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Finding Opportunity In The Energy Transformation: The Perspective From The EU

MD Staff

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As European Commissioner for Climate Action and Energy, Miguel Arias Cañete is tasked with accelerating the deployment of renewable energy in the region, both in response to climate change and as an industrial policy imperative.

The EU has made progress. Overall, it improved its energy intensity by over 20% between 2005 and 2016, keeping its final energy consumption stable despite economic growth. In 2015, increased use of renewables reduced greenhouse gas emissions equivalent to Italy’s total emissions and saved the EU €16 billion in fossil fuel imports.

At the same time, Commissioner Cañete reminded the audience at the 4th EU Energy Summit that although significant progress has been made, there is still a long way to go, noting that “still coal, gas and oil together accounted for some 72% of our primary energy consumption in 2016, and most of this is imported.”

In February this year, as part of the Remap programme IRENA published Renewable Energy Prospects for the European Union, prepared in co-operation with the European Commission.  The report found that the EU could cost effectively double the renewable share in its energy mix, from 17% in 2015 to 34% in 2030. IRENA reached out to Commissioner Cañete to get his views on Europe’s energy transformation.

IRENA: In the EU Action Plan on Financing Sustainable Growth, the European Commission states that “sustainability and transition to low-carbon, more efficient and circular economy are key in ensuring long-term competitiveness of the EU economy.” How, in your view, are the energy transformation and sustainability fundamental to the EU economy as a whole?

Commissioner Cañete: The importance of the energy sector for the EU economy cannot be overstated: It employs close to 2.2 million people, spread over 96,000 companies across Europe, representing 2% of total added value. Energy represents on average 6% of annual household expenditure.

The research and innovation development of new technologies and services across the energy supply chain has led to the creation of new businesses throughout Europe, providing jobs and economic growth for Europeans.

At the end of 2016, the European Commission put together the “Clean Energy for all Europeans” package. Through eight new or revised pieces of legislation, including to the Renewable Energy Directive, this is putting in place the most advanced regulatory framework to facilitate the investment that we need in Europe to modernise our economy.

Although there is the challenge of attracting the necessary investment, this transition represents an enormous opportunity for the EU: By mobilizing up to €177 billion of public and private funds per year until 2021, we can grow GDP by up to 1% and create 900,000 new jobs over the next decade.

Public money alone will not be enough to cover investment needs: the financial sector will have to throw its full weight behind the fight against climate change. This is why the European Commission came up with a dedicated EU Action Plan on Financing Sustainable Growth. We believe that the clean energy transition also provides an excellent opportunity to re-vitalize the financial sector by attracting private capital to energy efficiency projects, renewable energy technologies and supply infrastructure, smart energy system development; and to exploit the large potential of research and innovation in radically changing energy supply and demand patterns.

IRENA: If the EU was to scale-up renewables to 34% by 2030, there would be an estimated net cost savings of US$25 billion per year, notwithstanding saved health and environmental costs.  This is echoed in the EU Action Plan which states that the “investment gap of almost €180 billion to achieve EU climate and energy targets by 2030 must be closed.”  Yet since 2011, new investments in renewable energy in Europe have slowed.  What do you think accounts for this disconnect, and how is the EU working to address it?

Commissioner Cañete: In the EU, generation capacity from renewable resources, mainly wind and solar, has been increasing since 2000. We estimate that by 2030, more than 50% of the electricity we consume will come from renewables.

But indeed, while new installed wind and solar capacity saw a significant increase to 2011, investments in renewables have slowed since 2011, primarily due to the downward revision of national support schemes in EU Member States and missing regulatory incentives in some Member States. An important factor in this context is the falling technology cost of renewables. As IRENA data has shown, the global cost of solar PV has decreased by almost 70% between 2010 and 2017. Renewables are more and more competitive against conventional technologies.

Since 2013, investments in renewables have been stable. In 2017, the EU was the second largest market for renewables in the world. At the same time, deployment has continued to increase due to the falling costs. For example, in 2017 the EU’s solar PV market grew by 6% and wind turbine market grew by 25%.

