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Helping a warming world to keep cool

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Authors: Chiara Delmastro and John Dulac

Heatwaves this summer that have left many Europeans sweltering highlight the growing demand for air conditioning in a warming world. Access to cooling services is becoming a major issue, especially in developing countries where owning an air conditioner is still uncommon.   

Nearly 2.8 billion people today live in hot countries, where the average daily temperature is greater than 25°C. Less than 10% of them own an air conditioner, compared with ownership of more than 90% in countries like Japan and the United States. And while as many as 2.5 billion people in hot countries are projected to have an air conditioner by 2050, another 1.9 billion could still be going without.

Recent IEA analysis examines the amount of energy that would be needed to provide access to affordable and sustainable cooling solutions for all. We consider in our Cooling for All scenario the challenges and implications of achieving access to air conditioning for more than 90% of people living in hot climates by 2100. That comes in the context of the much bigger challenge of first providing reliable access to electricity in developing countries.

That fundamental issue informs the IEA’s Sustainable Development Scenario, which charts a path to universal electricity access by 2030 and other sustainable energy goals. In that scenario, more than one-third of the 900 million people currently living in rural areas without electricity gain access through off-grid solutions, and another 400 million gain access via mini-grids.

Our Cooling for All analysis considers two possible approaches to providing cooling services for areas in which off-grid technology solutions are likely to be used for electricity access. Under the first approach, people in hot countries gain access to cooling services using a diesel generator distributed to individual households with one small air-conditioning unit to cool around 20 square metres of space. The second approach uses a solar photovoltaic (PV) unit with battery storage in the same situation.

In both cases, access to air conditioning is assumed to increase significantly over the next 30 years, with as much as 75% of the total population living in hot countries potentially having an air conditioner by 2050. This means that an additional 720 million people, or equivalently 175 million households, beyond those already expected to purchase one would have access to an air conditioner by 2050. This grows to as much as 1.6 billion people by 2100 – giving access to cooling to the equivalent of the current populations of India and Brazil combined.

Achieving this would come with significant challenges. Providing access to an air conditioner is only one element of a Cooling for All scenario. How often households use the air conditioner and how affordable it is are also important factors to consider, particularly as cooling is only one piece of the puzzle of improving access to modern energy services in many developing countries.

Other energy needs – such as clean cooking, lighting and refrigeration – are also critical parts of the energy access story. Even the use of just a small air conditioner for a few hours every day would represent a significant share of a household’s electricity demand.

Air conditioning powered by a diesel generator

Meeting the energy demands of the 175 million households gaining access to an AC by 2050 in the Cooling for All scenario would require roughly 105 terawatt-hours (TWh) of electricity in 2050. Around 45% of that would be consumed by the AC units, piling onto the yearly diesel costs for generator operations. Given that households with limited energy access typically have low disposable incomes, this means that additional cooling services would likely represent an important opportunity cost, even if the households were given access to a generator and small AC unit.

This challenge underlines the importance of super-efficient ACs and appliances for off-grid applications in developing countries. High energy performance of ACs would drastically reduce the necessary diesel consumption for electricity generation. For instance, if the average performance of the ACs distributed to households were to improve by 50% by 2050, the yearly running cost for the diesel generator for three hours of daily cooling would drop by more than a third.

These cost estimates could vary substantially when taking into account the differences in diesel prices based on a household’s location. For example, transportation costs are higher for difficult-to-reach areas. The risk is that some households may not use the air conditioners because of operational costs, defeating the ambitions of affordable access to cooling even with energy-efficient air conditioning. Other factors, such as local air pollution created by diesel fuel consumption, could also affect the use of air conditioners.

Air conditioning powered by a solar panel and battery

Improvements in solar technologies, including lower costs, are offering new opportunities to make significant progress on electricity access in developing countries. Solar PV packs are a growing market for providing off-grid access. Expanding that access to include cooling services via an AC would require greater electricity generation and battery storage capacity. But it could potentially offer an affordable form of access to cooling for populations in hot countries.

Initial analysis suggests that a large single solar module with a maximum capacity of 250 W and a lithium-ion battery would not be sufficient to cover the entire electricity demand of a typical household based on an air conditioner performance of less than 3.5 EER. But on a sunny day, it could cover around 80% of the demand.

As with diesel generation, this underscores the critical need for high-performance AC equipment to reduce the net impact of electricity demand from household AC use. This case also shows the need to increase the net solar module capacity to meet overall electricity needs.

