During the last few years, globally the paradigm of the Oil & Gas (O&G) companies has started changing towards fostering low carbon power generation projects. Obviously, this laudable step by the multi-billion, multi-national O&G companies can entirely reshape the world. However, the question is ‘how soon’ – because we have reached the critical stage where we cannot wait any longer. Even one decade back, the technologies were in the developing stage, however, today the scenario is completely different. Low carbon (renewable power generation) technologies have matured enough to compete the fossil-based technologies.
Global Energy Transformation: IRENA
When in 2018, the International Renewable Energy Agency published its report (Roadmap to 2050) on Global Energy Transformation, in its foreword, the then Director-General, IRENA, Adnan Z. Amin said, “In an era of accelerating change, the imperative to limit climate change and achieve sustainable growth is strengthening the momentum of the global energy transformation. The rapid decline in renewable energy costs, improving energy efficiency, widespread electrification, increasingly ‘smart’ technologies, continual technological breakthroughs and well-informed policy making all drive this shift, bringing a sustainable energy future within reach. While the transformation is gaining momentum, it must happen faster. Around two-thirds of global greenhouse gas emissions stem from energy production and use, which are at the core of efforts to combat climate change. To meet climate goals, progress in the power sector needs to accelerate further, while the decarbonisation of transport and heating must pick up steam.”
In his foreword, Amin pointed out that the current and planned policies offer a comparatively slow path, whereby the world would exhaust its energy-related ‘carbon budget’ in under 20 years, in terms of efforts to keep the global temperature rise well below 2°C. The budget for a 1.5°C limit, meanwhile, would potentially run out in less than a decade.
With that backdrop, he said, “The energy system, consequently, requires rapid, immediate and sustained change. The deployment of renewables must increase at least six-fold compared to the levels set out in current plans. The share of electricity in total energy use must double, with substantial electrification of transport and heat. Renewables would then make up two-thirds of energy consumption and 85% of power generation. Together with energy efficiency, this could deliver over 90% of the climate mitigation needed to maintain a 2°C limit.”
The Emerging Challenges
The age-old idiom goes: it is easier said than done, which is quite applicable here. The O&G industry is highly capital intensive and passing through a growing phase. According to a recent research report from Research & Markets, the global O&G market is expected to grow from $4677.45 billion in 2020 to $5870.13 billion in 2021 at a Compound Annual Growth Rate (CAGR) of 25.5%.
A low carbon future means a journey towards an era that will involve generation of electricity from renewable sources or fuels having comparatively much low potential of emission, and gradually, the fossil fuels will be completely eliminated. It is possible only through the massive funding from all business sectors and especially, through the new outlook of the O&G companies.
However, some of the new challenges too need to be addressed through the new approach. A recent Brooking Research states, “The American public overwhelmingly favours renewable power and the costs of wind and solar power have declined rapidly in recent years. However, inherent attributes of wind and solar generation make conflicts over land use and project siting more likely. Power plants and transmission lines will be located in areas not accustomed to industrial development, potentially creating opposition.
Wind and solar generation require at least 10 times as much land per unit of power produced than coal- or natural gas-fired power plants, including land disturbed to produce and transport the fossil fuels. Additionally, wind and solar generation are located where the resource availability is best instead of where is most convenient for people and infrastructure, since their ‘fuel’ can’t be transported like fossil fuels. Siting of wind facilities is especially challenging. Modern wind turbines are huge; most new turbines being installed in the United States today are the height of a 35-story building. Wind resources are best in open plains and on ridgetops, locations where the turbines can be seen for long distances.
Technological and policy solutions can lessen the land use impact of renewable power and the resulting public opposition. Offshore wind eliminates land use, but it raises opposition among those concerned with the impact on the environment and scenic views. Building on previously disturbed land and combining renewable power with other land uses, like agriculture or building solar on rooftops, can minimize land use conflicts. Community involvement in project planning and regulations for land use and zoning can help alleviate concerns. Nevertheless, there is no perfect way to produce electricity on an industrial scale. Policymakers must recognize these challenges and face them head-on as the nation transitions to a lower-carbon energy system.”
IRENA Re-writes its Energy Narrative
In June 2021, IRENA has published its current outlook. The new analysis states, “Accelerating energy transitions on a path to climate safety can grow the world’s economy by 2.4% over the expected growth of current plans within the next decade.” The Agency’s 1.5°C pathway foresees the creation of up to 122 million energy-related jobs in 2050, more than double of today’s 58 million. Renewable energy alone will account for more than a third of all energy jobs employing 43 million people globally, supporting the post-COVID recovery and long-term economic growth.