The EU is very keen to show leadership in fulfilling our Paris Agreement commitments. Transforming the energy sector is key in this context. Under the Clean Energy for all Europeans package, investments will allow the EU to cut greenhouse gas emissions by at least 40% by 2030 and ultimately be carbon neutral by 2050, while contributing to economic growth and jobs in Europe.

By setting the right targets and measures for the use of renewables, we believe we can get all EU countries moving together in the right direction and create economies of scale literally at continental level. While Member States are willing to support a renewables target of at least 27% by 2030, I’m pleased to note that the European Parliament is pressing for an even bolder approach that coincides with the IRENA REmap findings.

The 27% target and proposed measures should provide the necessary security to encourage investment, and the clearer legal framework provided by the revised directive will remove uncertainties for investors, reduce administrative burdens and decrease costs. Our focus is on the potential for renewables in electricity, heating and cooling and transport sectors. This will enable Europe to reinforce its industrial competitiveness and to remain a global leader in renewables.

We are confident that with this package in place, investments will continue to grow, as the EU is indeed looking for investments in the range of €180 billion per year to achieve its objectives for 2030. This number constitutes investments in all sectors, as well as in energy efficiency, renewables, and infrastructure. For the power sector alone, the investment needs are around €75 billion per year of which 33% is needed for renewables and 47% for the power grid.

IRENA: What are some of the promising options that you see to scale-up the share of renewables in heating and cooling in the EU, and what are some of the measures that the EU is adopting to support e-mobility?

Commissioner Cañete: In Europe, the share of modern renewables in the heating and cooling sector is 19.1%, largely from biomass. This is significantly higher than any other large economy in the world. Thanks to the uses of bioenergy, 5 EU Member States have shares of 40% or higher of renewables, which makes them global leaders in this area. However, in most of EU Member States there is a significant untapped potential for renewables in this sector.

The European Commission recognises that renewables in the heating and cooling sector are some of the most cost-effective solutions to further increase renewables and has proposed to increase the share of renewables in the heating and cooling sector by 1% per year over the period from 2021 to 2030.

The European Commission’s assessments, like those of the IRENA study, suggest that increasing the share of renewables in the heating and cooling sector will also increase the diversity of renewable energy options, including heat pumps, solar thermal and geothermal options. District heating and cooling systems can particularly help the cost-effective and efficient integration of renewables in urban areas.

Today, transport accounts for roughly a quarter of the EU’s greenhouse gas emission, with road transport alone responsible for 22%, and growing.

The European Commission’s strategy for low-emission mobility reaffirms the objective of reducing greenhouse gas emissions from transport by at least 60% on 1990 level by 2050.  Following the principal of technology neutrality in this area, our policy aims at increasing the deployment of zero- and low-emission vehicles overall.

Mainstreaming renewables in the power sector will require high levels of deployment of renewable capacity to replace and repower existing assets, and related infrastructure in order to overcome one of the major bottlenecks in the electric vehicle market. Assuming a rapid market uptake of electric vehicles, by 2020 up to 440 000 public accessible recharging points would be needed in the EU. This could cost up to €3.9 billion, supported finically via the EU’s infrastructure programmes.

The European Commission has therefore put forward an Action Plan aiming to boost investment in alternative fuel infrastructure and develop a network of fast and interoperable recharging and fuelling stations across the EU. We also proposed to include charging infrastructure in the EU’s building stock during construction and renovation works. New provisions for example require the installation of recharging points and ducting infrastructure in our buildings’ car parks.  Technical solutions and a pricing scheme that attracts consumers are also required to promote smart charging.

IRENA

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Energy

Five Reasons Why Countries in the Arabian Gulf are Turning to Renewables

MD Staff

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photo: IRENA

As global leaders look to renewables as a way address the growing and multi-dimensional threat of climate change, traditional energy countries in the Gulf Cooperation Council (GCC) are embracing renewables faster than ever before. Led by efforts in the United Arab Emirates and Saudi Arabia, the GCC has become crucial to global efforts in support of the energy transformation.

