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Gas first – energy for peace

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When history is written, then President Trump’s decision on 8th May to abandon the Joint Comprehensive Plan of Action (JCPOA) agreement with Iran may well be seen as a historic turning point.

In fact the origins of President Donald Trump’s aggressive stance against Iran may lie in his ‘Energy Week’ speech on June 29 which saw a historic change in U.S. foreign policy doctrine and language, when the world heard from President Trump for the first time in addition to America First, a new U.S. rhetoric of Energy Dominance.

U.S. Secretary of State Mike Pompeo on Monday, May 21, threatened to place “the strongest sanctions in history” on Iran if its government doesn’t comply with Trump Administration policies. He called for a new nuclear agreement with Iran following Trump’s withdrawal from the 2015 nuclear deal. He said that the Trump administration prefers for it to be a treaty that is ratified by the U.S. Congress.

In response, Iran’s foreign minister criticized the U.S. secretary of state, tweeting that he saw U.S. diplomacy as a “sham” that was “imprisoned by delusions & failed policies.” Minister Zarif wrote: “It repeats the same wrong choices and will thus reap the same ill rewards.”

An Iranian VIP delegation participated at the pre-eminent European annual Flame natural gas conference in Amsterdam last week, during which speakers and delegates from Mediterranean Sea to Iran, Korea to Kazakhstan (Caspian Sea) and the U.S. to Russia discussed gas market and infrastructure development while elsewhere, heads of state and diplomats were meeting to address the JCPOA fallout, called for depoliticizing the energy industry.

Energy dominance & America first

I asked Chris Cook from University College London who participated at the Flame as speaker about the U.S. new policy on Iran.   He said: “I first analyzed the U.S. Energy Dominance doctrine announced by Trump on June 29, 2017 in an article published on August 2, 2017 and since then this U.S. strategy has become much clearer.”

He added: “ Firstly, the oil price has been re-inflated from around $45/bbl (Brent) & $42/bbl (WTI) to over $80/bbl & $75/bbl respectively as so-called ‘funds’ crowded in, buying over one million barrels of  oil futures contracts of 1,000 barrels each. The outcome for China – who historically overtook the U.S. as the greatest global net buyer – is that they are now paying an additional $30/bbl for 8m barrels per day of imports….this represents an astonishing $250m per day or $7.5bn per month to producers, and this massive cost has recently placed China in a trade deficit for the first time.

Secondly, just weeks after Gary Cohn (the architect of Energy Dominance) and Rex Tillerson left office within a week of each other, a fundamental shift in the foundations of global markets took place, on or around April 18, 2018. At this point unprecedented changes took place in the oil market ‘curve’ (forward pricing structure) while oil and the dollar began to rise together, which is extremely unusual. Meanwhile, the currencies of many emerging and developing nations, including Iran, have fallen dramatically against the U.S. dollar.”

Oil prices and U.S. dollar?

Mr. Cook is correct since while historically, crude oil prices have had an inverse relationship with the U.S. dollar the recent trends has seen crude oil prices increasing as the U.S. dollar rallied along with it.  In fact, by looking at the U.S. dollar rate against other currencies and the crude oil prices, it can be seen that the rally in crude oil prices over the last year has mostly coincided with a decline in the U.S. dollar. But, over the last six weeks, oil prices and the U.S. dollar are rallying in the same cycle: this coincidence has only occurred 11 times since 1983 and is drawing the attention of market commentators & analysts such as Mr. Cook.

Mr. Cook says: “In my analysis, this sudden shift is a result of a new direct linkage of the dollar to the oil price through opaque Enron-style tripartite ‘prepay’ funding of U.S. shale oil reserves. If I am correct (and I invite your readers to bear witness to my forecast) then when (not if) oil prices fall the U.S. dollar will fall with it.”

