Solutions to 2050 Part II: Solutions to 2050 contents Preface introduction Energy solutions to 2050 by the numbers Overcoming the Energy Trilemma New behaviours 10 How can we use energy more efficiently? 11 What role for biofuels? 12 Why economic growth is the new priority for energy 13 New policies for new energy demands 15 The future of fossils 16 The case for power storage 17 The nuclear option 19 appendix From the Economist Intelligence Unit Findings from a worldwide EIU survey on energy solutions Joan MacNaughton, World Energy Council Alex Laskey, Opower Gregory Kats, Capital E Allan Kardec Duailibe, Brazilian National Agency of Oil, Natural Gas and Biofuels Reg Platt, Institute for Public Policy Research John Norris, Federal Energy Regulatory Commission Wim Thomas, Royal Dutch Shell Tim Weiss and Ed Whittingham, Pembina Institute José Goldemberg, University of São Paulo Survey results |1| the global energy conversation Preface This report, edited by the Economist Intelligence Unit and supported by Shell, follows an event held in November 2011 that brought together energy experts based in London, Washington and São Paulo for a live global conversation on the future of energy It invites the same group of experts who participated in the debate to explain their views on the most challenging questions that came up during their discussion, and it also highlights some of the best contributions made in the online debate that surrounded their conversation We would like to thank all of those who participated in the research If you would like to view the event, you can access it online by registering at http://live.economistconferences.co.uk energy solutions to 2050 by the numbers To support the event, the Economist Intelligence Unit conducted a survey of 790 people around the world The survey was carried out between September and October 2011 and respondents were drawn from the Americas (41%), Europe (20%), the Middle East and Africa (20%) and Asia-Pacific (19%) PANELIST ARTICLES A selection of the experts who participated in this debate have written articles for the follow-up report These articles are highlighted by a green bar in the text |2| PANELIST QUOTES Where points made by panelists during the event are relevant to articles written for the follow-up report, these are noted in the text ONLINE CONTRIBUTIONS More than 1,600 people registered to watch the event live online and more than 400 contributions were received via the event’s live feed Where online contributions are particularly relevant to the topic being addressed in an article, these are noted in the text Part II: Solutions to 2050 introduction The world faces two major energy challenges over the next 40 years The first is to meet rapidly rising demand for energy, particularly in developing countries, by dramatically increasing supply The second is to realise this goal while also achieving substantial reductions in carbon emissions Failure to meet the first objective will constrain economic growth Failure to meet the second will exacerbate climate change Research carried out for this report underlines how difficult it will be to achieve these two objectives The latest figures show that nearly 90% of global energy comes from fossil fuels and that renewables (including hydro, solar, wind and others) still only account for a combined 8% of the total The clear problem with this is that, while it might be possible to meet the world’s longterm energy supply challenge with this kind of energy mix, large-scale emissions reductions will not be achievable with such heavy use of fossil fuels To achieve both of its energy objectives, therefore, the world needs to switch to low-carbon sources of energy According to an Economist Intelligence Unit poll of 790 business executives, however, that will be a slow process Nearly two-thirds of respondents (65%) stated that they believe fossil fuels will still be the world’s primary energy source in 2030 If true, that will be a major source of concern for those wishing to prevent or at least limit the extent of dangerous climate change because it will see emissions continue to rise over the next couple of decades Against this difficult backdrop, the experts contributing to this report have been set the task of articulating their “energy solutions to 2050” For the World Energy Council’s Joan MacNaughton (p 6) the answer lies in a combination of innovation, partnership working between the public and private sectors and robust monitoring of impacts so that practitioners have “more reliable evidence on what works and what pitfalls to avoid” Alex Laskey (p 8), president of Opower, a US firm which helps utility companies engage with their consumers to manage energy use, highlights how much energy is wasted by users and argues for the adoption of information tools that can support behaviour change and improve energy efficiency Gregory Kats (p 10) a clean energy advisor and investor, agrees with the need to boost energy efficiency, suggesting that “it is the largest, most cost-effective way we have of meeting energy needs and reducing carbon emissions” Moving on to other possible solutions, Allan Kardec Duailibe (p.11), Director of the Brazilian National Agency of Oil, Natural Gas and Biofuels, explains how Brazil has become a world leader in biofuels Wim Thomas (p.15), Shell’s Chief Energy Advisor, argues that fossil fuels will remain a key part of the energy mix and makes the point that states can reduce emissions by switching from coal to gas and investing in carbon capture and storage José Goldemberg (p.17), Brazil’s former secretary of state for science and technology, argues that the expected revitalisation of nuclear energy over the next few decades is now unlikely to happen in the wake of the Fukushima disaster in Japan last year and rising concerns about both the safety and cost of nuclear energy Meanwhile, Tim Weiss and Ed Whittingham (p.16) of the Pembina Institute, a Canadian think-tank, suggest that power storage is a “key technological innovation that requires development and deployment to allow renewable energy to become the backbone of energy systems” On policy, Reg Platt (p.12), research fellow at the Institute for Public Policy Research, a British think-tank, argues that governments should start making low carbon energy investments “on the basis of the growth and jobs potential that these investments offer, not merely on account of which is cheapest” Finally, John Norris (p.13), Commissioner at the Federal Energy Regulatory Commission in the US, explains that one of the biggest roles for government is to regulate energy markets more effectively by taking action to “eliminate unnecessary barriers and level the playing field for participation by different players and technologies in the market” As Joan McNaughton rightly points out in her article, there is no “silver bullet” for dealing with the world’s energy challenges, so on its own none of these individual ideas would be capable of meeting the world’s need for both more energy and reduced emissions If states are to deliver on the demands being placed on them, therefore, an intelligent and pragmatic mixture of policies and investments will be required This report helps decision-makers and other interested parties understand more about what this policy mix might look like |3| the global energy conversation Part II: Solutions to 2050 Energy solutions to 2050 by the numbers TECHNOLOGIES AND RESOURCES POLICIES Which energy sources will allow us to increase supply and reduce carbon emissions between 2031 and 2050? 