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ENERGY EFFICIENCY
BUSINESS
CITIES
POLICY
Spending pennies to save pounds
Investors hungry for offshore wind
Circular funding of energy savings
The dangers of using a sharp instrument
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50-90% of energy savings in new and existing buildings.
FORESIGHT 04 SUMMER / AUTUMN 2017
THE INVISIBLE HAND OF ENERGY EFFICIENCY
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Waste not, want not The cheapest unit of energy is the one never used. The wisdom of this long accepted truth is indisputable. Yet it is not saving energy but renewable energy that attracts most investment and dominates the debate on emission reductions. The challenge of integrating wind and solar power in the energy system excites the human spirit in ways that changing light bulbs and insulating buildings never will. Even so, the fact remains that investing in technology that more efficiently uses each unit of energy produced is often the most effective and cheapest way of reducing carbon emissions. The potential of what is simply called “energy efficiency” to mitigate the rise in global temperature is enormous. In 2015, the US, by using energy more efficiently, reduced electricity consumption by more than was generated from all sources except gas and coal. Indeed, half of global greenhouse gas reduction in 2030 will be achieved by energy efficiency measures, predicts the International Energy Agency. The lack of interest in exploiting the untapped potential of energy efficiency is more than baffling, it is an economic anomaly. The return on every dollar invested in energy efficient appliances, insulating buildings and automated control of electricity consumption lies in the range of $2 to $4. When investment in reducing energy bills is a matter of plain commonsense and economic gain, why are companies and consumers failing to act? The answer lies in the disappearance of the economic benefits of energy efficiency into a Bermuda triangle of muddled and contradictory investment incentives, lack of information and regulatory barriers. The dismantling of the triangle lies with governments. Subsidies to fossil fuel energy should cease and the cost of pollution and climate damage should be added to its end-price. Anything less is a failure of good governance and good business. By removing all energy subsidies and applying the polluter pays principle, renewable energy and fossil fuel technologies get to compete on a level playing field. What's more, consumers are exposed to the real price of energy, which today tends to look too cheap to be worth saving. Getting prices right makes visible the invisible hand of energy efficiency. Energy saving efforts sparked by the oil-price spikes of the 1970ies have been a success story largely unseen and unrecognised. It is time to realise the hidden opportunities of energy efficiency and to reap the rich rewards.
ENVIRONMENTALLY AWARE MAGAZINE PRODUCTION Using paper from sustainably managed forests. Postal deliveries of single copies in a 100% biodegradable plastic wrapper.
Peter Bjerregaard EDITOR-IN-CHIEF
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FORESIGHT
Content
KNOWLEDGE IN BRIEF
Two-thirds of the business potential in energy efficiency remains untapped; sales figures for plug-in electric cars; cheaper by half to cut emissions with energy saving than green electricity; renewables push coal off the UK grid for a day; BP data reveals green energy trends; wind power supply not that susceptible to still winter weather; fuelish energy subsidies persist Pages 6-7 HOMES WANTED FOR POWER HUNGRY DATA CENTRES
Countries with cool climates and reliable supplies of green electricity are favoured locations for these beating hearts of the digital age Page 8
ENERGY EFFICIENCY
BUSINESS
SPENDING PENNIES TO SAVE POUNDS
WE LIVE IN A MATERIAL WORLD
The payback period for energy saving investments can be painfully long and the risk of no payback frighteningly big. There are ways to tear down both barriers Page 14 IN THE LIGHT OF BETTER KNOWLEDGE
Despite initial opposition, phasing out incandescent light bulbs has cut cost and improved quality Page 16 SCANDINAVIA SHOWS THE WAY FOR CLEAN TRANSPORT
Norway has the world's highest proportion of EV owners and Denmark is electrifying ship propulsion. It is time to change the way electricity is billed for
The value of energy-saving improvements at a shopping mall is sufficient to pay back the loan from the contractor that carried out the work and financed it
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Page 44
VEHICLE TO GRID EXPERIMENT WITH GLOBAL PERSPECTIVES
A WASTE INCINERATOR WITH A ROOFTOP SKI RUN
An international group of companies has come together in a Danish experiment that sells the power stored in parked electric cars to the grid operator for use as frequency regulation Page 32
IN THE HANDS OF ENGINEERS
Page 34
MAKE THE REAL COST OF ENERGY VISIBLE
What it takes is the right information and the right prices Page 28
A unique engineering project has raised the bar for efficient energy capture from incineration of garbage and provided a sports facility in an urban location Page 46
INVESTORS HUNGRY FOR OFFSHORE WIND
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CIRCULAR FUNDING OF ENERGY SAVINGS
Waste pollution in product lifecycles is set to ease: beer bottles made from wood‚ toilet rolls from sour milk; biodegradable plastic packing; and LEGO bricks in a new material
Once seen as exotic fare, offshore wind investments have become a staple diet for pension funds. New types of investor are moving their chairs up to the table
Better engineering everywhere can cut industrial energy use in all applications
CITIES
VARIABLE PRICING REDUCES VARIABILITY OF WIND OUTPUT
By pricing the value of wind energy according to when it is needed most, markets stimulate the development and sale of wind turbines configured to generate output over longer periods in lower winds, reducing the variability of their production Page 36
FORESIGHT
POLICY THE SHAKY CASE FOR NEGATIVE EMISSIONS
Achieving negative emissions could bridge the gap for meeting global warming targets, but could also be a dangerous distraction Page 62 THE DANGERS OF USING A SHARP INSTRUMENT
Auctions of power purchase contracts as a price-setting mechanism for wind energy are proving to be sharp tools for driving down cost. But sharp tools need handling with care Page 64
5
Knowledge
In Brief
Intense efficiency
April fuel day
To keep global temperatures below 2°C, energy intensity (energy units per unit of GDP) needs to fall by 3.7% a year up to 2030 in countries outside the OECD, and by 2.2% in OECD countries, says the International Energy Agency. Two-thirds of the economic potential for using energy more efficiently remains untapped globally, with 70% of world energy use not subject to efficiency performance demands. The energy efficiency business continues to grow, however, with an estimated $221 billion invested globally in 2015, 41% of it in China.
