The World Energy Council recently published its Trilemma Report, which provides an in-depth survey of the ways governments and the industry can work together in order to manage the next phase of our energy transition and embrace the new frontier, a sustainable energy future.
As the world economy and population grows, global energy demand is forecasted to increase, in fact double, by 2050. It is estimated that to keep with the pace of this demand, the cumulative investment requirement in electricity generation alone will be between US$19.3trn and US$25.7trn from now to 2050.
In order to keep up with this and ensure that countries are able to balance the Trilemma, we have identified five key actions which must be taken. These will be discussed in greater depth when the Trilemma report is presented at the 2016 World Energy Congress to be held in Istanbul in October.
1. TRANSFORMING ENERGY SUPPLY
Increasing diversity in energy supply and electricity generation will be essential to balancing the Trilemma. This will need to be facilitated by policymakers, who must set clear and straightforward energy targets and build a broad consensus for the transition in energy supply and demand.
The task can be achieved by working with new entrants to the market as well as established players and ensuring that all parties involved engage with the affected communities. In order to ensure the successful delivery and implementation of policies to transform the energy supply, it is vital that an adaptive approach, which includes launching pilot projects and regularly analysing policy effectiveness, is taken.
A key part of transforming the energy supply will be developing a low-carbon electricity supply through the use of unconventionals, such as nuclear, hydro, wind and solar. At a country level, diversity in electricity generation is also driven by goals to increase indigenous energy supplies and hence mitigate the effects of geopolitics or global energy markets on energy security. In the private sector, residential and large business consumers are also seeking to minimise volatility in energy costs or decrease their environmental footprint. For example, a growing number of companies across diverse sectors are signing utility-scale power purchase agreements for renewable energy and are pledging to procure 100% of their electricity from RES.
2. ADVANCING ENERGY ACCESS
Many emerging and developing economies continue struggling to expand energy infrastructures to support advanced energy security, reliability and access. To increase private sector investments in infrastructure, countries are reforming regulatory frameworks to decrease the cost of doing business and increase competitiveness in the electricity market. In tandem, distributed generation through solar and wind is bringing energy access to rural and remote communities that cannot currently be cost-effectively connected to the grid.
However, expanding energy access infrastructure is not enough. Countries must look to a range of innovative mechanisms that allow affordable access and enable people to utilise the benefits of modern energy for income-generating activities. Innovative mechanisms include pay-as-you-go business models and mobile banking solutions to promote the take-up of renewable-powered energy services.
A prime example of progress currently underway in this sense comes from India; the government has set ambitious targets for 100% rural village electrification and eventual access to electricity by all households within the next five years. To achieve this the Rajiv Gandhi Grameen Vidyutikaran Yojana (RGGVY) scheme has been established. This incentivises states to develop access projects by financing them through a 90% government grant and a 10% loan provided by the Rural Electrification Corporation (REC). The scheme has enjoyed huge success in providing electricity to villages and hamlets in rural areas: a recent survey showed that 93.3% of households and 53% of villages were electrified, and 89% of beneficiaries would regularly pay their electricity bills.
3. ADDRESSING AFFORDABILITY
Many countries with lower GDP and low rankings on the energy equity dimension of the Trilemma are struggling to ensure energy affordability while financing or creating the investment conditions to support energy infrastructure expansion.
In the short term, subsidies are vital for lower-income consumers and for supporting social and economic programmes. Energy subsidies can be costly to deploy, are contentious to remove, and tend to decrease overall performance on the energy trilemma over the long term. Long-term subsidies can erode the profitability of utilities, stall improvements in energy infrastructure and stimulate inefficient energy use.
4. IMPROVING ENERGY EFFICIENCY AND MANAGING DEMAND
Energy efficiency and managing energy demand continue to be perceived as vital to ensuring long-term energy security, while still requiring substantial improvement. Cost savings alone are often insufficient to stimulate the adoption of energy efficiency measures or behaviours. Policymakers must align the interests of asset owners, users and regulators, and continue to implement a combination of energy efficiency standards, performance ratings, labelling programmes and incentives. They must also increase awareness across all industrial sectors, and encourage consumers to focus on greater energy efficiency.
Improving energy efficiency across an economy offers huge economic and environmental benefits through reducing the amount of energy required, hence improving energy security, as well as reducing emissions from energy generation and equipment/appliance use, hence aiding environmental sustainability. For example, scenario modelling shows that energy-efficiency measures can contribute about 40% of the CO2 abatement needed by 2050 to achieve a reduction in emissions consistent with a target of limiting global temperature increase to 2°C.
5. DECARBONISING THE ENERGY SECTOR
The ambitious agreement reached at COP 21 has increased the momentum behind the global transition to low-carbon energy. Dynamic and flexible investment policies in renewable energy are the key to responding to evolving market dynamics and technological developments. Meeting COP 21 climate goals will require a clear path to a meaningful carbon price signal and changes beyond the energy sector across the economy. Governments have a role in building the necessary consensus for change.
Most countries have commitments to increase their renewable energy generation to improve energy security and decrease GHG emissions. The energy sector (electricity and heat) currently accounts for 41% of the global CO2 emissions and transport accounts for 23%. To limit global warming to 2°C, energy-sector CO2 emissions will need to decline at an annual rate of 3.8% compared with a business as usual projected annual increase of 1.9%.
Balancing the energy Trilemma is vital to ensuring that countries meet their carbon reduction targets and the transition to a low-carbon, new frontier of energy generation is successful. By taking heed of this advice and implementing the necessary policies, countries will improve their Trilemma index rankings and ensure their energy security for generations to come.