As the IRENA Director-General Francesco La Camera said recently at the International Energy Forum in Riyadh, Saudi Arabia: “It is perfectly possible to generate sufficient cheap, reliable energy from renewable sources. Not only is it possible, but it is also our best option, as it would bring higher socio-economic benefits than business as usual, and it would allow us to effectively address climate change.”

For the Gulf, renewables bolster energy security and support economic diversification whilst offering nations rich in renewable energy resources, an opportunity to explore their full economic potential. They also offer a second chance at energy leadership. Today, much of the global cost reductions witnessed in renewables have come from the Gulf. And by driving down the price of renewables and investing abroad, the Gulf is also shaping the energy transformation in other regions.

Here are five reasons why GCC countries are turning to renewables:

Renewables are the most practical and readily available climate solution

According to an IRENA analysis, the accelerated deployment of renewable energy in the GCC region can reduce emissions of C02 by 136 million tonnes. As nations are being urged to step up their renewable energy targets to keep the world well below 2° Celsius of warming, the UAE has more than doubled its existing pledge, committing to 50 per cent clean energy by 2050 at the UN Climate Action Summit in New York, resulting in even more C02 reductions than predicted.

Renewable energy is the most competitive form of power generation in the region

The business case for renewables is a central motivating factor for the Gulf’s transition towards renewables. Today, renewable energy is the most cost-competitive source of new power generation in the GCC, replacing traditional energy sources as the answer to the region’s fast-growing domestic energy demand. Recently, the 900 megawatt (MW) fifth phase of the Mohammed Bin Rashid Al Maktoum Solar Park in the UAE received one of the lowest bids for a solar PV project in the world at 1.7 cents per kilowatt hour (kWh).

Renewable energy creates jobs

Long-term policy objectives seen in the GCC region, including private enterprise, education, training and investment in local skills and human resources, can facilitate the rise in the number of jobs in the renewable energy sector. IRENA’s data suggests that renewable energy can create more than 207,000 jobs in the region by 2030 with solar technologies accounting for 89 per cent of them. The proliferation of rooftop solutions alone could employ 23,000 people by 2030 in the region.

The GCC region is endowed with considerable renewable energy potential – and not just solar

The suitability analysis for solar PV technology in the GCC reveals strong potential for deployment in all GCC countries, with Oman, Saudi Arabia, and UAE as leaders. Furthermore, areas in Kuwait, Oman and Saudi Arabia also boast good wind resources. Technologies such as biomass and geothermal power may hold additional potential but remain underexplored. According to IRENA analysis, based on targets in 2018, which, if met, could result in about 72 GW of renewable energy capacity in GCC by 2030.

Renewables save water

Water scarcity is an acute challenge in the region, with four of the six GCC countries ranking within the top 10 most water challenged on earth according to the World Resources Institute. And with one of the fastest-growing populations in the world, the region’s demand for water is expected to increase fivefold by 2050. If the GCC countries were to realise their renewable energy targets, this would lead to an estimated overall reduction of 17% and 12% in water withdrawal and consumption, respectively, in the power sectors of the region. Much of this reduction would be in Saudi Arabia and UAE, due to their plans to add significant shares of renewable energy in the power sector.

IRENA

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“Oil for development” budget, challenges and opportunities

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Iran has recently announced that its next fiscal year’s budget is going to be set with less reliance on oil revenues.

Last week, Head of the Country’s Budget and Planning Organization (BPO) Mohammad Baqer Nobakht said “In the next year’s budget – it starts on March 19, 2020 – oil revenues will be only spent for development projects and acquisition of capital asset, and not even one rial is going to go to government expenditures and other areas.”

At first glance, the idea is very appealing and it seems if the government manages to pull it off, it will be a significant step for Iran in its movement toward an oil-independent economy. However, it seems that cutting oil revenues from the budget and allocating them only to a specific part of the country’s expenditures is not going to be an easy task.

