New frontiers of energy

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1 New frontiers of energy Navigating the triple transition World Energy Council 2016 Christoph Frei Secretary General World Energy Council July

2 cyber threats EU Cohesion electric storage Middle East dynamics hydrogen economy innovative transport climate framework terrorism decentralised systems global recession ccs large scale accidents extreme weather risks nuclear trade barriers commodity prices smart grids US policy China India sustainable cities biofuels exchange rates unconventionals talent electricity prices regional interconnection energy subsidies LNG Brazil energy water nexus capital markets renewable energies energy efficiency corruption weak signals energy poverty Russia land use energy affordability coal hydro market design critical uncertainties: what keeps energy leaders awake at night need for action: what keeps energy leaders busy at work World Energy Council 2016 World Energy Council 2015

3 cyber threats EU Cohesion Middle East dynamics hydrogen economy innovative transport climate framework terrorism decentralised systems ccs large scale accidents global recession extreme weather risks nuclear trade barriers smart grids US policy commodity prices China India sustainable cities biofuels exchange rates unconventionals talent electricity prices regional interconnection energy subsidies LNG energy water nexus capital markets renewable energies energy efficiency Brazil corruption energy poverty Russia land use energy affordability coal hydro Price volatility, economic uncertainty, market design and electric storage are the top insomnia issues for energy leaders globally market design electric storage World Energy Council 2016 World Energy Council 2015

4 cyber threats EU Cohesion Middle East dynamics hydrogen economy innovative transport climate framework terrorism decentralised systems ccs large scale accidents global recession extreme weather risks nuclear trade barriers smart grids US policy China India sustainable cities biofuels exchange rates unconventionals talent electricity prices LNG energy subsidies energy water nexus capital markets Brazil corruption energy poverty Russia land use energy affordability coal hydro Regional interconnection, renewables, energy efficiency and transitioning subsidy regimes are issues keeping energy leaders most busy globally market design electric storage commodity prices regional interconnection renewable energies energy efficiency World Energy Council 2016 World Energy Council 2015

5 World, 6-year top movers Russia market design cyber threats EU Cohesion electric storage Middle East dynamics hydrogen economy innovative transport climate framework terrorism decentralised systems global recession ccs large scale accidents extreme weather risks nuclear trade barriers commodity prices smart grids US policy China India sustainable cities biofuels exchange rates unconventionals talent electricity prices regional interconnection energy subsidies LNG energy water nexus capital markets Brazil corruption energy poverty land use energy affordability coal hydro CCS, unconventional or nuclear are cooling down Renewables and energy efficiency are robust as top action items renewable energies energy efficiency World Energy Council 2016 World Energy Council 2015

6 World, 6-year top movers Russia market design cyber threats EU Cohesion electric storage Middle East dynamics hydrogen economy innovative transport climate framework terrorism decentralised systems global recession ccs large scale accidents extreme weather risks nuclear trade barriers commodity prices smart grids US policy China India sustainable cities biofuels exchange rates talent electricity prices regional interconnection unconventionals energy subsidies LNG energy water nexus capital markets Brazil corruption energy poverty land use energy affordability coal hydro CCS, unconventional or nuclear are cooling down Renewables and energy efficiency are robust as top action items renewable energies energy efficiency World Energy Council 2016 World Energy Council 2015

7 Unconventional gas, a global phenomenon, 2016 World Energy Council 2016

8 World, 6-year top movers Russia market design cyber threats EU Cohesion electric storage Middle East dynamics hydrogen economy innovative transport climate framework terrorism decentralised systems global recession ccs large scale accidents extreme weather risks nuclear trade barriers commodity prices smart grids US policy China India nuclear sustainable cities biofuels exchange rates talent electricity prices regional interconnection unconventionals energy subsidies LNG energy water nexus capital markets Brazil corruption energy poverty land use energy affordability coal hydro CCS, unconventional or nuclear are cooling down Renewables and energy efficiency are robust as top action items renewable energies energy efficiency World Energy Council 2016 World Energy Council 2015

9 World, 6-year top movers Russia market design cyber threats EU Cohesion electric storage Middle East dynamics hydrogen economy innovative transport climate framework terrorism global recession ccs large scale accidents extreme weather risks nuclear trade barriers commodity prices smart grids US policy China India nuclear sustainable cities biofuels exchange rates talent electricity prices regional interconnection unconventionals energy subsidies LNG energy water nexus capital markets Brazil corruption decentralised systems energy poverty land use energy affordability coal hydro CCS, unconventional or nuclear are cooling down Renewables and energy efficiency are robust as top action items Decentralised systems gain rapid interest renewable energies energy efficiency World Energy Council 2016 World Energy Council 2015

