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The Age of Renewable Energy Diplomacy

Adnan Z. Amin

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Energy is vital to how our economies and societies function, and is now firmly on top of the global agenda for forums ranging from the United Nations to the G7 and G20. It therefore comes as no surprise that foreign ministries around the world are playing an increasing role in shaping strategic thinking on energy issues and steering international energy cooperation.

As every good diplomat knows however, change is always afoot. Global energy demand is set to rise by 30 per cent by 2030, led by developing countries, reflecting an expanding global economy, rapid industrialisation, population growth, urbanisation and improved energy access. At the same time, we are all joined in the common, global challenge of combatting climate change, protecting our environment and achieving sustainable development. These factors have made the development of sustainable sources of energy a pressing global priority.

The stage is set for the age of renewable energy. In just a few years, renewables have moved to the centre of the global energy landscape: rapid technological advances and falling costs, combined with innovative policies and financing mechanisms, have built a strong business case for renewables, making it competitive with conventional sources of energy. The year 2016 was the strongest yet for new renewable energy capacity additions in the power sector with total capacity reaching over 2,000 gigawatts, marking the fourth consecutive year that renewables outpaced the growth in all other electricity sources. Investment into renewables accounted for nearly US$270 billion in 2016. Costs have continued to plummet, with a global record price of US cents 2.42/kWh recorded for a solar PV plant in Abu Dhabi, meaning that we are getting more energy for each dollar invested.

These remarkable advances have taken place in less than a decade, and more is yet to come. This year, IRENA developed a study, commissioned by the German Presidency of the G20, on decarbonisation of the energy sector in line with the ‘well below 2°C’ target of the Paris Agreement. Perspectives for the Energy Transition finds that if we are to meet our targets for limiting climate change, the share of renewables in the primary energy supply would need to rise to 65 per cent by 2050, up from 15 per cent today.

This would require additional investments, in particular for transforming end-use sectors such as transport, buildings and industry. But these investments would be outweighed by the economic and social benefits of the energy transition. Global GDP will be boosted by around 0.8 per cent in 2050, the equivalent of almost US$19 trillion in increased economic activity between today and 2050. Renewable energy jobs would reach 26 million by 2050, from 9.8 million today. Meanwhile, the estimated value of improved human welfare as a consequence of avoided air pollution and climate change would exceed the cost of a transition by a factor of four to fifteen.

These figures are particularly important at a time when diplomats are seeking ways of achieving the goals of Agenda 2030 that were adopted by the United Nations General Assembly in 2015. Renewable energy will be key to the implementation of most of the Sustainable Development Goals, including Goal 7 on affordable and clean energy.

The rise of renewables is transforming the energy sector, but the nature and extent of their impact on the geopolitical landscape are not yet fully understood. Diplomats will need to be prepared to think creatively and critically about the global energy transition and how to reap its benefits for their countries.

First, renewables may change the way states relate to each other in the area of energy. Renewable energy resources are abundant globally and, if effectively harnessed, they have the power to enhance the energy security of states that currently rely significantly on imports. It is no coincidence that some countries that have been at the forefront of renewable energy deployment, such as Chile and Morocco, have traditionally been heavily dependent on energy imports. Morocco now aims to have 52 per cent of electricity generation come from renewables by 2030.

But not all renewable sources are the same – variable renewables such as solar and wind require flexible power systems capable of balancing supply and demand in realtime. In the European Union, growing cross-border trade in electricity saves customers from €2.5 to 4 billion annually, creating new energy relationships through a new form of interdependence.

Such interconnections can be strong vehicles for cooperation between countries, and clean energy corridors are being developed across Africa and Central America with IRENA’s support. If managed properly, these relationships can help make our electricity cheaper, our systems more effective, and could increase interdependence among nations. But this will require diplomats, along with other government officials, to build the cooperative frameworks that will allow electricity to flow freely in well-regulated and transparent markets.

Second, countries that currently produce large shares of fossil fuels will need to prepare themselves for a new energy paradigm. We can already see this happening. Russia and Saudi Arabia, for instance, are increasingly looking to renewables as a means of economic diversification and a source of sustainable growth. A recent renewable energy auction in Saudi Arabia attracted a record-low bid of 1.79 US cents per kilowatt hour, which would shatter all previous records if awarded. The bidders were the Emirati company Masdar and the French conglomerate EDF.

The leaders of the United Arab Emirates have long been clear that their country’s oil assets must be used to prepare for the future and have made significant progress towards diversifying the UAE economy. Masdar City, launched more than a decade ago, and where IRENA is based, is a pioneering initiative reflecting a bold vision for this future.

