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Storage & Smart Grids

Photo: DNV GL

Ditlev Engel is CEO at energy consultants DNV GL. Engel has been in the energy industry for more than 20 years, including eight years as President and CEO of wind turbine manufacturer Vestas.

A new outlook for the energy transition Global energy economy:  At the 2017 Solar Power International show in Las Vegas, DNV GL presented its expansive global Energy Transition Outlook (ETO) report. The report plots the major reorganization of the world’s energy system, finding that wind and solar will each contribute one third of all electricity supply by 2050. The bad news is that, despite the shift we’re likely going to miss current climate goals. DNV GL Energy CEO Ditlev Engel and Solar Segment Director Ray Hudson spoke to pv magazine.

pv magazine: There are a number of companies, researchers, and NGOs that produce not dissimilar documents, such as Bloomberg New Energy Finance and the Energy Watch Group, so what is DNV GL’s motivation? Ditlev Engel: This is something we have done a number of times. If you look across DNV GL, we are in various businesses. The Energy Transition Outlook relates specifically to renewables, power, and energy. But there are four other business areas within DNV GL including maritime, oil and gas, business insurance, and software. Out of the more than 13,000 colleagues that we have across these five business areas 70% of the business that we do relates to energy. So with the energy transition currently underway, and all of the questions we are answering and discussing with our clients, we saw that the world is changing very fast. In the past people may have looked at it from an analog perspective and tried to make a forecast, but we decided to take a digital approach, and a technological approach. What does this mean then: “a digital approach?”

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Some companies try to spell out a certain scenario. But we have not worked with different scenarios. We spoke to a wide range of people across DNV GL, and also to some external parties, and we indicated that they should come up with something concrete. We wanted to provide something tangible and to be able to provide something that says, ‘based upon our model, we think the growth trajectory will be x or y.’ And the headline takeaway of the overall ETO is still a sobering one, isn’t it? That’s right. Even looking at this phenomenal growth rate – 140% for electricity demand, by 2050 over half of the world running on renewables for electricity generation – we still see that we are not getting to our CO2 goals. At SPI the focus was very much on solar and battery storage. How do you see the storage sector emulating the growth of solar PV? Will it achieve similar results? Ray Hudson: Storage systems are a little more complicated than grid-tied solar, that’s for sure.

  11 / 2017  | www.pv-magazine.com


GDP, energy & population forecast

Global electicity generation capacity by generation type

250% (Percentage of 2015 level)

35 TW (Percentage of 2015 level)

200%

30

GDP Population Energy supply Energy-related CO₂ emisssions

150%

Energy source: Offshore wind Onshore wind Solar thermal Solar PV Biomass-fired CHP Biomass-fired Hydro Nuclear Oil-fired Gas-fired CHP Gas-fired Coal-fired

25 20 15

100%

10 Source: DNV GL

50% 0% 1980

1990

2000

2010

2020

2030

2040

2050

But that means more value, potentially, for the suppliers also, doesn’t it? Exactly. So I think that what we’ll see is that the curve for storage systems and for solar+storage, won’t be as smooth as it was for solar. There will be more breakthroughs, where prices just drop. That is what we’ve seen over the last year. There will be step-downs, and then if you fit a learning curve through it and you look at it for a long enough time, then it will be pretty similar to solar. But again, it will be with more non-linear parts. It will be a bit lumpy. Sure. A bit lumpy. Solar tended to be smaller companies, manufacturing startups in a way, that then got to scale and achieved the massive cost reductions. But with storage we are talking about big companies, like Mercedes, BYD, or LG, investing in manufacturing. What impact will that have? I don’t think that at the energy storage exhibitions there will be a day where there are 600 small battery manufacturers with booths, like we had for solar panels a few years ago. I think the storage sector is taking the lessons from wind and from solar, and is looking at moving forward more rapidly and catching economies of scale. By the nature of the storage devices there are more advantages to the economies of scale – so I think that is exactly what we are seeing. Back to the headline ETO takeaway, that the speed of transition and the progress of the technology has been impressive, but it is not enough to meet climate goals. What do you see then as stopping us from achieving the goals? DE: I think sometimes it helps to think about the world in reverse. If you think about what we have left in terms of carbon emissions if we want to stay within 2 degrees, we basically know what the number is. A bank savings account is a good parallel – should we spend everything now and have a lot of fun? Or are we going to ask how we are going to preserve what we have? Because there are some industries, such as the airline industry, where there really is not a simple solution to fossil fuels. So, if we think about it in an intelligent way and calculate backwards. If there is only so much to spend, and we need to spend so much on airplanes, we need to spend something on other parts of the economy, then we need to find other solutions.

