As I write, ‘COP27’ – the latest annual climate change conference – is taking place in Egypt. It’s a reminder of where much of the motivation for creating new energy supplies came from: the desire for decarbonisation through a shift away from burning fossil fuels. Now, however, the energy transition’s continued progress is not dependent solely on the public or policymakers’ strength of feeling over climate issues.
To quote the International Energy Agency (IEA) in its recently published ‘World Energy Outlook 2022’:
"The environmental case for clean energy needed no reinforcement, but the economic arguments in favour of cost-competitive and affordable clean technologies are now stronger – and so too is the energy security case".
Cheaper and cleaner, and growing
The economic case reflects rapid cost reductions in the cost of electricity generation from renewable sources. On a global weighted average basis, for example, large-scale solar PV (photovoltaic) projects now produce electricity 88% cheaper than they did in 2010. For onshore and offshore wind, the reductions in cost are 68% and 60% respectively.
While wind and solar still account for only around 10% of global electricity generation, that’s up from well under 1% just a decade ago and accelerating growth is inevitable: these two sources alone accounted for three-quarters of new power-generating capacity built in 2021.
If this electricity needs storing (at least for short periods within a day), note that lithium-ion battery pack prices too have fallen 89% over that same period.
Those battery cost reductions are central to driving the acceleration of another aspect of the energy transition – transport electrification. In 2012, around 120,000 electric vehicles (EVs) were sold in a year. In 2021, less than a decade later, more than that quantity were sold each week.
Cleaner and more secure
The energy security case for low-carbon energy is not new.
On a granular level, small-scale renewable power has created or increased access to electricity in developing markets, and given consumers increased control over their own energy costs even in developed ones.
At the macro level, for countries lacking their own fossil fuel resources and dependent on imports, the merits of exploiting domestic sunshine, wind, land or marine water resources or geothermal heat have long been clear. And for those which needed a wake-up call, events since late 2021 have provided a very loud one.
To quote the IEA once again: “Energy markets and policies have changed as a result of Russia’s invasion of Ukraine, not just for the time being, but for decades to come”.
Europe, most directly impacted by the loss of natural gas supplies, announced its ‘REPowerEU’ package in May 2022. This was overtly aimed at “ending the EU's dependence on Russian fossil fuels, which are used as an economic and political weapon and cost European taxpayers nearly €100 billion per year”.
Amongst the measures in this accelerated energy transition approach were an increase in the headline 2030 target for renewables from 40% to 45%, and a target of 10 million tonnes of domestic renewable hydrogen production over the same timeframe (along with another 10 million tonnes imported from friendlier countries, “to replace natural gas, coal and oil in hard-to-decarbonise industries and transport sectors”).
Now outside the EU, but subject to the same energy headwinds, the UK has also seen a flurry of energy policy activity in 2022.
April, for example, saw the publication of an Energy Security Strategy, including an ambition to increase offshore wind energy capacity to 50GW by 2030 and accelerate deployment of nuclear, solar and hydrogen too. The same month saw the release of two ‘Investor Roadmaps’: one for hydrogen and the other for CCUS (carbon capture, utilisation and storage). As the year has gone by, flesh has started to be put on the bones of the strategy, with subsidised business models further detailed for electrolytic (‘green’) hydrogen and in industrial carbon capture.
Further afield, August 2022 saw the signing of the US ‘Inflation Reduction Act’ within which is contained “the single largest investment in climate and energy in American history”. Hydrogen production, CCUS, EVs, energy storage and low-carbon electricity generation (both nuclear and renewable) now all benefit from a range of incentives, largely delivered through a tax credit approach.
But what about China?
That’s a question which often comes up whenever the discussion of cleaner energy arises, particularly in view of that country’s continued use of coal to service its growing economy (and utilise a secure domestic fuel source).
To assume that China is dodging the energy transition would be a big mistake: this is a country which already dominates installed renewable power capacity, and where that deployment is accelerating. In 2021 for example, about 80% of new offshore wind was installed there (17 GW in one year; more than the UK’s current cumulative total). This year, solar capacity additions could reach 100 GW.
Indeed, so central is China to the energy transition, that its dominance of critical minerals and supply chains has become an energy security issue itself. Thus, another in the growing library of UK government strategy documents in 2022 was its July ‘UK Critical Minerals Strategy’.
The energy transition toolbox
The combination of lower carbon, lower costs and diversification of energy supplies are all drivers of the energy transition. This isn’t a remaking of global energy systems that depends on one benefit and isn’t a direction of travel that risks going into reverse. If anything, recent geopolitical events are set to accelerate the speed of change.
However, creating a clean energy system isn’t a problem with only one solution.