Through the UAE energy strategy adopted last year, the UAE government has continued to show high ambition, aiming to raise the share of renewable energy in power generation to 44 per cent by 2050. It has also recognised the ability of renewables to combat water scarcity, both as an energy source with a low water demand and as a way of sustainably powering energy-intensive desalination facilities.

Importantly, the UAE’s vision has included the diplomatic arena, where the leaders have worked to extend the country’s long-standing leadership in the current energy paradigm into the next, not least as the host country of IRENA. While energy diplomacy will be transformed, the UAE is showing how to leverage advantages of today to seize those of tomorrow Third, each energy paradigm comes with its own opportunities and risks, as will be the case for the age of renewables. While challenges such as cybersecurity threats are not new to diplomats, and do certainly not originate with renewables, they may come to pose specific risks as countries rely increasingly on renewable energy. It will be important for foreign ministries to give enhanced attention to renewable energy as they develop strategies for meeting emerging security challenges.

But ultimately, the opportunities of renewables far outweigh any potential risks. The potential of renewables to improve energy access, spur sustainable economic growth and create jobs where they are most needed means that a sustainable energy future is not only a necessity, but a common path towards peace and prosperity. This will be the job of current and future generations of diplomats, and we at IRENA will continue to work with you to make that future a reality through international cooperation.

This piece was originally published by the Emirates Diplomatic Academy.

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Energy

Driving a Smarter Future

MD Staff

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Today the average car runs on fossil fuels, but growing pressure for climate action, falling battery costs, and concerns about air pollution in cities, has given life to the once “over-priced” and neglected electric vehicle.

With many new electric vehicles (EV) now out-performing their fossil-powered counterparts’ capabilities on the road, energy planners are looking to bring innovation to the garage — 95% of a car’s time is spent parked. The result is that with careful planning and the right infrastructure in place, parked and plugged-in EVs could be the battery banks of the future, stabilising electric grids powered by wind and solar energy.

Today the average car runs on fossil fuels, but growing pressure for climate action, falling battery costs, and concerns about air pollution in cities, has given life to the once “over-priced” and neglected electric vehicle.

With many new electric vehicles (EV) now out-performing their fossil-powered counterparts’ capabilities on the road, energy planners are looking to bring innovation to the garage — 95% of a car’s time is spent parked. The result is that with careful planning and the right infrastructure in place, parked and plugged-in EVs could be the battery banks of the future, stabilising electric grids powered by wind and solar energy.

Advanced forms of smart charging

An advanced smart charging approach, called Vehicle-to-Grid (V2G), allows EVs not to just withdraw electricity from the grid, but to also inject electricity back to the grid. V2G technology may create a business case for car owners, via aggregators (PDF), to provide ancillary services to the grid. However, to be attractive for car owners, smart charging must satisfy the mobility needs, meaning cars should be charged when needed, at the lowest cost, and owners should possibly be remunerated for providing services to the grid. Policy instruments, such as rebates for the installation of smart charging points as well as time-of-use tariffs (PDF), may incentivise a wide deployment of smart charging.

“We’ve seen this tested in the UK, Netherlands and Denmark,” Boshell says. “For example, since 2016, Nissan, Enel and Nuvve have partnered and worked on an energy management solution that allows vehicle owners and energy users to operate as individual energy hubs. Their two pilot projects in Denmark and the UK have allowed owners of Nissan EVs to earn money by sending power to the grid through Enel’s bidirectional chargers.”

Perfect solution?

While EVs have a lot to offer towards accelerating variable renewable energy deployment, their uptake also brings technical challenges that need to be overcome.

IRENA analysis suggests uncontrolled and simultaneous charging of EVs could significantly increase congestion in power systems and peak load. Resulting in limitations to increase the share of solar PV and wind in power systems, and the need for additional investment costs in electrical infrastructure in form of replacing and additional cables, transformers, switchgears, etc., respectively.

An increase in autonomous and ‘mobility-as-a-service’ driving — i.e. innovations for car-sharing or those that would allow your car to taxi strangers when you are not using it — could disrupt the potential availability of grid-stabilising plugged-in EVs, as batteries will be connected and available to the grid less often.

Impact of charging according to type

It has also become clear that fast and ultra-fast charging are a priority for the mobility sector, however, slow charging is actually better suited for smart charging, as batteries are connected and available to the grid longer. For slow charging, locating charging infrastructure at home and at the workplace is critical, an aspect to be considered during infrastructure planning. Fast and ultra-fast charging may increase the peak demand stress on local grids. Solutions such as battery swapping, charging stations with buffer storage, and night EV fleet charging, might become necessary, in combination with fast and ultra-fast charging, to avoid high infrastructure investments.

