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Energy: Italy, declining prices and consumption on the rise in 2017

MD Staff

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2017 registered rising final energy consumptions (+1.38% as compared to 2016, in line with the +1.5 % in GDP) and a slight decline in CO2 emissions (-0.5%) mostly thanks to sectors such as electricity generation (-5%) and transportation (-2.2%). New historical heights for renewables in total electric consumption: wind and solar reached a 70% peak per hour (17 april 2017) and the whole of RES (Renewable Energy Sources) an 87% peak. This is what emerges from the Quarterly Review of the Italian Energy System, edited by ENEA, which examines data in the fourth quarter of 2017 and makes an assessment of the entire year. The study also shows an increase in natural gas consumptions (+6%, after the 5% in 2016), an energy source which firmly led the mix with a 36.5% share, showing decreasing prices in all consumption groups and running counter to EU trends.

In the mix, oil dropped below 34%, with consumption falling (-1% and almost 10% more as compared to ten years before), while coal continued to witness a double-digit contraction for the second year in a row (-12%, after -10% in 2016, with a 6% share in the mix). In the mix, Renewables reached a 19% share, with an 8% growth of intermittent energy sources (wind and solar” which offset the steep  decline in hydroelectric power (-14%); as regards final consumption the share of renewable energy sources remained over the 2020 EU target of 17%, while its 2030 target of a 28% share looked harder to meet.

“In 2017 business gas prices decreased while EU prices remained unchanged. This was due to the fact that the rise in prices of wholesale raw materials were offset by two fees cancelled in the electricity bill which allowed a saving especially for middle and high consumption groups, while a wide price gap between small and big users was confirmed” Francesco Gracceva of ENEA, coordinator of the Analysis, explained.

Prices of electricity were expected to slightly drop, up to 2% in the middle to high consumption group, mostly thanks to a reduction of system charges which offset the increase in wholesale prices. Nevertheless prices in Italy remained the highest in the EU Countries.

The demand for electricity rose by 2% mostly because of the climate, which caused a sharp rise in consumption during summer. The data confirms that the long term trend of consumption decline was replaced by a stationary trend with signals of a modest recovery. As for end-use sectors, consumption dropped in road transportation (-2.6%), despite an increased vehicles traffic.

It’s a potentially significant data, which could indicate a decoupling of energy consumption and traffic, explained by an increased efficiency of the vehicle fleet which, with over 2 million new registrations, underwent a significant renewal of the car fleet in 2017.

The ENEA ISPRED Index, which measures the transition of the national energy system based on security, prices and carbon dioxide emissions, shows an 8% drop as compared to 2016, following a worsening of decarbonisation scenarios and security and an improvement in prices.

“Although declining for the second year in a row- Gracceva went on_ CO2 emissions didn’t decrease in coherence with the 2020 goals; consequently, the ISPRED decarbonisation component showed a 14% worsening. Furthermore, the objective of a balanced and synergic development of the components of the energy trilemma, security-affordability-decarbonisation, was not achieved. Between 2010 and 2017 we witnessed instead to a succession of stages in which some aspects  improved while others worsened. Last year, for instance, a worsening in decarbonisation prospects counterbalanced an improvement in prices”.

A worsening occurred also on the component “energy security” of the ISPRED, with a 6% drop as compared to one year ago,  since the improvement of the oil indexes (+3%) was offset by the worsening of the indexes of security of the electrical and natural gas sytem (respectively +3% and +20%)

In particular, France’s nuclear crisis and the simultaneous surge in gas demand at the beginning of 2017 showed that in the case of a combination of extreme events (cold peaks, disruptions of supplies, problems in confining markets), major issues of adequacy could arise.

“As for the gas system, it’s telling that between 2017 and the beginning of 2018 a state of crisis was declared several times (January and December 2017, February 2018) and the state of emergency once. The crisis were overcome but the peak of prices and spread were very high. Furthermore, the surge in gas demand reinforced the all-italian peculiarity of predominance in the mix and dependence from foreign sources at historical heights” Gracceva concluded.