Although, BPO has already suggested various substitute sources of revenue to replace those of oil, some experts believe that the offered alternatives are not practical in the short-term.

So, how successful will the government be in executing this plan? What are the challenges in the way of this program? What are the chances for it to become fully practical next year?

To answer such questions and to have a clearer idea of the notion, let’s take a more detailed look into this [so called] ambitious program. 

The history of “oil for development”

It is not the first time that such a program is being offered in Iran. Removing oil revenues from the budget and allocating it to development projects goes way back in Iran’s modern history.

In 1927, the Iranian government at the time, decided to go through with a plan for removing oil revenues from the budget, so a bill was approved based on which oil incomes were merely allocated to the country’s development projects.

This law was executed until the year 1939 in which the plan was once again overruled due to what was claimed to be “financial difficulties”.

Since then up until recently, Iran has been heavily reliant on its oil revenues for managing the country’s expenses. However, in the past few years, and in the face of the U.S. sanctions, the issue of oil being used as a political weapon, made the Iranian authorities to, once again, think about reducing the country’s reliance on oil revenues.

In the past few years, Iran’s Supreme Leader Ayatollah Seyed Ali Khamenei has repeatedly emphasized the need for reducing reliance on oil and has tasked the government to find ways to move toward an oil-independent economy.

Now that Iran has once again decided to try the “oil for development” plan, the question is, what can be changed in a program that was aborted 80 years ago to make it more compatible with the country’s current economic needs and conditions.

The substitute sources of income

Shortly after BPO announced its decision for cutting the oil revenues from the next year’s budget, the Head of the organization Mohammad-Baqer Nobakht listed three alternative sources of income to offset oil revenues in the budget planning.

According to the official, elimination of hidden energy subsidies, using government assets to generate revenue and increasing tax incomes would be the main sources of revenues to compensate for the cut oil incomes.

In theory, the mentioned replacements for oil revenues, not only can generate a significant amount of income, but they could, in fact, be huge contributors to the stability of the country’s economy in the long run. 

For instance, considering the energy subsidies, it is obvious that allocating huge amounts of energy and fuel subsidies is not a good strategy to follow.

In 2018, Iran ranked first among the world’s top countries in terms of the number of subsidies which is allocated to energy consumption with $69 billion of subsidies allocated for various types of energy consumption including oil, natural gas, and electricity.

Based on data from the International Energy Agency (IEA), the total amount of allocated subsidies in Iran equals 15 percent of the country’s total GDP.

The budget that is allocated for subsidies every year could be spent in a variety of more purposeful, more fruitful areas. The country’s industry should compete in order to grow, people must learn to use more wisely and to protect the environment.

However, practically speaking, all the above-mentioned alternatives are in fact long term programs that take time to become fully operational. A huge step like eliminating hidden subsidiaries cannot be taken over a one or event two-year period.

The development aspect

One big aspect of the government’s current decision is the “development” part of the equation.

A big chunk of the country’s revenues is going to be spent on this part and so the government is obliged to make sure to choose such “development” projects very wisely.

Deciding to allocate a huge part of the country’s income on a specific sector, makes it more prone to corruption, and therefore, a plan which is aimed to help the country’s economy could become a deteriorating factor in itself if not wisely executed.

The question here is, “Is the government going to spend oil money on all the projects which are labeled as ‘development’ even if they lack the technical, economic and environmental justification?”

So, the government needs to screen development projects meticulously and eliminate the less vital ones and then plan according to the remaining truly-important projects.

Final thoughts

Even if the “oil-free” budget is a notion that seems a little ambitious at the moment, and even if there are great challenges in the way of its realization, but the decision itself is a huge step toward a better future for Iran’s economy. Although realizing this plan seems fairly impossible in the short-term, it surely can be realized with proper planning and consideration in the long term.

Sooner or later Iran has to cut off the ties of reliance on oil incomes and start moving toward a vibrant, dynamic and oil-free economy; a journey of which the first step has been already taken.

