Fellow of the International Emissions Trading Association (IETA)and Distinguished Fellow of the Institute of Energy Economics in Japan, and of the Global Forum of Competitiveness Councils.
This article was first published by World Energy Focus (June 2016), a free monthly digital magazine produced by Energy Post for the World Energy Council.
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Tilleul says
Sure… So… As the world energy council does not disclose its members and its donators I checked the contributors of the report and I could not find any single company who was successful with a renewable activity and not a single contributor from the renewable science community… Checking the names I have even randomly found some people from the nuclear and oil&gas sectors who were actively lobbying against renewables…
I mean would you trust the tobacco industry to give you advice on health policy ?