He continues: “In that context, I do not expect major consumer nations such as China and India to continue to accept market prices set by producers indefinitely. China launched a new physically delivered Shanghai crude oil contract on 26th March 2018 and has accumulated over 700m barrels of strategic oil reserves in the last three years. If I were in China’s position as the largest buyer of oil in the market, I would switch my purchases to Shanghai; invite producers and traders to sell priced against the benchmark contract I had created; and in the event that producers refused to sell, simply draw upon my reserves until they capitulate.”

Declaring war on Iran?
By what the U.S. foreign minister declared on 21st May there is no doubt that the U.S. Iran strategy is to weaponise the dollar by using access to the dollar clearing system to coerce compliance by any country with U.S. secondary sanctions. The effect was evident at Flame, as Total announced they could not risk sanctions, and would have to pull out of Iran’s South Pars natural gas Phase 11 project unless they receive a U.S. exemption, which U.S. foreign minister announced on May 21 that will not be granted.

Meanwhile, discussions continue at the EU Central Bank level as to how Iran may access the euro clearing system. But European companies operating internationally, particularly those who operate in the U.S., point out that simply obtaining Euro payments and finance would not resolve their problems in relation to U.S. control of a dollar system on which they largely rely, and access to U.S. markets.

Russian reaction?
Whereas the relationship between Russia and Turkey has long been strategic, Russia’s relationship with Iran has tended to be tactical, due to competition in respect of gas supply where Russia zealously protects its market in Europe. However, the recent evolution of energy markets suggests that this relationship may be changing in important respects from competition to cooperation.

Dr Ali Vakili – who recently retired from Ministry of Petroleum as a senior, highly experienced and influential Iranian energy official – was among the Iranian VIP delegation to Flame and in his first engagement since retiring as Senior Advisor to Petroleum Minister Bijan Zangeneh and Managing Director responsible for fuel efficiency together with his colleague Mahmood Khaghani outlined how Iran’s strategic energy policy has long been to use natural gas to replace petroleum products wherever possible. Statistics show that as Iran’s natural gas production has grown, it has almost entirely been used domestically, with relatively restricted exports to neighboring countries including Turkey, Armenia, and to Iraq.

As documented in the Tehran Times in the past, at a major conference in Ashgabat in December 2014, Mr. Ramazani, former Director at the NIGEC, gave an early insight into Iran’s evolving energy strategy, as he pointed out that it made more economic sense for Turkmenistan to convert gas to power locally and dispatch electricity regionally in a new High Voltage Direct Current (HVDC) Caspian Energy Grid, than to export gas thousands of kilometers into Europe, as envisaged in the U.S. & EU sponsored Southern Corridor initiative which aimed to displace Russian and Iranian gas supply.

Iran has 3.5 million cars fuelled by compressed natural gas (CNG) as well as fleets of buses and commercial vehicles. Iran has also massively increased domestic use of natural gas instead of naphtha as a petrochemical feedstock. The original Iranian rationale for domestic use of gas was national security (oil product import substitution). However, as Mr. Cook suggests: “With oil prices at current levels it now makes commercial sense for CNG vehicles to displace diesel & gasoline fuelled vehicles. In fact this point was driven home at Flame by VW’s Group Head of Strategy, Jasper Kemmeyer in his plenary presentation on VW’s strategic move into what VW call CNG Mobility.”

America first or energy first?

During a joint presentation at the Flame, Mr. Khaghani and Mr. Cook put this question at the Flame workshop. Mr. Khaghani began by outlining how during decades of high level experience in Iran’s Petroleum Ministry he had developed what became known as Iran’s energy diplomacy in the Caspian region.

In particular, he outlined innovative Iranian energy swaps, such as the Caspian Oil Swap of Turkmenistan, Russia, Kazakhstan and the Republic of Azerbaijan’s oil into North Iran for Iranian Oil delivered out of the Persian Gulf. Perhaps his proudest achievements were the supply of gas to Armenia in exchange for power to Iran, and the supply of gas to Nakhchivan which was termed Energy for Peace.