  11 / 2017  | www.pv-magazine.com

5 0 2015

2020

2025

2030

2035

2040

2045

Graphics: pv magazine/Harald Schütt

Storage & Smart Grids

2050 Source: DNV GL

Coming back to what you were discussing with Ray about storage, the way we look at things is that it is more than simply about the integration of storage systems. This is about understanding the role that wind will play with storage, and also solar, and how to use surplus wind for heating, just as an example. From my point of view, this subject is much larger than simply energy. This subject looks into fiscal policies, industrial policies, and energy policies. This is because there are such wide implications. Therefore, it would be wrong if this document and process was simply seen as a challenge that can be met by the energy sector alone. We’ve seen policy be pretty contentious when it comes to energy of late, particularly in the U.S., where there has been a lot of advocating on behalf of coal by the government. How do you see policy challenges to meeting climate goals in countries like the U.S.?

“This subject is much larger than simply energy”

One of the things that we are saying is that coal, from our point of view, is going to have a tough time in the future. But on the other hand, it is important to say that there are people today working in the U.S. industry, and people need jobs – and I have the highest respect for that. But industry also needs to discover how to create economic incentives to not be a part of the problem, but a part of the solution. For instance, states like Indiana have really started to move into the solar space. The industry needs to say to itself, what can it do to accelerate the energy transition? And that means being a part of new industries, and helping to create them, instead of the coal industry. Because this is where we see a lot of conflicts of interest that are non-productive when it comes to working within the carbon budget.

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Photo: Daimler

Storage & Smart Grids

The Daimler/Mercedes lithium-ion battery factory in Kamenz, Germany. DNV GL expects the growing storage sector to learn from the trials experienced by solar, and quickly move toward achieving economies of scale in production.

So, moving towards more of a non-zero-sum game outlook. An example is the wind industry in the U.S. today, which really is an American industry creating a lot of jobs across the country. That means that there are a lot of economic incentives for a

“One of the things we are saying is that coal is going to have a tough time”

lot of states to be a part of it. If everything was being produced outside of the U.S. and shipped in, then it wouldn’t have the same kind of support.

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The key issue for the success – to meet the challenge we have – is for people to get together and find a new way. What other roles can policy play? In Europe, some countries taxed energy in an attempt to reduce CO2 emissions. And this principle does work. But now it means that the revenue created from the taxation of energy has become an important part of those government budgets. As you decarbonize, and as the prices of electricity from wind and solar continue to come down, if it continues to be highly taxed, then the benefit of the green transition is not being passed onto the consumer. The key question for any government is to look where else those revenues can come from. If there continues to be a lot of wind and solar installed and it is taxed at high rates, then it is going to be counterproductive. How big an issue do you see energy taxation being? In the past, everything was based on the cost per kWh. Now, in many countries, we have moved from a feed-in price to a proj-

  11 / 2017  | www.pv-magazine.com


Storage & Smart Grids

ect bid price. And now there isn’t a price issue, but there seems to be a taxation issue. Because all of a sudden tax is becoming a bigger part of the cost. But taxes, of course, can’t be changed without a decision and influence of the government. What we are saying in the ETO is that if you want EVs, if you want a range of other things that will bring down CO2 emissions, then you need to look at what is going to change the dynamics to achieve the goal – which is to preserve as much as possible of what is left of the carbon budget.

“If there continues to be a lot of wind and solar installed and it is taxed at high rates, then it is going to be counterproductive.”