For example, a more efficient air conditioner would enable to the solar module to cover nearly 95% of the electricity demand on a good day. But the solar module would probably still have difficulty meeting the household’s energy demands over the course of the entire day, particularly during peak hours in the evening.

One solution to this challenge could be to provide greater solar and battery-storage capacity or, for example, to use more efficient cold storage, such as chilled water or ice making (which, however, could only be used for cooling services and not the additional electricity loads).

Hybrid systems that supplement the solar PV generation with some diesel capacity are already common in some developing countries today and could also be a sensible solution for meeting household electricity demands more reliably. The operational costs of a hybrid system would be much more affordable than a diesel generator.

Low-tech solutions

There are numerous additional measures that should be considered when addressing access to cooling, such as basic building design.

Low-tech and generally low-cost building measures, including passive cooling solutions, can drastically improve thermal comfort in buildings and therefore reduce or eliminate the need for cooling that consumes energy. This includes commonly used solutions such as overhangs, shutters and cool- or light-coloured roofs. Additional low-tech solutions – such as rammed-earth wall construction, green roofs and urban vegetation – can also improve thermal comfort in buildings.

Alternative technologies to air conditioning – such as high-efficiency fans, evaporative coolers (in dry climates) and dehumidifiers (in humid climates) – could help to improve access to thermal comfort in the evening, when people return home, while using far less electricity than an air conditioner. These measures could also fit well with current solar PV module deployment in many countries.

At the same time, air conditioners may make a lot of sense for applications outside the home. For instance, some of the hottest parts of the day in many countries are in the mid- to late-afternoon when people are often outside their homes in places like schools, hospitals and health centres, public buildings and community centres. Access to air conditioning in those facilities may make sense in terms of energy emissions and affordability, as well as offering other potential benefits such as improved health and greater productivity.

*John Dulac, Energy Technology Policy Analyst

IEA

Energy

Hydrogen Could Be A Key Player In The Recovery And Resilience Plan

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Thanks to the contribution of vaccines, the Covid-19 pandemic is slowly beginning to abate and gradually lose its aggressiveness, with the consequent reduction of its impact on people’s health worldwide.

However, while the health effects of the pandemic appear to be fading, the negative economic effects of a year and a half of lockdown and forced closure of many businesses are being felt heavily at a global level and seem bound to last well beyond the end of the health emergency.

With a view to supporting and encouraging the “restart” and revival  of the economy, the European Union has launched a “Recovery and Resilience Plan”, allocating a huge amount of funds that shall be used in the coming years not only to help countries in difficulty with contingent measures, but also to stimulate economic and productive growth capable of modernising production models with specific reference to environmental balance, which is increasingly facing a crisis due to the use of non-renewable, highly polluting energy sources.

Italy will receive over 200 billion euros in European funds to develop its own projects to get out of the economic-pandemic crisis and rightly wants to use them not only to plug the leaks caused by the various ‘lockdowns’ in the national productive fabric, but also to implement a series of strategic projects capable of making not only the productive sectors, but also the public administration and the health and judicial systems more efficient.

In short, the “Recovery and Resilience Plan” that is currently coming to the fore may prove to be a powerful driving force for Italy’s development and modernisation.

The projects submitted by Italy to the EU institutions include an initial allocation of over 200 million euros – out of the 47 billion euros planned for the next decade – to promote research and development in the field of renewable energy and particularly in the hydrogen sector.

Why Hydrogen?

Hydrogen is potentially the most abundant source of “clean” energy in the universe. It is versatile, safe and reliable; when obtained from renewable energy sources, it produces no harmful emissions to the environment.

Nevertheless, it is not available in nature in its gaseous form – which is the only one that can be used as an energy source – as it is always bound to other elements, such as oxygen in water and methane as a gas.

The traditional processes used to “separate” hydrogen from oxygen in water and from methane use up large amounts of electricity, which makes the processes not only very expensive, but also highly polluting, with the paradox that, in order to produce a clean energy source, the environment is “polluted” anyway, especially if – as has been the case until recently – the electricity needed is produced with traditional non-renewable energy sources (coal, gas and oil).

The best source of hydrogen in gaseous form is the sea. Electrolysis can easily separate hydrogen from oxygen and store it in gaseous form for use as an energy source.

The electrolytic cells used to develop the process use up large amounts of energy and, fortunately for us, science is finding a way to produce it without polluting, using solar, wind and, above all, sea wave energy.