The ISPRED Index shows significant improvements in prices of electricity (+17%) and natural gas (+6%), while it shows a decrease in diesel oil (-25%).

Finally, this issue of the Quarterly Review includes an in-depht analysis of some energy issues which have raised the interest of most of the general press. The study showed that the five topics most frequently dealt with in newspapers are: oil trends in the international market; business strategies of the major italian energy companies; the National Energy Strategy (SEN); energy efficiency in buildings; the creation of the TAP pipeline.

Unabridged Quarterly Review

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The Role of Sovereign Wealth Funds in the Age of Green Energy

MD Staff

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The world’s shift away from carbon-based energies in favour of renewable or green energy threatens to turn fossil-fuel-rich economies into “stranded nations” unable to realize the economic value of their carbon wealth. The world’s sovereign wealth funds, which collectively own $8 trillion in assets but currently invest just 0.19% of this figure in green energy, have a powerful role to play in helping governments implement policies and investments to prepare for this transition. These are the findings of a World Economic Forum white paper, Thinking Strategically: Using Resource Revenues to Invest in a Sustainable Future, published today.

According to the report, economies where the value of the carbon wealth outweighs the value of human capital or financial assets are particularly vulnerable to the energy transition. This applies to more than a dozen countries that remain heavily dependent on fossil-fuel resources. The report goes further by saying that economies that have over 10% of their total wealth based in carbon assets could become “stranded” and must act now to develop the human capital and economic diversification to thrive in a world that is less dependent on carbon energies.

Adding urgency, the report points out, is that the shift to green energy is likely to occur sooner than expected. Estimates predict between two-thirds to three-fourths of energy will come from green sources by 2050. These estimates are much higher than a decade ago, when just 15% of energy was expected to be green by 2050. This means countries with high carbon wealth may have even less time than anticipated to avoid being stranded as the pace of the green energy shift continues to beat predictions.
While some fossil-fuel-dependent countries have already begun to diversify their economies and increase investment in human capital in preparation for impending energy changes, such changes are rarely adequate for the size and speed of these economic shifts, the report finds.

Sovereign wealth funds, as some of the largest investors in the world, have been an extraordinarily powerful tool for stabilizing resource-rich economies and securing wealth for future generations. By closely aligning their private investment acumen with public policy under a “strategic mandate”, these funds can deliver even more value to society. This can be achieved by adopting a “strategic investment fund” model whereby funds act as an additional tool for policy-makers to support local development goals.

“To protect their economic futures, countries whose economies rely on fossil fuels need to prepare now for the impending global shift away from these resources,” said Maha Eltobgy, Head of Shaping the Future of Long-Term Investing, Infrastructure and Development at the World Economic Forum. “The resource dependent, fossil-fuel-rich nations that have diligently built large sovereign wealth funds to manage the economic challenges of the Age of Oil must now consider how to use this vast wealth to prepare for the Age of Green Energy.”

The potential for sovereign wealth funds to play a transformational role in driving diversification and sustainable growth is underpinned by the number of new funds that have come into existence in recent times. In 2000, there were just 26 sovereign wealth funds in the world; 10 years later, 57 existed; and today, more than 75 sovereign wealth funds collectively hold over $8 trillion in total assets. Only one-third of these funds operate under a strategic mandate, yet the report identifies 41 funds from commodity producers with nearly $4 trillion in assets that could do so.

As the impacts of climate change, demographic shifts and the transition towards green energy become more acute, economic policy-makers should more aggressively apply the strategic investment model to address these challenges head-on. “Increasing the number ‘strategic investment funds’ is the first step to ensuring economies are prepared for the impending global energy shift,” Eltobgy said.

“Rather than waiting for the economic and social impacts, countries must use the investment acumen and wealth they have accumulated to diversify their economies,” said Patrick Schena, Co-Head of the Sovereign Wealth Fund Initiative at the Fletcher School of Law and Diplomacy at Tufts University. “While domestic investment is difficult, and political and financial risk must be diligently managed, fossil-fuel economies must use every available tool to sufficiently respond to the impending global economic shift.”

