On 20 January, the World Energy Council (WEC) will publish its World Energy Issues Monitor – an annual survey of over 1,000 energy leaders in over 80 countries. WEC’s Secretary-General Christoph Frei notes the biggest changes compared to last year are that energy leaders have become more concerned with security of supply (Russia) and cyber-security. Price volatility and climate framework remain at the top of the worries list. In an in-depth interview with Alex Forbes for World Energy Focus, Frei discusses his own concerns. He believes the long-term trend of the oil price will be upwards, but renewables will make headway only gradually. At the climate conference in Paris later this year he does not expect a global deal, but hopes the “big players” will set up a connected carbon market, which other countries could join in the future. “That would be a real achievement.”
With 2015 set to be a pivotal year for energy, as the industry grapples with oil price volatility and with an international climate treaty due to be agreed in December, what are the key issues that are preoccupying the people who lead the energy industries? In this exclusive interview, WEC Secretary General Christoph Frei previews the results of the survey and looks ahead at the future role of the organisation he heads.
What insights can you give us into the results of your survey of global energy leaders?
There are two main themes. On the one hand, what is new, what is different. On the other hand, a number of messages are re-confirmed.
Of the three biggest changes, the first is an increased awareness around the revival of energy geopolitics and its importance to energy security. Russia is at the top of the agenda in many places. The second is the understanding that cyber-security may change the way in which we think about infrastructure and resilience. It is something that can black us out and energy leaders are taking it very seriously. The third is that concern around recession, which has been high in the past two years, has eased – so people are feeling a little more optimistic.
Of the messages that have been reinforced, climate framework uncertainty is a top “keeps me awake at night” issue for energy leaders globally. Another is energy price volatility, particularly oil price volatility. The survey has also re-emphasised the importance of energy efficiency and renewables in the global energy mix. If any trend has grown stronger it is the trend of buying into the logic of more decentralisation, more smart solutions, more storage-based solutions, as a backup to renewables and energy efficiency. Another re-confirmed message is that there is a lack of trust among global energy leaders in the ability of carbon capture and sequestration (CCS) technology to deliver.
Climate change attracted much attention during 2014. We saw the finalisation of the IPCC’s fifth climate assessment; a high-profile climate summit organised by the United Nations in New York; the US and China pledging action to mitigate carbon emissions; and the COP 20 climate talks in Peru. How optimistic are you that we will see a meaningful treaty agreed next year in Paris?
As I’ve said, climate framework uncertainty is one of the top three issues that keeps energy leaders awake at night – simply because having or not having a carbon price fundamentally changes the system. And we’re not talking about €4 a tonne but potentially $200–300 a tonne.
What do we hope COP 21 in Paris will achieve? Will there be a deal every country will sign and agree to? I find it difficult to see that happening. The real hope for COP 21 could be to see, perhaps not a global carbon market, but a commitment to a carbon market whereby a number of countries, the big players, connect their internal carbon markets and with that create an aspiration for all countries to become part of that. That would be a real achievement.
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Much of the WEC’s work is structured around a framework that you call the “energy trilemma”. How do you explain what that means to someone who is not an energy expert – say to my 18-year-old son? What is the trilemma? Why is it important?
There are two ways to explain that to somebody. The first one is the concept of sustainability being built on the conciliation of three axes: societal concerns, which we can call equity; environmental concerns; and economic prosperity concerns. According to the Brundtland report – “Our Common Future”, published in 1987 – an equilibrium between those three was the very earliest definition of sustainability. The trilemma is nothing else than that concept being brought to energy.
But there’s another way of explaining it. If your son wants to invest money, he will want to put his money somewhere where he has confirmation that tomorrow’s rules will be today’s rules. If the rules suddenly change he could lose all of his money. That is the exact logic under which energy investors operate.
Even though we see dramatic growth in solar and wind power, they simply don’t match the massive supply chain we have today in oil, coal and gas
In energy, if those rules are not in place, we call that political risk. And political risk is highest in those places where we have a lack of balance in terms of the three dimensions of the trilemma. If you have a country systematically neglecting one of those dimensions – energy equity, the environment, or economic and energy security concerns – sooner or later part of society will become so frustrated that it will overturn the government and elect a new one. That new government could change the rules dramatically such that your investments are at risk. So, as an investor, you want to see that the three dimensions of the trilemma are in reasonable balance.
There has been much discussion as to whether a period of low-ish oil prices would be good or bad for the global economy. What’s your view? And where did your survey place energy price volatility in the list of energy leaders’ concerns?
Energy price volatility is the number one issue. And this year oil price has been the clear top runner. Previously we have seen volatile gas prices, we have seen solar prices collapse, we have seen CO2 price uncertainty and you can add others. But in 2014 it was about oil price.
Our long-term scenarios are still saying that overall we are moving towards a world in which access to oil becomes more complex, in terms of geology, the political context, and how oil is brought to markets. For those reasons the trend of oil price will not be downwards but upwards. The cost of renewables will be an upper boundary. If oil becomes much more expensive than renewables there will be a dramatic shift to renewables. And at the downwards end prices will be limited through the cost of production of the most expensive oil producers.