On the first day of April Britain supplied 24 hours of electricity without resort to coal fired generation, reports National Grid, the system operator. It was the first coal-free day in the UK since the start of the industrial revolution in the 1880s. The government is to switch off all UK coal fired power stations by 2025.
Global sales of plug-in electric cars (PEVs) were a record 750,000 in 2016, with 60% powered solely by batteries, reports the International Energy Agency. China sold 336,000, followed by 215,000 sold in Europe and 160,000 in the US. The sales bring the total PEV stock globally to two million. Electric cars remain a tiny fraction (0.2%) of all vehicles in use.
Cost data discovery A toolkit and data base that help financial institutions better understand, value and monitor energy efficient investments are providing invaluable insight on cost. Projects in the EU's DEEP base indicate that the median avoided cost of energy saved is €0.025/kWh for buildings and €0.012/ kWh for industry. That is below half as much as equivalent generation costs, reports database developer, the Energy Efficiency Financial Institutions Group.
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/ Asia Pacific overtook Europe as the world region generating most electricity from renewable sources, with strong and ongoing growth in installation of clean generating technology in China, Japan and India. / Global primary energy consumption increased by just 1%, following growth of 0.9% in 2015 and 1% in 2014. The ten-year average is 1.8% a year. / Global coal consumption fell by 53 million tonnes of oil equivalent, or 1.7%, the second successive annual decline. Coal’s share of global primary energy consumption fell to 28.1%, the lowest share since 2004.
Cold surprise The ability of wind turbines spread around northern Europe to provide electricity during the coldest spells of winter weather is considerably greater than generally presumed. “A wind power system distributed around the UK is not as sensitive to still cold winter days as often imagined. The average drop in generation is only a third and it even picks up for the days with the very highest electricity demand,” says Brian Hoskins from Reading University, which together with the UK's Met Office and Imperial College London contributed to the discovery. In a north European winter, warm periods tend to be windy with big blows from the north and cold periods are marked by still weather. “However, contrary to what is often believed, when it comes to the very coldest days with highest electricity demand, wind energy supply starts to recover,” says the Met Office's Hazel Thornton. The explanation lies in rising demand coinciding with lots of wind generation when the coldest winds of them all blow in from the east.
FORESIGHT
ILLUSTRATION Anders Morgenthaler
Electric mobility
The world according to BP in 2016
Knowledge
You’re draining me of energy and there’s no sign it will get any better. I’ve found a substitute that casts me in a whole new light 0.1% Carbon capture and storage technology removes less than 0.1% of polluting CO2 emissions from the earth’s atmosphere 1.5°C Human activity will cause global warming of 1.5°C by the early 2030s following 20 years of insufficient action to slow the rising temperature 2.5% Transport emissions between 2010 and 2015 grew by 2.5% a year 3.0% Coal based CO2 emissions must decline by 3% annually to 2025 to keep global warming at 2°C this century 40% Coal continues to dominate global power capacity with a share of over 40% in 2016
Fossil fool subsidies Subsidies of $320 billion went to fossil fuel energy in 2015, down from $460 billion in 2014. The drop is mainly a reflection of end-consumers requiring less help to buy energy in a world of lower wholesale energy prices. Fossil fuel subsidies continue to outweigh renewable energy subsidies by two-to-one; about $150 billion went to support renewables in 2015. While pressure to reform energy pricing often targets fuel for transport, the International Energy Agency (IEA) notes that subsidised residential electricity, especially in Asia-Pacific economies, is a major barrier to low carbon investments. Phasing out price subsidies would significantly improve the allocation of resources to the entire energy system and provide incentives for energy savings and clean tech investments, says the IEA. If indirect subsidies are also included, such as air pollution and climate change, the International Monetary Fund estimates that fossil fuel companies are benefitting from global subsidies of $5.3 trillion, amounting to around 6.5% of global GDP.