With this change, the authors say, sovereign funds can be more closely integrated with public policy, giving them the ability to actually drive, rather than react, to the global energy transition. Their direct investing approach can create wealth rather than merely manage it, bringing new sources of prosperity while preparing for the challenges of tomorrow.

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Solar powering sustainable development in Asia and the Pacific

Armida Salsiah Alisjahbana

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The way energy is produced, distributed and used causes environmental damage – most visibly air pollution – that in turn harms people’s health. It is also one of the major drivers of climate change. Recognising this, countries are urgently looking to shift to more sustainable energy, but the transition has so far been slow. Put simply, our future depends on our ability to decarbonize our economies by the end of the century. This was recognised by the Paris climate agreement in 2015 and is central to the United Nations 2030 Agenda for Sustainable Development. Sustainable Development Goal 7 (SDG 7) sets countries the twin challenge of meeting new benchmarks in renewable energy and energy efficiency, while ensuring universal access to modern energy.

In Asia and the Pacific, progress towards SDG 7 needs to be accelerated. While 99 percent of the population is expected to have access to electricity by 2030, access to clean cooking fuels will reach only 70 percent of our region’s population, leaving far too many people exposed to the deadly impacts of indoor air pollution. Energy intensity – a measure of our economies’ energy efficiency – is set to decrease but will fall short of 2030 Agenda targets if no further action is taken. At the same time, the share of renewable energy in total energy consumption is only expected to reach 14 percent, well under the 22 percent share required.
Solar energy has a major part to play in closing these gaps. It is an opportunity we must seize for low carbon development, energy security and poverty alleviation. Because solar power can bring clean, emissions-free and evenly distributed energy. This is particularly relevant to Asia and the Pacific, where developing countries have abundant solar energy resources. Solar energy technology increasingly offers a cost-effective alternative to extending networks to outlying and often challenging geographical locations. A potential which has been captured by the Indian leadership’s ambition for “one world, one sun, one grid”.

Governments, the private sector and investors are now thinking over the horizon, planning for a more sustainable and low carbon future. The cost of renewable technologies, very much including solar power has dropped rapidly, bringing these solutions within reach. India now has the newest and cheapest solar technology of anywhere in the world. Mini-grids or standalone solar home systems can be deployed quickly and help reduce greenhouse gas emissions. Due in part to unsustainable subsidies and in part to inertia, coal fired electricity is set to continue to grow in the short to medium term, but wind and solar must play a much more substantial role sooner rather than later for us to have a chance of meeting the SDGs or achieving the aspirations of the Paris Agreement.

India is supporting this solar revolution. By founding and hosting the International Solar Alliance, it has moved decisively to increasing access to solar finance, lowering the cost of technology and building the solar skills needed among engineers, planners and administrators. But it has also set an unparalleled deployment target for solar power generation. The National Solar Mission aims to reach 100 GW of solar power generation by 2022 and has spurred intense activity in solar development across India which has captured the imagination of the region.

At the Economic and Social Commission for Asia and the Pacific, the development arm of the United Nations in the region, we are clear solar energy can boost renewables’ share in our power mix, increase energy efficiency and bring electricity to remote parts of the region. Our research is focused on overcoming the challenges of achieving these three elements of SDG7. Upon request, we support countries maximize the potential to adopt sustainable energy through technical support and capacity building, including through the development of energy transition roadmaps. Work is also underway to develop a develop a regional masterplan on sustainable energy connectivity, vital to make the most of solar power by supporting the growth of cross border power systems.

A core purpose of sustainable development is to ensure we leave future generations a world which affords them the same opportunities we have enjoyed. This is within our grasp if we work across borders to promote solar energy throughout Asia and the Pacific. India has a major role to play. Its experience gives us a historical opportunity to shape best practices in solar energy for our region and reduce carbon emissions. This is experience we cannot afford to waste.