100 75 34% 68% 50 44% OIL 25 5% 35% 14% Wind Nuclear Gas 2.4% Oil Coal 7% Solar 2.5% while NUCLEAR RENEWABLES 1% of people of people think the world’s governments are committed to dealing with climate change are very concerned about the problem HYDRO think democracy stands in the way of climate change 100 COAL 4% think that will still be the case in 2050 30 % think fossil fuels will be the world’s primary energy source in 2030 75 NATURAL GAS 50 25 Source: BP Statistical Review 2011 Due to rounding, the figures in this chart not sum to 100% BEHAVIOURS International air travel increased by Carbon emissions increased WHO SHOULD TAKE the MOST RESPONSIBILITY FOR DEALING WITH CLIMATE CHANGE? over the same period would support reforms combating climate change if the changes had no effect on their real income 100 75 50 between 1990 and 2009 Source: World Bank Nation states: 41% The United Nations: 20% 25 1990 2009 would agree that if these led to a decline in their real income of more than 5% Individuals: 17% Businesses: 13% Other/don’t know: 9% Source: World Bank Unless otherwise indicated, infographics depict the results of a survey of 790 people conducted by the Economist Intelligence Unit in September 2011 |4| |5| the global energy conversation Overcoming the Energy Trilemma Joan MacNaughton, Executive Chair of the 2011 Energy Policies Assessment Report from the World Energy Council, reviews the options for driving low carbon growth Until growth in energy demand can be uncoupled from economic growth, we will continue to see global energy demand rising, especially in emerging and developing countries In the latter, a key priority will be expanding access to electricity for the 1.3bn who lack access today As the outcome of the 17th Conference of the Parties (COP17) to the UN Framework Convention on Climate Change in Durban has shown, there remains broad commitment to global emissions reductions and indeed, 2012 has been declared the Year of Sustainable Energy for All The challenges are numerous Energy must be accessible and affordable, contribute to the well-being of people and the environment, and enhance economic growth now and for the future Policymakers must accommodate these multiple requirements while reducing the carbon intensity of energy and addressing this “trilemma of energy sustainability” There is no silver bullet of policy that addresses all needs simultaneously though carbon pricing is probably the most important single measure and more national or regional moves Gas is the dominant direction right now because of lower prices and the emerging shale gas industry, but in the long term we’re going to see more intermittent resources and a need for intelligent grid John Norris Commissioner Federal Energy Regulatory Commission |6| to encourage low carbon investment by valuing carbon are needed This article addresses four key drivers of low carbon growth, applicable in both developed and developing countries Getting the policy framework right Governments set the frameworks that enable markets to deliver and they also plan strategically for national or regional infrastructure needed to deliver it, and thereby keep costs lower than they would otherwise have been It is important for governments to bear in mind that their intervention may create uncertainty and unintended consequences—stable, longterm, transparent policymaking can help to reduce this risk As highlighted in the 2011 Assessment by the World Energy Council (WEC) of country energy and climate policies, policy must be evidence-based and rooted in robust, independent analysis of the objectives of the policy intervention and the context in which it is made Transparency is vital to help business and consumers to understand the trade-offs that may be involved in adopting specific policies and their broader implications This should also imply high standards of consultation and public engagement This is to ensure that draft policies are subjected to rigorous and broad-based assessment, as well as giving those who will be affected by them enough notice to prepare themselves to adapt and comply Above all, implementation of the policy must be monitored to ensure that it is delivering as intended, including ensuring consistency across policy dossiers Here it is vital that governments are able to balance the need to provide markets with long-term policy stability against the We shouldn’t bet all our chips on one source of energy because we don’t know which one will be the most effective going forward In the UK, we’re investing in a diverse energy supply but I’m concerned that there has been a drop in the funding of carbon capture and storage Reg Platt Research Fellow IPPR necessary flexibility to adapt and change policies that may be failing UN mechanisms - such as Nationally Appropriate Mitigation Activities , the Technology Mechanism and the Green Climate Fund, among others – will play vital roles in assisting developing countries to adopt the cleanest technologies and where possible to “leap-frog” to lower-tech solutions The importance of supporting innovation Policy needs to be tailored to support the whole innovation chain, from education in mathematics, science and engineering in schools to the competitive environment for businesses This includes supporting invention through funding support for basic research in universities and the encouragement of international collaboration; supporting collaborative research by encouraging links between research organisations and the private sector to take inventions out of the lab and turn them into products and services; and supporting competition through protection of Intellectual Property Rights Part II: Solutions to 2050 (IPR), and through putting in place the right regulatory frameworks to drive product development and lower costs IPR is important because it enables companies to place a value on innovation This is critical not just for companies, but for emerging and developing economies, as they build knowledge-driven, high value-added economies and industries It is also critical to achieving climate change and energy security goals, which cannot be accomplished without massive private-sector engagement and continuing innovation For example, the WEC policy assessment report highlighted the role of energy efficiency programmes, including labelling schemes such as the US Energy Star programme This voluntary labelling scheme for household products and commercial building equipment is widely considered to be a success Not only does it deliver substantial energy savings and emissions reductions, but it is also a considerable driving force behind important technological innovations, such as efficient fluorescent lighting, power management systems for office equipment, and low standby energy use Enabling transformational technologies Innovation can help us deliver both lower emissions and broader access, specifically via two transformational technologies: carbon capture and storage (CCS) and smart grid technology The World Energy Outlook 2011 of the International Energy Agency (IEA) places heavy reliance on CCS, which it estimates could deliver 18% of the emissions savings needed to stay within the 450ppm atmospheric limit The IEA’s CCS Roadmap projects that 3,400 CCS plants will be needed globally by 2050 and expects that, by that time, developing countries will account for 64% of all captured carbon dioxide emissions If these nations are not encouraged and assisted to adopt the cleanest technologies at this crucial stage of their development, they will “lock-in” sources of carbon dioxide emissions for Any new energy technology needs a few years, sometimes decades, before it can take off and reach a substantial market share Wim Thomas Chief Energy Advisor Royal Dutch Shell decades to come To avoid this requires developing supportive policy frameworks and providing capital funding support as well as ongoing support through feed-in tariffs or similar measures Good energy policy should also enhance and increase mechanisms that incentivise energy efficiency in the power generation, transmission, and distribution context In particular, regulators should consider the substantial capabilities of smartgrid technologies for achieving these objectives As we discuss the world in 2050, it is important to remember