While historically producers of upstream oil and gas compete for sales, Mr. Khaghani and Mr. Cook proposed in respect of downstream heat/cooling, mobility & power that is in the interests of all to cooperate in respect of costs. They brought to the attention of the Flame participants that Western energy infrastructure and commodity markets in oil and gas which are capital intensive are now evolving into smart markets in energy services based on intellectual capital rather than finance capital.

GasCoins?

Three weeks earlier in Moscow at the invitation of Russia’s Deputy Energy Minister for Oil & Gas, H.E. Mr. Kirill Molodtsov, and Mr. Cook outlined how generic swaps of gas flow may be combined with issuance of simple credits (GasCoins) by gas producers as financing instruments returnable in payment for gas supplied.

Following an article published in Tehran Times, the GasCoin concept has attracted a great deal of attention in Iran and Mr. Cook during his presentation at the conference in Moscow fleshed out the concept by explaining how such GasCoin instruments may be practically implemented through a Gas Clearing Union (GasClear).  As he explained: “This consists of suitable guarantee (Protection & Indemnity/P&I) agreements for mutual assurance of performance, so that gas producers accept each other’s’ credits, and then account to each other, with administration and risk management by a trusted service provider.”

During a conversation he said: “In this way, a GasCoin, if driven by key gas producers such as Iran and Russia through the Gas Exporting Countries Forum (GECF) could mobilize the next Energy Fintech wave of financial technology, building on the current flood of unsustainable Blockchain/Coin initiatives.”

Mr. Khaghani and Mr. Chris Cook in their joint presentation at the Flame on 15th May 2018 suggested that “such a GasClear system is complementary to the existing energy commodity market and opens the way for payments through issuance, exchange, return and settlement (‘clearing’) of energy credits. The beauty of energy credits is that they are not bound by any national government currency or unit of account e.g. $ or €.”

Mr. Cook says: “The same GasClear platform may then be used by investors and consumers to invest directly in gas supplies and even gas savings. In this system, the role of banks is transformed from capital intensive middlemen who take credit risk, to a new and smart role as a risk service provider & administrator who manages credit risk and performance.”

Gas first and the European Union?

We saw only recently how important the Nordstream 2 gas pipeline route through the Baltic Sea is to Germany and Russia, and that U.S. resistance to it is based purely upon narrow commercial considerations of export of cheap shale gas. Both Russia and Germany are well aware that even at the height of the Cold War, the USSR reliably supplied gas to Germany who equally reliably paid for it, and it is ironic that the well documented breakdowns in supply via Ukraine involve difficult and often opaque relationships between oligarchs, particularly in Ukraine.

It was also interesting to hear from officials of the EU Commission that the politically motivated Energy Union initiative originated by Donald Tusk as President of the European Council to aggregate EU energy market power to better negotiate with Russia is, in their view, completely un-implementable. However, according to Mr. Cook: “The ongoing market trend from commodity transactions to services applies as much to energy markets as to all others. I believe that there exists an opportunity to create complementary networked Energy Tech financial infrastructure – a Eurasian Energy Clearing Union – in which all regional nations may participate.”

So, Iranian VIP delegation and Caspian Energy Grid founders participated at the Flame were offered the opportunity to lead the creation of smart markets in energy – where credit is accounted in the positive value of energy rather than the negative value of debt. This enables a new pathway – through energy economics rather than dollar economics – to a Transition through Gas to a low carbon economy.

In such an energy credit clearing system, Mr. Cook says: “Banks would no longer create credit (because they are not energy producers) but may manage transparent credit creation by producers. This opens the way for the € unit of account to be fixed against an agreed amount of energy and for the Euro to explicitly follow Denmark onto an energy standard (based on provision of energy as a service).”

He suggested: “In terms of institutions, countries like Iran could create a new Energy Treasury, in which representatives of oil and energy ministries participate in overseeing issuance by energy companies, alongside representatives of Iran’s Central Bank, who could not of course issue energy credits, but whose role would be as an independent monetary authority.”

