This week I have had one of those most intense periods of researching and then absorbing the material around different energy issues.
Everywhere you turn, you stumble across reports on one aspect or another of the energy transformation we are undertaking.
I am looking at this energy transition through the eyes of the innovator, as it offers so much in new solutions and designs that any innovator would love to be part of.
Energy is tackling one of the world’s toughest tasks, turning our existing energy system, reliant on fossil fuels into one based on renewables, is an enormously complex set of challenges in its goal of decarbonizing it.
There is such an innovation landscape of solutions that are contributing to the world achieving a more renewable-powered future. Technology innovation, suggested new business models, outline proposals for changing policies, processes, and market design all are being “sketched out.” It is overwhelming, but innovative solutions need to be continuously refreshed to reflect this consistent inflow of understanding, relating to the energy transition that is being undertaken. It is evident innovation must be way broader than just technological RD&D.
During this past week, I have been working through specific aspects of the energy transition model.
Firstly, I have been looking a little more at the emerging focal point of Grid Edge. The Grid Edge includes the innovative solutions of hardware, software, and business innovation that are enabling smart infrastructure to be installed at or near the “edge” of the electric power grid. So things that you can touch or see, such as solar panels, metering infrastructure, local energy storage systems, smart thermostats, appliances, and building controls, are in Grid Edge Hardware solutions. The software is automating this, more demand-responsive, real-time data, data analytics, and planning systems to extract the value out of the data. Business innovation is turning that knowledge (data) into value for aggregation, trading, and supporting whole communities with managing their energy needs, for example. The Grid Edge solutions are on the rise.
My second area of focus was on the contribution digitalization is giving energy. The ability to connect everything up, to collect its data, to communicate it, and analysis it is changing the nature of how we are managing energy. Transport is becoming smarter and more connected through onboard computing power, the use of sensors, and the tracking, and the whole world is redefining this as e-mobility as the cars become electric. The value is in reducing vehicle emissions and Co2 levels. Buildings are also going through a digital revolution for managing heating, cooling lighting, and occupant movement. Having a more connected building also allows for increased security, maintenance, and safety. Thirdly Industry is undergoing so much automation, enabled by the digitalization and technologies where AI, Robotics, 3D printing, and machine learning are all ushering in entirely new ways to operate and manage plants. The impact of having digitally interconnected systems is revolutionizing energy management, let alone the control of the assets these digital solutions are built into.
My third area of more in-depth investigation has been Hydrogen. Clean hydrogen has been enjoying unprecedented political and business momentum. To achieve a low-carbon transformation, to decarbonize the energy world and meet the targets in the Paris Agreement (2015) from electricity through renewables, then it needs to substantially increase its share of all energy supply. Today gas, coal, and oil still dominate the energy supply. So many sectors require high-grade heat such as transport (aviation) or specific heavy industries (cement, pharmaceuticals, chemicals), and it is difficult purely through the means of electrification.
The promising solution is the scaling up of Hydrogen solutions, from renewables. The argument is that hydrogen is the missing link in the energy transitions we need to make. Dealing with variable renewable energy (VRE) from solar or Wind requires storage, and solutions like electrolyzers can help integrate VRE into power systems. The use of an Electrolyser is a device that splits water into hydrogen and oxygen using electricity and becomes the carrier of renewable energy and complements electricity. This way, we can balance loads on a grid through more effective storage and industry or city demands. Many hydrogen technologies are maturing at present and are at the point of scaling up that will help accelerate the substitution of fossil fuels that have this higher heat attribute. Today hydrogen is produced from natural gas in refineries, ammonia production, and bulk chemicals, and hydrogen from renewables can replace fossil fuel-based feedstocks, where we have high carbon emissions today.
My fourth area was checking back on the tracking of clean energy progress by technology in the different energy sectors or subsectors. These progress report cards come out regularly, but the one I wanted to work through was from the OECD and IEA ones. This clean energy report tracks 26 technology classified areas of energy, covering energy supply, energy demand, and energy integration. The approach makes sense as it is the ability to deliver the WHOLE energy system will give us the climate, renewable, and energy transition benefits. Managing this transition across the globe is a complicated task. At the time of the report, 2016, only 3 of 26 tracked technologies were on track towards a sustainable energy transition by 2050. Eight are seriously off the track, including how coal is still dominating global power generation, advanced biofuels solutions are still lacking take up to scale and fully validate them, and we still have a staggering two-thirds of countries that do not have building energy codes in place.
I have also been reading we are way off track on hitting the 2-degree target for global warming, agreed at the Paris Agreement (UN-related reports), and the growing consensus is we are at 3 to 3.5-degree mark. That is accounting for the level of commitments being made today to tackle climate warming, where our energy is such a significant contributor to emissions. So in tracking the essential technologies within the energy transition, you get a clear sense of our progress or lack of it on a global scale. This 30,000-foot perspective is sometimes sobering to all the activity that seems to be occurring at energy events or within the companies dealing in solutions. Yet the gaps, in reality, need addressing and fast.
There are so many promising technologies lagging the commitments dues to lower funding, more significant technical difficulties, or not being able to be exploited due to political, regulatory, or business constraints. Innovation solutions can only advance so much, but without the political or business will, resources or capital can only progress far slower. It does seem we do not have the momentum we need to undertake the transformation of our energy systems yet.
Drawing some interim conclusions
Coming to the end of my specific focal points from this week, the cost of this energy transition needs to run into trillions of dollars. One account is around $20 trillion up to 2030. In the context of global GDP, this is running about $80 trillion a year, and the global annual investment is at $20 trillion. Our capital markets are presently not geared to this, but it is argued these additional investments in energy towards the 2-degree pathway should not be a major macroeconomic challenge, but at individual levels, it is daunting. Energy does need to change from high to low carbon technologies, but we are still glossing over one of the biggest challenges within this transition journey; how we pay for and finance the energy we use and who in investors, industries, governments, and companies will share the burden.
There is a hard reality we are failing to make in the energy transition. Making any move wholesale from an existing energy system to a future low carbon system has disruption, competing forces and vested interests, it has huge risks and the methods to manage this transition needs new types of investment portfolio’s to diversify risk and build investment concept models to manage this change, fund development and put a significant repowering into the projects, big and small, we need to undertake.
Next year, 2020, the world leaders meet, I think in China for a review of past agreements, progress and make their next assessment around the warming climate. Much as there is a lot of hype and industry activity, the reality is the level of capital, commitment, political and business determination, and necessary momentum for an energy transition is still not in place; we are lagging badly, and we need a global commitment to engineering the energy system as part of the recognition that our energy systems are a principal cause of global warming. We are approaching this in “piecemeal, ad-hoc ways, and not through structured and institutional agreements to bring this together.
The need is for robust, comprehensive energy transition paths
As we move towards a world of more electricity based on renewables, we do need to have well defined and executed transition paths. We need full energy market designs and not, as we presently see piecemeal solutions. We are tackling a global need to reduce global warming, to reduce carbon and all greenhouse emissions, and have more renewable, stable, and flexible solutions that reflect the needs and demands of the 21st century, where we are highly dependent on a steady, sustainable source of energy supply.
Let the innovator’s energy transition journey continue…………………..
** the Investment numbers quoted in my interim conclusions are taken from a paper released by www.energy-transitions.org. in their Better Energy, Greater Prosperity report supported by the ETC Secretariat, here in Europe.