where we will see the biggest population and demographic changes Policies must therefore be designed with the appropriate degrees of flexibility taking into consideration some insights about population, water, and other resources that are required to secure universal access to energy Lawrence Jones, Alstom Grid Inc, UNITED STATES Imperative to engage business These solutions will only be delivered through unprecedented levels of public-private partnership, based on clear commitments, transparent policies, agreed outcomes and, crucially, efficient and effective deployment of financial resources Smart grids help to manage electricity supply reliably and efficiently Without them we will neither be able to maximise the use of renewable power nor achieve effective demand management Smart grids can also support action to reduce CO2 emissions They help to manage intermittency and can facilitate connection in remote areas and for smaller generation sources Through their enhanced data and information flows to end-users and network operators, they also offer greater flexibility in balancing electricity demand and supply – maximising efficiency in dispatching generation, and minimising network losses This means engaging business in the policy discussion to gather feedback and benchmark against global policy best practice It also means collaborating to deliver, using public-private partnerships (PPPs) to attract private investment in major public infrastructure projects PPPs offer the benefits of flexibility in securing diverse sources of up-front finance and funding, and help mitigate risk through sharing it between those partners best able to bear it PPPs help most where projects are hard to finance on purely commercial terms, for example where technology is deployed for the first time in a country (especially where it can support capacity building), or where a government faces the challenge of simultaneously developing infrastructure, policy frameworks and supply chains When applied together with smart generation, electricity interconnectors, back-up capacity, storage options and demand-side response, smart grids can open up new possibilities in managing power supply and demand The important thing is that governments should be active participants, cofunding projects, ensuring that they are aligned with national development priorities and implementation plans and encouraging early dialogue with privatesector partners |7| the global energy conversation As mentioned earlier, there are no single “silver bullet” instruments But there are opportunities to learn from “best practice” policy In order to so, we need more rigorous evaluations of energy-policy instruments to bring to light more reliable evidence on what works and what pitfalls to avoid It is necessary to translate global findings about successful policy instruments into local arrangements and settings that work This translation works best as a dialogue between international energypolicy experts, industry executives, and stakeholders and policymakers from relevant jurisdictions The 2012 WEC Assessment of countries’ energy and climate policies will aim to contribute further to the better understanding of what constitutes successful policy and to deepen the policy dialogue between business and policymakers Author biography Joan MacNaughton is Executive Chair of the 2011 Energy Policies Assessment Report from the World Energy Council She is an influential figure in the energy and climate policy debate and holds a variety of UK, EU and international roles New behaviours Behaviour change is an immediate and cost-effective solution to inefficient energy use, argues Alex Laskey, president of Opower Most people spend less time thinking about their energy use every year than it will take you to read this article – about six minutes for an average consumer in the industrialised world.1 Those six minutes largely go towards checking and paying utility bills As a result, consumers are completely in the dark about their inefficient energy use, leading to massive amounts being wasted every year According to a recent McKinsey and Company study, this waste amounts to an estimated £260bn (or US$400bn) a year globally, which equates to enough energy to power more than 330m homes McKinsey also estimated that the US alone could reduce energy consumption by 23% and save families and businesses more than £130bn (or US$260bn) on their energy bills in the next ten years through increased energy efficiency.2 There is an immediate, cost-effective solution to this wastefulness: behaviour change It can not only have a drastic impact on our environment, but can also accelerate the adoption of other impactful energy improvements such as deriving more power from renewable resources or making structural changes to peoples’ homes Still, behaviour |8| change is often overlooked for several reasons Energy is relatively inexpensive In the US, only 1.7% of an average household income is spent on energy bills Most consumers aren’t motivated to make changes to save enough for an extra fast-food meal once a month Even in the environmentally progressive US cities of Berkeley, California and Boulder, Colorado, a recent study found that only 0.18% and 0.64% of the population, respectively, participated in available energy efficiency programmes.3 Energy data generally aren’t interesting Research shows that 90% of people say saving energy is important to them4, yet it’s a subject that most people spend very little time thinking about Presenting an overwhelming amount of numbers and charts on energy usage won’t inspire change Energy is confusing and ambiguous Most average consumers don’t know what a kilowatt hour (or therm) is, such that when they receive their bill, they don’t have the context to determine whether using 200 kwh per month is a high or low amount There are a lot of misconceptions about using energy For example, research also shows that 81% of people leave their heating or cooling system running when they aren’t at home They believe it takes more energy to turn the systems off and power them on again than it does to leave the systems running for an extended period of time, which simply isn’t true for most households Similarly, 48% leave their lights on, thinking that the same phenomenon applies there as well.5 So the question is, how we get consumers to think more about their energy usage and motivate them to make changes in their everyday lives? In 2005 the world-renowned behavioural economist Dr Robert Cialdini, who is also the author of Influence, set out to answer this question Dr Cialdini and his students at San Diego State University ran field tests during a hot summer in California, going door to door and putting notices on households’ door handles The households received notices with one of four different messages printed on them One group of homes received a notice that said: “Turn off your AC [air conditioning system] and turn on a fan Part II: Solutions to 2050 – you can save money.” Another group of homes received a notice that said: “Turn off your AC and turn on a fan – you can save the environment.” The third group of homes received a notice that said: “Turn off your AC and turn on a fan – it’s your civic duty.” After three weeks, Dr Cialdini and his team analysed the homes’ energy consumption and found there was zero impact on any of the three groups’ consumption from receiving these notices However, there was a fourth group Their notice said: “4 in 10 of your neighbours turned off their AC and turned on a fan.” Homes that received this message used on average 6% less electricity than the control group This discovery of the impact of social norms was a catalyst for the creation of Opower Since then, our work – now with more than 60 utilities, including nine of the ten largest in the US, and 10m homes across the country and in the UK – has led us to have a much deeper understanding of the