Building innovation networks to transform the energy landscape
The ‘three Ds’ of renewable energy — decarbonisation, decentralisation and digitalisation — are bringing new opportunities and transforming the energy sector. Innovations in technology, operations, policy, regulation, and business, are all interacting and re-enforcing each other’s contributions to the power system transformation towards low-carbon energy.
To better understand the reproducibility and scalability of the energy sector’s innovations and to accelerate the sector’s transformation, IRENA organised in October 2017 two sessions to discuss developments directly with innovators at the European Utility Week 2017 (EUW2017) in Amsterdam, and the Global Science, Technology and Innovation Conference (G-STIC) in Brussels.
“Everywhere we see the signs of change. Utilities are key facilitators for the energy transformation. To be successful, they must embrace transformation driven by a power system with high shares of renewables that is increasingly distributed, digitised and interconnected,” said IRENA Director-General Adnan Z. Amin at the opening of European Utility Week.
The trend is that consumers are turning into “prosumers” — becoming more informed and empowered, and taking an increasingly active role in the power sector. The two IRENA events created a space for stakeholders from utilities and consumers, to network and share their views about breakthrough innovations.
An innovation network
Through events like these and next June’s Innovation Week, IRENA aims to strengthen its role as a platform for networking and open dialogue between the stakeholders — including the private sector and policy makers — to foster innovation for the energy transformation.
“Innovations emerging all over the world, have the potential to lead the energy transition and decarbonise not only the power sector, but associated sectors like transportation, industry and end-use sectors,” says Dolf Gielen, the Director of the IRENA Innovation and Technology Centre.
“Close cooperation and collaboration between all stakeholders is needed, where the policymakers and regulators enable the emergence of new business models, where utilities and entrepreneurs come together and create new value streams for the consumers,” Gielen says.
In addition, IRENA’s forthcoming Innovation Landscape Report for the Power Sector Transformation aims to increase awareness of the emerging innovations among policymakers and guide them in what suits their country’s context and needs best.
In IRENA’s sessions during EU Utility Week and G-STIC, companies and projects presented their innovations that could support the energy transformation. Here are some of the highlights:
Along with increasing distributed generation, distributed storage has recently gained momentum with behind-the-meter storage, allowing customers to store electricity generated by their rooftop solar panels for later use. Using batteries, heat pumps, PV-panels, recycled-heat air ventilation systems, plastic window frames with triple glazing, and isolation facades 30 centimetres thick, the Dutch project Stroomversnelling, is refurbishing homes and making them energy neutral.
Electric vehicle (EV) innovation is bringing the transport and power sectors together, and potentially decarbonising both. In the power sector, EVs can be decentralised storage resources that can provide additional flexibility to support power system operation, but must be managed in a smart way to avoid power system disruption at peak load times.
The Parker Project, developed by the Technical University of Denmark, is a Grid Integrated Vehicle (GIV) concept, and the first ‘vehicle to grid’ hub in the country. GIVs increase a grid’s flexibility allows for advanced grid services. VERBUND Solution GmbH, Austria’s leading electricity company, is working on the first deployment of ultra-fast chargers for EVs in Austria and Germany.
As the world shifts towards greater interconnectivity, the wider use of smart meters, sensors and internet of things applications, has created opportunities to provide new services to consumers, enabling them to participate in the electricity market by controlling consumption and reducing electricity bills. Using artificial intelligence and machine learning techniques, BeeBryte, a French energy intelligence company, is making buildings smarter and cleaner by modulating energy consumption with sensors that control heating, cooling and battery storage.
Decentralisation and digitalisation has allowed for a variety of innovative business models to emerge. One of them is Virtual power plants, which aggregates distributed generation and demand response to sell electricity and ancillary services in the system. Paul Kreutzkamp from Next Kraftwerke, a virtual power plant operating in Germany and Belgium, believes that setting energy generation and demand should go hand in hand through price signals, spurring some utilities to consider new business models. The Dutch utility Eneco, is developing a network of home batteries into a virtual power plant to provide capacity and grid services to the Dutch grid (CrowdNett project).
Platform business models based around peer-to-peer power trading is aiding the democratisation of electricity. Lumenaza, a new software platform in Germany, lets utilities buy and sell ‘regional electricity’ by connecting up small producers with consumers.