At the moment we are seeing low demand in China and Europe. We are seeing high supply in the US and elsewhere. And those two factors together have pushed the oil price down.
Now, what does that do to the world? On the one hand, people look at lower oil prices as a positive signal in terms of their growth expectations. But, on the other hand, oil-producing and exporting countries – such as Russia, Nigeria, Mexico, Venezuela and Iran – are obviously suffering from the low oil price in terms of their state budgets. That is also a political risk for those countries.
The IEA recently published its World Energy Outlook with scenarios to 2040. The central scenario projects renewables and nuclear together taking a quarter share of world primary energy demand, with oil, gas and coal taking another quarter each – in other words, a world in which three-quarters of our energy still comes from fossil fuels a quarter of a century from now. How does that compare with the scenarios published by the WEC?
Our scenarios are consistent with that. Today 80% of primary energy supply is fossil-based and by 2050 we see that between 60% and 75% of primary energy supply will still be fossil-based.
The key black-swan technology is electricity storage. A breakthrough in storage technology would have multiple implications – probably beyond what we are capable of describing today
The primary energy contribution today from renewables is about 15% and it will grow to somewhere between 20% and 30% by 2050. Even though we see dramatic growth in solar and wind power, they simply don’t match the massive supply chain we have today in oil, coal and gas.
We are absolutely aligned with the perception that by 2050 it will not be possible to come away from a majority dependence on fossil fuels – unless we change policy dramatically or invent breakthrough technologies.
Technology advances continue to play a critical role in energy supply and use. For example, we have seen shale oil and gas technology change the world energy map over the past decade. Which up-and-coming technologies would you identify as the key ones?
The key black-swan technology is electricity storage. A breakthrough in storage technology would have multiple implications – probably beyond what we are capable of describing today. It could catalyse the replacement of liquid fuels by making electric vehicles viable even in parts of the world where expensive battery technology cannot be afforded. It could enable renewables to grow beyond lower system threshold requirements. If there is one technology where we would call for greater collaboration for breakthrough innovation it is electricity storage.
The question of how our future energy needs should be financed was at the centre of the World Energy Trilemma report that the WEC published in November – with $48–53 trillion required for energy infrastructure and efficiency by 2040. What are the key messages for decision-makers?
The key message is there will be a massive capital requirement globally to replace, to grow and to transform the existing infrastructure and systems. The $48–53 trillion is more than half the world’s GDP spread over two decades. It’s massive. The mobilisation of this capital will not come easily. It takes the right policies, it takes trust in the policies being stable and robust, it takes a pipeline of bankable projects, and it takes an understanding of the implications of financial agreements, such as Basel 3, for project finance.
We need to balance the trilemma in every country. Money is shy and will go to places where it will feel safe. That may be not only country choices but also sector choices.
How do you see the role of the World Energy Council evolving over the coming decade?
We have been a great platform to host dialogue and make sure that the key leaders in almost 100 countries meet and exchange best practice on a regular basis. That’s where we were a couple of years back. Today we have come to a place where we have enabled our constituents to provide real thought leadership, be that through the trilemma, be that through our scenarios, and we are coming to a point where we see our community becoming an action community – for instance, in the context of climate change resilience and also the trilemma benefits of regional integration projects.
Editor’s Notes
The 2015 World Energy Issues Monitor will be showcased for the first time at the 22nd Handelsblatt Energy Industry Conference in Berlin, Germany (http://bit.ly/1Km45pw) on 20 January by Christoph Frei. The report will be published on the World Energy Council’s website (http://bit.ly/WEC_org) and presented at the council’s events.
Christoph Frei has been the World Energy Council’s Secretary General since 2009. He has an assignment as Adjunct Professor and acts as Advisor to the President of the Swiss Federal Institute of Technology (EPFL), Lausanne. He is also a member of the World Economic Forum’s Global Agenda Council on Energy Security.
This interview was first published on World Energy Focus, a monthly and annual magazine of the World Energy Council produced by Energy Post and edited by Alex Forbes. To read World Energy Focus, please go this website to register (free of charge).
Nick Schroeder says
IPCC AR5 TS.6 Key Uncertainties is where climate science “experts” admit what they don’t know about some really important stuff. They are uncertain about the connection between climate change and extreme weather especially drought. Like the 3” drought that hit Phoenix. They are uncertain about how the ice caps and sheets behave. Instead of gone missing they are bigger than ever. They are uncertain about heating in the ocean below 2,000 meters which is 50% of it, but they “wag” that’s where the missing heat of the AGW hiatus went, maybe. They are uncertain about the magnitude of the CO2 feedback loop, which is not surprising since after 17 plus years of rising CO2 and no rising temperatures it’s pretty clear whatever the magnitude, CO2 makes no difference.
http://www.writerbeat.com/articles/3713-CO2-Feedback-Loop
Barring some serious flaw in science or method, Miatello’s paper should serve as the death certificate for AGW/CCC.
http://principia-scientific.org/publications/PSI_Miatello_Refutation_GHE.pdf
http://www.climatism.net/facts-about-global-warming/