The Pears Report: Global energy markets

Alan_Pears

Following his participation in two international summits recently, Alan Pears reflects on approaches to a transitioning energy market, both internationally and in Australia.

My opportunities to present at an Asia–Pacific Economic Cooperation (APEC) energy ministers’ conference and also an Association of South-East Asian Nations (ASEAN) energy summit late in 2015 gave me some fascinating insights into the energy picture beyond Australia. There was no debate about climate change—the science is accepted, the evidence is clear, and the impacts are real and terrifying. The two forums, however, showcased quite different approaches to addressing the issue.

Among APEC ministers, there was intense discussion about how best to help the rural poor gain access to renewable energy off-grid or on microgrids. APEC energy leaders were, on the whole, quite progressive, and my presentation on the future role of clean energy generated a very positive response.

Energy efficiency was seen as a key priority, as was equitable access to energy and, of course, renewable energy. The Philippines has identified renewable energy resources 13 times larger than present capacity. Several speakers outlined goals to reduce energy intensity (energy use per unit of GDP); for example, China aims to achieve a 45% reduction by 2030 relative to 2005.

The need to attract private capital was also a major theme. Most focus was on large projects, although some emphasised the role of micro-enterprises. Of course, investment in energy efficiency and distributed renewables is a very effective way of using private capital!

Coal was mentioned, but without great enthusiasm. Coal is a problem for most APEC countries—coal imports add to their balance of payment problems, as well as pollution. APEC is supporting efforts to develop clean coal technologies as one of a number of themes, but my impression was that this is more because those supporting this approach are prepared to fund the work.

And APEC is not interested in upsetting powerful groups. Its focus is more about fostering dialogue and sharing experiences. Indeed, several people expressed their relief that newly appointed Australian energy minister Josh Frydenberg attended and participated constructively; Australia, one of the key drivers of the creation of APEC, had vanished from the scene since the election of the Abbott government, much to the bemusement of many.

The first day of the ASEAN summit in China was a very different matter, and reflected much more the Australian situation. It was dominated by presentations on large-scale generation projects—mainly renewable and nuclear—and grand visions of huge inter-country power grids that would enable the diverse renewable energy resources of the region to be shared, while also building regional cooperation. All this was based on an assumption that regional electricity demand would triple or quadruple—trending towards the US level of per capita consumption.

I was the only one of about 20 (all-male) speakers from the energy sector who questioned the assumption of massive energy growth, the logic behind large projects and the belief that inter-country grids would improve relationships. I was relieved when, at the end of the first day, quite a few people thanked me for my ‘intervention’. Clearly not everyone at the summit was excited by the scenarios presented. For me, this highlighted the enormous and powerful cultural forces within the energy establishment driving large-scale, capital-intensive solutions. I come from a very different perspective!

The second day was an incredible contrast. I presented at the Smart Cities forum—one of four streams; the others being nuclear, power grids and PV. Presentations discussed smart use of ‘big data’ to optimise building performance, applications of smart grids and case studies of low-carbon urban development. By the end of this day, my optimism had returned.

One of the interesting aspects of these experiences was the significance of the informal discussions and networking, which is difficult to achieve via the internet or correspondence. On the second day, I sat next to one of the key speakers from the previous day, and we discussed the concept of energy services and how people didn’t actually want energy. His summation at the end of that day included some of the points I had raised with him! On the following day we had a site visit to Yingli Solar, the fourth-largest PV manufacturer in China. A Chinese energy policy maker sat next to me on the bus, and we discussed the issues I had raised on the previous days. Our bus driver got lost, so our conversation continued for nearly an hour!

Now I’m back in Australia, slogging away writing my submission to the Victorian Essential Services Commission Inquiry into the ‘true value’ of distributed generation and trying to generate some interest in Australia’s National Energy Productivity Plan. Reality bites!

How to drive energy efficiency and productivity

Australia’s National Energy Productivity Plan (NEPP) was launched last December. Its aim is to deliver more economic output per unit of energy consumed. It includes quite a few worthwhile actions, but its weakness is lack of focus on the institutional and funding arrangements needed to drive outcomes.

To date, the Australian Renewable Energy Agency (ARENA) and the Clean Energy Finance Corporation (CEFC) have proven effective at driving renewable energy research, innovation and commercialisation. Energy efficiency investments already represent about 30% of CEFC’s funding. But ARENA’s agenda is focused more narrowly.

One practical step forward would be to rename ARENA as AEPA (Australian Energy Productivity Agency) and broaden its terms of reference to include energy efficiency—and provide it with more funding. This would not solve the broader institutional blockages to energy efficiency, but it would start building Australia’s capacity to drive decarbonisation in an integrated way.

Low fossil fuel prices—what do they mean?

Over the past year we have seen global oil, coal and liquefied natural gas prices crash. Not many predicted this. It seems to be the result of over-production and lower-than-expected demand. For me, this is a very interesting phenomenon.

Usually, low prices would drive up demand until production was matched by demand. But not this time. Many economists argue that the problem is that low economic growth is limiting demand growth. But there seem to be some other factors at work.

First, global economic development, especially in China, is shifting from physical production to services, which are much less energy intensive (that is, they use much less energy per unit of economic activity). Second, services are displacing resource production and manufacturing, reducing average energy intensity of the existing economy. Third, distributed clean energy is swamping traditional energy supply, as it is now cheaper and much less risky. Fourth, modular, mass-produced energy solutions (both supply side and demand side) are accelerating, driven by remarkable innovation and cost reduction.

While traditional economists keep hoping that demand will recover to take advantage of the low prices, we are seeing some very different responses. For example, the Indonesian government has taken the opportunity provided by falling oil prices to remove subsidies on diesel and other petroleum fuels. This positions Indonesia to shift to a low-carbon future and improves government revenue significantly while also reducing oil import costs.

So the global economy seems to be moving on, beyond fossil fuels. As an OPEC sheik said in the 1970s, “the Stone Age didn’t end because we ran out of stone”.

Some organisations, such as banks and big fossil fuel producers, will try to fool investors by continuing to deny the need for change while they quietly shift their own investments, selling to those silly enough to believe that fossil fuel projects are good investments, then admit afterwards that change was necessary, and claim that they have managed the transition competently.  I’m glad my investments are in other sectors!

Alan Pears, AM, is one of Australia’s best-regarded sustainability experts. He is a Senior Industry Fellow at RMIT University, advises a number of industry and community organisations and works as a consultant.

This article was first published in ReNew 135.

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