Blockchain technology is coming to the energy sector and has the potential to change the paradigm by cutting-out the middlemen, and enabling peer-to-peer transactions based on smart contracts. SolarCoin, a blockchain-based digital asset, grants solar power producers 1Solar coin per MWh of energy produced.
Source: International Renewable Energy Agency (IRENA)
Italian Eni: Energy Transition and Economic Development as Fundamental Pillars of Approach in Africa
Eni, an Italian multinational energy giant headquartered in Rome, in its latest 2022 report has outlined the main outcomes and objectives in the energy transition pathways for a number of African countries. It described Eni’s contribution to a just transition that ensures access to efficient and sustainable energy, sharing the social and economic benefits of the path towards net zero emissions by 2050 with employees, suppliers, communities, and customers with an inclusive and transparent approach.
“In addressing the challenges in the energy sector that Eni faces, we keep our priorities firmly on track with an ongoing commitment to promote energy access, local development, and environmental protection,” said Claudio Descalzi, Eni’s Chief Executive Officer.
She explained that the success of Eni’s strategy could not be achieved without collaboration with key stakeholders, from private individuals to the public sector, international organizations, civil society associations, and research institutes. “Today, more than ever, it is necessary to pool resources and human capital, through a broad vision that allows us to align our common goals, to reduce geographical gaps and promote global human progress,” said Claudio Descalzi.
With regards to the carbon neutrality strategy, Eni remained firm in its commitments towards net zero emissions by 2050 and confirmed all its decarbonization targets, which are anchored on sound investments.
The company achieved a 17% reduction in Scope 1, 2 and 3 emissions, compared to 2018 levels, and continued implementing the necessary measures to achieve Scope 1 and 2 net zero emissions in the Upstream by 2030, by investing in emission-reduction technologies and developing low-carbon projects. In this context, in 2023, Eni launched the FPSO that will be used for production from the Baleine field in Côte d’Ivoire, the most important discovery ever made in the country and the first net zero development for Scope 1 and 2 emissions in Africa.
In Eni’s strategy, the United Nations Sustainable Development Goals are a fundamental reference for conducting activities in the countries of operations. Agri-business projects, for example, embodies the fundamental pillars of Eni approach for the just transition, an energy transition with a strong innovative component combined with a concrete focus on the social dimension.
In this context, Eni is committed to ensure that the decarbonization process offers opportunities to convert existing activities and develop new production chains with significant perspectives in the countries where it operates.
In 2022, the first cargo of vegetable oil produced in Kenya not competing with the food production chain, from waste and raw materials produced on degraded land, was delivered to Eni’s biorefining plant in Gela, with substantial positive impacts on employment and local development. The model will be replicated in other countries.
To achieve a just transition, particular attention was paid to initiatives to promote access to energy and education in the countries of operation. These include the projects in Côte d’Ivoire, Mozambique, and Ghana to facilitate access to clean cooking.
In Côte d’Ivoire, more than 20,000 cooking stoves were distributed in just six months, reaching more than 100,000 beneficiaries. Eni has promoted the right to education in Congo, Ghana, Iraq, Mexico, Mozambique, and Egypt, where it opened the Zohr Applied Technology School to significantly increase the number of youths with upgraded technical and professional skills in the energy and technology fields.
With revenues of around €92.2 billion, Eni ranked 111th on both the Fortune Global 500 and the Forbes Global 2000 in 2022, making it the third-largest Italian company on the Fortune list (after Assicurazioni Generali and Enel) and second largest on the Forbes list (after Enel). Per the Fortune Global 500, Eni is the largest petroleum company in Italy, the second largest based in the European Union (after TotalEnergies), and the 13th largest in the world.
OPEC+ Cuts Production
On April 3, 2023, OPEC published a press release saying that a number of countries, both members of this cartel and those participating in the extended OPEC+ format, decided to cut oil production. This was unexpected for the market as OPEC+ managed to keep things in secret until the official publication. Previously, media usually did receive some information about the forthcoming decisions. Alternatively, numerous officials would openly state that the possibility of altering the crude production volumes was under consideration. Moreover, public statements intended OPEC+ willingness to influence the market by changing the quotas have traditionally been an independent instrument of manipulating the oil market. Such moves are known as “verbal intervention.” Yet, OPEC+ has scrapped the trick this time, realizing that its effect is too short-lived, whereas the goal of oil-exporting nations is wielding at least mid-term influence on the market.
