Statoil (OSE: STL) is ranked by Forbes Magazine (2013) as the world's eleventh largest oil and gas company and the twenty-sixth largest company, regardless of branch, by profit in the world.
So this week, when the senior vice president of that company’s Natural Gas Business Unit said the German energiewende (energy transition) will not succeed without the support of gas power generation plants, you are inclined to believe in his bona fides in making such a statement, even if arguably Statoil has much to gain from a new appreciation of this form of power generation.
While Europe, led by Germany, continues to drive towards a renewable energy future, doubts remain about the ability of renewables to consistently deliver energy security across the bloc, something that must inform Statoil’s bold statement on the place of gas.
At the time of writing, E.ON are looking to close two more combined cycle plants in Hungary due to the persistently unfavourable market conditions which support coal at the expense of gas at the present time.
It’s yet another example of the spate of mothballing that’s been forced across the continent in recent years, but surely the markets will have to be fixed soon so as to encourage gas instead of coal
Speaking at Stadtwerke Dusseldorf to mark the decision to supply its 600 MW gas power plant, Rune Bjørnson said, "Without highly efficient and flexible gas plants, the German Energiewende will not be successful. The agreement was possible despite a very unfavourable regulatory framework for gas-to-power. Natural gas is the cleanest of all fossil fuels and can contribute to more than 50 per cent CO2 emission reductions compared to coal."
So does the initiative of Statoil mark a watershed for gas – will the fact that it is a cleaner form of fossil fuel allow it to rightfully be preferred to coal in the very near future?
Over the last two decades companies have had to demonstrate their commitment to environmentally-friendly as well as ethical practices. In general those that adapted quickly to this new world have prospered.
In a world that rewards the moralistic, it makes sense that the dominant position of coal over gas is an anomaly that can’t last much longer.
Statoil (OSE: STL) is ranked by Forbes Magazine (2013) as the world's eleventh largest oil and gas company and the twenty-sixth largest company, regardless of branch, by profit in the world.
This year’s plenary session at POWER-GEN Europe differed from last year’s in that power chiefs were less vocal in their criticisms of the political classes.
There was no holding back last year, when it came to pointing out how ill-thought out many felt governmental energy policies were, namely the rush to grow the renewable sector.
The feeling still remains that the energy transition being led by Germany and to a lesser extent by the EU in general is being done in haste.
In Vienna last Wednesday there was a subtle change in tone. Industry leaders were keen to express that they were fully behind the switch to renewables. They agree with the destination but the journey that Europe is perceived as taking to get there is still seen as having too high a cost when it comes to the bloc’s competitiveness, energy security and in terms of burden to the taxpayer.
Siemens three point plan launched at a conference focusing on the energiewende in Germany this week may prove to be a compelling document for the entire industry, as it sets out to government and sector alike the path it believes the government should take in order to bring about a transition to renewables.
The path they suggest promises a prosperous renewable future, whereby economy and environment are both appreciated. At the moment there remains a sense that the political classes are not well briefed enough and we are doggedly continuing along the road to ruination.
In relation to the motivation behind his company’s proposed plan for the sector, Siemens CEO Peter Loscher said, “We need decisions that will maintain our country's competitiveness over the long term. Our aim is to achieve a sustainable energy system with secure supplies and affordable electricity."
If the new and improved energiewende plan can work in Germany, it again offers a hopeful blueprint that can be adopted across Europe.
As Fabian Roques, senior director at consultancy IHS CERA so eloquently put it in Vienna: “It’s not the end point – it it’s how we get there. It’s about how we define a sustainable trajectory.”
There have been acres of reportage on the theme of renewable energy investment this week, with various entities calling for more money to be spent for a variety of reasons. Most of the rhetoric seems to ignore an important consideration: Most governments are, to all intents and purposes, broke.
So why not a more measured approach –scaling back targets made, to contend with existing economic realities?
Quite simply, as the environmentalists would put it, environmental realities trump the economic. It’s that age-old chestnut.
An Ernst & Young report claimed that the UK was losing a golden chance to become the “the market of choice for investment in renewables in Europe”, warning that “competing visions and strategies within the government about the country’s future energy mix, pose serious questions amongst investors about whether we can compete for capital on a global level.”
One of those competing visions might respond that the government simply hasn’t the funds to indulge this grand renewable project. Will this prove to be a case of short-sightedness or can UK inc. simply not afford to be visionary at this moment?
Another such report praised the US for its current record in the green investment stakes but goes on to urge Washington to double its renewable energy generation by 2020. But America isn’t the undisputed economic powerhouse of the past.
Meanwhile the World Bank has produced the Global Tracking Framework Report, which estimates that an additional $174bn must be spent a year if renewable power generation targets made by the United Nations are to be reached.
The report, compiled by experts from 15 agencies, is the first of a series that will monitor the progress towards the objectives of the Sustainable Energy for All initiative launched by UN secretary general Ban Ki-moon in 2011.
Renewable energy accounts for just 18 per cent of the global energy mix, compared to the 36 per cent objective for 2030.
When it comes to balancing environmental and economic needs, the UK well and truly set its stall out this week, with energy secretary Ed Davey calling EU plans to increase renewable power generation as “inflexible and unnecessary.”
Davey wants the EU to increase the emission reduction target to 50 per cent but will not agree to increase renewables share. Britain wants it to be left to individual countries to come up with their own means of meeting emission reduction obligations.
It tallies well with UK nuclear power ambitions and is in keeping with managing a teetering economy.
It’s good sense from both an environmental and economic perspective, but the renewable lobby seem keen to maintain the momentum that has swung their way over recent times, even if recession persists.
In the Ernst & Young’s Renewable Energy Country Attractiveness Index Brazil came out unfavourably, deemed not a reliable place in terms of renewable investment, due in part to its insistence on a local content regulation.
This law is in place to ensure any company developing power generation in Brazil must allocate a certain proportion of its investment towards the use of locally-sourced components.