IRENA’s ‘World Energy Transitions Outlook’ finds that the renewables-based energy systems instigating profound changes that will reverberate across economies and societies. Sharp adjustments in capital flows and a reorientation of investments are necessary to align energy with a positive economic and environmental trajectory. Forward-looking policies can accelerate transition, mitigate uncertainties, and ensure maximum benefits of energy transition. The annual investment of USD 4.4 trillion needed on average is high. But it is feasible and equals to around 5% of global GDP in 2019.
IRENA’s Outlook also sees that energy transition is a big business opportunity for multiple stakeholders including the private sector, shifting funding from equity to private debt capital. The latter will grow from 44% in 2019 to 57% in 2050, an increase of almost 20% over planned policies. Energy transition technologies will find it easier to obtain affordable long-term debt financing in the coming years, while fossil fuel assets will increasingly be avoided by private financiers and therefore forced to rely on equity financing from retained earnings and new equity issues.
But public financing will remain crucial for a swift, just and inclusive energy transition and to catalyse private finance. In 2019, the public sector provided some USD 450 billion through public equity and lending by development finance institutions. In IRENA’s 1.5°C Scenario, these investments will almost double to some USD 780 billion. Public debt financing will be an important facilitator for other lenders, especially in developing markets.
As markets alone are not likely to move rapidly enough, policy makers must incentivise but also take action to eliminate market distortions that favour fossil fuels and facilitate the necessary changes in funding structures. This will involve phasing out fossil fuel subsidies and changing fiscal systems to reflect the negative environmental, health and social costs of fossil fuels. Monetary and fiscal policies, including carbon pricing policies, will enhance competitiveness and level the playing field.
Enhanced international cooperation and comprehensive set of policies will be critical to drive the wider structural shift towards resilient economies and societies. If not well managed, the energy transition risks inequitable outcomes, dual-track development and an overall slowdown in the progress. Just and integrated policies will remain imperative to realise the full potential of the energy transition.
Today’s policies, finance and socio-economic analysis completes the outlined technological avenues for a 1.5°C-comptabile energy pathway, providing policymakers with a playbook to achieve optimal results from the transition. Launched by energy leaders at the Agency’s Global High-Level Forum on Energy Transition, this outlook aims to raise ambition towards UN High-Level Dialogue on Energy and Climate Conference COP26 later this year.”
Things to be noted
As far as any technology transformation is concerned, the developing and the under-developed world mostly follow the trends in the USA. The same is true in the case of the power industry. The above mentioned items of information are mostly based on the latest trends being observed in the US. Thus, it is evident that with the growing awareness on prevention of climate change and rising advocacy in favour of renewable energies, the public pressure is mounting very fast – and their preference is amassing the support for renewable energies.
IRENA’s present Director-General, Francesco La Camera, has pointed out, “This outlook (as reflected in IRENA’s 2021 view) represents a concrete, practical toolbox to total reorientation of the global energy system and writes a new and positive energy narrative as the sector undergoes a dynamic transition. There is consensus that an energy transition grounded in renewables and efficient technologies is the only way to give us a fighting chance of limiting global warming by 2050 to 1.5°C. As the only realistic option for a climate-safe world, IRENA’s vision has become mainstream.”
He has also added, “Energy transformation will drive economic transformation. Energy transition is a daunting task but can bring unprecedented new possibilities to revitalise economies and lift people out of poverty. IRENA’s outlook brings unique value as it also outlines the policy frameworks and financing structures necessary to advance a transition that is just and inclusive. Each country will define what is the best for them, but collectively, we must ensure that all countries and regions can realise the benefits of the global energy transition for a resilient and more equitable world. We have the know-how, we have the tools, we need to act, and do so now.”
So, to prevent further deterioration of the global climate due to fossil power generation, in the work-to-do list, the top place goes to policy making & implementation at each country’s governmental level. If the processes of policy making, implementation & follow-up are proper, the world’s scenario is bound to change. The initiation of the process is quite evident from the decisions of some giant O&G companies like BP, Shell, Chevron, Total etc., who are all investing to support renewable energy projects. However, appropriate government policies will speed up the process of transformation.
By P. K. Chatterjee (PK)