The volumes to be reduced, as announced by the OPEC+ member states, were also quite unexpected. On April 3, they declared their intention to cut production by 1.16 million bpd starting in May 2023, but if we take into account Russia’s announced cut by 500 thousand bpd from March 2023, the total reduction of global supply will be close to 1.66 million bpd. These are significant volumes on a global scale. At present, the market is close to equilibrium in terms of demand and supply, so the 1.66 mln cut in crude oil production may tip the scale towards the deficit, which will affect the prices.
Early in April, it was also announced by the countries willing to comply with the OPEC+ quotas that they would make extra cuts voluntarily, which might unbalance the market even further. The fact of the matter is that many parties to the agreement, for their own internal reasons, cannot produce as much oil as they are permitted as per OPEC+ quotas. By the way, since 2021, Russia has been one of those producers. Yet, it was the states actually fulfilling the quotas that announced the reduction in April 2023.
|Country||Production Cuts, thousand bpd|
One important pattern is worthy of note. Previously, OPEC+ generally cut production quotas proportionally for all parties to the agreement. This meant that the actual supply reduction was less than the declared curtailment of quotas as some countries do not produce as much as they are allowed under quotas. For such countries, quota cuts simply result in narrowing the gap between their actual production and the allowed “cap.” In the April decision, the OPEC+ countries formally proceed from the quotas—however,since they mostly reached the cap in their production, the gap between the declared and the real reduction will be tiny.
Russia, for its part, declared a reduction starting in March 2023 without reference to the existing quotas but to the average level of production in February. This means that Russia intends to cut real production by 500 thousand barrels rather than virtual quotas. Another factor that made the decision of the oil-producing countries even more significant was the long-term nature of the measures taken. The OPEC+ member states declared that the cut would last till the end of 2023. Russia immediately followed suit by declaring that it would also prolong its voluntary cut of production till the year’s end in an bid to strengthen the effect on the market (earlier, the end date for the voluntary cut had not been determined), on the one hand, and to get in sync with its OPEC+ partners acting as a “united front”, on the other hand. The latter factor is important for Russia in terms of OPEC+ political posturing.
The development amps up the announced decision to cut production volumes. Immediately after the OPEC+ participants announced production adjustments, the commodity exchange saw a surge of oil prices. But this was a psychological response of the market, as other countries plan to start the actual reduction in May.
Russia benefits greatly from the decision of OPEC+ to cut production. Back in February 2023, Deputy Prime Minister Alexander Novak, who is in charge of the energy sector, announced the decision of the national leadership to voluntarily reduce production by 500 thousand bpd. That is, Russia would have cut oil production anyway. But the fact that OPEC+ partners are now joining this thrust means that concerted action will have a much greater impact on the market, keeping oil prices at a high level. Russia has its own reasons for the decision to cut production. The country’s leadership is trying to demonstrate to the main buyers of Russian oil—primarily India, China and Turkey—that maintaining pre-sanction oil exports is not an end in itself. It is important for Russia to monetize our hydrocarbons profitably, which is why Russia is trying to reduce the discount on its oil. Moscow shows that, to achieve this goal, it is ready to reduce production and export volumes. This is a clear signal to the buyers of Russian crude: let’s negotiate a reduction of the discount—otherwise, with a decrease in production, a deficit will emerge, and all the crude will become more expensive globally. Other OPEC+ countries simply want to balance the oil market in order to keep prices high.
General benefits also exist. Under a joint cut in production, the demand for tankers will diminish, and hence the cost of transportation. The point is that the global oil market had become inefficient by early 2023, as all exporters were affected by an increase in their transportation leg. Russia now has to redirect its crude to Asian markets, while producers from the Middle East had to replace Russia and redirect their crude to Europe. It turns out that more tankers are needed to transport the same amount of crude. As a result, the cost of oil tanker freight has markedly increased. Lower export volumes as a result of the OPEC+ decision will alleviate this problem, leaving oil companies, including Russian, with more money from the sale of hydrocarbons. Russia’s budget will also benefit from higher oil prices. Even with the discount accounted for, Russian oil prices may rise, which will generate more revenue from the export duty and MET.