While there are obvious pitfalls to this policy, Brazil is surely meeting obligations to the economic and environmental by pursuing it.
The World Bank study goes on that “in order to achieve these challenging goals “a comprehensive package of policy measures, including fiscal, financial and economic incentives, phasing out fossil fuel subsidies, and pricing of carbon” are needed.
Perhaps what’s needed right now is for the entire system of free market capitalism to be changed to reward environmental initiatives more significantly.
Under the present circumstance nation states are bound to resist and the World Bank simply looks out of touch.
The European Bank for Reconstruction and Development (EBRD) is nearing the end of consultations with member countries, as it seeks to formulate a new investment policy for the energy sector.
While the International Energy Agency (IEA) has become ever more strident in recent months about the need to step up the campaign to reduce power generation from fossil fuel, Riccardo Puliti, energy chief at the bank, was keen to present the other side of the debate when interviewed by the Guardian newspaper.
"We strongly believe in a transition to a low-carbon economy and that is what we want to do as an active citizen. But other pillars need to be addressed," he said.
"Affordability is a problem, even in developed countries, and security of supply is a problem. These pillars need to be addressed and analysed in a proper way so we find the best optimum solution. So I can't say yes or no [to coal]."
The EBRD is owned by 60 member countries, many of whom wish to impose on ‘their’ bank their own national agendas when it comes to finance for the sector.
According to the Guardian countries such as Russia are putting pressure on the EBRD not to turn its back on coal.
Puliti argues that a one size fits all solution will not work, providing as an example Mongolia, which only has access to one fuel – coal.
The complexities involved in trying to tackle CO2, during a global recession, while simultaneously endeavouring to reassure countries about their individual energy security issues look likely to see even the most modest targets for reducing carbon end in failure.
Meanwhile Christiana Figueres, the Executive Secretary of the UN Framework Convention on Climate Change says the current level of earth-warming CO2 in the atmosphere means the planet has entered what she called “a new danger zone.”
"The world must wake up and take note of what this means for human security, human welfare and economic development," said Figueres, who oversees global negotiations aimed at limiting warming-induced climate change.
"In the face of clear and present danger, we need a policy response which truly rises to the challenge."
If the climate change lobby’s warnings are to be heeded a new global climate treaty will be needed and the world’s three largest polluters, China, India and the US will have to sign up.
Last year in Doha, Qatar, the European Union, Australia, Switzerland and eight other industrialised nations sign up for binding emission cuts until 2020 under an extension of the Kyoto Protocol. Together, the countries represent only 15 per cent of global emissions.
Those who believe that humankind has it within its grasp to affect climate change will not be pleased with a description of their motives as merely ideological.
But there is a great argument still to be won in somehow convincing the leaders of the world’s governments, financial institutions and great enterprises that their individual businesses or national economies must come secondary to the health of the vessel that houses it all, our world.
Mr Puliti’s comments show that his organisation is far from convinced about that viewpoint.
The International Energy Agency said last month that the world is some way short of the target it needs to make in order to keep temperature rise below 2 C and Maria van der Hoeven, the IEA's executive director, didn’t mince her words when she spoke at the launch of the agency's report on clean energy progress.
"Despite much talk by world leaders, and a boom in renewable energy over the past decade, the average unit of energy produced today is basically as dirty as it was 20 years ago."
As a country the world seems to be looking up to when it comes to its investment in renewable energy, Germany has a lot to answer for. Its continuing high use of coal power casts doubt on its role model status. It has one of the highest per capita carbon footprints in the European Union.
Part of the issue lies in what observers are calling Germany’s emotional response in deciding to eradicate nuclear power from its portfolio.
In a recent opinion piece, John Rhys, Senior Research Fellow at the Oxford Institute for Energy Studies (OIES), argued that phasing out nuclear will continue to increase coal use significantly.
"Germany does not promote CCS (...) and it is also foregoing gas," before adding, "Germany's simultaneous capitulation to anti-nuclear prejudice and willingness to compromise on cheap high CO2 emissions coal is therefore a disappointment".
Mr Rhys also says that the introduction of a capacity mechanism will not change the situation very much and instead is critical of Merkel’s government for placing a high reliance on costly incentives for intermittent renewable energy in an effort to meet CO2 reductions targets.
Globally, clean energy investment in the first quarter fell to its lowest level in four years, driven by cuts in tax incentives at a time of austerity, according to Bloomberg Energy Finance.
The IEA said that coal-fired generation grew by 45% between 2000 and 2010, far outpacing the 25% growth in non-fossil fuel generation over the same period.
Worryingly despite the world being ever reliant on fossil fuels, the uptake on CCS simply hasn’t taken off.
The IEA had originally envisaged 63% of coal power plants should be equipped with the technology by 2050 but there are only 13 large-scale demonstration projects in operation or being built, with the capacity to store about 65m tonnes of CO2 a year. This represents only a quarter of the storage capacity needed by 2020.
Government policies and the EU's emissions trading scheme need to be strengthened to enable more energy efficiency and clean technology uptake, the IEA said.
"Unless we get (carbon emissions) prices and policies right, a cost-effective clean-energy transition just will not happen," the report said.
The recent narrow defeat of ETS backloading in the European Parliament has seen a lot of anger directed at the European business lobby, Business Europe. But it would be wrong to deride this group and ignore the point they have made.
They believe that, had the vote been carried, it would mean higher costs being imposed on companies in the Eurozone that overseas competitors do not face. Unsurprisingly Milton Catelin, chief executive of the World Coal Association, called the European parliament vote "a triumph of common sense and balanced policy".
Reacting to the decision, Johannes Teyssen of E.ON says those politicians who refer to Europe as a leader when it comes to leading climate change ‘should be ashamed.’
Teyssen wants to see the scheme revived after what was a terrible blow, but if it is to get back off the canvas, its proponents will have to take on board the justifiable reservations the business community has.
Early last year Dr Fritz Vahrenholt, the former head of RWE Innogy and long-time environmentalist expressed his opinion to PEi that there needed to be a balanced and phased approach to reducing CO2 emissions.