We have spoken somewhat about solar, and of course at SPI there has been a huge amount of discussion of the Section 201 trade case launched by Suniva and now under consideration by the government and its agencies. What is your take on this? RH: I am looking forward to the day that solar is competing without any of the trade barriers that have come up over time, and actually haven’t worked very well in terms of reaching their targets and goals. I don’t want to be the one to try and predict U.S. politics (laughs) but the original policies – the FITs in Europe – really helped to get solar going and to get it to scale. And now the whole world is benefiting from that. And you can see it when you do cost-based projections, out in the future over a longer time. Hopefully there won’t be a lot of barriers put up. We have seen plenty of debate, some of it taking place in academic circles, but also becoming quite high profile, about models for a 100% renewable energy system. What is your reading on that discussion and debate? DE: DNV GL comes from Norway, and that is the country with the fastest growth rate in terms of sales of EVs. Norway also has a lot of hydro, which can also be used for energy storage – which is also a very interesting capability. There is also an integrated power system amongst the Nordic countries, so if the wind blows in Denmark it can be transported to Norway and then the hydro in Norway can help power other countries when there isn’t so much wind. You can see that as you get more of an integrated system and work with that, you can do it. There is nothing technically that prevents a 100% renewable system, but it does require a lot of investment. It can be done, and now with storage starting to move, it is the last box that needs to be ticked to do it on a large scale.

  11 / 2017  | www.pv-magazine.com

Will 100% renewables make the whole energy system more expensive? The interesting thing here, and what we are forecasting, is that it will cost more money. But what we are forecasting today is that 5% of global GDP goes towards energy costs. We are modeling that going forward that number will go down to 2%. This is because the economic activity will continue, so comparatively we will spend less – therefore it shouldn’t be an issue. Would you say that it is a hopeful report, with some aspects that are worrying? It is much better that we know now, than we say in 2050, “why didn’t we know more?” We have 195 countries that did sign up to the Paris Climate Agreement. Therefore, the issue we leave on the table is to say is that there is a menu of options of how we can get to these goals. But we’re not going to get there if we continue with what we’ve been doing – it will require different approaches. To reach the goal we are going to do more of some things, and less of others. By 2035, we find that gas will be the largest energy source in the world, and everything being equal, that will be better for the world than coal. Another thing is that in this report and as far I know, we are the first with this report to say that energy demand will plateau. I think ever since the Stone Age, our energy consumption has increased. This really is world history, that energy consumption will plateau after 2030. RH: I think one of the other headlines is that when we look out to 2050 for electricity production, we are looking at one third PV, one third wind and one third fossil. That is a hopeful forecast. So what are the drivers of this fall in energy consumption growth? DE: Previously we had the case that with economic growth, energy consumption went up. But what we are seeing now is that it begins to decouple. That is driven by an increase in energy efficiency, and what we are also saying is that if you take renewables, they have an efficiency rate of over 90%, while coal is only something like 35%. Once you adopt renewables, then you have more efficiency in your energy generation and your systems. When all of these things start to add up, then it is a major change. Looking at the auto industry, which is the major consumer of oil today, then as that transitions towards EVs it has a huge impact. We’ve spoken a lot about the role of politics, but we also need to talk about the role of business. We need to look at the kind of plans that businesses have been publishing to become carbon neutral and produce their products in a sustainable way. The demand of business, and what they expect from their suppliers, is another driver of where there is a shift from simply looking at energy, toward looking at what kind of energy is being supplied. Twenty years ago, if there was electricity in the socket, there was little concern as to whether it came from gas or coal. Now major corporations are really looking at suppliers which meet certain requirements. When a customer demands a change, then things change. The B2C world cannot be underestimated in terms of the role it will play.  S 

Interview by Jonathan Gifford

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PV Magazine 11-2017 A new outlook for the energy transition  
PV Magazine 11-2017 A new outlook for the energy transition  

At the 2017 Solar Power International show in Las Vegas, DNV GL presented its expansive global Energy Transition Outlook (ETO) report.