From political perspectives, the OPEC+ decision to cut production is also beneficial. After the February statement of Mr. Novak regarding Russia’s intention to cut oil production, many critics interpreted it as a forced measure. They say the sanctions are doing their job, and Russia can no longer produce enough oil without Western technologies, trying to disguise the actual drop in production as a planned voluntary reduction. Following this logic, other producers also face problems, which is, surely, not true. Furthermore, Russia can present the OPEC+ decision in the information space as a proof that the country is not in isolation, as the Collective West struggles to prove. We cooperate and implement joint programs with many states, OPEC+ members being just one example.
Western media and decision-makers criticized the decision of the OPEC+ countries to reduce oil production volumes. This is a real economic risk for them, since both the U.S. and the EU are net importers of oil. The share of the oil cost in a liter of fuel is very high in the West, so a rise in oil prices quickly leads to an increase in prices on the fuel market for the end consumer. This generates discontent among citizens, as they take more and more money out of their pockets when they fuel their cars. Consequently, support for incumbent politicians is waning. For the U.S., this is extremely relevant in connection with the actual beginning of the presidential campaign. On the other hand, the rising cost of fuel spins up inflation, as the cost of delivery is built into the cost of goods. Western media also accuse the Arab nations of helping the Russian economy by these cuts in production.
Such accusations expose the real problem. Western nations do not want to listen to explanations of OPEC+ member states as to why they decided to reduce oil production. Such a conflict of interests makes itself felt on a regular basis. A telling incident occurred on October 5, 2022, at an OPEC+ press conference after the decision to cut production quotas by 2 million bpd was announced. At the time, Saudi Energy Minister Abdulaziz bin Salman refused to talk to a Reuters reporter. It turned out that the minister had previously given a 30-minute interview for Reuters explaining the reasons for the OPEC+ decision. The editors, however, did not publish the text of the conversation, having replaced it with an article saying that Saudi Arabia and Russia are allegedly colluding as they seek to push oil prices above USD 100 per barrel.
This shows that Western political circles and the media believe that OPEC+ decisions are directed against them, denying OPEC+ members the right to pursue their own legitimate economic interests and instigating a conflict instead, especially between the U.S. and Arab oil-producing countries—above all, Saudi Arabia. Indeed, the decision by a number of OPEC+ states is negative for the U.S. economy, but their motivation has nothing to do with a desire to hurt Western nations as they just want to retain their own revenues. The decision was made in response to the U.S. and the EU policies, whereby the Fed and the ECB, respectively, keep raising the interest rates. This leads to a slowdown in their economies, which means a lower demand for oil. In addition, when the U.S. Fed raises interest rates, money supply shrinks so that less money enters the stock market. That means traders close fewer deals, not buying oil futures, among other things. When demand falls, so does the price of oil futures. Both the U.S. and the European Union never look back on the interests of the oil producing nations as they push down oil prices using monetary instruments. The latest increase of the FRS rate took place on March 23, 2023, that is, a week and a half before the OPEC+ decision to cut the production of crude. So, the oil producers immediately reacted to the U.S. policies. They are eager to keep oil prices from falling rather than hiking them above USD 100 per barrel. Apparently, unless the OPEC+ states decided to cut production, oil prices, given the pressure of monetary factors (rising rates of the Fed and the ECB), could have dropped to USD 60-70 per barrel.
No doubt, there is a certain political implication of the decision made by some OPEC+ countries to cut oil production. It lies in the fact that relations between the U.S. and Arab oil-exporting countries have been cooling of late. The point is that, thanks to the “shale revolution in the U.S.,” oil production has significantly increased since 2010. Even though the U.S. remains a net importer of oil, it cut purchases from other countries. Statistics show that the U.S. prefer to give up on oil from the Middle East, while supplies from Mexico remain stable since 2016 and supplies from Canada are on the rise for several decades in a row.
Source: Energy Information Administration
Such dynamics can be perceived by the Arab countries as a formal U.S. strategy aimed at reducing the dependence on Middle East markets, in order to have a free hand in their Middle East policies. In response, Saudi Arabia will cross over to alternative centers of power, China and Russia. Especially since it is China that has become the largest buyer of Saudi oil.
As for the future, we can foresee a spiral of tensions between the U.S. and OPEC+ states. After all, rising oil prices will continue to whip up inflation. To fight inflation, the U.S. and the EU are raising the key interest rate, putting pressure on oil prices. In response, producers may cut production still further in an attempt to support prices, forming a sort of a vicious circle. To put pressure on Saudi Arabia and other producers, the U.S. could pass the NOPEC (No Oil Producing and Exporting Cartels Act), which would allow the U.S. to impose sanctions on OPEC+ nations under the pretext of antitrust violations. This will cause a backlash down to the imposition of an embargo and a repeat of the 1973 energy crisis. For now, such a scenario is unlikely to happen, though recent developments suggest that no scenario can be totally ruled out.