In part that fits neatly with the theory he favours, which is that the planet is subject to solar cycles that impact on CO2 levels just as much as humans.
While remaining committed to cutting carbon dioxide emissions, he argued that the sun’s current cool period provides an opportunity for a more measured expansion in renewables.
“The sun has given us time to do it properly and robustly in a way that does not destroy economic growth, the labour workforce and the possibilities of energy supply,” he told PEi.
Whether you concur with the theory of solar cycles or not, it would be advisable for Europe to be more sensitive to the needs of commercial enterprises and approach the imperative of reducing CO2 in a phased fashion, enabling industry to adjust by degrees.
In the same article Dr Vahrenholt also blamed alarmism by renewable interests for feeding an appetite for accelerating the complete phase-out of fossil fuels.
“Because of a climate of fear we are doing this no matter what the cost, and in the quickest possible time. Because we believe there is a catastrophe on the way we are doing silly things,” he said.
Whatever the (supposedly calculating) methods used by BusinessEurope in winning its victory, Connie Hedegaard and her cohorts cannot ignore the realities away from the corridors of powers in Brussels.
Truly appreciating those realities can do much to inform a new and more resilient energy trading scheme.
Arguably, this week’s blog belongs on the COSPP website, but having attended COGEN Europe last week in Brussels, I was struck by how useful it promises to be as an energy saving option.
This was brought home through a conversation with long-time Turkish cogeneration (or combined heat and power or CHP) advocate, Ozkan Agis.
Mr Agis is president of the energy consultancy, Enerko, and has been doing his best to promote cogen over the past two decades. It hasn’t been easy, despite the fact that cogeneration makes sense for countries like Turkey who import so much of their energy.
Turkey itself imports 73 per cent of its energy, mainly gas from Russia, Iran and most recently Qatar, amongst others.
Turkey is attempting to make its energy mix more diverse and projects such as the construction of the $22bn nuclear power plant at Sinop will assist in retaining some energy independence into the future. However, once the winning developer is finally announced and construction proceeds the first reactor isn’t due on line for another decade.
Meanwhile the Turkish government is under pressure to find more housing for its large and growing population. Using CHP is an economical use of heat and power that helps substantially to reduce carbon emissions, but also crucially serves to minimise waste of energy resources. Even alongside new nuclear it can have a credible role.
Agis now has the ears of Turkish MPs and has had several meetings that he believes has brought home the importance for the country of including CHP as an obligation in future planning laws.
It makes more sense when you hear of the large scale building projects the government has announced.
For example Prime Minister Tayyip Erdogan stated recently that he wants 1 million flats built in the country within 12 months.
This pledge won’t help cogeneration’s cause, as including it in policy design as Agis has hoped, will bring in extra complexity that would make it difficult for the government to deliver on its promise.
Despite that, Turkish officials ought not to ignore CHP’s merits before making future pronouncements on residential targets, as it can so obviously play a part in cutting into that large energy import bill
Cogeneration’s main merit lie in its ability to maximise use of power, and that is something no government can afford to ignore, in good times or bad.
When Zhou Enlai was asked by Richard Nixon what his assessment was of the French Revolution he reputedly replied, “It is too early to say.” Margaret Thatcher’s legacy might also need the passing of more time before judgement is made. But, whatever about her controversial manoeuvres in other areas, her privatisation of the electricity industry can be viewed as successful.
Presided over by Thatcher, with her belief in the free market, the UK was one of the first nations to embark upon widespread privatisation of its electric utilities, and was something of a trend-setter.
The Iron Lady’s vision was to achieve economic efficiency through privatisation and by that measure the current industry is markedly more efficient than the system that preceded it, presided over by the Central Electricity Generation Board (CEGB).
But it hasn’t all been rosy in the garden.
The system has been criticized for unfairly and disproportionately benefiting industry shareholders and corporate executives over taxpayers, rate payers, and electricity industry employees.
A large share of the industrys' efficiency gains were realized through massive workforce reductions
Meanwhile could she have foreseen that when the CEGB was broken up into four units, that those enterprises would end up being run, in the main, by foreign-based companies?
The CEGB had been divided into PowerGen, National Power, Nuclear Energy (British Electric) and its transmission activities to - the National Grid Company.
Powergen is now E.ON UK, owned by the German utility company E.ON (FWB: EOAN). National Power split into a UK business, Innogy - now known as 'RWE npower' owned by the German utility company RWE (FWB: RWE); and an international business, 'International Power' is now fully owned by the French company GDF Suez (Euronext: GSZ).
At the time of Margaret Thatcher’s revolution she wouldn’t have seen the significant events that have impacted on free market philosophies oriented towards the power sector, two decades on.
Climate change, worries about energy system security, resilience and affordability and scepticism about the vision and responsibility of key market players and their regulators have seen a return to a more planned approach to the sector to an extent by her successors, particularly Blair and Cameron.
The energy landscape has evolved and the challenge now is to retain the positive features of the markets she helped bring about while also managing the achievement of societal goals that the market alone can’t provide.
Without the decision to privatise, implemented under her watch, the sector might arguably not have reached that position of relative health.
It should also be remembered that Thatcher’s government also effectively kick-started the UK renewables industry, introducing the Non Fossil Fuel Obligation (precursor to the Renewables Obligation).
She was also one of the first leaders to champion the area of climate change, the issue which looks likely to be most influential over the sector for some time to come.
A keen debate is taking place over on PEi LinkedIn Group at the moment on the merits and demerits of carbon capture and storage technology (CCS).
It’s fair to say that the majority consensus doesn’t favour the technology, and for a variety of reasons. Those reasons cover the whole gamut of critiques of CCS over the last decades – expense, unproven technology, liability in case of natural disaster leading to catastrophic leakages.
Perhaps the most persuasive argument comes from one engineer who believes the finance would be better spent on renewable power generation coupled with Smart Grid technology. The belief is that we should do this and simultaneously shut down fossil fuel plants.