mechanisms needed to harness the power of behaviour change to have a profound impact on energy usage, and therefore, the environment As Dr Cialdini’s study identified, normative comparisons (like the fourth example above) work well, as other tools such as goal setting, usage ranking, and historical usage comparisons that tap into humans’ innate competitive nature But it is the insights and actionable recommendations – not just the data – that must be presented While this is a relatively new concept in the utility industry, the general concept is not completely foreign Personal finance tools like Mint.com provide users with reports on their spending and investments that are beyond the numbers The service has evolved into personalised insights and recommendations on services and steps that people can take to save money The issue of inefficient energy use is a critical one in developing countries, particularly where grid supplies are intermittent, unreliable and often very expensive The answer requires a mixture of consumer behavioural change, improvement of the quality of grid supply and a more developed offgrid response, particularly for the poorest and most isolated consumers Neil Jeffery Renewable World UNITED KINGDOM At Opower, we have first-hand experience of the results this type of energy reporting can achieve In the mid-western state of Minnesota, we work with ten regional utilities, and our home energy efficiency reports have saved individual customers more than £4m (or US$6m) on their energy bills and more than 110 gigawatts of electricity since 2009 Providing contextualised and actionable energy usage information stimulates behaviour change, but must be coupled with continuous engagement strategies Similarly to how speed limit notices are strategically placed every few miles on the roadway, the best way to sustain changes in energy behaviour is to use regular and subtle feedback loops The new smart metering technologies being deployed now allow utilities the opportunity to prompt action when it counts; not at the end of the billing cycle, but in real time Like the low balance account notice you might receive from your bank or the over use alerts you might receive from your mobile service provider, utilities can now alert a customer if the home is on track for an irregularly high charge for that billing period and offer tips to avoid that outcome Energy-related behaviour change is a complex challenge and a global problem that creates an opportunity to activate energy users of all ages, interests and demographics by delivering the right messages at the right time across all communication channels Social media are a particularly interesting medium to harness the power of networking and stimulate a global dialogue about energy consumption While people spend six minutes a year thinking about their energy use, they spend one in every six minutes online accessing social media to share, comment, and engage with others If even seconds of that minute were spent on energyrelated topics, the impact would be tremendous As the international community continues to grapple with sustainability, energy security and concerns over global warming, enabling and empowering consumers to make simple behavioural changes can result in a windfall of savings The impact on the economy and the environment is truly exciting – now, and for future generations to come ccenture “ Engaging the New Energy Consumer.” A 2010 cKinsey & Company “Unlocking Energy Efficiency in M the US Economy.” July 2009 ailey, Mark and Johnson, Claire B “Innovative B Energy Efficiency Financing Approaches.” June 2009 Research conducted by Opower Summer 2010 Research conducted by Opower Summer 2010 Author Biography Alex Laskey is president of Opower and responsible for engaging utility and government partners with Opower’s purpose and products He was invited to the White House to meet with President Obama to discuss innovation and job creation in the green economy |9| the global energy conversation How can we use energy more efficiently? Gregory Kats, President of Capital E, answers questions about energy efficiency improvements and explains why countries should adopt deeper energy standards How big a role you think energy efficiency can play in helping the world reduce carbon emissions and meet the growing demand for energy? Energy efficiency is the largest, most cost-effective way we have of meeting energy needs and reducing carbon emissions It decarbonises the energy system in that it allows us to switch to lower energy intensity and reduce the amount of waste The explosion in energy efficiency funded by venture capital, in green building, smart grid and renewables technologies means that we can cut energy use/CO2 by half costeffectively today in most buildings Many questions have been raised about the cost-effectiveness and merit of investing in energy efficiency Corporations, cities and states that have adopted energy-efficiency funding strategies have had a positive return from a cost-effectiveness and job-creation perspective For example, California’s sustained energyefficiency strategy over the last three decades has allowed households to save US$56bn in energy over Demand-side management is key to increasing energy efficiency Clear incentives and policy decisions towards higher effciency, will help bring about the convergence of introducing clean technologies and reducing waste This is true in the residential as well as the commercial, services and transport sector, which will be the main areas of energy growth Mourad Belguedj, World Bank, UNITED STATES |10| 1972-2006, thus reducing the state’s energy import dependence Where are we making the most progress in being more efficient and which areas we need to pay most attention to? The industry and owner-occupied buildings tend to be more energy efficient but we should be doing a lot more in terms of cogeneration and on-site generation to build energy-efficient buildings We need to design our buildings better by harvesting daylight and reducing the artificial amount of lighting, through an integrated design approach Energy efficiency provides building owners with the opportunity to lower operating costs, increase occupancy, enhance building quality and increase financial returns The very rapid growth of green design standards that address health as well as energy and water are making green energy an important branding issue and a differentiation strategy for corporations, cities and universities What are the obstacles to fully realising the benefits of energy efficiency? We need to be a lot more transparent on the cost of energy An individual who rents space and doesn’t pay the energy bill has no incentive in investing in energy efficiency There are currently 15 to 20 American states that have no energy efficiency requirements, whereas we need to adopt standards for buildings and meter energy use more effectively We are switching more to renewables – and their limits in terms of reliability and availability can be offset by What has been really neglected by policymakers is the supply side of energy efficiency in the commercial sector You need mandatory standards to drive progress in this area Joan MacNaughton Executive Chair of the 2011 Energy Policies Assessment Report World Energy Council intelligent building monitoring and management systems such as Tendril and Building IQ Which measures, if any, should countries adopt to encourage energy efficiency? Countries should adopt deeper energyefficiency standards, both for new constructions and retrofits Companies should harness the power of social media by going through social media contacts and sharing information about energy use Banks should structure large energy-efficiency funding that enables large-scale funding Increasing energy-efficiency financing represents one of the largest and most important opportunities not only to meet our energy needs and reduce carbon