From our partner RIAC
Cleaner, Safer, and Sustainable: Decarbonizing Pakistan’s Energy Future
Pakistan’s energy progress is a complicated and diverse issue that requires a far-reaching decarbonization system to accomplish maintainable improvement objectives. Decarbonization alludes to the decrease of fossil fuel byproducts from different sources, including the energy sector, to moderate the antagonistic effects of environmental change. Lately, Pakistan has made some headway towards decreasing its carbon footprint by expanding the portion of sustainable power in its energy blend. Nonetheless, the country’s heavy reliance on petroleum derivatives, especially coal, keeps on representing a critical test for decarbonization endeavors.
Regarding the urgent issues of environmental sustainability and public health, Pakistan’s decarbonization of its energy future is an admirable endeavor. Through the use of greener and safer energy technologies, the initiative recognizes the need to lessen the nation’s carbon footprint, increase the security of its energy supply, and foster economic growth. The capacity to send state-of-the-art innovations at scale, the accessibility of subsidizing, and the political will to institute complete strategy changes are only a couple of the factors that will decide if this try is fruitful or not.
Knowing how intensely politicized the energy industry is, political players frequently put short-term advantages ahead of long-term sustainability. This has led to inconsistent policy, which deters investment in renewable energy through frequent changes in energy rates and subsidies. Political will and commitment to a sustainable energy transition are required to address this issue. Combining policy and technology solutions is necessary for creative decarbonization strategies for Pakistan’s energy industry. Adopting distributed renewable energy systems, such as micro-grids and solar home systems, is one such strategy that can give remote and off-grid communities reliable and affordable energy access. Similarly, the change to a low-carbon energy framework might come at a huge social and monetary cost, like the deficiency of occupations in the traditional energy industry and the necessity for sizable foundation ventures.
To address these difficulties, policymakers ought to embrace a multi-pronged methodology that consolidates aggressive focuses on sustainable power transmission, vigorous administrative structures, and inventive supporting systems. Similarly, more prominent consideration ought to be paid to the job of energy proficiency in diminishing fossil fuel byproducts, as well as the potential for decentralized energy frameworks to upgrade energy security and advance social value. Especially flammable gas and oil, which account for more than 70% of the nation’s energy production, are heavily reliant on petroleum derivatives in Pakistan’s energy mix. This dependence on petroleum products isn’t economical, given the limited value of these assets and the unfavorable impacts of fossil fuel byproducts on the climate. Hence, the decarbonization of Pakistan’s energy area requires a shift towards environmentally friendly power sources, for example, solar, wind, and hydropower.
By 2030, the government wants to have 30% of the nation’s electricity come from renewable sources. The lack of infrastructure investment in renewable energy sources and the high cost of renewable energy technologies are two obstacles that must still be overcome before this goal can be met. By doing so, a stable and dependable power supply can be ensured, and the intermittent nature of renewable energy can be overcome. Additionally, by providing tax breaks and other financial incentives, the government must encourage the private sector to invest in renewable energy projects. This will speed up the decarbonization process and increase investment in the renewable energy sector.
Pakistan must implement a sophisticated decarbonization strategy that combines financial, administrative, and innovative interventions in order to address this challenge. The administrative measures could incorporate setting emanation norms for different ventures and forcing punishments for resistance. This approach would encourage businesses to move towards cleaner advancements, diminishing their carbon footprint. Also, the monetary measures could incorporate giving sponsorships and duty incentives to ventures that embrace clean advancements and practices. This would work with the reception of sustainable power sources and speed up the change towards a low-carbon economy.
Simultaneously, the development of carbon capture and storage (CCS) technologies to capture and store the byproducts of fossil fuels from coal-fired power plants could also be incorporated into the creative solutions. Byproducts of coal-based energy production, one of the main contributors to Pakistan’s carbon footprint, could be reduced with the help of this strategy. The effective execution of these actions requires will, powerful institutional instruments, and satisfactory monetary assets. Consequently, it is basic for the public authority, confidential area, and common society to team up and pursue a shared objective of accomplishing economic improvement through decarbonization.
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