Energy and climate policy are certainly entertaining at present. The dominance of crude politics over reality continues.
Australia becomes a world leader at being a climate laggard by dumping its carbon price. Electricity companies apply further restrictions and charges to rooftop PV (but not to airconditioner owners). Governments use shonky economic analysis to justify dumping carbon pricing, the Energy Efficiency Opportunities program, Victorian Energy Efficiency Target and, possibly, the Renewable Energy Target. And the PUPs gambol.
Meanwhile, electricity consumption continues to decline, gas prices accelerate upwards, global coal prices continue to fall and it looks as though we may have a record hot year globally. Then, Senator Ricky Muir turns out to be a renewable energy enthusiast: maybe when camping he uses renewable energy? Or perhaps he’s just an “ordinary Australian”: most of us support renewable energy.
Is it time for energy efficiency to shine?
President Obama and PM Abbott have apparently agreed that the November G20 meeting in Brisbane will discuss energy efficiency as a proxy for climate policy. There are also whispers around Canberra that “energy productivity” (more economic output per unit of energy consumed) is gaining support.
The International Energy Agency has declared energy efficiency to be the biggest “source” of energy for OECD countries. IEA also sees energy efficiency as the biggest and lowest cost contributor to climate response.
So maybe the signs are looking good – at last. It would be really nice to stop bashing my head on brick walls after 35 years!
But I’ll believe it when I see it. Unfortunately, many policymakers still believe that since energy efficiency is often cost-effective, the market will just adopt it, maybe with a bit of extra information. But it’s not that simple, and most effective energy efficiency policies involve measures that are unpopular with deregulatory, “small government” thinking and powerful vested interests.
Why are developing countries shifting away from fossil fuels?
Fossil fuels create problems for developing countries, including China, despite the development benefits they bring. A US Agriculture Department study estimated that the $137 billion increase in oil import costs for developing countries in 2005 exceeded the official aid ($84 billion) they received.
Many governments subsidise energy, adding to budget pressures. Then there’s the indoor and outdoor air pollution, health impacts, fuel spills, inequity, fuel theft and more.
Governments are realising that improving energy efficiency, renewable energy and distributed energy systems can help solve all these problems. Shifting to efficient renewables (for example, LED lighting powered by solar) reduces energy costs, improves quality of services, cuts the need for fossil fuel subsidies and reduces import bills. And it also happens to cut their greenhouse gas emissions.
Australian government and fossil fuel energy policy advisers have underestimated the significance of these benefits and overestimated the amount of energy needed in predicting export demand for their products. So they are repeatedly surprised as their profits decline.
Future global energy giants
It’s easy to get bogged down in the short-term battles for success in both climate change policy and our rapidly changing, cut-throat energy markets. But it is interesting to take a broader view.
We need to remember that energy is a “derived need”. That is, what we actually want are services, rather than energy. Receiving those services may involve consumption of more or less energy of different forms at different times, depending on technologies and behaviour. So the amount of energy we actually need can be very different from, and much less than, what we now use.
Businesses that help avoid the need for energy
Businesses that sell high-efficiency, smart, flexible ways to provide services linked to energy will be winners. That’s appliance and equipment manufacturers, retailers and installers, builders, building product suppliers, financiers, internet-based businesses and specialist advisers who can market attractive packages. This could include smart systems that manage energy use to match availability, minimise costs and work with storage and on-site renewable energy. Integrating their energy-related offerings with other non-energy services will amplify opportunities. Finance schemes, home performance monitoring, maintenance contracts and optimised insurance packages are just a few possibilities.
Businesses that combine distributed energy, energy storage, energy efficiency and smart management are also looking good, especially in developing countries and at fringe-of-grid in developed countries.
Many niche markets are actually quite big. For example, many developing country electricity grids suffer frequent blackouts that impact on business productivity and quality of life. Many now use small petrol and diesel generators to cope, but this is expensive, dangerous, noisy and polluting. Energy-efficient equipment combined with storage, on-site low-emission electricity generation and grid-interactive capabilities can solve these problems.
Even larger markets will become available as our electricity industry shifts to time-of-use pricing or other pricing options, and all consumers, not just those with solar, see stronger signals to manage the amount and timing of energy use. For example, in NSW, afternoon to evening time-of-use prices are now over 50 cents per kilowatt-hour – a strong incentive to reduce usage from the grid at those times. And, if adopted, “capacity charges” (which involve charging consumers for the peak supply capacity they use instead of the amount of electricity they consume) will drive more rapid adoption of storage and smarts to limit peak demand at a consumer level and avoid high costs.
Energy suppliers to energy-intensive industries
At the other end of the scale we have energy-intensive industries that are global in scale: miners, mineral processors, metal processors, chemical companies and large-scale manufacturers and their like. Traditionally, they have sought large amounts of cheap and reliable energy.
But their world is changing. “Ores” from landfill sites, wastes and replacement of existing building and equipment stock provide an increasing resource that can be more concentrated than that from traditional mining. For example, one tonne of old mobile phones contains 400 grams of gold, 80 times as much as is present in a tonne of typical gold ore.
3D printing, biomimicry, green chemistry, dematerialisation, material switching and other changes are also transforming the fundamentals of energy-intensive industries. 3D printing supports decentralised manufacturing and involves building up a product, instead of wasteful machining; green chemistry allows new materials to be created that are stronger, lighter, more effective or improve process efficiency; and dematerialisation uses less (or no) material to deliver a given service.
So it’s not at all clear how much energy these industries will actually need in the future, but it will be a lot less than conventional analysts predict.
Nevertheless, the bulk energy supply sector will still have a big market. But what forms of energy will it supply?
There are synergies between the oil industry’s drilling expertise and countries with large geothermal energy resources: sophisticated drilling capabilities are critical. The Pacific “ring of fire” countries and others near boundaries of tectonic plates seem well positioned to access enormous amounts of reliable energy. The Philippines has been developing geothermal technologies since the 1970s, while Iceland has already attracted energy-intensive industries to use its geothermal and hydro energy resources.
Companies that can mobilise and adapt existing expertise and large amounts of capital are well positioned, as they can leverage these to gain market share in emerging markets. Countries with large renewable energy and mineral resources (both recovered and virgin) and whose governments support their development could also benefit – if they can capture a fair share of the returns from their exploitation. Australia’s solar resources offer opportunities: as Ross Garnaut has suggested, we could become a sustainable energy powerhouse by utilising our enormous renewable energy resources.
Countries and businesses that can produce forms of renewable energy suited to export and storage, and businesses that can link these to existing and new energy-consuming equipment that delivers valued services, will be well positioned.
Supply chains that can deliver sustainable transport solutions, in particular, will grow. Electric vehicles (including public transport and low-speed vehicles) will benefit from improving battery technologies and expanded renewable electricity generation. Technologies that use heat or electricity to produce renewable liquid or gaseous fuels for export and that are usable by existing vehicles will be of increasing interest. Oil-producing countries may be able to use their existing cashflow to fund such developments to maintain their market position in a zero-emission world.
Just as discovery of oil and gas in Bass Strait and the North West Shelf transformed Australia’s energy prospects and industrial development, the new renewable energy revolution will create surprises. Countries traditionally seen as importers of energy, such as Japan, could become energy giants, and threaten existing major energy suppliers.
There’s a message here for Australia, as we could be a big winner in the global race towards an energy-efficient, renewable energy future. But it would mean cannibalising our existing energy industries, a bit like the situation Kodak faced when it developed digital photography. Kodak lacked the courage to embrace the future. Will we?
This article was first published in ReNew Magazine.