10 World, resilience issues EU Cohesion electric storage Middle East dynamics hydrogen economy innovative transport climate framework terrorism decentralised systems global recession ccs large scale accidents commodity prices extreme weather nuclear trade barriers risks smart grids US policy China India sustainable cities biofuels exchange rates unconventionals talent electricity prices regional interconnection energy subsidies LNG Brazil energy poverty Russia Globally, resilience issues average relatively low, but cyber threats energy water nexus land use corruption energy affordability coal hydro market design capital markets with great regional variance and for cyber being among the top 1-year movers renewable energies energy efficiency World Energy Council 2016 World Energy Council 2015

11 China hydrogen economy ccs biofuels trade barriers Brazil terrorism unconventionals LNG regional interconnection US policy energy subsidies electricity prices EU Cohesion extreme weather risks Middle East dynamics exchange rates Russia global recession capital markets sustainable cities climate framework China India innovative transport energy efficiency large scale accidents corruption hydro energy affordability land use energy poverty decentralised systems talent coal market design cyber threats commodity prices nuclear renewable energies Among resilience issues Chinese energy leaders are most focused on energy water nexus electric storage smart grids energy water nexus World Energy Council 2016 World Energy Council 2015

12 Germany corruption hydro terrorism climate framework exchange rates China India hydrogen economy trade barriers smart grids electricity prices innovative transport regional interconnection ccs Brazil sustainable cities capital markets LNG US policy renewable energies large scale accidents coal energy subsidies energy efficiency land use extreme weather risks biofuels unconventionals energy water nexus energy affordability nuclear energy poverty In Germany, cyber is one of the fastest heating up and the top resilience issue Russia electric storage commodity prices market design Middle East dynamics global recession decentralised systems EU Cohesion talent cyber threats World Energy Council 2016 World Energy Council 2015 impact

13 Colombia World Energy Issues Monitor Colombia, 2015 extreme weather risks unconventionals commodity prices climate framework land use energy water nexus market design decentralised systems electric storage renewable smart regional grids energies interconnection terrorism ccs global recession innovative transport sustainable cities large scale accidents exchange rates hydrogen economy trade barriers LNG US policy nuclear cyber Brazil threats electricity prices coal corruption Russia Middle East dynamics EU Cohesion biofuels energy affordability energy poverty China India talent capital markets energy subsidies energy efficiency In Colombia, extreme weather and energy water nexus are among the top insomnia issues hydro World Energy Council 2016 World Energy Council 2015 impact

14 Financing Resilient Energy Infrastructure Extreme Weather Events Number of natural catastrophes, : factor 4 Insured catastrophe losses, Natural catastrophes Source: Swiss Re Sigma 02/2015 Comparing the last 5 years to the last 20 years: The occurrence of extreme events has roughly quadrupled; according to IPCC this is largely related to the 40% increase of carbon dioxide in the atmosphere From impact-resistant hard / safe-fail components to soft / fail-safe systems The solution appears to be smarter not stronger World Energy Council 2016 Source: WEC Financing Resilience Report, 2015 (October 1); also Swiss Re, 2015: Sigma report No 2/2015

15 From hard resilience to soft resilience 2015 World Energy Council 2016

16 Energy is the second largest freshwater user after agriculture 98% of the power currently produced needs water Reductions in usable water over next 50 years capacity could impact >60% of 24,515 hydropower plants and >80% of 1,427 thermal power plants assessed (Source, Nature Climate Change) World Energy Council 2016

17 Financing Resilient Energy Infrastructure Energy Water Food Nexus Case-study: climate insurance to protect government budget in times of drought 2012 drought resulted in Uruguay budget deficit for buying electricity on international spot market Ministry of Finance entered a USD 450 million weather insurance with World Bank Transaction uses rainfall data and oil prices for settlement, compensating government for combined risk of drought conditions and oil price increase, and thereby reduces major source of budget uncertainty World Energy Council