The use of marine energy creates a sort of “circular economy” for hydrogen production: from the practically inexhaustible primary source of ocean water, hydrogen can be extracted with the energy provided by wave and tidal motion.

Forty per cent of the world’s population live within 100 kilometres from the sea and this shows the potential of sea wave and tidal energy as an engine for sustainable development in economic, climate and environmental terms.

Nowadays modern, non-invasive tools are available to extract electricity from sea waves, such as the “penguin”, a device manufactured in Italy, which – placed 50 metres deep – produces electricity without harming marine flora and fauna.

Another example of Italian scientists’ intelligence and creativity is the Inertial Sea Wave Converter (ISWEC), a device housed inside a 15-metre-long hull which, occupying a marine area of just 150 square metres, is able to produce 250 megawatts of electricity a year, thus enabling to cut emissions into the atmosphere by 68 tonnes of CO2.

With these devices and the other ones that technology will develop over the next few years, it will be possible to power electrolytic cells for the production of hydrogen in gaseous form on an industrial scale, at levels that – over the next 15 years – will lead to the production of at least 100,000 tonnes of “green” hydrogen per year, thus enabling to reduce air pollution significantly, with positive effects on the economy, the environment and the climate.

In the summer of 2020, the European Union launched a project called the “Hydrogen Strategy”, with a funding of 470 billion euros, intended for research and production projects capable of equipping EU countries with electrolysis tools to produce at least one million tonnes of “green” hydrogen by the end of 2024.

The fight against CO2 emissions continues unabated: in the United States which, after Trump’s Presidency, has reaffirmed its commitment to reducing emissions; in China which, in its latest five-year plan, has forecast a 65% reduction in carbon dioxide emissions into the atmosphere by the end 2030; in Europe, which has always been at the forefront in the creation of devices for producing wave and tidal energy and exports its technologies to the United States, Australia and China.

According to the Hydrogen Council, an association of over 100 companies from around the world that share a common long-term vision for a transition to hydrogen, in the future Europe and China will compete and cooperate in the production of sea wave and tidal energy and in the related production of “green hydrogen”.

With its 14th five-year plan, China, in particular – after having been for decades, during its whirling economic development, one of the main sources of CO2 emissions into the atmosphere and of global pollution – has undertaken the commitment “to develop and promote the harmonious coexistence between man and nature, through the improvement of efficiency in the use of resources and a proper balance between protection and development”, as clearly stated by its Minister of Natural Resources Lu Hao.

It might sound like the sweet-talk and set phrases of a politician at a conference.

In the case of China and its Minister of Natural Resources, however, words have been turned into deeds.

As part of the Roadmap 2.0 for Energy Saving Technology and New Energy Vehicles, China has set a target of one million fuel cell vehicles and two million tonnes of hydrogen production per year by the end of 2035.

The China Hydrogen Energy Industry Development Report 2020 forecasts that, by the end of 2050, hydrogen energy will meet 10 per cent of energy requirements, while the number of hydrogen fuel cell vehicles will rise to 30 million and hydrogen production will be equal to 60 million tonnes.

With a view to giving substance to these prospects, China has established the “National Ocean Technology Centre” in Shenzhen and developed – with the Italian “International World Group” – the “China-Europe cooperation project for energy generation and hydrogen production from sea waves and from other renewable energy sources”.

These are concrete projects in which – thanks to Italian creativity and Chinese rationality and pragmatism – we must continue to invest and work, not least to give the third industrial revolution a cleaner face than the coal-stained one of the second industrial revolution.

These projects appear to be in line with those envisaged both at European and Italian levels by the ‘Recovery and Resilience Plan’, which should guide us out of the economic doldrums of the pandemic. They deserve to be financed and supported as they can not only contribute to the recovery and revival of the economy, but also to the reconstruction of a cleaner and more liveable world (thus showing that good can always come out of evil).

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The ‘energy crisis’ and its global implications

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A particular news caught my attention this morning regarding energy crises. Before going into the depth of the news, I would like to introduce you to the concept of energy crisis and its global implications.  As introduced by Garrett Hardin in 1968; the tragedy of commons that the resources of world are limited, if the resources are used excessively soon there will come a time when they will become scarce. These resources can only be sufficient through cooperation of people among each other; there’s no other solution. The tragedy of commons is the best way to explain the concept the energy crises.