To learn more about smart charging, read IRENA’s Innovation Outlook: smart charging for electric vehicles. The report explores the degree of complementarity potential between variable renewable energy sources and EVs, and considers how this potential could be tapped through smart charging between now and mid-century, and the possible impact of the expected mobility disruptions in the coming two to three decades.

IRENA

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Energy

What may cause Oil prices to fall?

Osama Rizvi

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Oil prices have rallied a whopping 30 percent this year. Among other factors, OPEC’s commitment to reduce output, geopolitical flash-points like the brewing war in Libya, slowdown in shale production and optimism in U.S. and China trade war have all added to the increase. The recent rally being sparked by cancellation of waivers granted to countries importing oil form Iran has taken prices to new highs.

However, one might question the sustainability of this rally by pointing out few bearish factors that might cause a correction, or possibly, a fall in oil prices. The recent sharp slide shows the presence of tail-risks!

Libya produces just over 1 percent of world oil output at 1.1 million barrels, which is indeed not of such a magnitude as to dramatically affect global oil supplies. What is important is the market reaction to every geopolitical event that occurs in the Middle East given the intricate alliances and therefore the increasing chances of other countries jumping in with a national event climaxing into a regional affair.

Matters in Libya got serious as an airstrike was carried out on the only functioning airport in the country a few days ago. Khalifa Haftar who heads Libyan National Army has assumed responsibility for the strike. However, UN and G7 have urged to restore peace in Tripoli. Russia has categorically said to use “all available means” while U.S.’ Pompeo called for “an immediate halt” of atrocities in Libya.

The fighting has been far from locations that hold oil but the overall sentiment is that of fear which is understandable as this happens in parallel to a steep decline in Venezuelan production, touching multi-year low of 740,000 bpd.  However, as international forces play their part we might expect a de-escalation in the Libyan war — as it has happened before.

Besides the chances of an alleviation of hostilities in Libya, concerns pertaining to global economic growth, and thereof demand for oil, have still not disappeared. The U.S. treasury yield, one of the best measures to predict a future slowdown (recession),  inverted last month; first time since 2007. If this does not raise doubts over the global economic health then the very recent announcement by International Monetary Fund (IMF) who has slashed its outlook for world economic growth to its lowest since the last financial crisis. According to the Fund the global economy will grow 3.3 percent this year down from 3.5 percent that predicted three months ago.

image: Bloomberg

Then there is Trump, whose declaration of Iran’s IRGC as a terrorist organization might increase the likelihoods of yet another spate of heated rhetoric between the arch-rivals. But if he is genuinely irked by higher oil prices as his tweets at times show and if he thinks that higher gasoline prices can hurt his political capital then this will certainly have a bearish effect on the markets as observers take a sigh regarding the mounting, yet unsubstantiated,  concern over supply.

One of the factors that contributed most to the recent rally was OPEC’s unwavering commitment to its production cuts. The organization’s output fell to its lowest in a year at 30.23 million barrels per day in February 2019, its lowest in four years. But the question remains for how long can these cuts go on? Last month it was reported the Kingdom of Saudi Arabia had admitted that they need oil at $70 for a balanced budget while estimates from IMF claims that the level for a budget break-even are even higher: $80-$85. We should not forget Trump and his tweets in this regard as well. Whenever prices have inched up from a certain threshold POTUS’ tweet forced the market to correct themselves (save the last time). One of the key Russian officials who made the deal with OPEC possible recently signaled that Russia may urge others to increase production as they meet in the last week of June this year. While this is not a confirmation that others will agree but it certainly shows that one of the three largest oil producers in the world does feel that markets are now almost balanced and the cuts are not needed further.

Now with the recent cancellation of waivers we should expect U.S. to press KSA to increase production to offset the lost barrels and stabilize the prices.

Finally stoking fears of an impending supply crunch (a bullish factor) is the supposed slowdown in U.S. Shale production. But the facts might be a tad different. Few weeks ago U.S. added 15 oil rigs in one day, a very strong number indeed-this comes after a decline of streak of six consecutive weeks. According to different estimates the shale producers are fine with prices anywhere between $48 to $54 and the recent rise in prices has certainly helped. Well Fargo Investment Institute Laforge said that higher prices will result in “extra U.S. oil production in coming months”. Albeit, U.S.’ average daily production has decreased a bit but it doesn’t mean that the shale producers cannot bring back production online again. Prices are very conducive for it.

So if you think that prices will continue to head higher, think again. Following graph shows that oil had entered the overbought territory few days back–hence the recent slide.

Therefore, If the war in Libya settles down (and there is a strong possibility that it will); rumors of a production increase making its way into investors’ and traders’ mind (as it already have) and global economy continue to struggle in order to gain a strong footing — the chances are oil will fall again. The current rally might last for some-time but, like always, beware not to buy too high.