18 Financing Resilient Energy Infrastructure Energy Water Food Nexus Recommendations & need for action Cross-border cooperation: 261 international trans-boundary basins cover 45% of the earth s land surface, serve 40% of the world s population and provide 60% of the earth s entire freshwater volume Water pricing: Project risk profiles should cover potential water scarcity, possibly by applying water (shadow) price scenarios that reflect the local context to test robustness of economic analysis Financial instruments & insurance to address over project life time adverse weather impacts, weather-related volume exposures and electricity price volatility combined with unplanned power outages are in early stage World Energy Council

19 Cyber & monoculture risks 2016 Cyber a monoculture risk? World Energy Council 2016

20 World Energy Trilemma Balancing the Energy Trilemma Energy Security The effective management of primary energy supply from domestic and external sources, the reliability of energy infrastructure, and the ability of energy providers to meet current and future demand Energy Equity Accessibility and affordability of energy supply across the population Environmental Sustainability Encompasses the achievement of supply and demand side energy efficiencies and the development of energy supply from renewable and other low-carbon sources ENERGY EQUITY World Energy Council 2016 World Energy Council 2015 ENVIRONMENTAL SUSTAINABILITY

21 Index 20 Dimensions and indicator structure overview Dimension (%) Indicator category (%) Indicator a Diversity of primary energy supply 1 Security of supply and energy delivery 15% b Energy consumption in relation to GDP growth A Energy security 30% c Import dependence a Diversity of electricity generation 2 Resilience 15% b Energy storage c Preparedness (human factor) 1 Access 10% a Access to electricity b Access to clean cooking 2 Quality of supply 10% a Quality of electricity supply B Energy equity 30% b Quality of supply in urban vs rural areas a Electricity prices 3 Affordability and competitiveness 10% b Gasoline and diesel prices c Natural gas prices 1 Energy resource productivity 10% a Final energy intensity b Efficiency of power generation and T&D 2 GHG emissions 10% a GHG emission trend C Environmental sustainability 30% b Change in forest area a CO2 intensity 3 CO2 emissions 10% b CO2 emission per capita c CO2 from electricity generation a Macroeconomic environment 1 Coherent and predictable policy framework 20% b Effectiveness of government c Political stability d Perception of corruption a Transparency of policy making 2 Stable regulatory environment 20% b Rule of law c Regulatory quality D Country context 10% a Intellectual property protection 3 Initiatives that enable RD&D and innovation 20% b FDI & technology transfer c Capacity for innovation d Number of patents issued by residents 4 Investability 20% a Foreign direct investment net inflows b Ease of doing business 5 Air pollution, land and water impact 20% a Wastewater treatment b Air pollution 35 indicators; ~100 data sets World Energy Council

22 Index 20 Key improvements Dimension (%) Indicator category (%) Indicator a Diversity of primary energy supply 1 Security of supply and energy delivery 15% b Energy consumption in relation to GDP growth A Energy security 30% c Import dependence a Diversity of electricity generation 2 Resilience 15% b Energy storage c Preparedness (human factor) 1 Access 10% a Access to electricity From indicators; to indicators; b Access to clean cooking ~60 data 2 Quality of supply ~100 data 10% a Quality of electricity supply B Energy equity 30% sets sets b Quality of supply in urban vs rural areas a Electricity prices 3 Affordability and competitiveness 10% b Gasoline and diesel prices c Natural gas prices 1 Energy resource productivity 10% a Final intensity b Efficiency of power generation and T&D From electricity sector to entire energy 2 GHG emissions 10% a GHG emission trend C Environmental sustainability 30% b Change in forest area sector indicators (eg for diversity a CO2 of intensity 3 CO2 emissions 10% b CO2 emission per capita c CO2 from electricity generation supply) a Macroeconomic environment 1 Coherent and predictable policy framework 20% b Effectiveness of government More comprehensive energy access c Political stability d Perception of corruption a Transparency of policy making indicator set 2 Stable regulatory environment 20% b Rule of law c Regulatory quality D Country More context comprehensive 10% energy a Intellectual property protection 3 Initiatives that enable RD&D and innovation 20% b FDI & technology transfer c Capacity for innovation environment indicator set d Number of patents issued by residents 4 Investability 20% a Foreign direct investment net inflows b Ease of doing business 5 Air pollution, land and water impact 20% a Wastewater treatment b Air pollution World Energy Council