Now, the population world is growing at an exponential rate and with the growing population there is a need to provide a better lifestyle to the upcoming generations.  In a struggle for raising that standard of living, more and more resources of developed world are being utilized. The McKinsey Global Institute forecasted that by 2020 developing countries will demand 80 percent more energy which proved to be true as is evident in recurrent fuel shortages and price hike globally. A MIT study also forecasted that worldwide energy demand could triple by 2050.

Besides petrol, there is also a rise in demand for natural gas with only few reliable reserves all over the world. The natural gas reserves are mostly unreliable because they are usually found in deep oceans and mere accessibility can cost a lot of expense. Henceforth, the supply is limited, the price has fluctuated greatly and recent technological development has reduced dependence upon natural gas by providing alternatives such as fuel efficient or electric cars. Similarly, electricity supply systems are also not very reliable because there have been power blackouts in the United States, Europe and Russia. There have also been chronic shortages of electric power in India, China, and other developing countries.

If we specifically observe the Iraqi oil crises to understand the whole energy crises shebang, then according to today’s news in TRT World, in Iraq alone, $150bn of stolen oil cash smuggled out since 2003. Iraqi oil exports are even 30-40% below prewar levels. The acting president of Iraq is furious because insane amount of corruption is being carried out in Iraq where substantial quantity of oil is being smuggled. President Barham Saleh presented a legislation to parliament, where, under law any transaction over $500,000 would be scrutinized. This step, if materialized, can be very crucial in preservation of oil reserves in Iraq after the Saddam Hussein regime.

In United States, presidents have constantly been avoiding energy problems because they are very controversial. The recent Texas electricity outrage was a one that had been warned about. Before the Arab Oil Embargo Nixon in 1970’s was reluctant about energy and said ‘as long as the air conditioners are working normally, there is no energy crisis’ but after this incident Nixon began to change his tone and said on television that “energy is number one issue”. Then came Carter, who got a number of legislations passed on the issue of energy even when his own party was against it. In the 1970’s the prevalent thought for United States was that the world would run out of energy resources very soon so they started investing more in nuclear armament as an alternative. In 1990’s the combined cycle plants that used natural gas to create electricity were really efficient and economical that even gas at a high price could be competitive, also ethno-industry was crated at that time.

Then, the threat of climate change is also one of great relevance in the context of energy crises. The nonrenewable energy resources such as oil, water and coal must be used carefully and lack of which can be hazardous. It can cause drought, famine, disease, mass migration that will eventually lead to a conflict such as explained in the tragedy of commons theory. The now developed nations exploited natural resources to build its wealth. The resources such as wood, coal, oil and gas where on one hand are very economical, on the other hand they can be the originators of carbon emissions. Climate change also led to loss of biodiversity as well as environmental hazards.

Even though the developed world i.e. north provides a significant amount of assistance to the global North i.e developing countries, they cannot be a replacement for the shortage of resources. Also, they also face extreme price hike in the energy resources even though the developing nations are the ones owning the resources such Iraq for oil. Besides expensive resources, these developed nations also give rise to domestic and political tensions in the third world countries. Organizations like Al-Qaeda have openly declared their intent to attack oil facilities to hurt the interests of US and its close allies.

All in all, the pertaining threat of energy crisis has global implications. One person’s’gain is another person’s loss but this can be made inevitable if cooperation takes places. Sharing is caring and in this context sharing can prevent from future wars and hurricanes, floods and droughts and famines. The extent of seriousness of the problem must be taken into consideration not only be academicians but by policy makers as well.

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Stay in Oil or Race to Green Energy? Considerations for Portfolio Transformation

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Oil and gas (O&G) companies face a conundrum: capture the remaining value in hydrocarbons, or decide if, when and how much to invest in new, low-carbon energy business models.

The global O&G industry has the opportunity to redeploy as much as $838 billion, or about 20% of cumulative capital expenditures over the next 10 years, to further optimize their hydrocarbon business and/or pursue new growth areas including new energy ventures.

Of low carbon business models, market sentiment is currently strongest for renewable power with growing interest in green hydrogen and carbon capture as well.

Why this matters

In the wake of COVID-19 disruptions and an accelerating energy transition, O&G companies face a conundrum: stay and capture the remaining value in hydrocarbons or embrace new energy business models. Deloitte’s new “Portfolio transformation in oil, gas and chemicals” research series provides valuable insights into portfolio transformation and offers key considerations for companies making capital allocation decisions and exploring future business models.