While this rationale makes sense on many levels, the ongoing global financial meltdown throws a spanner in the works and right now countries have no choice but to retain some dependency on gas and coal to varying degrees.
Meanwhile China and India, despite notable green power investment, are understandably measured in their approach, refusing to derail their economic blossoming. Right now no amount of idealism or hectoring is going to cause a mind-shift in these Asian powerhouses.
The European Commission’s Gunther Oettinger recognised the situation as much when advocating a renewal of investment in CCS at the launch of the 2030 Green Paper last week and a leading researcher into CCS, Dr David Reiner, painted a stark picture when interviewed by PEi this week, saying, “unless we see serious action (involving all of the clean technologies and potential solutions) we are in very serious trouble.”
Ultimately the purists who advocate a non-fossil future are probably right, but it seems unlikely that anything other than a gradual approach can be taken, given economic realities or realpolitik, at this moment.
And so long as CO2 emitting power generation is allowed to persist, the claims of CCS as an aid to planetary health are entitled to fair hearing.
One of the more persuasive presentations at the Marketforce ‘Future of Utilities’ event in London last week was given by the Chief Executive Officer of the UK National Grid.
Steve Cocker is ideally placed to see where the country is lacking in terms of the weaknesses affecting the power sector and he didn’t hold his punches.
He was particularly candid on two salient issues; what he saw as the sector’s failure to communicate and the shortage of skilled engineers in the UK capable of replacing the existing force, who have a worryingly ageing profile.
“We’ve not really articulated as an industry or a government the need case of what clean energy is all about and why we need to build a new network. So the construction of lines is very difficult. We need the public to understand this is important if we are to enjoy the benefits of power into the future,” he told the audience of utility executives.
Minister for Energy John Hayes reinforced that message later in the day when he spoke about the danger for the industry in allowing the public to continue to think that power is something to take for granted, that it is a right.
Mr Hayes went on to comment with foreboding on a scenario whereby the power sector is seen not to be giving value.
Perhaps it is traditionally the case that engineers are too busy dealing with the business of engineering, rather than communicating the virtues of their labours. Seems hard to credit in the 21st century but there you have it.
The typical engineer may well be under the misapprehension that the public ought to fully and instinctively appreciate the efforts it takes to power the country, but it’s a dangerous assumption and at a time when household budgets are more squeezed than ever, not a clever one.
The failure to communicate doesn’t just extend to educating the public on the importance of breaking eggs to provide the power omelette; the deficit of skilled engineers is an indictment of a general inability to communicate at a high level.
The powers that be in government and in the sector seem to have completely neglected the whole area of training successive generations of engineers to serve the sector. Instead a vast recruitment has had to take in personnel from the European Union, in the absence of home grown talent.
His message couldn’t be simpler -“We need to get kids to keep up physics at A-Level.”
The failure to communicate is often at the heart of dysfunction in human relationships, organisations, industries and indeed national governance – it’s a time worn lesson.
Only a grasp of that essential need to communicate clearly can alter the public’s perception (and overall awareness) of energy.
The sector’s ability to effectively and consistently articulate its personnel needs to the government should also help shape education policy.
Being less laissez-faire about communication can help allay potential public anger and mean that a higher proportion of the 2,500 engineers, who fill roles in power projects over the next six years, are sourced domestically.
Considering Poland’s huge, long-term, impetus on coal-fired power generation, the strides made recently in stimulating renewable growth have been relatively impressive
Poland has the second highest coal power dependency in the world, with the source representing 90 per cent of its power generation. It is easily the country in Europe with the most reliance on coal for power, with the Czech Republic a distant 8th, with a 56 per cent dependency.
Katarzyna Łukasik of the Polish Wind Energy Association told PEi this week that last year’s excellent performance for renewables could be lost if the government does not bring clarity through regulation.
“There is a lack of relevant legal regulations enabling stable development of the sector. In recent months the mood among investors has been awful.”
It is a refrain we have heard before in the UK and throughout the continent, as sector interests wait for governments to provide a reasonable environment for investment.
The Polish government seems to have engaged in a game of brinksmanship with Brussels, as it had reneged on the various directives aimed at getting Poland to change its energy mix and cut carbon, originating from the Lisbon Treaty in 2009.
However they are now scrambling with domestic legislation aimed at somehow avoiding the punitive fines coming their way if targets aren’t met.
The resultant, long overdue and reluctant welcome for renewables saw a record in installed capacity growth and energy production from the Polish wind sector in 2012, but it is still some way short of meeting their 2020 targets.
There is no question of Poland going completely ‘cold turkey’ in an effort to catch up on European neighbours but if last year’s momentum can be maintained, there is a bright future in store for green energy there.
The independent Renewable Energy Institute states that the true market potential of wind energy in Poland by 2020 amounts to about 11.5 GW onshore and 1.5 GW offshore.
According to Ms Łukasik, “the figures are much higher than assumed in the Polish National Renewable Energy Action Plan. In the long-term the industry may substantially increase its share in the national energy mix.”
Whether the European Court of Justice goes through with its threat to fine the Poles almost EUR85,000 per day (one day at a time) for non-compliance or not, somewhere in the future is a Poland with a healthier energy mix, even if ‘tough love’ has proved the only way to make it happen so far.
You may have missed it, but just prior to Christmas the German government released it’s first-ever assessment of the Energiewende, or energy transition, and whether or not it’s working.
An independent commission produced its own review at the same time so as to coincide with the government report.
The government’s report is positive about the progress made so far and remains fully confident of meeting its target.
The non-governmental people found that while much progress is indeed being made, Germany continues to fail to meet efficiency targets. The bottom line is that the government needs to increase efficiency by 2.6 per cent a year, but thus far is managing to make just 1.6 per cent.
Merkel’s government plans to bridge the gap by cultivating two areas of endeavour. Number one – by tackling the country’s building sector, which accounts for 40 per cent of German energy consumption. One means of engagement is to offer homeowners EUR 5,000 when they renovate facades.