emissions, but also to expand economic growth and job creation Author Biography Gregory Kats is President of Capital E, a national clean energy advisory firm, and is also Venture Partner at Good Energies, a billion-dollar global clean energy investor, where he leads investments in energy efficiency and high performance buildings Part II: Solutions to 2050 sure these investments are done right – the first time The US Congress needs to establish a national energy policy, clearly setting out the requirements that the energy industry must meet Unfortunately, this does not seem likely in the foreseeable future As a result, even without a clear national energy policy, government regulators must continue to act to level the playing field to allow a greater diversity of resources to participate in energy markets Once the playing field is more level and barriers are mitigated, the market can begin to efficiently allocate the capital that will be necessary to address the unprecedented challenges facing today’s industry Private investment will be key to meeting these challenges Author Biography Commissioner John Norris was nominated by President Barack Obama to the Federal Energy Regulatory Commission and confirmed by the US Senate for a term expiring in June 2012 Mr Norris, a lawyer, has years of experience in energy policy and regulatory affairs The future of fossils Wim Thomas, Chief Energy Advisor at Shell, answers questions about fossil fuels and investment in a cleaner energy mix What role you see for fossil fuels in the energy mix in 2050? Fossil fuels will remain a very important part of the energy mix Shell’s Blueprint scenario predicts that by 2050 renewables will account for 30% of the energy mix and fossil fuels 60% The reason that fossil fuels will remain dominant is that the developing world needs energy to fuel its rapid economic growth, and fossil fuels are available now, whereas it takes decades to build new infrastructure for renewables at scale Of course, people will ask why we can’t switch to renewables even faster Empirical evidence has shown that it takes about three decades for new technologies such as wind or solar to reach 1% of market share That’s the level when government can stop subsidising them because it means that renewables have become competitive with the rest of the energy industry It then takes another three decades before these technologies reach their full potential, that is say, 10% or 20% of the market share This really underlines the point that there’s a very long lead time for these types of investment The decisions we make now will determine the energy systems used by our children and grandchildren That means if we truly want to move to a low-carbon energy system, we should make the decision now and not postpone it for a couple of years Do you think governments are prepared to invest in the expensive infrastructure required for a cleaner energy system? We need to distinguish what’s desirable and doable You may desire to switch very fast to a low-carbon system but how much can you afford to accelerate that process? At the moment, it’s very difficult for countries with budget deficits to give a stronger stimulus for investment in renewables Is there a strong economic argument for retaining fossil fuels in the energy mix over the next 40 years? Are we sacrificing environmental goals for economic benefit? Not necessarily, we need to be pragmatic Switching from coal to gas for example is very affordable, and reduces carbon emissions at the same time but a solution on carbon capture and sequestration is also needed in the near future In the meantime, we still have to build wind and solar parks, with enough incentive for the industry to grow, but at a measured pace so that it doesn’t Even if oil spikes, carbon emissions from coal in the US, China and India must be addressed Jud Virden, Pacific Northwest National Laboratory, JAPAN overheat the market So there’s a balance we need to play there Are energy industries investing enough in carbon capture and storage (CCS) technologies to make fossil fuels cleaner? Such technologies are very expensive to implement, so we need to learn more about how to make them cost-effective How much as a company can you afford to spend your shareholders’ money on that investment for the greater good? We need public-private partnerships to make it happen So far, there are precious few CCS projects around the world, and we will need more of these to gain experience and bring costs down before moving to a larger scale Will a transition to gas enable us to reduce carbon emissions quickly enough? It’s part of the solution Gas is |15| the global energy conversation available, whereas CCS will take at least another ten years to take off on a large scale But we will need to invest in other things such as energy efficiency and behavioural change as well Is there any role for energy producers to support people in changing their behaviour around energy? A very broad group of people have to get involved—governments, companies, people—to change behaviours I see a great role for built-in solutions in city design About half of the world population now lives in cities, and many big cities will need to be built in the future I think people will get on board with high-efficiency homes, a clever public transport system and so on because they’re more convenient Author Biography Wim Thomas is Chief Energy Advisor at Shell and heads the Energy Analysis Team in Shell’s Global Scenario Group, which is part of the Corporate Strategy Department He and his team are responsible for worldwide energy analyses, long-term global energy scenarios, and advise Shell companies on a wide range of energy issues The case for power storage Large-scale power storage will be a key driver of the renewables revolution, argue Tim Weiss and Ed Whittingham from the Pembina Institute Aiming to generate one-fifth of our electricity demand from renewable energy may have seemed impossible a decade ago — now it’s becoming the norm in North America With almost half of the US states and Canadian provinces setting targets of at least 20% of their electricity coming from renewable resources by the year 2020, North America has joined the renewable energy revolution As long as renewable energy technologies were marginal players, the variability of their output was a manageable issue However, as clean energy targets increase, this variability will start to pose more significant challenges for system operators and regulatory bodies more familiar with traditional sources of power, such as coal, natural gas and nuclear Left unaddressed, variable output technologies like wind and solar will start to encounter barriers to high levels of market penetration Fewer and fewer technical challenges remain as obstacles to reaching renewable energy targets in North America and Europe With experience and changes to the operating framework, electricity system operators in countries like Scotland and Denmark — which have remarkable targets of 100% renewables — have found that they can integrate |16| more variable output supply than they originally thought possible The case for power storage Large-scale power storage is widely accepted as one key technological innovation that requires development and deployment to allow renewable energy to become the backbone of power systems In many cases, current renewable energy targets require very little change to the overall system Modest increases in targets will at first require only minor upgrades to transmission, smart grid investments and additional peaking power, while moving closer to a 100% renewable grid will require large-scale energy storage Numerous technologies exist to store electricity, including pumped hydro, compressed air, fuel cells and simply batteries, some of which are already in commercial operations around the world In addition to improving technical integration, the ability to store large