The Challenge of the Energy Transition

The Challenge of the Energy Transition Eindhoven university of Technology May 23, 2013 Michiel Boersma, Top team Energie

Agenda 1. The Energy Transition Background: Why? Dutch Situation 2. Challenges Historical Perspective Our Ambitions How do we get there? 3. Conclusions 2

Primary Energy Demand by Source Energy Source (%) 2007 Reference 2030 450 Scenario 2030 Coal 26,5 29,1 18,2 Oil 34,1 29,8 29,5 Gas 20,9 21,2 20,4 Nuclear 5,9 5,7 9,9 Hydro 2,2 2,4 3,4 Biomass / Waste 9,8 9,6 13,6 Renewable Energy (Wind, Solar, Geothermal) Total Demand (In mln ton OE) 0,6 2,2 5,0 12.013 16.790 14.389 % increase in relation to 2007 40% 20% Source: World Energy Outlook 2009 (IEA) 3

The Energy Transition: Background At global level: Energy Supply Fossil Based (about 80%) Fossil Fuels: Limited Available (R/P ratio s: Gas: 64; Oil 54; Coal 112, BP 2011) Fossil Fuels: Demand: Developed Regions Supply: Limited, Politically instable Regions Geo Political Scarcity Demand: Growing due to Economic Growth Price Increase (Demand + Production Costs) Fossil Fuels: Produce CO2 (Climate Change / Biodiversity) So 1) Less Dependent and 2) Less Use 4

Energy Transition in The Netherlands (1/4) 2001: Fourth National Milieu Beleids Plan Energy Transition Project (EZ) 2004: Energy Transition Taskforce, 7 Platforms (Green raw materials, new gas, sustainable electr. generation, mobility, chain efficiency, buildings/housing, greenhouse as energy source) 2008: Energy Transition Council Vision 2050: Transition Paths Focus: Technological Innovation Central Energy Production Consumer Forgotten Driven by established Energy companies Knowledge Institutions Absent No Cooperation Model 5

Energy Transition in The Netherlands (2/4) 2011: Energy Transition Council Dissolved 2011: Top Sector Energy Established Green deals between multiple Stakeholders about variety of subjects 2012: Top Sector Energy continued by Rutte II Government Conclusion: No long term, consistent and coherent policy during different Government terms (Germany good example) Rather erratic approach 6

Energy Transition in The Netherlands (3/4) Results so far: Facts Renewable Energy Production: 3,9% vs. 4,1% 2 years ago % Renewable Energy of Energy Consumption 2010 NL 3,8% Italy 10,1% Germany 11% France 12,9% Denmark 13,8% Reduction CO2 emission per inhabitant lower than average in Europe However Energy Transition high on Political Agenda (Climate Change, Security of Supply (ME), uncertainty nuclear option) Local / Regional decentral initiatives, SMART Infrastructure) Top sector Energy Innovation Initiative SER Duurzaamheids Akkoord 7

Reduction Greenhouse Gas emission 2001 2011 CO2 emission per inhabitant tco2 per inhabitant 1,0% p.a. 11,0 9,9 1,3% p.a. 7,9 6,9 1,8% p.a. 3,6 4,3 2001 2011 The Netherlands 2001 EU 2011 2001 World 2011 Source: Eurostat, 2010 8

Energy Transition in The Netherlands (4/4) Ambition Rutte I/II (Adopted by Top sector Energy) 20% less CO2 in 2020 by energy savings in households and industry 16% renewable energy, with gas as transition fuel Long term horizon: EU objective aiming for 80 95% CO2 reduction in 2050 Competitive Energy Prices ST / LT Strong position NL in key segments Make renewable energy faster more competitive 9

How to Reach Our Ambition? (1/5) The Conventional Energy System: Fossil fuel based Central production Large scale units All elements of the chain are part of the energy company One way system: energy flows from power unit to consumers Energy is affordable, reliable and it also became relatively clean 10 Source: Essent

How to Reach Our Ambition? (2/5) Step 1. Sustainable (Green) Energy In mid nineties this was mainly centrally generated Biomass (wood chips/palmoil) cofiring and large windparks 11 Source: Essent

How to Reach Our Ambition? (3/5) Step 2. Local Energy Households and companies (individuals and cooperatives) produce their own energy with solar panels, windmills and biogas units Two way energy system Still marginal, but this development is expected to continue 12 Source: Essent

How to Reach Our Ambition? (4/5) Step 3. Adapt the Energy System Central and local generation Sust. Generation Sust. Generation System flexibility : central back up via gas units, energy storage, Flexible Backup CENTRAL LOCAL SMART HOME demand steering Energy Efficiency Use local energy close to the source Source: Essent Storage 13 Storage