Chris Cook concluded: “The current trend which sees oil and the dollar rise together may be an anomaly and the usual relationship between oil prices and the U.S. dollar exchange rate against other currencies may shortly resume. But, if as I suspect the U.S. has essentially fixed the dollar to oil then we may expect the oil price to fall as and when U.S. dollar falls.”

First published in our partner Tehran Times

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How Northwest Europe can shape a clean hydrogen market

Noé van Hulst

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There is a growing awareness that the global energy transition will not succeed unless it finds ways to decarbonise the “hard-to-abate” sectors like industry and heavy transport, while providing sufficient flexibility to balance electricity grids all year round.

Clean hydrogen is one of the few options available. This explains why you hear so much about it lately. Witness the recent reports of the Energy Transition Commission, the EU’s 2050 climate strategy, as well as The Economist. Austria launched a Hydrogen Initiative during their EU presidency this year. Japan holds the presidency of the G20 in 2019 and has already announced that hydrogen will be one of their priorities.

Even more importantly, there is a growing number of real-life applications in the transport sector and beyond that announcements of major new hydrogen projects by companies around the world. Recent examples include Air Liquide in California, Gasunie, Nouryon and Engie in the Netherlands, Equinor in Northern England and Kawasaki in Japan.

In the Netherlands alone, several 100 MW capacity hydrogen projects have been announced close to industrial clusters. Of course, most of these projects are feasibility studies that may not all reach the stage of final investment decision. But we can already see that a growing number of countries are reviewing how to position themselves in the nascent global hydrogen market. This is not only driven by the huge potential of clean hydrogen to help decarbonize the energy system, but also by its contribution to enhancing energy security by lowering the need for imports of oil and gas and offering storage solutions to the increasingly difficult task of balancing the grids.

What does this mean for Europe?

Most probably clean hydrogen will become an important part of the European Union energy strategy of the new EC. But it will take quite some time before that will be a reality. Meanwhile, countries in Northwest Europe have a unique opportunity to use current momentum in the market to jointly craft a suite of coordinated policy actions that could jump-start the development and deployment of clean hydrogen.

The so-called Pentalateral Forum, consisting of the Benelux, France, Germany and Austria, with Switzerland as observer, has acted as a front-runner in electricity and gas market integration in the past. The Netherlands is making the case that it can play a similar role in shaping the European clean hydrogen market.

Already showing publicly that neighbouring countries are willing to consider policy coordination at this moment in time will send a strong signal to the private sector that governments understand that a joint approach will help the scale-up in making projects more or earlier investable and bankable because of bigger market potential.

In addition, this would signal the willingness of governments to overcome complicated cross-border regulatory barriers. Fast-forward 20 or 25 years, and it is possible to imagine European cross-border gas infrastructure being transformed into a new European hydrogen backbone. The key question is now how to make this happen as quickly as we can.

Several policy actions could be considered to accelerate the development and deployment of clean hydrogen. They range from voluntary – or perhaps mandatory – targets for blending of clean hydrogen in the European gas networks and greening of current hydrogen use in industry, to the creation of European transport corridors to enable hydrogen trucks, buses and ships to cross Europe unhindered by lack of access to pumpstations. Zero-emission vehicles targets by some future date are significant drivers in this respect. Gas pipelines which are no longer needed to transport gas might very well be adjusted to transport 100% hydrogen.

The more we would be able to take a European angle in setting objectives and regulating the nascent hydrogen market, the better. In addition, one could imagine ambitious European initiatives to drive down the cost of green hydrogen production by scaling up the size of electrolysis capacity to the necessary GW-scale in the next decades.

This will certainly require new public-private partnerships, bringing together both supply of and demand for clean hydrogen and possibly including banks and investment agencies. For the public side, the challenge will be how to provide a sufficient level of de-risking to make projects viable. We can foresee a European roadmap where initially the production of ‘blue’ hydrogen (using CCUS where feasible) may help us to gain experience and enable the build-up of hydrogen infrastructure, alongside a continuously growing role for green hydrogen (mainly from over time ever increasing volumes of offshore windpower).