Number two is to expand the country’s transmission line capacity, shortening project times by 10 to four years in the process.
Nimbyism has been given short shrift as the government has seen to it that no appeals will be he heard on court rulings for any of the 36 proposed transmission expansion projects.
One observation that has been made is that Germany is already 25 per cent renewable, despite the grid not having had to be expanded all that much.
Even those opposed to the way the government has gone about things, such as senior Siemens boss Luther Balling, believe Energiewende will succeed.
Balling said German resilience to find solutions to problems would result in the country getting the situation “under control”, despite calling the transition “a disaster that was not thought through.”
There remains anxiety among the government coalition partners that there will be a degree of ballot box protesting in what is an election year, if they don’t take measures to control the increase in household energy bills, with Economic Minister Philipp Roesler applying pressure on Peter Altmaier to curb renewable subsidies further than what the Environment Minister originally envisaged.
But the government squabble doesn’t look anywhere near pushing the country away from its green-tinged future.
The German public seem to be remarkably accepting of the government’s policy even if there is a growing demand that industry take more of its share of the burden.
Clichés about Teutonic efficiency aside, Germany has shown itself as an incredibly hospitable environment for such a tremendous transition to take place. The strength and resilience of its economy and decades of green political and social growth have helped to formulate the culture.
In neighbouring France, President Hollande appears to fancy a French version of Merkel’s miracle, but it’s not so likely that the appetite exists.
Hollande too wants to lower dependency on nuclear despite it having been a huge strength to the country. For decades French factories churned out everything from steel, glass and chemicals with one of the cheapest power prices in Europe thanks to the country’s 58 nuclear reactors,
But that competitive advantage has been eroded by US shale gas and Germany giving businesses fiscal breaks against electricity costs. Meanwhile Hollande aims to boost investment in renewable energy, which in the short term produces more expensive power and relies on subsidies.
A report on French competitiveness warns that the country “must not raise the cost of energy for industry” and there is a consensus across much of French industry that deconstructing nuclear infrastructure is a mistake.
French nuclear output is a “veritable advantage” that needs to be preserved, according to a study published in November by Louis Gallois, former CEO of Airbus SAS’s parent European Aeronautic Defence and Space Co.
France is expected to produce a definitive energy law in October of this year, which will outline the country’s future energy mix.
There is much scepticism as to whether Hollande can bite the bullet, confident that his countrymen are happy to pursue a Gallic energy transition and nuclear-free future.
Germany’s more balanced economy always gave them a better chance of surviving nuclear-free, but France hasn’t been as circumspect, and built up a much greater dependency.
It’s hard to see the French having the same tolerance as the Germans if prices continue to rise for industry and unemployment worsens.
This week saw an article on the BBC website announcing an imminent deal that would see Irish wind turbines powering UK homes. There was also a not understated comment piece from the New Statesman lamenting the situation, entitled “Wind farm nimbyism means 10,000 jobs just went to Ireland.
But not for the first time the media is jumping the gun.
There is no doubt that, as an Irish government official told PEi this week, both governments are looking for a ‘win-win’ situation, but its very much a case of, if both don’t win, nobody wins.
The British government, seeing a sizeable minority of vocal opposition to their wind power plans, would hope an agreement allows them to sidestep awkward resistance at home. Such a scenario also greatly improves the country’s chances of meeting its EU-scrutinised carbon emissions targets.
Meanwhile Ireland, continuing to reel from hammer blows to its economy, is aspiring to create a permanent wind power manufacturing base and sees the UK market as a long term customer.
Although a Memorandum of Understanding has been signed to encourage renewable energy trading between the two countries, the Irish are unlikely to give the project the go-ahead unless the UK agrees to pay the subsidies required to make it happen.
Effectively the UK government will have to subsidise a business based in a foreign country.
Mainstream Renewables, one of the developers behind the project, told Power Engineering International last week that if the path is cleared, it believes the order size is sufficient to ‘trigger a cost saving in locating manufacturing close to source and eliminating the cost of shipping.’
The company added that, potentially as much as 40,000 jobs could be created in a nouveau riche wind manufacturing industry in Ireland as a result, a figure way higher than the New Statesmen lambasts UK nimbyism for.
Dr Richard Tol, a Professor of Economics and Climate Change at the University of Sussex, was heavily quoted on the BBC, and is adamant that the whole scheme was "crazy" and would not work in the long term .
He told PEi that the developers involved are simply looking for subsidies from the government. It seems he may be right, but which government?
The proof will be in the pudding and this time next year, the picture may be much clearer.
It seems incredible that Germany, in an effort to reduce carbon in the long term, is happy to embrace coal fired power in the short term, and all because of abhorrence to nuclear power, which reached its zenith with Fukushima.
Last year’s POWER-GEN Europe conference in Cologne saw an overwhelming consensus amongst the big power company chiefs that politicians were pursuing the German energy transformation (energiewende) from a position of ignorance.
Speakers at a plenary panel session on the day were in no doubt as to the folly of the government making an emotional decision to cut nuclear power adrift.
The decision was branded a “sad and disappointing kneejerk reaction” by David Powell of GE Hitachi and a disaster by Martin Giesen of Advanced Power, who added, “We are destroying economic value. This is shutting down growth and we live by growth.”
While there was dissenting voices, most of the most notable speeches during the event were not supportive of Merkel’s radical direction.
Earlier in the year, outgoing RWE Innogy chief Dr Fritz Vahrenholt produced a publication called Kalte Sonne, (The Cold Sun: Why the Climate Crisis Isn't Happening). In it, the life-long proponent of environmentally-friendly technology, poured cold water on the science that claims carbon emissions are rising at an alarming rate.
Vahrenholt strongly asserts that this is not the case and that the government’s energy policy is completely over the top. He advocates a more proportionate and realistic transition to renewable power than the hasty approach that has held sway, and fears that the German economy will be unable to cope, unless balance is restored.