volumes of electricity generated from the wind, sun, tides and other variable output sources can also improve the economics Storage systems can enable proponents or system operators to choose the timing, and therefore the price, of feeding renewable power into the grid While it depends significantly on the local electricity market structure, Alberta Innovates, a Canadian provincial government research arm, recently found that storing wind power generated at offpeak times can improve the economics of these wind projects by as much as 42% Storage abilities will also increase and improve power quality and reliability, potentially reducing transmission requirements as well as peaking costs What’s still to come Many questions about power storage remain unanswered, including which technologies are most appropriate in which markets, what scale of systems are optimal for different electricity supply systems, and what policies Among all energy resources, solar energy is the most abundant one and compared to the rate at which all energy is used on this planet the rate at which solar energy is intercepted by the earth is about 10,000 times higher There is a whole family of solar technologies which can deliver heat, cooling, electricity, lighting, and fuels for a host of applications Arnulf Jäger-Waldau, Institute for Energy and Transport, ITALY Part II: Solutions to 2050 Carbon capture and storage (CCS) is extremely important for gas and containing industrial emissions The IEA predicts that CCS can account for 18% of emissions reduction by 2050, but delaying action by 10 years would increase the cost of doing so by at least a US$1trn Joan MacNaughton Executive Chair of the 2011 Energy Policies Assessment Report World Energy Council will help push these technologies to wide-spread commercialisation What is clear, however, is that to move storage technologies beyond their current relatively limited levels of market penetration, some form of government support is required This support — which is likely to be focused on technology demonstration and commercialisation — will still take years to result in significantly improved markets for the integration of renewables That said, waiting for these technologies should not be a reason to slow current development of clean energy Many electricity grids can already accommodate additional renewable power using existing load-balancing measures, and often much more than originally expected, as shown by the Western Danish system operator ELTRA According to ELTRA’s chairman when presenting their 2003 annual report: However, there is still a need to move this development into widespread adoption “[We] said that the electricity system could not function if wind power increased above 500 MW Now we are handling almost five times as much And I would like to tell the Government that we are ready to handle even more, but it requires that we are allowed to use the right [policy] tools to manage the system.” Building on lessons from Canada’s Clean Energy Fund investments and the Canadian government’s success in catalysing wind energy through its production incentives, strategic investments in energy storage can help build Canada’s participation in the global clean energy economy, and provide federal support for all Canadian provinces toward achieving Canada’s goal of generating 90% of its electricity from non-emitting sources by 2020 Overall, the Pembina Institute thinks that Canada is well positioned to lead this “big idea” and to foster the next phase of the renewable energy revolution that is already underway Canada’s role The storage technologies that will come to lead will depend significantly on local market structure As a Canada-based think-tank, the Pembina Institute believes that Canada has an opportunity to play a leading global role given its expertise in key storage technologies including fuel cells, hydro-power (pumped storage), as well as drilling and geology (compressed air storage) Just as Canada currently stores natural gas for seasonal demand variations, storing electricity will become increasingly important for supply variations The Canadian government has taken some initial steps to foster this development through its Clean Energy Fund that has recently given support to individual electricity storage projects, such as Electrovaya’s demonstration project with automotive-scale lithium ion batteries, and New Brunswick Power’s research on load control in four Maritime communities Authors’ Biographies Dr Tim Weiss is a professional engineer and the director of renewable energy and efficiency policy at the Pembina Institute, a leading Canadian environmental think-tank He specialises in clean energy policy design, research and strategic decision making Ed Whittingham is the Executive Director of the Pembina Institute Through his work, Mr Whittingham regularly advises governments, transnational companies, NGOs and research networks on energy issues The nuclear option José Goldemberg, Professor Emeritus of the University of São Paulo, explains why he thinks it is unlikely we will see a resurgence of nuclear power There are currently 443 nuclear reactors operating around the world, providing approximately 15% of the world’s electricity supply The great majority of these reactors were installed in OECD countries 30-40 years ago to improve energy security by reducing or eliminating the need for natural gas or other fossil fuel imports used for electricity generation There has been talk of a renaissance of nuclear power as a cost-effective means of decarbonising energy systems However, a reconsideration of risks in the light of the Fukushima accident in Japan last year, combined with the rising costs of nuclear reactors and the increasing attractiveness of alternative energy sources for developing countries, means that the resurgence of nuclear will be limited The possibility of a nuclear renaissance The declining cost of oil and gas and |17| the global energy conversation NUCLEAR REACTORS under CONSTRUCTION in 2012 30 26 25 20 15 10 10 Another concern is that the cost of nuclear power has risen sharply in recent years Nuclear power plants come with a price tag of around US$6-$10bn each, so are already much more expensive to build than plants powered by fossil fuels Added to this, new reactors under construction in Finland and France have gone billions of dollars over budget, casting further doubt over affordability Similarly, new regulation will inevitably increase the cost of nuclear power Plants approaching the end of their initial 40-year license period and lacking certain modern safety features will face additional scrutiny in having their licenses extended Little wonder that the International Energy Agency (IEA) has already reduced its projection for the number of new reactors to be installed up to 2035 by 50% Alternative options for developing countries Of the 52 countries - which include 40 developing countries - that expressed interest to the International Atomic Energy Agency (IAEA) in 2009 in acquiring their first nuclear power plant, |18| 1 2 2 e US in Uk ia wa n Ta i ov ak ta n Ru ss ia is Pa k Ko re a Ja pa n So ut h e nc d In di a Fr a a in ia an nl Fi Ch az il lg ar Bu Br tin a Ar ge n Reconsidered risks and rising costs This mini-revival of nuclear investment will be short-lived One of the main reasons is that the Fukushima disaster, with its estimated cost of US$257bn, has severely dampened enthusiasm for a nuclear power and has directly led to a number of countries, including Germany, Japan, Belgium and Italy, taking the decision to phase out existing or planned nuclear reactors Sl high-profile nuclear disasters at Three Mile Island (1979) and Chernobyl (1986) signalled the end of nuclear energy expansion some 20 years ago More recently, however, concerns about rising greenhouse gas emissions (GHG) and effective lobbying by energy companies has sparked a government-subsidised revival