Important market players like Engie say it should be possible to push green hydrogen down to competitive prices by around 2030. One can imagine a similar learning curve for green hydrogen as the one we experienced with wind offshore in Europe. What would certainly help business cases is if the EU manages to keep CO2 prices on an upward trajectory.

The Austrian EU presidency estimated that 45% of EU industrial (grey) hydrogen demand, or 10% of EU natural gas consumption, could be substituted by green hydrogen in 2030. Let’s not forget, however, that not all clean hydrogen will need to be produced in Europe. We are receiving more signals on a weekly basis of feasibility projects around the world considering low-cost production of blue and green hydrogen that may reach European destinations in the coming decades by ship or even dedicated pipelines. It is also important that European ports start preparations for absorbing future imports safely.

But what about electrification, which is so often discussed? Well, electrification is extremely important and welcome. In World Energy Outlook 2018, the IEA shows how much scope there is to further electrify our energy system beyond the current 20% of final energy consumption. And if this is done by renewable energy or nuclear, this is a very welcome greening of electrons and helps decarbonization.

But this still leaves the majority of the energy system in need of greening of molecules. And that is exactly the territory where clean hydrogen has such a critical role to play – to reach the sectors where electrification alone won’t do the job, mainly industry and heavy transport, as well as provide seasonal storage that is really hard to manage just with batteries. Regarding industry it is important to understand that it’s not only about greening current use of grey hydrogen, but also about the new waves of decarbonizing investment that often require significantly higher use of clean hydrogen as a feedstock.

In all jurisdictions where the share of renewable electricity rises above say 40%, balancing the grid satisfactorily over time becomes an issue. In some countries the cost of curtailment is already around 1 billion euro per year. There are several ways to maintain sufficient flexibility in the system, but hydrogen storage is certainly an important one.

In short, clean hydrogen is an ideal complement to green electrification. Which is exactly why clean hydrogen is rapidly gaining momentum in the world. Northwest Europe can and should position itself as a front-runner in developing and deploying clean hydrogen to help the decarbonisation of the energy system, while improving energy security at the same time. Many new jobs would be created in the process.

IEA

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How will the electricity market of the future work?

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Authors: Kieran McNamara, Valentina Ferlito and Alberto Toril

Our energy destinies rest in the hands of governments – and this is particularly true in power markets. More than 70% of future investments in global energy supply will be made by state-directed entities or respond to regulatory incentives. If we narrow this view to the power sector, more than 95% of global investment will be made in sectors that are fully regulated or affected by mechanisms to manage the risk associated with variable prices on competitive wholesale markets.

Traditionally, electricity markets developed and operated within strictly regulated frameworks, in which vertically integrated utilities handled all or most activities from generation to transmission to retail. Over the past 35 years, however, many parts of the world have gradually moved towards competitive markets as a means to generate and procure electricity alongside many of the support services required to operate a power system.

Today, countries that rely on competitive markets to maintain efficient operations in the short term, either through bilateral physical contracts, power exchanges, or co-ordinated spot markets, account for 54% of the world’s electricity consumption. Once China completes implementation of its power sector reform, this share will increase to almost 80%.

Despite their imperfections, markets have largely succeeded in the goal of providing reliable electricity at least cost to consumers. Nonetheless, some regional markets have come under strain. Without policy measures to address this shortfall, there is a risk to future security of supply. This is a topic that is examined in much greater detail in the electricity focus of the World Energy Outlook-2018.

Since 2010, some electricity markets have experienced a decline in wholesale energy prices brought about by stagnant demand, low natural gas prices and higher output of generation with low marginal costs. This situation is not unique to Europe, for example, our analysis points to similar outcomes emerging in regions such as the United States and Australia.

Ensuring sufficient investment in competitive electricity markets

The decline in market revenues experienced in many markets raises some questions about the ability of competitive markets to provide adequate returns to sustain the existing fleet and to provide adequate signals for timely and efficient investment. The problem arises from the low wholesale market prices that have occurred in many markets, as a result of rapid deployment of variable renewables, the requirement for high levels of reliability (through healthy capacity margins), and, in some cases, low natural gas prices.