Different countries and regions start from different energy mixes, with access to different resources and with different requirements in terms of the patterns and drivers of energy use. There is no one-size-fits-all solution, but instead a toolbox of technologies and approaches that can be used to create workable lower-carbon energy systems.
The continued use of fossil fuels
Fossil fuels will not simply disappear overnight. Countries like China and India will continue to exploit domestic coal reserves for years to come. Given current limitations in long-term electricity storage options, many countries will still rely on some degree of fuels such as natural gas to cover longer gaps in natural resources such as wind. And we will all continue to rely on the end-products of oil supply chains, such as plastics and chemicals, even if we soon stop burning oil-based fuels in our vehicles.
Reducing the consumption of fuels must be part of the energy transition approach, through energy efficiency measures. In the UK for example, lighting makes up over 10% of average household electricity use, so shifting to LED lighting has a significant impact on electricity supply. In Germany, there is early evidence that high gas prices in 2022 have led to significant reductions in its consumption by end-users.
More circular approaches to the economy – recycling for example – can also reduce the requirement for ‘primary’ hydrocarbon resource extraction.
Where fossil fuel usage and its associated carbon emissions are unavoidable, or too expensive to avoid in the short-term, that carbon (usually in the form of CO2) can be captured, transported and permanently stored underground (CCS). Alternatively, it can be used (CCU) and embodied within a variety of products from building materials to ‘synthetic’ fuels and chemicals. CCU provides another facet of the circular economy approach; and an important one from a business case perspective since it provides captured carbon with a value, not just a disposal cost.
Electrify everything
For many energy transition ‘purists’, the mantra is electrification. That means a massive scale-up of renewable power generation (and the infrastructure to support it) and the use of that clean electricity in applications that currently burn fuels: transport (EVs) and heat (ideally, heat pumps).
The case for renewable power growth has already been made, and the trajectory is clear.
However, electrification does not just rely on electricity supply, it relies on matching it with demand.
Our legacy electricity supply systems were built around an ethos that demand was allowed to vary as it wished, and centralised supply could be controlled to match. Since future electricity systems will increasingly be built upon ‘variable’ supplies like solar and wind power, significant new approaches are required.
‘Smart’ grids and price incentives are already encouraging demand to be more controllable, shifting it to match supply, or to reduce requirements for expensive peak-time supply (often the most inefficient fossil fuel power plants).
The energy storage sector will also be a ‘winner’ in helping integrate higher capacities of clean electricity into future systems: one analyst has suggested that Europe’s REPowerEU programme will cause grid-scale energy storage capacity to expand 20-fold in the region by 2031.
While energy storage growth is currently dominated by lithium-ion batteries, the energy storage sector includes an ever-evolving menu of potential energy storage technologies: both alternative battery chemistries and entirely different options, from compressed and liquid air storage to thermal and gravity-based solutions.
Hydrogen and limits to electrification
Then there is hydrogen, a topic that’s been attracting enormous interest over the past few years.
Currently, hydrogen is a carbon problem rather than a solution: an industrial gas used mainly in ammonia production and refining, and produced from natural gas or coal, with huge resulting carbon emissions.
‘Clean’ hydrogen can be produced in a variety of ways. One route is to continue the use of fossil fuel feedstocks, but to combine hydrogen production with CCUS (‘blue’ hydrogen). Another is to bypass fossil carbon in the first place and instead use cleanly produced electricity to split hydrogen from water (‘green’ hydrogen). But, beyond cleaning up hydrogen’s current uses as a chemical reagent, why produce more?
The answer to that question is much debated and subject to much uncertainty, but hinges around different opinions on likely ‘limits to electrification’. Those limits could include restrictions on grid capacity (to move energy as electricity), on storage capacity (to fill days of low wind power, for example) and on on-the-ground practicalities for some applications (carrying enough energy on board to power a ship or a plane, for example).
There will be situations for which the direct use of renewable power, including with storage through solutions such as batteries, simply doesn’t scale. For all the inefficiencies in doing so, converting power to gas (and perhaps that gas to derivative fuels such as ammonia or, in combination with captured carbon, synthetic hydrocarbons) is therefore regarded by many who analyse the energy sector as another important tool in the transition toolbox.
The importance of an integrated, independent view
Given the variety of issues, topics, and technologies that the clean energy transition encompasses, it is easy to lose sight of how they will interact and integrate. Naturally, individual companies and commentators often have their own preferred solutions and interests to promote, so discussions can be too binary.
On the one hand, the energy transition remains at a very early stage. On the other, it is progressing rapidly, and at an accelerating rate. Technology and engineering solutions which may not be commercial now could have significant impacts on how the market develops over the coming years. Given the unavoidable overlap between energy and politics, changing policy environments and mechanisms will determine differing priorities and rates of progress in different countries.
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