From our partner Tehran Times

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Growing preference for SUVs challenges emissions reductions in passenger car market

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Authors: Laura Cozzi and Apostolos Petropoulos*

With major automakers announcing new electric car models at a regular pace, there has been growing interest in recent years about the impact of electric vehicles on the overall car market, as well as global oil demand, carbon emissions, and air pollution.

Carmakers plan more than 350 electric models by 2025, mostly small-to-medium variants. Plans from the top 20 car manufacturers suggest a tenfold increase in annual electric car sales, to 20 million vehicles a year by 2030, from 2 million in 2018. Starting from a low base, less than 0.5% of the total car stock, this growth in electric vehicles means that nearly 7% of the car fleet will be electric by 2030.

Meanwhile, the conventional car market has been showing signs of fatigue, with sales declining in 2018 and 2019, due to slowing economies. Global sales of internal combustion engine (ICE) cars fell by around 2% to under 87 million in 2018, the first drop since the 2008 recession. Data for 2019 points to a continuation of this trend, led by China, where sales in the first half of the year fell nearly 14%, and India where they declined by 10%.

These trends have created a narrative of an imminent peak in passenger car oil demand, and related CO2 emissions, and the beginning of the end for the “ICE age.” As passenger cars consume nearly one-quarter of global oil demand today, does this signal the approaching erosion of a pillar of global oil consumption?

A more silent structural change may put this conclusion into question: consumers are buying ever larger and less fuel-efficient cars, known as Sport Utility Vehicles (SUVs).

This dramatic shift towards bigger and heavier cars has led to a doubling of the share of SUVs over the last decade. As a result, there are now over 200 million SUVs around the world, up from about 35 million in 2010, accounting for 60% of the increase in the global car fleet since 2010. Around 40% of annual car sales today are SUVs, compared with less than 20% a decade ago.

This trend is universal. Today, almost half of all cars sold in the United States and one-third of the cars sold in Europe are SUVs. In China, SUVs are considered symbols of wealth and status. In India, sales are currently lower, but consumer preferences are changing as more and more people can afford SUVs. Similarly, in Africa, the rapid pace of urbanisation and economic development means that demand for premium and luxury vehicles is relatively strong.

The impact of its rise on global emissions is nothing short of surprising. The global fleet of SUVs has seen its emissions growing by nearly 0.55 Gt CO2 during the last decade to roughly 0.7 Gt CO2. As a consequence, SUVs were the second-largest contributor to the increase in global CO2 emissions since 2010 after the power sector, but ahead of heavy industry (including iron & steel, cement, aluminium), as well as trucks and aviation.

On average, SUVs consume about a quarter more energy than medium-size cars. As a result, global fuel economy worsened caused in part by the rising SUV demand since the beginning of the decade, even though efficiency improvements in smaller cars saved over 2 million barrels a day, and electric cars displaced less than 100,000 barrels a day.

In fact, SUVs were responsible for all of the 3.3 million barrels a day growth in oil demand from passenger cars between 2010 and 2018, while oil use from other type of cars (excluding SUVs) declined slightly. If consumers’ appetite for SUVs continues to grow at a similar pace seen in the last decade, SUVs would add nearly 2 million barrels a day in global oil demand by 2040, offsetting the savings from nearly 150 million electric cars.

The upcoming World Energy Outlook will focus on this under-appreciated area in the energy debate today, and examines the possible evolution of the global car market, electrification trends, and consumer preferences and provides insights for policy makers.

While discussions today see significant focus on electric vehicles and fuel economy improvements, the analysis highlights the role of the average size of car fleet. Bigger and heavier cars, like SUVs, are harder to electrify and growth in their rising demand may slow down the development of clean and efficient car fleets. The development of SUV sales given its substantial role in oil demand and CO2 emissions would affect the outlook for passenger cars and the evolution of future oil demand and carbon emissions.

*Apostolos Petropoulos, Energy Modeler.

This commentary is derived from analysis that will be published on 13 November 2019 in the forthcoming World Energy Outlook 2019. IEA

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