While periods of reduced profitability are a natural part of competitive markets, declining revenue in lean systems where investment is needed – which we see in some markets today – may signal a need to re-evaluate market design and its ability to deliver investment and electricity security, especially since the main conditions that have depressed wholesale prices are likely to continue at least in the near term. With new sources of capacity and flexibility in power systems becoming more widely available and cost-competitive, future regulatory frameworks or market reforms should strive to ensure a level playing field for all system resources, including power plants, energy storage systems and demand-side response.

Furthermore, wholesale markets are responsible for non-energy revenues that come from providing a variety of products commonly referred to as system or ancillary services. These products safeguard against unforeseen changes in demand or available supply (primary and secondary reserves), as well as products that support the quality of power (reactive power, frequency regulation and inertia). They provide revenues to sources that, even if not essential for the adequacy of the system, support the reliability of supply and quality of power delivered.

Recent trends suggest that some markets may be unable to deliver investment signals that guarantee resource adequacy. For example, in markets in the European Union, the share of total production costs covered by electricity sales fell from 77% in 2010 to about 60% in 2017, and looks set to continue declining. Such unsatisfactory market signals led many European utilities to broaden their exposure to global markets by means of deep business restructuring and reorganisation, in addition to giving large space for capex optimisation and high investments in operational efficiency, renewables and digitalization. In fact, even if in 2017 the missing money gap narrowed, as wholesale electricity prices and total electricity sales increased by about 20%. This relief was temporal, however, mainly a result of a rebound in natural gas prices, lower contribution than usual of hydropower to the generation mix and extended nuclear plants outages. Unfortunately none of these underlying causes of partial remuneration recovery is likely to continue.

In the United States, the share of total generation costs covered by wholesale electricity sales is also declining. Stagnant demand and the rising share of variable renewables, led by wind power, have added to the downward pressure on wholesale electricity prices in several US electricity markets. Electricity sales may continue to recoup less than the total cost of generation, owing to an expected growth from solar PV and wind generation and a persistence of low gas prices, despite the possibility of a return to growth for electricity demand spurred by space cooling and the electrification of heat and transport.

In Australia, the recent experiences have been quite different; mostly due to scarcity pricing – which also constitutes a key signal for new investment required – that has more than offset an increasing share of renewables during the last seven years and has covered a rising portion of total costs in generation.

Where do we go from here?

The experience of established competitive markets provide useful examples of potential concerns and solutions for countries looking to transition to competitive markets. For example, Japan is pursuing electricity market reforms that establish a set of markets for baseload, transmission usage, capacity, balancing and zero emission credits, which will provide a basket of complementary revenue streams. Mexico is also pursuing market reforms that aim to transition away from regulated to competitive markets and that take account of the experience of other countries.

These points lead to the obvious question: how will the electricity market of the future work? It is very likely that over the medium to long term, many markets will continue to experience further downward pressure on wholesale energy prices as more zero-cost power generation enters the market alongside new energy service providers and innovative technological solutions. Policy makers, regulators and energy sector stakeholders need to understand the changes underway and seek new solutions and market designs that can support the transition towards low-carbon electricity markets while at the same time ensuring the security and adequacy of power systems.

*Valentina Ferlito IEA consultant and Alberto Toril IEA consultant

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A Just and Fair Energy Transition: An opportunity to tackle climate change and create prosperity

Adnan Z. Amin

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Holding the UN climate conference COP24 in Katowice sends a strong signal as it provides the international community with an opportunity to learn from an on-going energy transition in a traditionally fossil-fuel intensive region. At the same time, it reminds us of the imperative of a just energy transition on our pathway towards a climate-safe future.