How to Reach Our Ambition? (5/5) Two main routes: 1. Energy Efficiency (Less Use): Enormous Potential 2. Renewable Energy Sources Energy Transition Requires a Fundamental Change of the Energy system Current Central Energy Production Mainly Fossil Based Paradigm Shift Future Decentralized Energy Production Renewable Sources (Wind, Solar, Biomass) Dual Energy System Gas as Transition Fuel Smart Grids as Enablers 14

Can Our Ambition be Met? ECOFYS (2013): 16% renewable production in 2020 is ambitious, but possible via a combination of techniques and methods, provided projects start now and government provide clarity about financial support (In Pj) Situation 2010 Current policy 2020 Required & possible 2020 Additional required 2013 2020 Energy Savings relative to 2011 97 151 Biofuel (liquid) 13 37 37 24 Waste / Wood Incineration 43 73 83 30 Biomass in generation 12 60 48 Geothermal & Heat / Cold storage 5 21 35 30 Wind onshore 14 28 52 38 Wind offshore 3 21 50 48 Solar PV 0,3 5 18 18 Solar Heat 1 1 7,4 6,4 Total Energy Consumption 2304 2207 2153.. of which renewable 79 (3,4%) 186 (8,4%) 342 (16%) 187 15

Challenges in the Energy Transition 1. Cost Competitiveness of Renewable Energy Options 2. Intermittency of Renewable Energy sources 3. Acceptance of New Energy Options by Consumer 4. Role of Main Actors: Government, Knowledge Institutions/Universities, Energy Companies, Network Companies, Financiers: Cooperation In addition these are two questions requiring an answer: 1. Recent Fossil Fuel Based Investments in NL 2. Shale Gas Revolution. 16

Challenges in the Energy Transition: Cost Competitiveness of New Energy Options How to improve cost competitiveness of renewable energy options? Build Innovation Portfolio Right Balance 4 D s (Discovery, Development, Demonstration, Deployment) Commitment large Companies and MKB / SME (40% export NL) Organize proper financing to avoid being trapped in the valley of death Ensure sector has sufficient and proper educated people Currently: limited attention for entrepreneurship, commercialization, technology in education Reinforce strong energy areas 17

Challenges in the Energy Transition: No single bullit can do the trick: 7 Energy Focus Areas Topsector Water Wind off shore Solar Energy Topsector HTSM Gas Smart Grids Energy saving in buildings Bio energy Energy saving in industry Topsector Chemie 18

Phases of innovation Marketshare Research & Development Small scale demo s Large scale demo s innovators Niche markets early adopters Commercialization early majority late majority Valley s of death emerges when actors in a later development phase feel there is no added value for the innovation. The market collapses laggards Time High Risk Public Financing Private Financing Actors (scientists, companies, consumers) develop technology together by solving technical economic problems, executing tests and developing markets 19

Challenges in the Energy transition: Intermittency of Renewable Energy Sources Impact of renewable energy on daily energy prices Cross border effects of German PV production on neighboring countries Effect of wind power/solar PV on conventional gas power plants usage Integration of renewable energy production in electricity networks; challenges to security of supply requires need of sufficient flexible back up 20

Increasing photovoltaics feed in strongly impacts the daily energy price in Germany... [MW] 20.000 15.000 10.000 5.000 0 21 Use of middle and peak load plants 02:00 04:00 06:00 08:00 10:00 12:00 14:00 16:00 18:00 20:00 22:00 24:00 EPEX 15.05.2008 EPEX 16.05.2012 Energy generation PV 15.05.2012 More renewables and decreasing demands put particular pressure on older coal and gas power plants [ /MWh] 140 130 120 110 100 90 80 70 60 50 40 30 20 10 0 Source: EEX

but also in Central and Western Europe Electricity prices for one hour at European stock exchanges (in /MWh (left axis)) and German PV electricity production (in GW (right axis)); 8th May 2012 1) 70 21 60 18 50 15 40 12 30 9 20 6 10 3 0 00:00 01:00 02:00 03:00 04:00 05:00 06:00 07:00 08:00 09:00 10:00 11:00 12:00 13:00 14:00 15:00 16:00 17:00 18:00 19:00 20:00 21:00 22:00 23:00 0 Germany Switzerland France German PV production 1) Source: EEX; RWE Supply&Trading. 22

An example of conventional power plants: massive decrease of working hours Usage of the gas CHP unit in Gersteinwerk F (427 MW) 2009 compared to 2011 MW Production in June and July 2009 Production in June and July 2011 MW Juni 2009 Juli 2009 Juni 2011 Juli 2011 23