But one of the biggest questions is can taxpayers endure the strain? The plenary audience at the POWERGEN event on the 13th of June was told that 600,000 households in Germany were on the verge of being cut off because they could not pay their electricity bills.
Wholesale electricity prices will be 70 per cent higher by 2025, predicts the Karlsruhe Institute of Technology.
Recent announcements of exemptions by Minister Peter Altmaier to big business could cause further resentment.
According to Der Spiegel, “the opposition Green Party estimates that the (exempted) companies will save up to $5.3bn as a result. The electricity bills for private energy customers and smaller businesses will increase by a commensurate amount.”
If Merkel’s leadership doesn’t survive an angry reaction to growing energy prices on households, the political will of her successors may not be as resolute as hers in forcing out nuclear power for good.
An interesting exchange of views came from the European Union's Energy Commissioner, Guenther Oettinger and Germany’s environment minister Altmaier last week.
Oettinger was singing the praises of nuclear fusion technology and professed the view that "Maybe this technology will one day be accepted in Germany."
He added that there would "still be nuclear power on the German network in 40 years", something his compatriot dismissed. It shows that outside the present government that there are political figures that have a contrary, perhaps even more rounded, view.
Besides taxpayer patience, there are other possibilities for failure. Germany must build or upgrade 8,300km (5,157 miles) of transmission lines (not including connections to offshore wind farms).
Offshore wind connections have already created trouble, with platform builder Strabag pulling out of projects in the North Sea and its chief, Peter Haselsteiner stating that, “there are too many reasons against it at this time - from the uncertain legal situation and uncertain future of energy policy on the German market to the lack of storage technology for electricity from renewable sources and the lack of transport possibilities for getting the electricity from the producer to the consumer.”
A subsequent announcement by Mitsubishi that it has agreed a deal to bolster TenneT’s offshore connection development in a $765m deal and the new German Energy Law, which has capped Transmission System Operator liabilities in the event of delays, has created some confidence that investment will grow.
With 20 per cent of the country’s power generation from renewables already, Germany looks likely to make a target of 35 per cent by 2020.
It is doing all it can to remove obstacles to its ultimate goal of 80 per cent by 2050, but its not clear cut, whether they can achieve the necessary emission reduction and sustain their economy, without bring nuclear back in from the cold.
The problems expressed by Peter Haselsteiner and the legislative breakthrough ushered through by the government are a timely narrative for the ongoing to and fro dynamic.
Will what looks like blind idealism prevail over what the government’s detractors would call pragmatism?
For the first time this week the German economy posted a disappointing result, when it's economy was shown to have contracted by about 0.5 per cent.
If a negative trend continues, how much of an impact will it have on the anti-nuclear stance?
Either Germany succeeds and sets the world a worthy example or there will be a lot of schadenfreude around.
Coalition government has been the norm in my native Ireland for as long as I can remember. In fact I can’t remember any time when single party government reigned. In Britain it is a mistrusted impostor but the recent spats (on energy policy) between the parties of UK government shows how useful it can prove to be.
One perception of coalition in Ireland is that the lesser party can prove a useful checker of some of the more malignant policies of the larger one. For example the administration prior to the present one involved the Green Party minority coupled with the Fianna Fail majority partner.
There is no doubt that the Greens in Ireland did a lot to ensure planning laws weren’t ridden roughshod over by their developer-friendly colleagues. Much-maligned now they are for presiding over the economic collapse of the country the Greens did a useful job in much-needed planning reforms that were well-needed to protect the Irish landscape.
The Liberal Democrats could be viewed through the same prism. In sticking to their guns on supporting renewables and meeting emission commitments, the Cabinet Energy Secretary can be seen to be putting the brakes on Conservative motives to only keep an economic watch.
The Treasury under George Osborne and his like-minded Minister John Hayes have made no secret of their suspicion of renewables but the presence of Ed Davey and the Lib Dems have meant that there is a balance in place in the country’s energy mix that one suspects wouldn’t have occurred if the Conservatives were ruling single-handedly.
As a low carbon option, the nuclear power industry is also fearful of what’s going to happen down the line.
At last week’s Nuclear Industry Association conference in Westminster Hall, Lord Hutton said in reference to the government’s recent promotion of gas power, “It remains to be seen what importance the government places on low carbon. If we compromise on that all bets are off.”
Despite John Hayes telling his audience that ‘no one is more pro-nuclear than he’ there may be legitimate concerns among the nuclear lobby of governmental motives on gas but so long as the erstwhile Liberal Democrats are in situ, they should keep the Tories honest.
Details of the long awaited UK Energy Bill finally have finally seen the light of the day and while its never going to satisfy all parties the initial overwhelming response is that it presents a good basis for power companies to unleash the significant investment the UK needs to thrive over the next three decades at least.
£110bn ($175bn) is set to be driven into renewing the country’s infrastructure after the bill appeared to satisfy utility demands of clarity and fairness. Greener interests believe the bill hasn’t gone far enough to commit to driving down emissions yet Energy Secretary Ed Davey will contest that.
He will believe that there is wriggle room in that respect as the theme of hammering down a specific emission target has been kicked down the road and scheduled to be revisited in 2016.
Meanwhile he will point to the investment that will now be poured into renewable power as evidence enough that the country is on the right track in terms of emissions at any case.
Consumer groups may feel that the public are the biggest losers, but an additional average household fuel expense of £3 a week seems a small price to pay for the country’s energy security, and freedom from over-dependency on fossil fuels.
Energy firms will be allowed to triple the amount of money they add to customers' bills to pay for renewable power, nuclear and other environmental measures.
There is argument that over the long term consumers be protected from regular increases that have seen household energy bills increase substantially in recent years.
Does the bill now put an end to the Punch and Judy show between the coalition partners? - Let’s hope this distraction is now closed. Mr. Davey certainly seems to believe it is.
“This is a durable agreement across the coalition against which companies can invest and support jobs and our economic recovery.”
He added: "They will allow us to meet our legally binding carbon reduction and renewable energy obligations and will bring on the investment required to keep the lights on and bills affordable for consumers."