23 World Energy Trilemma Energy Trilemma Index ranking and balance score World Energy Council 2016

24 Germany corruption hydro terrorism exchange rates China India hydrogen economy trade barriers smart grids innovative transport regional interconnection ccs Brazil sustainable cities capital markets LNG US policy large scale accidents coal energy subsidies land use energy efficiency extreme weather risks talent biofuels unconventionals energy water nexus energy affordability nuclear energy poverty The fastest heating up issues over the past year have been cyber threats and commodity prices Middle East dynamics global recession decentralised systems cyber threats Russia electric storage commodity prices market design EU Cohesion climate framework electricity prices renewable energies World Energy Council 2016 World Energy Council 2015 impact

25 World Energy Trilemma 2015 Germany World Energy Council 2016

26 China trade barriers Brazil terrorism unconventionals LNG regional interconnection US policy energy subsidies electricity prices EU Cohesion extreme weather risks Middle East dynamics exchange rates Russia global recession capital markets sustainable cities China India climate framework large scale accidents corruption hydro innovative transport energy poverty biofuels energy affordability talent hydrogen economy land use World Energy Council 2016 ccs World Energy Council 2015 decentralised systems cyber threats market design commodity prices electric storage smart grids energy water nexus energy efficiency nuclear coal renewable energies Smart innovation issues (e-storage, smart grids, decentralised systems, market design), commodity prices and resilience issues (energy water, cyber), are Chinese top insomnia issues Supply issues (coal, nuclear, renewables and energy efficiency) dominate the action agenda

27 World Energy Trilemma 2015 China World Energy Council 2016

28 Latin America & the Caribbean hydrogen economy sustainable cities energy water nexus global recession commodity prices nuclear Middle East dynamics climate framework electric storage renewable energies extreme weather risks trade barriers electricity prices energy ccs unconventionals large scale accidents exchange rates smart grids China India Brazil LNG efficiency innovative transport corruption US policy market design biofuels decentralised systems capital markets talent regional interconnection Russia terrorism coal energy poverty EU Cohesion cyber threats land use energy subsidies Commodity prices, global recession, energy water energy affordability nexus and renewables are key insomnia issues in the LAC region Hydro, energy efficiency, LNG and regional interconnection are key action priorities hydro World Energy Council 2016 World Energy Council 2015

29 Latin America & the Caribbean biggest one year movers hydrogen economy sustainable cities global recession nuclear Middle East dynamics climate framework renewable energies electric storage extreme weather risks trade barriers electricity prices ccs unconventionals large scale accidents exchange rates smart grids China India Brazil LNG energy efficiency innovative transport corruption US policy market design regional interconnection biofuels decentralised systems talent energy water nexus capital markets commodity prices Russia terrorism coal energy poverty EU Cohesion cyber threats land use energy subsidies hydro energy affordability Commodity prices, energy water nexus, but also decentralised systems have been among the biggest one-year movers in the LAC region World Energy Council 2016 World Energy Council 2015

30 Latin America & the Caribbean energy water nexus sustainable cities energy water nexus Venezuela global recession commodity prices Colombia nuclear Middle climate East dynamics hydrogen economy electric framework storage extreme weather renewable risks energies trade barriers electricity prices ccs unconventionals large scale accidents Ecuador smart grids exchange rates China India corruption Brazil Brazil LNG innovative transport energy efficiency US policy market design regional interconnection biofuels decentralised systems capital markets talent Chile Bolivia Russia Argentina terrorism EU Cohesion energy subsidies hydro cyber threats land use coal energy poverty energy affordability Most LAC energy leaders view the EW nexus as a critical uncertainty this in a post el-nino context that exposed many hydro-dependent countries World Energy Council 2016 World Energy Council 2015

31 Latin America & the Caribbean cyber risks hydrogen economy energy water nexus sustainable cities Venezuela Chile global recession commodity prices nuclear Middle climate East dynamics electric framework storage extreme weather renewable risks energies trade barriers electricity prices ccs unconventionals large scale accidents smart grids exchange rates China India corruption Brazil LNG innovative transport energy efficiency US policy market Ecuador design regional interconnection biofuels Colombia decentralised systems capital markets talent rgentina Russia terrorism coal energy poverty Brazil EU Cohesion cyber threats land use Bolivia energy subsidies hydro energy affordability Most LAC energy leaders, in contrast to their European or N-American peers, do now view cyber as a critical issue World Energy Council 2016 World Energy Council 2015