Integration of renewables and challenges to security of supply GW 25 20 15 10 5 0 Wind max: 22.656 MW 04.02.2011, 19:00 min: 140 MW 20.05.2011, 10:00 00:00 03:00 06:00 09:00 12:00 15:00 18:00 21:00 00:00 03:00 06:00 09:00 12:00 15:00 18:00 21:00 00:00 03:00 06:00 09:00 12:00 15:00 18:00 21:00 GW 14 12 10 8 6 4 2 0 Photovoltaics max: 13.096 MW 09.05.2011, 12:00 min: 592 MW 01.01.2011, 12:00 00:00 03:00 06:00 09:00 12:00 15:00 18:00 21:00 00:00 03:00 06:00 09:00 12:00 15:00 18:00 21:00 00:00 03:00 06:00 09:00 12:00 15:00 18:00 21:00 03.02.2011 5.02.2011 19.05.2011 21.05.2011 08.05.2011 10.05.2011 31.12.2010 02.01.2011 > In the first half year of 2011 alone, there were variations of 23 GW in wind feed in and 13 GW in photovoltaics feed in. Quelle: RWE Supply&Trading, MLT VW 24

Challenges in the Energy Transition: The Consumer Improve Acceptance by The Consumer Innovations introduced via technology push instead of market pull. Examples: SMART meter, nuclear energy, CCS, biomass co firing, fracking (shale oil/gas) Technology push often fails Energy Transition: socio technological transition. Can not be enforced by governments, needs to be accepted by all stakeholders (governments, NGO s, consumers, companies, knowledge institutions) Exceptions: Crises situation (oil crises last century) Education process requires companies to understand consumers and consumers to understand the ins and outs of energy 25

Challenges in the Energy Transition: Role of Main Actors Governments: Energy Policy, Stimulation, Impediments, Stable Energy System Knowledge Institutions/Universities: New Ideas, Cooperate (End) consumer: Part of Process, Awareness, Participate Industry: Energy/Network Companies, SME, Clean Tech companies: Have Knowledge/ Expertise, Back up, Energy Savings Households, Accommodate Decentral production (SMART Grids), Electric Cars Financiers: Crucial in Facilitating Transition Cooperation/Leadership 26

Challenges in the Energy Transition: Company Clusters External Stakeholders Playing field Suppliers Financial Partners Education Customer NL Company Customers Partners Knowledge institutes Support shell Customer shell Innovation en operational shell Co producers Governments 27

Questions in the Energy Transition: 1. Recent Fossil Fuel Based Investments in NL Dutch Energy companies have vested interest in Energy Transition, as they have invested large amounts of capital in gas/coal units that are at risk/stand idle and do not make the required return Gas units will always be required for flexibility in case sustainable production does not operate (no wind, no sun) Bi lateral Agreement with Germany? Role in SER Duurzaamheids Agreement for Sustainable growth: turndown old cash generating coal units, future of coal tax? 28

Questions in the Energy Transition: 2. Shale Gas Revolution 1 Background Found in rock formation rich in organic matter (at depth of 1500 5000 m); known for over 200 years Until recently uneconomic because of low rock permeability, low production rate Took off in USA due to introduction horizontal drilling combined with multistage hydraulic fracturing over about 2000 m horizontal distance using high pressure water (99%) and sand/chemicals (friction reducer). Fractures extend as much as few hundred meters in hydrocarbon bearing rock. One well every 5 km Shale gas reserves are in China (largest reserves!), USA/Canada, Europe (Poland, Germany, UK, France, Spain, Ukraine, Bulgaria, Netherlands (Brabant/Gelderland/NO polder/randstad) 29

Questions in the Energy Transition: 2. Shale Gas Revolution 2 Impact on market fundamentals/energy security USA: Shale gas production increased from 11 bcm in 2000 to 138 bcm in 2010 (i.e. 23% of total US gas production (0,6 tcm). In 2035 projected to grow to 46% of gas production. Shale gas resource availability: 25 50 tcm, i.e. 40 80 years current production Over 2007/2010 conventional gas imports dropped 19% Henry hub gas price dropped from $ 8/9 in 2008 to $ 4 /MBTU in 2010 Return of energy intensive industry to US Europe: Nearly as much recoverable shale gas as in US. Gas prices dropped from $11,5 in 2008 to 8 $/MBTU in 2010 and become more linked to spot gas prices in stead of to oil Shale gas recognized by EU Commission, 30 but environmental concerns

Questions in the Energy Transition: 2. Shale Gas Revolution 3 Impact: economic, environmental and energy transitional Impact on US Economics Environmental: Carbon dioxide and methane emissions, water usage, disposal of chemicals and water used in fracking, contamination of groundwater, competing land use requirements in densely populating areas (noise/traffic, increased seismic activity in the area of production Energy Transitional: Shale Gas could potentially cause a set back of the energy transition, which requires large sums of government support to become competitive. 31

Conclusions The Energy Transition (less use of and less dependant of fossil fuels) is a world dilemma A lot of attention has been given to the transition, but * The transition has been too slow * A consistent, coherent and long term energy policy is a pre requisite, but lacking So far insufficient support has been created in society in an early stage 16% renewables in 2020 is just possible through various means/technologies Companies have a key role, together with knowledge institutions, government, NGO s and consumers The debate between central and de central generation needs to be resolved Shale gas may temporarily adversely impact the transition towards renewables Cooperation between all actors 32 is key to the solution