Davey is talking the talk but can his bill really be all things to all people? Will he and John Hayes now put down their arms? Will George Osborne be forced to swallow definitive emission targets in 2016 if he’s still there?
There is still some dramas to be played out but with an environment for investment now created, it looks likely that Britain’s power generation landscape looks more positive, economically and environmentally, than had been the case.
At the recent International Energy Agency press briefing to mark the publication of World Energy Outlook 2012, one presentation slide illustrated perfectly the state of affairs projected for all power generation sources worldwide from now until 2035.
Those in the western world who have seen coal power’s stock decline over the last two decades might have been startled to see just how prominent it remains on a global stage.
Global demand might be falling off the radar in much of Europe, North America and Japan but in China and India it is still hugely significant.
China is a case in point – although the country is strategically targeting renewable and nuclear power generation and in so doing making inroads on cutting carbon emissions, coal will still be its primary power generation source over the next quarter of a century.
Interestingly, the IEA’s graph shows that there will almost be as much renewable power collectively as coal power generation over that 25-year timescale. It’s an indication that while China is taking its responsibility to cut emissions seriously, there is also a balance in favour of maintaining sensible energy security and economic viability.
With the ongoing innovation in clean coal technology over the last decade, coal is not quiet the bad boy of power generation that it once was, but from a green perspective the hope will be that the ongoing reliance on fossil fuels will be minimised as transition to renewables develops to an optimal stage.
The IEA’s biggest message at the publication event is that the world is wasting a valuable opportunity to make economic and environmental gains through actively promoting energy efficiency policies.
Coal, just like gas, will continue to be under scrutiny but there’s no doubt that post Fukushima in particular it has a valuable role to play in energy security.
It has been a big week for coal- based stories with announcements of significant investments in Kenya and Zambia, a huge potential acquisition in the Czech Republic and another potential coal power project in Belarus.
Meanwhile Germany has persisted in bolstering its eventual transition to overwhelming green power generation by continuing to champion coal power as a pillar of its energy security during the energiewende.
The World Research Institute this week released data showing that over 1200 new coal power plant projects are currently at a planning stage. Developing countries like Guatemala, Cambodia, Morocco, Namibia, Senegal, Sri Lanka, and Uzbekistan.
Investment in coal power shows the confidence that exists in what remains a very important source of power generation, despite the bad press that sometimes comes its way.
JP Morgan Chase (NYSE: JPM) has provided more than $16.5bn for new coal plants over the past six years, followed by Citi ($13.8bn) while Barclays ($11.5bn) comes in as the fifth biggest coal backer and the Royal Bank of Scotland ($10.9bn) as the seventh. The Japan Bank for International Co-operation was the biggest development bank ($8.1bn), with the World Bank ($5.3bn) second.
It shows recognition that, while the world must reduce emissions, coal’s continued relevance demonstrates that states also have a responsibility to maintain stable economies.
The past fortnight has seen a lot of lobbying and vocalising, with the UK government’s energy bill about to be finally put before the House of Commons.
The cabinet has received two separate letters; One from the renewable energy sector and another from the unlikely partnership of nuclear and renewables together imploring the government not to u-turn on its carbon emission reduction commitments.
There is a fear amongst these sectors that the treasury’s preference for gas power could seriously hurt their industries.
Meanwhile banks have finance for projects, yet no one to take it up.
Jamie Thrower, the Senior Director for Royal Bank of Scotland’s energy finance unit says lenders are keen to finance renewable projects and told a gathering at the Power Generation Investment annual forum in London ‘we need more projects please.’
I am struggling for analogies here but it’s like the parties in a court case trying somehow to influence the verdict, one which will be delivered by a judge with a perceived political bias.
The biggest example of sharp elbows being exhibited is of course from politicians in the energy ministry itself. Energy Secretary Edward Davey is resolute about enabling renewable energy to get the country’s carbon emissions down to the targets set.
However ‘colleague’ and Energy Minister John Hayes is sending out altogether different signals. Is this Punch and Judy show for real or is there something more Machiavellian going on?
Maybe Davey realises being unyielding about reducing emissions will drive up energy bills to the point that the government is driven out. He could be playing good green cop as a charade, knowing that there must be some give, if the present administration is to survive.
Meanwhile perhaps Cameron, Osborne, Hayes and company are playing to their supporters despite knowing they have to offer some allegiance to their initial goal of greenest government ever, not to mention that goal of reducing CO2.
Are we witnessing a carefully choreographed sequence from Hayes and Davey ahead of the bill announcement or is that conspiracy theory giving them too much credit?
In any case the Power Generation Investment forum looked unfortunately timed as everything is on standby until the bill is produced.
Begging letters, political intrigue and idle speculation will all be put in perspective before the month of November is out.
Iraq is on the verge of a prosperous future, and there is a burgeoning world of opportunity for utilities as well, as the infrastructure must be developed to enable a prospective oil boom to occur. But can the powers that be guarantee an environment where companies can be confident in investing?
The figures are staggering. In September the Iraqi government announced $500bn in investment in the country’s energy sector, with the $1.6bn of that sum being allocated to renewables managing to look miniscule by comparison.
Meanwhile the International Energy Agency (IEA) recommended last week that $6bn a year be invested in Iraq’s power sector every year until 2035, in order to transform the country’s economy and “make a major contribution to the stability of security of global energy.”
These are lofty goals indeed for a country that has been devastated by war and negligent governance for decades.
Progress in generating that investment has been complicated by the failure to bring about legislation that can regulate the industry. The spat (over oil rights) between Bagdad and the Kurdish autonomous region is also making matters difficult.
The IEA’s report warns that political consensus on both oil governance and the legal framework is vital to creating the conditions for Iraq to develop its power infrastructure and maximise its oil revenues.
The report emphasises the role gas will play in ensuring Iraq’s energy mix as it seeks to get its power infrastructure up and running, and overall gross power generation capacity is projected to reach 80 GW by 2035.