32 Latin America & the Caribbean regional interconnection sustainable cities energy water nexus global recession commodity prices nuclear Middle climate East dynamics hydrogen economy electric framework storage extreme weather renewable risks energies trade barriers electricity Chile Colombia prices Argentina Bolivia ccs unconventionals large scale accidents smart grids exchange rates China India corruption Brazil LNG innovative transport energy efficiency US policy market design Brazil regional interconnection Ecuador biofuels decentralised systems capital markets talent Venezuela Russia terrorism coal energy poverty energy affordability Most LAC energy leaders view regional EU Cohesion energy subsidies hydro cyber threats land use interconnection as a high priority as it comes with important Trilemma & resilience benefits World Energy Council 2016 World Energy Council 2015

33 Chile nuclear Russia hydrogen economy ccs cyber threats large scale accidents energy poverty biofuels Brazil climate framework regional interconnection trade barriers corruption land use terrorism EU Cohesion Middle East dynamics innovative transport electric storage capital markets exchange rates China India decentralised systems market design sustainable cities energy affordability talent energy subsidies unconventionals smart grids extreme weather risks commodity prices electricity prices energy efficiency renewable energies hydro energy water n global recession LNG US policy coal Key insomnia issues are electricity prices, commodity prices and extreme weather risks World Energy Council 2016 World Energy Council 2015

34 Chile nuclear Russia hydrogen economy ccs large scale accidents energy poverty biofuels Brazil climate framework regional interconnection trade barriers corruption land use terrorism EU Cohesion cyber threats Middle East dynamics innovative transport electric storage capital markets exchange rates China India decentralised systems market design sustainable cities energy affordability talent energy subsidies unconventionals smart grids extreme weather risks commodity prices electricity prices energy efficiency renewable energies hydro energy water n global recession LNG US policy coal Resilience issues are high up and gain additional importance World Energy Council 2016 World Energy Council 2015

35 World Energy Trilemma 2015 UK World Energy Council 2016

36 World Energy Council 2016 Project Partner: Paul Scherrer Institute

37 Billions of People World population Population doubled since 1970, and will grow substantially more slowly in the next 45 years around 40% UN Population Growth (Billions of People) Actuals ( ) Forecast ( ) 16x 14x x 12x Billions of People Source: UN Population Forecasts to 2100 World Energy Council 2016

38 World labour force growth Global economic growth will slow, due to slower growth in the labour force Labour force growth % pa 1,7% 0,7% Source: Total Economy Database, UN Medium Variant Population forecast age World Energy Council 2016

39 Productivity Prospects Global productivity growth % pa Range 2,50% 1,7% 1,00% Actuals Low High Source: Total Economy Database, The World Energy Council World Energy Council 2016

40 -0,4% -0,7% -0,4% 0,6% 0,2% 0,5% 0,2% 0,2% 0,4% 1,0% 1,4% 1,0% 1,0% 1,0% 1,9% 2,2% 2,7% 2,4% 2,5% 2,2% 2,1% 2,9% 3,3% 3,0% Growth in the past 45 years ( ) Climate Change Challenge In order to meet carbon emission targets without destroying economic growth, significant economic de-carbonization must occur Carbon Intensity % reduction pa (GtCO 2 /GDP USD) China India Germany Saudi Arabia Spain United States United Kingdom World Average (GtCO 2 /GDP USD) 1000 De-carbonization GtCO2 for by GtCO 2 6% Source: Total Economy Database, BP (2015) Statistical Review, IPCC (2015) AR5, Synthesis Report ; Note: Positive % changes denote a reduction in CO 2 per USD of GDP Note: Assumes global GDP growth of 26% World Energy Council 2016

41 Triple transition in 10 business shifts It is not difficult to come up with plausible scenarios that fundamentally change & challenge the conditions under which energy companies have to operate in the next decade 1 from big plants & upstream to big data & technology 2 from high to low entry barriers 3 from centralised + monoculture to decentralised solutions and local empowerment 4 from long term fixed returns to rapid pay-back solutions 5 from operational (& system) excellence to service brilliance 6 from burning molecules to leasing capital 7 from traditional to new market design 8 from incorporation to corporate IP venturing 9 from passive to active investors 10from regional/global brand to local trust World Energy Council 2016

42 23 rd World Energy Congress Istanbul, 9 13 October 2016 Embracing New Frontiers World Energy Council 2016

43 Thank you Christoph Frei World Energy Council

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