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Energy

No One Understands the Weaponization of Energy better than Russia and Iran

Todd Royal

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One of the most important lessons from World War II (WWII) is this: integrated economic growth is always better than a global war that engulfed all seven continents and killed over 100 million people. Since oil, natural gas and coal is now intertwined with geopolitics, international relations, foreign policy, realist balancing that pits nation against nation, and macroeconomic monetary policy; energy and electricity are now coupled with national security.  Russia and Iran use fossil fuel, nuclear power plants and renewable energy as weapons – hence the term – the weaponization of energy.

Confronting both countries using alliances like NATO to hem Russia and Iran into their respective regions of influence while also using soft power to coax them into using their energy resources in a positive direction is where the world is now and into the future. What’s disconcerting about the weaponization of energy is how Russia and Iran use energy as a foreign policy and national security weapon. The same way a nuclear arsenal is exploited to deter enemies and project national power and pride.

The largest problem with Russia are both state-run and influenced energy firms – Rosneft and Gazprom – seemingly are beyond balancing, containing or deterring since they are incredibly profitable. Alexei Bolshakov, general director of Citigroup Global Markets stated in late November 2018:

“They [Russian oil and gas companies] are having an absolutely fabulous year (2018 into 2019). They earn more per barrel than they did even during $100 barrel oil prices.”

Another Russian senior analyst echoed the same sentiments: “Russian oil and gas companies are flooded with cash, they don’t know what to do with it.”This allows Vladimir Putin the ability to engage in geopolitical adventures in Syria, Ukraine, Crimea, the United States, Europe, the Arctic Circle and his own country. Oil and natural gas profits from each firm is a never-ending source of money and financial power that translate into hard, military resources used for projecting Russian power. It’s like the Cold War never ended.

To the Obama administration’s credit they attempted exhaustive diplomacy with Iran, but it failed. The counter to diplomacy and a helping hand in energy and nuclear weaponry is that under former President Obama:

“Iran was closer than ever to nuclear weapons, received hundreds of billions of dollars in sanctions relief, and had billions in cash flown over to them in jets (illegally).”

Whichever perspective is correct, and history will be the judge, nothing was deterred from the Iranian or Middle East’s perspective. Iran and there use of energy for their military, paramilitary organizations and Hezbollah is more powerful than ever before. Iran is now entrenched in Iraq, Syria, Yemen, and Lebanon and has created an arc of influence from their homeland over multiple countries to the Mediterranean Sea. It can be argued the Iranian regime is in the best position to counter the US-led global order and can use energy with Islamic terrorism to remake the liberal world order in place for over seventy years.

While western countries and environmentalists such as Al Gore, well-known Hollywood actors, and overly environmental sensitive political parties (the Greens in Germany or the US Democratic Party)tout their green virtue, Iran on the other hand is going against the US-negotiated Iran nuclear agreement and is building two new nuclear plants There isn’t a solid reason behind building nuclear power plants when Iran is blessed with one of the largest supplies of natural gas, oil, and petroleum plays in the world. Iran is moving forward with nuclear plants under the guise of energy to electricity, because they are still trying to build or acquire nuclear weapons to use against Israel, the EU, the US, and Sunni Muslim nations like Saudi Arabia, Egypt, Jordan the United Arab Emirates and Bahrain.

Iran building two new nuclear reactors has elicited outrage in Washington and the Trump administration. This a major cause – the Iran problem – why Trump has allowed and encouraged US oil and gas exploration and production (E&P) firms to “drill baby drill” without pause. According to Rystad Energy, they believe:

“The United States will surpass Saudi Arabia later this year (2019) in exports of oil, natural gas liquids and petroleum products like gasoline.”

This exploding E&P has caused a complete overhaul in rising US natural gas consumption and the all-time highs keep breaking records. The only thing stopping the US from drilling and using oil, natural gas, coal and nuclear as natural security buffers against Russia and Iran are legislative fiats coming from federal benches that have zero basis in judicial accountability. But the world has to begin “getting real about Iran,” its murderous intentions, brutality against women, gays, Christians and anyone not fully supporting the revolutionary Iranian regime and government.

Since Iran is a leading member of OPEC, and has massive reserves of oil and natural gas, Iran like Russia uses their deep earth minerals and energy deposits as weapons the way NATO uses their military divisions to deter Russia. Energy is the soft economic power weapon of choice for Russia and Iran. Unless each is confronted, deterred, destroyed or regime change occurs these problems will only fester and grow worse. Then the continued weaponization of energy will become a regional, international or global war with oil, petroleum, aviation fuel, nuclear energy and natural gas being at the forefront of who wins and who loses once shots are fired and bombs are dropped.

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