Insurgency and terrorism if not quelled threatens to seriously hinder Iraq’s ability to support its oil industry through sufficient power generation.
The IEA states that failure in Iraq would have a negative impact on the country and energy markets in general. “Without this transition domestic oil demand would be around 1.2mb/d higher in 2035 and Iraq would forego around $520bn in cumulative oil export revenues.”
Something in the region of 750 people have been killed in the country in the last six months alone and recent reports suggests that Al Qaeda has grown in strength since the US presence began to dissipate following the end of the war last year.
There are some commentators who believe throwing cash at the problem will negate the malign forces rallying against oil and power and government interests in Iraq.
For investment to succeed finance will play a part as well as political consensus and a solid legal framework.
Securing the safe environment needed for employees, buildings and capital to enable utilities to develop in the country is by no means a given at the moment.
For now Iraq is truly at a crossroads.
With his announced closure of the 1800 MW Fessenheim nuclear power plant recently, French President Francois Hollande appeared to be good to his pre-election word with regard to substantially reducing France’s nuclear dependency.
But given the reality of French reliance on nuclear power, and the wealth, influence and employment tied up in it, Fessenheim may turn out to be just a sop.
The French premier has consolidated a seemingly entrenched position on fossil power generation in general with his move to leave French shale gas untapped.
Even though Germany has embraced coal, Hollande won’t countenance it, despite the advances in clean coal technology.
His actions are politically motivated as a means of protecting a frayed alliance with the Greens, which may come back to haunt him as the economy grinds to a halt and job cuts pile in.
The issues now being faced by the majority coalition party stretch back to last years’ election wheeling and dealing.
The Socialists agreed not to field any candidates in around 60 constituencies. In exchange, the Greens accepted the Socialists’ goal of reducing France’s dependence on nuclear power for energy to 50 per cent from 75 per cent by 2025 — well short of the Greens’ own goal of zero.
Despite that, the greens, for a relatively small party, now have a big say, and their principles make them ideologically at odds with the realities of French economic strength.
France is the world's largest net exporter of electricity due to it’s very low cost of generation, and gains over EUR 3 billion per year from this. Furthermore the country’s nuclear reactors and fuel products and services are a major export and its 58 nuclear power plants count for about 75 per cent of the national power supply.
In addition they possess possibly the biggest shale gas reserves in Western Europe.
There is plenty of evidence to believe that Hollande is simply playing for time and unlikely to have the stomach to take on the unions, something that is unavoidable if he were to take a hard-line in delivering a reduced nuclear and fossil fuel future.
The nuclear industry alone employs about 400,000 heavily unionized workers, and French companies like Areva and Électricité de France are global leaders in the design and operation of nuclear technology.
As is the case with German utility bosses there is frustration amongst nuclear power insiders in France that Hollande, like Merkel, arrived at the nuclear power slashing objective, without any apparent appreciation of the technical aspects involved in such a dramatic move away from the staple French energy prop.
The tightrope act is compounded by the inevitable effect that going radically renewable would have on power supply and prices, if transition isn’t measured and gradual.
By encouraging EDF to build plants outside France, in other member states, Hollande may have a solution.
If France is to meet renewable energy commitments, without damaging the country’s economic future, Hollande must somehow find a compromise between morality and economy instead of the radical hyperbole he engaged in, in order to win power.
The deal that Hollande strikes with the unions will dictate the true picture for energy policy in France.
David Cameron and his right hand man, Chancellor of the Exchequer George Osborne appeared to send out a clear message to the renewables sector by their choice of replacement for the unfortunate Charles Hendry in mid-week.
Mr. Osborne and his colleagues at the Department of Energy and Climate Change have been at loggerheads during the year, with Osborne bent on gas being the focus of the country’s energy future, while Davey appears keen to provide some support for renewables.
Ed Davey may have won a symbolic victory in preventing renewable subsidy cuts from being as deep as they could have been, but by stealth the treasury has imposed its will.
Charles Hendry, a man who seemed to carry goodwill across the sectors for his seeming desire to get the best for all parties has been replaced by John Hayes, a man who, if you are to take his past record on the subject at face value, must surely be viewed as an avowed opponent of the wind sector.
The under fire chancellor couldn’t have asked for a more brazen statement of intent, than the imposition of Hayes in the portfolio.
The treasury have not minced words in recent months about their belief in a gas-powered UK, and are loathe to give the renewable sector any positive signal about where it stands.
The ability of social media to allow affected parties to dispense mixed messages is a new phenomenon. Jennifer Webber, RenewableUK Director of External Affairs, was immediately negative about the appointment on Twitter, saying she thought the timing for such a change of minister was all wrong, before a more sober and official statement appeared the following day.
While welcoming the new minister she was eager to impress on him RenewablesUK’s eagerness to ensure the bill is passed, and also went to some lengths to point out all the good works his predecessor, the ousted Hendry had presided over.
Reading between those lines it’s fair to say RenewableUK are not crazy about the appointment.
There is an argument that Cameron, no doubt having his sidekick in his ear, has brought in somebody who will not provide much resistance to treasury directions, and if his past record is anything to go by, will be only too motivated to stand up to any wind energy interests who want to challenge the government’s position.
On PEI LinkedIn during the week, Oxford-based energy journalist Nicholas Newman said it was time for the renewable sector to grow up, adding, “It has had plenty of state featherbedding to turn long promised ambitions into commercially affordable products. Unfortunately, in this time of recession, it's not only the taxpayer but also the customer that can no longer afford the renewable industries dreams. For too long the renewable industry has been a costly cottage industry, it has not moved on to the next stage, like China has of large-scale cheap products.”
However as the UK’s energy future unfolds the John Hayes might do well to take a leaf out of Hendry’s book and approach the business with all sectors in a fair and businesslike manner, rather than the partisan, anti-renewable stance some fear he has been selected to perform.
Renewable energy is not the sole solution to Britain’s energy future but it has a significant role to play, and the new appointee ought to be mindful of that.