The global energy landscape is truly witnessing rapid and wide-ranging changes driven by an unprecedented growth of renewables. Last year alone, a record-breaking 168 gigawatts of renewable energy capacity was added globally, making it the sixth year in a row in which new power generations from renewables outpaced conventional sources including from coal.

Renewable energy is driving an energy transformation that is creating new socio-economic opportunities for countries, regions and local communities across the world. It is also key to address climate change, which is becoming ever more urgent. The widely cited recent Special Report on Global Warming of 1.5°C by the UN Intergovernmental Panel on Climate Change (IPCC) urges for a rapid scaling-up of renewables to avoid irreversible climate impacts.

Poland has a vast potential of renewable energy resources, such as biomass and wind energy, and is therefore well positioned in this changing landscape. Countries that lead this transformation will also be the ones to reap most of its benefits. While coal fuelled an intensive industrialisation in the 18th century, wind energy could become a new point of industrial departure for Poland. The launch of a parliamentary commission on offshore wind as well as the most recently announced plan by Polish authorities to develop 8 gigawatts of offshore wind by 2030 point in this direction.

Indeed, building new wind energy installations makes compelling economic sense for Poland as technology costs continue to fall dramatically. Today, onshore wind represents one of the lowest-cost sources of new power generation globally. Cost for wind turbines alone declined by a remarkable 30% since 2010, the cost of power from onshore wind fell by 23% globally. Innovation and breakthroughs in wind technologies are creating new deployment opportunities and driving cost reductions across the industry further. The International Renewable Energy Agency (IRENA) estimates that offshore wind cost could fall by an additional 14% by 2020, making all commercially-available renewables cost-competitive with fossil fuels.

Beyond the strong business case, growing the offshore renewable energy sector will create jobs and revenue in communities across the country. The development of a typical 500-megawatt offshore wind farm requires around 2.1 million person-days of work. A wide range of skills are needed for the successful completion of such a project, from planning, procurement, manufacturing, transport, installation and grid connection as well as operation and maintenance. Jobs which puts countries like Poland in a favourable starting position as it can build on solid local manufacturing capacity.

To put this in concrete numbers in the Polish context, the development of 6 gigawatt of offshore capacity in Poland could create more than 75 000 new jobs and contribute about PLN 60 billion to the economy, according to a study by McKinsey. Developing wind farms in Poland could also increase demand for products from many Polish companies, thereby reviving industries in regions such as Upper Silesia.

It is encouraging to see that Poland is beginning to tap into its enormous wind energy potential, especially in the Polish Baltic Sea, by boosting its existing offshore wind supply chain. It is also already leveraging its local industry to serve the nearby North and Baltic Sea markets, mainly in territorial waters of Germany and the United Kingdom.

Overall, shifting the global energy system to renewables would grow the world economy by one per cent till 2050, translating into a cumulative gain of more than USD 52 trillion. IRENA also estimates a total of 29 million jobs in renewables by 2050. With 500 000 new jobs, more jobs were created in renewables 2017 than in all fossil fuel technologies combined, surpassing the 10-million-benchmark for the first time. If we add social welfare benefits like better health, air quality and reduced pollution, potential gains more than outweigh additional costs.

However, to ensure that costs and benefits are fairly distributed, the on-going, large-scale global energy transformation has to be accompanied by policies enabling a just transition. A just transition must create alternatives to people and regions trapped in fossil fuel dynamics through new economic opportunity, education and skills trainings and adequate social safety systems. Governments and local authorities will have to engineer new job opportunities for job losses caused by replacing fossil fuels with climate-safe power sources. With its ambitious plans to accelerate offshore wind energy, Poland is sending a powerful signal to other countries not only in Central and Eastern Europe but also to the rest of world that moving forward on renewables makes economic sense and can be designed in a socially just way.

Far from having to choose between mitigating climate change and economic growth, it is more evident than ever that an opportunity exists to ramp up renewable energy technologies, decarbonize economies and shift the global development paradigm to one of shared prosperity.

This piece was published in Polish by Wirtualny Nowy Przemysł on 13 December 2018.(IRENA)

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