Finding the right recipe for portfolio transformation

While companies understand the imperative to change, they are grappling with how much to invest and most vexing, in which green technologies? After all, while the high-growth phase of the oil market may have come to an end, oil demand is still projected to remain above 87 million barrels per day by 2030, even in accelerated energy transition scenarios.

How much to redeploy? $838 billion may be a starting point

To determine how much capital to redeploy, O&G companies could start with capital that is not earning the desired return. Deloitte analyzed 286 listed global companies and revealed that in a base case scenario, these companies could have the opportunity to optimize up to 6% of future O&G production which may not generate a 20% return at an average oil price of $55 per barrel. In other words, about $838 billion, or about 20% of future capital expenditures (CAPEX) across the global industry could be redeployed to optimize these projects and/or pursue promising green ventures. The findings suggest that the opportunity to redeploy will not decrease, but rather increase if oil prices stay above pre-pandemic levels. Among the company groups, supermajors, on average, have a potential to redeploy up to 36% of their future CAPEX.

Where to invest? Solar and wind most frequently mentioned

After performing text analytics and sentiment analysis on thousands of news articles to glean a directional sense of which low-carbon and new energy solutions are attracting the most media attention, the study found renewable power (solar and wind) had the highest share (47% among all green energy models). The tide also seems to be turning for green hydrogen (8% share of mentions).

“A confluence of factors, including climate, the pandemic, supply-demand imbalances, changing trends in end-markets, and growing appetite for sustainability investments, has given oil, gas and chemicals companies the need to progress faster around portfolio transformation. Many companies are eager to act but are seeking guidance on the speed and extent to which they expand into new, potentially high-growth areas, be it in new regions, markets, products or technologies. By taking a strategic, purpose-driven approach, companies can sustainably and profitably build a future-ready portfolio.”- Amy Chronis, vice chairman and U.S. oil, gas and chemicals leader, Deloitte LLP

Debunking myths: Turning hindsight into foresight to navigate portfolio transformation

While many O&G companies have transformed their portfolios over the years, not every change has been successful. The Deloitte analysis dispels conventional wisdom about strategic shifts and offers insights and important considerations about portfolio building in the O&G industry.

Myth 1: Agility and flexibility always deliver gains

  • Reality: Of the more than 286 upstream and integrated companies analyzed, only 16% of companies that made frequent changes to their portfolios delivered top-quartile financial performance.

Myth 2: Being big and integrated guarantees success

  • Reality: Only 28% of big (revenues above $10 billion) and integrated companies figured in the top-quartile.

Myth 3: Oil has lost its luster

  • Reality: Oil still delivers significant value for many. Two-thirds of oil-heavy portfolios deliver above-average performance.

Myth 4: Every “green” shift is profitable and scalable

  • Reality: Of portfolios that have become greener, 9% delivered top quartile financial performance, underscoring the importance of a strategic, purpose-driven approach to portfolio transformation.

Myth 5: Shale’s pain makes onshore conventional plays an obvious choice

  • Reality: Between 18-45% of non-shale portfolios analyzed delivered below-average performance.

Keys to building a future-ready O&G portfolio

There are four components of a forward-looking portfolio: growth engines, cash generators, profit maximizers, and divestment of value strains. Optimizing the energy transition is not just about selecting the correct technologies in which to invest; it also involves upgrading business models to incorporate new metrics, dynamic planning and AI-based analytics to become more agile. Companies should also consider strategic alliances to maximize their strengths and gain from others.

Chemicals and specialty materials (C&SM) face similar urgency for transformation

As the chemicals industry navigates its own portfolio transformations, focus is key. Deloitte’s analysis of more than 200 chemical companies over a 20-year period showed that focused companies — those that prioritize certain end-markets and product categories and derive at least 60% of the total revenue from that category — outperformed diversified chemical companies. In fact, focused chemical companies organically grew revenues at twice the rate, generated 70% higher return on invested capital (ROIC), and delivered 60% higher shareholder returns.

The top-performing chemical companies typically change their portfolio mix more frequently than others —usually changing their portfolio once every business cycle and remaining focused on their over-arching business strategy, be it low cost, differentiated products, or exceptional service.

Keys to building a future-ready C&SM portfolio

The study recommends C&SM companies make critical portfolio choices that create value. The ongoing disruption in end markets requires leaders to make conscious decisions about their competitive advantage and play in products and service categories where they can build and maintain that advantage. Moreover, given the growing emphasis on sustainability, chemical companies should consider investing in recycling technologies and incorporating renewable and recyclable materials in their product offerings.

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