UN ESCAP

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Phasing Out Coal and Other Transitions: Lessons From Europe

Dr. Arshad M. Khan

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Climate change reports are seldom sanguine.  Carbon dioxide, the principal culprit, is at record levels, about twice the preindustrial value and a third higher than even 1950.  Without abatement it could rise to  a thousand parts per million in a self-reinforcing loop spiraling into an irredeemable ecological disaster.  The UN IPCC report warns of a 12-year window for action.

Contrasting President Trump’s boast of US energy independence based on coal and other fossil fuels in his SOTU address on Tuesday, two Democrats, Senator Ed Markey and Rep. Alexandria Ocasio Cortez, have introduced a 10-page Green New Deal resolution to achieve carbon neutrality within ten years.  While this target may not be technically feasible, it is an admirable start to the discussion.  At the same time, the Germans are attacking the problem forcefully as demonstrated by their new coal commission report issued last week.

In November 2016, the German Federal Government adopted its Climate Action Plan 2050.  It outlined CO2 reduction targets in energy, industry, buildings, transport and agriculture.  Energy is the most polluting; its emissions total the sum of all the others except industry and energiewende (energy change) was a key aspect of the plan.

So even as our atavistic president is promoting coal, Germany, the EU economic powerhouse, announced it is planning to phase out all coal-fired power stations by 2038.  As outlined in the November 2016 plan, a commission comprising delegates from industry, trade unions, civil society including environmental NGOs and policy makers was appointed in 2018 to examine the issue and prescribe an equitable solution.  After eight months of negotiations and discussions, concluding with a final 21-hour marathon session, it has produced a dense 336-page document.  Only one member out of 28 cast an opposing vote, and Greenpeace added a dissenting option as it wants the process to begin immediately.

Such an objective was a special challenge because of Germany’s long industrial history coupled with coal mining.   The plan shuts down the last coal-burning power station by 2038 as the final step in the pathway outlined — an ambitious alternative is to exit by 2035 if conditions permit.  Total capacity of coal-using stations in Germany is about 45 gigawatts, and the report sets out a four-year initial goal of 12.5 gigawatts to be switched-off i.e. about two dozen of the larger 500+ megawatt units by 2022.  Progressively, eight years later (by 2030) another 24 gigawatts will have been phased out leaving just 9 gigawatts to be eliminated by 2035 if possible but definitely by 2038 at the latest.

It is a demanding plan for coal has been deeply embedded with German industry.  To ease the pain for tens of thousands of workers and their families, the plan allocates federal funding to deal with its broad ramifications i.e. job loss and displacement.  An adjustment fund will be used for those aged 58 and over to compensate pension deficits.  Funds are also directed towards retraining for younger workers and for education programs designed to broaden skills.

It includes 40 billion euros to develop alternative industry in coal mining states plus money not directly project-related.  In addition further investments in infrastructure and a special funding program for transport adding up to 1.5 billion euros per year are allocated in the federal budget until 2021.

The change-over will raise electricity prices, so a 2 billion euro per year compensation program for users, both private individuals and industrial, will continue until 2030.  This is designed to relieve the burden on families, and to maintain industrial competitiveness.

Germany is not alone.  The EU has issued an analysis of accelerated coal phase-out by 2030.  The Netherlands has its own energiesprong (energy leap) focused on energy transition and energy neutral buildings, meaning that the buildings generate enough energy through solar panels or other means to pay for the energy deficit from their construction and use.   It can now clad entire apartment blocks in insulation and solar panels, and is reputed to be so efficient that some buildings are producing more renewable energy than consumed. This expertise is also being utilized in the UK.

Given the forests, the Norwegians have tried something different.  They have built the world’s tallest wooden skyscraper, the Mjøs Tower, 85 meters high in Brumunddal.  Its wood sourced from forests within a 50 km radius uses one-sixth the energy of steel and of course much less, if at all, emission of greenhouse gases.

By the end of Germany’s enormous sector-wide endeavor, it expects to reduce CO2 emissions to roughly half through 2030 and 80-95 percent by 2050.  The comprehensive and complete nature of the program

could serve as a blueprint here in the US.  Thus the obvious question:  If Germany with a far larger proportion of its workforce associated with coal can do it, why can’t the US?

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