of nuclear power By the end of 2010 there were 64 new reactors under construction around the world, including 28 in China and Taiwan alone (see chart) Source: International Atomic Energy Agency 2012 it is unlikely that countries with a GDP smaller than US$50bn would be able to purchase a nuclear reactor worth at least a few billion dollars In addition to that, electric grids must have a minimum size to accommodate a large nuclear reactor, for technical reasons Excluding the countries that not meet these criteria leaves a shortlist of 16 countries that could be considered serious candidates for purchasing large nuclear reactors, including Kuwait, United Arab Emirates, Malaysia, Saudi Arabia, Greece, Chile, Portugal, Singapore and Poland A close examination of the potential resources of these 16 countries in oil, gas, biomass or hydroelectricity indicates that they have a number of other options to generate the electricity they need In all of them, the cost of nuclear-generated electricity is significantly higher than other options, depending on the availability of gas or hydroelectric sites Malaysia, for example, is the world’s second-largest producer and largest exporter of palm oil, and is therefore a strong advocate of biomass-derived energy Elsewhere, the IEA expects China’s gas demand to rise from about the level of Germany in 2010 to match that of the entire European Union in 2035 Meanwhile, the Middle East’s demand for gas is expected to almost double to a level similar to that currently consumed by China It is thus likely that nuclear energy will be a last-resort option for the supply of electricity, rather than a priority in economic terms The future of nuclear energy hinges on its expansion in developing countries, mainly China and India However, the rising costs of nuclear power plants and alternative costeffective sources of energy in developing countries mean that it is very unlikely we will see a widespread resurgence of nuclear energy Author Biography A member of the Brazilian Academy of Sciences, Jose Goldemberg is presently Professor Emeritus of the University of São Paulo Between 1990 and 1992 he was Brazil’s Secretary of State for Science and Technology and Minister of State for Education More recently, between 2002 and 2006, he was Secretary for the Environment of the State of São Paulo Part II: Solutions to 2050 appendix: survey results These are the full results of a survey on energy challenges conducted by the Economist Intelligence Unit and supported by Shell The survey was carried out in September 2011 Rank the following energy sources according to how great a share of the world's energy you think they will be providing in 2030? Please rate on a scale of to 3, where 1=Largest share and 3=Smallest share (% respondents) Largest share Smallest share Don’t know Fossil fuels 65 24 10 Renewable energy 44 12 43 Nuclear energy 52 10 35 Rank the following energy sources according to how great a share of the world's energy you think they will be providing in 2050? Please rate on a scale of to 3, where 1=Largest share and 3=Smallest share (% respondents) Largest share Smallest share Don’t know Fossil fuels 38 21 38 Renewable energy 35 49 14 Nuclear energy 21 39 36 |19| the global energy conversation Which energy sources you think offer the most potential to increase energy supply and reduce carbon emissions over the time period of 2011-2030? Select three (% respondents) Solar 48 Wind 46 Nuclear 44 Gas 34 Hydro 30 Biofuels 20 Geothermal 15 Oil 11 Hydrogen Coal Other Don't know Which energy sources you think offer the most potential to increase energy supply and reduce carbon emissions over the time period of 2031-2050? Select three (% respondents) Solar 68 Wind 44 Nuclear 35 Hydrogen 27 Geothermal 25 Hydro 23 Biofuels 20 Gas 14 Oil Coal Other Don't know |20| Part II: Solutions to 2050 How supportive are you about increased use of the following energy sources? (% respondents) Not at all supportive Somewhat unsupportive Neither supportive nor unsupportive Somewhat supportive Very supportive Nuclear 16 18 13 32 20 Biofuels 17 18 32 25 Natural gas 19 41 30 “Unconventional” gas (eg gas which is accessed through “fracking”) 13 16 36 23 12 Wind 26 60 Solar 16 75 Oil 18 32 26 20 Coal 35 29 17 14 Geothermal 18 37 39 Hydro 12 36 46 Hydrogen 26 28 36 Do you think improved access to "unconventional" gas supplies will slow the growth of renewable energy sources? (% respondents) Yes 52 No 32 Don't know 16 Is your government investing enough in the following technologies? (% respondents) Yes No Don’t know Research and development into renewable energy 35 60 Large scale deployment of renewable energy technologies 28 66 Nuclear power 32 60 Making fossil fuels cleaner (eg through carbon capture and storage) 26 64 10 Increasing access to fossil fuels 47 41 12 Other, please specify 15 28 56 |21| the global energy conversation Please indicate how hostile or supportive you would be of reforms aimed at combating climate change if they had the following impacts on your real income: (% respondents) Hostile Neither hostile nor supportive Very supportive Don't know No change in real income 11 73 Up to 1% decrease 6 14 52 22 Between 1-3% decrease 10 23 34 24 Between 3-5% decrease 16 19 20 24 20 More than a 5% decrease 33 18 20 11 15 How significant a role you think energy efficiency can play in reducing carbon emissions? (% respondents) Highly significant 58 Significant 37 Not significant Don’t know How supportive are you of governments using the following tools to improve energy efficiency? Rate on a scale of to where = Very supportive and = Not at all supportive (% respondents) Not at all supportive Somewhat unsupportive Neither supportive nor unsupportive Somewhat supportive Very supportive Information and advice 10 27 55 Regulation (eg of light bulbs or building standards) 33 44 Loans for energy efficient investments 16 32 37 R&D investments in energy efficient technologies 28 55 Rewards for energy efficient behaviour (eg tax breaks) 12 30 45 Energy efficient procurement policies 19 33 38 Other, please specify |22| 35 13 37 Part II: Solutions to 2050 Which of the following steps are you taking to conserve energy and reduce carbon emissions? Which would you consider taking? (% respondents) Already taking Would consider taking Would not consider taking Switching off lights when not in use 95 51 Switching off electrical appliances when not in use 85 13 Turning down heating in winter 58 28 14 Buying more energy efficient appliances 68 30 Installing renewable domestic energy sources (eg, solar panels or wind turbines) 15 73 12 Flexible working (including working from home and using teleconferencing) 36 51 13 Driving less 43 42 14 Use public transport more 37 42 21 Taking fewer flights 26 44 30 Other, please specify 38 48 14 Do you expect the international community to reach a meaningful deal on climate change at the UN’s climate change conference in Durban later this year? (% respondents) Yes 15 No 79 Don't know How much extra, if anything, would you be willing to pay for goods and services to cover the cost of CO2 emissions related to their production? How much you think your company would be willing to pay? (% respondents) Nothing Up to 2% 2.1% - 5% 5.1% - 10% > 10% You 19 33 31 12 11 Your company 26 28 30 |23| the global energy conversation To what extent you agree or disagree with the following statements? (% respondents) Strongly agree Somewhat agree Neither agree nor disagree Somewhat disagree Strongly disagree Democracy stands in the way of the world making headway with climate change policy 11 31 18 17 22 Politicians should ignore citizens who not agree with policies combating climate change 13 29 14 23 21 Democratic states should reconsider their form of government to deal with climate change more effectively 17 25 14 10 34 Some nation states, depending on size and pollution levels, should have more control over environmental policy