THE ENERGY INDUSTRY TIMES - OCTOBER 2018
Final Word 16
Time to change course
When you are hurtling towards
a cliff-edge at speed
or sailing straight for an
iceberg it’s advisable to act quickly in
order to avoid catastrophe. That was
one of the key messages coming out
of the Global Power and Energy Exhibition
(GPEX) 2018 recently held in
Barcelona, Spain, alongside Gastech.
The energy transition has been
gathering momentum over the last few
years and – for someone who has the
mind set of a traditional utility or
major energy company – is moving at
breakneck speed. But many argue that
the change is still not happening fast
enough and traditional players need to
take heed.
Referring to the need to tackle climate
change, in his opening gambit
Laszlo Varro, Chief Economist at the
International Energy Agency (IEA)
said: “We are heading toward the cliff
at speed. We have only made it to base
camp but have a tough climb ahead.”
Laszlo pointed out that the energy
markets that are closest to achieving
“2°C stabilisation” have a ramp-up of
wind and solar from the current levels
by a factor of three. He stressed,
however, that “at this level of solar
deployment, we are not going stop the
use of fossil fuels”.
In the panel that followed, which
discussed transitioning to a new energy
landscape, Thierry Lepercq, Executive
Vice President, Research &
Technology and Innovation at Engie
voiced his fears, as a large energy
group. Engie has been reducing its
dependence on fossil fuels and thermal
power generation – closing coal fired
generation and selling its oil and gas
exploration operations – and moving
more into energy services.
In February this year, it closed a $4
billion deal for the sale of its exploration
and production business to Neptune
Oil & Gas, which represents a big
step towards its target to sell as much
as €15 billion of fossil fuel assets.
But he questioned whether in fact the
energy transition was truly under way,
at least in the mindset of companies.
He said: “We are reaching the point
where we have to leap frog and that’s
the tough part. There is no transition;
it’s not moving step-by-step.” Lepercq
stressed the need for companies to
move to remedy a situation where they
faced having a significant amount of
stranded assets. He cited the case of
India, where he said companies were
facing ownership of 75 GW in
stranded coal fired assets due to the
low price of solar generation.
“This is where we stand today. If I
were to put it in more dramatic
fashion, walking down the exhibition
hall I would not resist the comparison
with the Titanic. We have fleets of
Titanics around the place. They are
going to sink as surely as the Titanic
and people have to get ready for it,”
said Lepercq.
Companies and the sector as a whole,
therefore needs to change now and not
just wait for things to fall apart, he
added. Lepercq also said the industry
needs to “bring about something else”.
That something else, he believes, is a
system.
“It’s not just about saying we are
going to do traditional, or gradually
more, renewables. We have to think
about a system that can be a 24/7
system; not just an electric system –
something that works every single
month as well. And that, which is
maybe the good news for people at this
conference, will require gas but gas of
another form – hydrogen.”
Engie sees renewable hydrogen
(hydrogen produced by electrolysis of
water using electricity from renewable
sources) as key to accelerating the
energy transition, serving as a source
of flexibility that enables storage and
recovery of power generation overcapacity.
The company is therefore
rolling out a series of pilot projects and
at the start of 2018, set up a new
global business unit dedicated solely
to renewable hydrogen.
Although sitting alongside Lepercq
on the panel, João Paulo Costeira,
COO Offshore & CDO at EDP Renováveis,
had a more reserved view. On
the issue of how boardrooms are reacting
to driving the transition to a low
carbon system, he looked at how the
changes are affecting business models.
While he agreed that many companies
were behind the pace, he stressed that
the situation was now more complex
and caution was still warranted.
“The problem is, it should have
been done 15 years ago,” he said. “We
spun-off renewables as a group
around 12 years ago and put around
70 per cent of all our investment in
green power. That was great back then
but things have changed. Ten years
ago, it was basically wind but now if
you want to be a relevant player in
the renewable generation field you
have to do wind, wind offshore, PV,
storage and you might have to do gas
hydrogen.”
With the price of energy falling, reducing
margins and organisations
becoming much more complex, it
means that companies may have to
pick technology winners when betting
on how the landscape is changing.
Also, a CEO’s decision on how and
when to invest is further complicated
by energy policy, which often does not
provide clear investment signals. And
the transition can only happen if there
is investment. Already there are warning
signals. According to the IEA’s
‘World Energy Investment 2018’ report,
released in July, renewable
power investment fell to $298 billion
in 2017 from $318 billion in 2016.
This represents the biggest absolute
drop since the agency started keeping
track of clean power in 2000. And with
CO2 emissions showing an increase in
2017, it is a worrying picture.
During the panel discussion, Romain
Debarre, Managing Director of A. T.
Kearney Energy Transition Institute,
said the energy sector will have to
double investment in the coming decades
to make the transition happen,
which would drive renewables from
15 per cent to 60 per cent in the next
two or three decades. “These are huge
investments that will probably not
happen if we do not have proper regulation,”
he said.
Yet decisions still have to be made
and made quickly, or the traditional
energy companies will fast become
irrelevant and ultimately defunct, especially
in Europe. With the rise of
solar in southern Europe and wind in
northern Europe, combined with the
falling cost of storage and electrolysers,
Lepercq stressed that company
executives need to act – if not to save
the planet, then from a purely economic
standpoint.
“It makes business sense and if they
can save the planet on top of that, then
why not? We have a massive shift in
Europe right now, which is fundamentally
changing the dynamic of the
European power market. All these
elements that are shaping up, are
driven by the market. And the shift can
be extremely fast and boards better
notice, because it’s going to be tough
and bloody.”
While Costeira said he agreed with
Lepercq, he did, however, offer a word
of caution. “Most of those renewables
projects cannot find finance.
Although there are corporate customers
who could or should be buying that
energy, on one side they are not and
on the other side, there is often no
active regulation that will allow them
to do so on a bigger scale than they
are doing right now. So we should be
cautious. With markets functioning I
believe they will, but it could take
more time than what we have.”
Indeed time is running out – both in
terms of the need to drastically cut CO2
emissions and for companies to
change how they operate in the fastchanging
energy landscape.
Unfortunately, rather than orchestrate
their way around the looming
icebergs, there will always be those
who continue to play the same tune on
their violins even as the ship sinks.
Junior Isles
Cartoon: jemsoar.com
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