making 30 32 14 12 12 International organisations hold enough power to steer nation states toward effective climate change policy implementation 13 19 15 29 24 Who should take most responsibility for dealing with climate change? (% respondents) Nation states 41 United Nations 20 Individuals 17 Businesses 13 Regional organisations Don't know Non-governmental organisations Other |24| Part II: Solutions to 2050 In which country are you personally located? (% respondents) United States of America 15 Brazil India United Kingdom South Africa Canada Mexico Nigeria Australia Singapore United Arab Emirates Germany Argentina Switzerland Chile Kenya Spain Italy Netherlands China France Ghana Other 24 |25| the global energy conversation In which region are you personally based? (% respondents) Latin America 21 Middle East and Africa 20 North America 20 Asia-Pacific 19 Western Europe 18 Eastern Europe What is your primary industry? (% respondents) Financial services 25 Professional services 13 IT and technology Energy and natural resources Manufacturing Education Healthcare, pharmaceuticals and biotechnology Government/Public sector Entertainment, media and publishing Construction and real estate Agriculture and agribusiness Telecommunications Automotive Chemicals Consumer goods Transportation, travel and tourism Logistics and distribution Retailing Aerospace/Defence |26| Part II: Solutions to 2050 What are your company's annual global revenues in US dollars? (% respondents) $50m or less 37 $50m to $100m $100m to $250m $250m to $500m $500m to $1bn $1bn to $5bn 13 $5bn to $10bn $10bn or more 19 Don’t know Not applicable Which of the following best describes your job title? (% respondents) CEO/President/Managing director 29 SVP/VP/Director 18 Manager 16 Head of department Board member Other C-level executive Head of business unit CFO/Treasurer/Comptroller CIO/Technology director Other While every effort has been taken to verify the accuracy of the information in this report, neither The Economist Intelligence Unit Ltd nor the sponsor of this report can accept any responsibility or liability for reliance by any person on this white paper or any of the information opinions or conclusions set out in the white paper |27| the global energy conversation notes |28| Economist Intelligence Unit The Economist Intelligence Unit (EIU) is the world’s leading resource for economic and business research, forecasting and analysis It provides accurate and impartial intelligence for companies, government agencies, financial institutions and academic organisations around the globe, inspiring business leaders to act with confidence since 1946 Economist Intelligence Unit 26 Red Lion Square London WC1R 4HQ Telephone + 44 (0) 20 7576 8181 Fax +44 (0) 207 576 8472 E-mail london@eiu.com www.economistconferences.co.uk Copyright © 2012 The Economist Group All rights reserved Neither this publication nor any part of it may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without prior permission of The Economist Group Whilst every effort has been taken to verify the accuracy of information presented in this document, neither The Economist Group nor its affiliates can accept any responsibility or liability for reliance by any person on this information [...]... 1 |26| Part II: Solutions to 2050 What are your company's annual global revenues in US dollars? (% respondents) $50m or less 37 $50m to $100m 7 $100m to $250m 6 $250m to $500m 3 $500m to $1bn 7 $1bn to $5bn 13 $5bn to $10bn 7 $10bn or more 19 Don’t know 0 Not applicable 0 Which of the following best describes your job title? (% respondents) CEO/President/Managing director 29 SVP/VP/Director 18 Manager... reference in clean energy In the biofuels Brazil turned to biofuels to reduce its dependence on oil but it will need to diversify its energy supply further to meet growing energy demand The productivity of sugar cane is much higher than that of corn and wheat, and countries should encourage mandates to blend ethanol into gasoline Brazil lacks an adequate strategy to address structural factors that have... climate and energy issues including micro-renewables, energy efficiency, behaviour change, community-led initiatives, clean tech and corporate sustainability New policies for new energy demands Government regulators and private investors should work together to establish a clean and reliable supply of energy, argues Commissioner John Norris of the Federal Energy Regulatory Commission The energy industry...Part II: Solutions to 2050 What role for biofuels? Biofuels have been a key component to diversify Brazil’s energy mix, argues Allan Kardec Duailibe, Director of the Brazilian National Agency of Oil, Natural Gas and Biofuels The world faces a double challenge of guaranteeing energy supply to its population and providing a clean and sustainable environment for generations to come To reach these... intermittent renewable resources, electric storage providers, energy efficiency and demand resources, among others, that will all be needed to help expand energy supply and replace ageing infrastructure Simply put, we need to modernise market rules to keep pace with the new realities of our expanding energy supply It is important to emphasise that efforts to expand energy supply will be all the more difficult... scale Will a transition to gas enable us to reduce carbon emissions quickly enough? It’s part of the solution Gas is |15| the global energy conversation available, whereas CCS will take at least another ten years to take off on a large scale But we will need to invest in other things such as energy efficiency and behavioural change as well Is there any role for energy producers to support people in changing... Renewable energy 44 12 43 2 Nuclear energy 52 10 35 3 Rank the following energy sources according to how great a share of the world's energy you think they will be providing in 2050? Please rate on a scale of 1 to 3, where 1=Largest share and 3=Smallest share (% respondents) 1 Largest share 2 3 Smallest share Don’t know Fossil fuels 38 21 38 3 Renewable energy 35 49 14 2 Nuclear energy 21 39 36 4 |19| the global. .. hard Part II: Solutions to 2050 countries are going to fight for the spoils However, governments that are bound by outdated views of the energy sector may fail to capitalise on the opportunities Energy policy is regularly seen through the prism of a “trilemma” - that is, how to balance the needs for an energy system that is at once low-cost, low-carbon and secure A new approach to this problem is required... needs to establish a national energy policy, clearly setting out the requirements that the energy industry must meet Unfortunately, this does not seem likely in the foreseeable future As a result, even without a clear national energy policy, government regulators must continue to act to level the playing field to allow a greater diversity of resources to participate in energy markets Once the playing... in energy policy and regulatory affairs The future of fossils Wim Thomas, Chief Energy Advisor at Shell, answers questions about fossil fuels and investment in a cleaner energy mix What role do you see for fossil fuels in the energy mix in 2050? Fossil fuels will remain a very important part of the energy mix Shell’s Blueprint scenario predicts that by 2050 renewables will account for 30% of the energy ... like |3| the global energy conversation Part II: Solutions to 2050 Energy solutions to 2050 by the numbers TECHNOLOGIES AND RESOURCES POLICIES Which energy sources will allow us to increase supply...Part II: Solutions to 2050 contents Preface introduction Energy solutions to 2050 by the numbers Overcoming the Energy Trilemma New behaviours 10 How can we use energy more efficiently?... Good Energies, a billion-dollar global clean energy investor, where he leads investments in energy efficiency and high performance buildings Part II: Solutions to 2050 What role for biofuels? Biofuels