FORESIGHT
50% Global CO2 emissions have increased 50% since 1990 50% Half of man-made CO2 emissions are absorbed by oceans, trees and plants; the world’s forest cover needs to double through reforestation and land conversion to bring CO2 emissions to net zero 82% Burning fossil fuels provides 82% of the world’s energy needs (Source: UNFCCC)
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Knowledge
APPLE, GOOGLE AND FACEBOOK
Good homes wanted for power hungry data centres The vast stacks of computer servers that store and transmit the world’s digital information are enormous users of electricity and producers of heat. Countries with cool climates, extensive broadband capacity and green power systems are favoured locations for these beating hearts of the digital age
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The Danish power system, connected to that of Norway and Sweden to the north and east and Germany to the south, has plenty of built-in redundancy, with the option of tapping into neighbouring grids for reserve power, if necessary. Denmark also has a well-developed broadband infrastructure, with fibre-optic links to central Europe and an undersea link via Britain to the United States. A third attraction Denmark offers is the cool yearround ambient temperature, which can provide vast banks of servers with plenty of air and water cooling. In the hottest month of the year, average day temperatures in Denmark rarely exceed 20°C, the operating temperature for data servers; the year-round average temperature is 7.7°C.
SERVERS HEAT HOUSES Denmark provides good connectivity, with shorter routes for data to travel between locations compared with the other Scandinavian countries, Sweden, Norway and Finland. This “lower latency” works in Denmark’s favour, says Philip Low from BroadGroup, an IT consultancy that has produced a report on data centres in Nordic countries. The slightly warmer Danish climate compared with the other countries is not FORESIGHT
TEXT Regner Hansen
T
his year Google became the third digital-age global tech company, after Apple and Facebook, to announce it had selected Denmark as the location for a north European data server centre. The Apple project, three times the size of that proposed by Facebook and covering an area the size of 23 football pitches, is already under construction and could be ready for use before the year is out. What appears to be a data centre fairy tale in the making for Denmark is being driven by the rapid global expansion of traffic in digital information. In the five years between 2010 and 2015 the number of chip-driven appliances grew from three billion to 15 billion, with 50 billion devices expected by 2020. As giant guzzlers of electricity, the world’s IT mastodons have energy on their minds and Denmark’s status as a wind power pioneer has helped it penetrate their common sub-conscious, explains Kim Schultz at the Danish foreign ministry’s Invest in Denmark unit. The main attraction of Denmark for data centres is the near guarantee it offers of uninterrupted electricity and with that, smooth flows of digital traffic. Electricity is available in Denmark 99.997% of the time, the highest security of supply in Europe.
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Knowledge
EXPLOSIVE ONLINE GROWTH The Apple servers are expected to use as much electricity each year as half a million Danish homes. The national power system operator, Energinet.dk, estimates that the three data centres being located in the country by Facebook, Google and Apple will increase the country’s power consumption by 11% by 2022. At Leeds university in northern England, data centre expert Ian Bitterlin expects the combined energy consumption of the world’s data centres will double every fourth year, despite technology improvements and more efficient operation. The near exponential growth is largely driven by the increasing numbers of private consumers gaining internet access and the band width needed for streaming moving pictures, says Bitterlin. “And what happens when the sixty per cent of the world not connected to the internet comes online?”
Energy security Effective management of primary energy supply, reliability of energy infrastructure, and ability of energy providers to meet current and future demand. Energy equity Accessibility and affordability of energy supply across the population. Environmental sustainability Achievement of supply and demand-side energy efficiencies and development of energy supply from zeo carbon renewables and low carbon sources.
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Energy Trilemma Index rankings Security of supply the decisive winning factor
2
0
4
6
8
10
Denmark 1
AAA
Switzerland 2
AAA
Sweden 3
AAA
Netherlands 4
AAB
Germany 5
AAA
France 6
AAA
Norway 7
AAA World Energy Council grades Energy security
Energy equity
Environmental sustainability
Country context
GREEN PROFILE The growth scenario is a familiar one for the world’s major IT companies and most of them have a green energy strategy in place. “They are aware that using energy more efficiently won’t be enough in itself and they have their eyes on where energy comes from,” says Gary Cook of Greenpeace USA and main author of Clicking Green, an annual report that examines IT energy consumption. Both Apple and Facebook promise that their Danish data centres will use only renewable energy. Around 20 further IT companies have committed to the same goal, primarily in Europe and North America, with Asia some way behind. “They themselves are worried about climate change and their consumers demand it, both business customers with climate goals and young environmentally conscious customers,” says Cook about the motives of the major IT technology companies. The Nordic countries are expected to maintain their status as low-cost electricity areas as well as increase the proportion of green energy. By 2020 about 80% of electricity demand in Denmark will be sourced from renewable energy. • FORESIGHT
The Nordic countries are today net exporters of around 10 TWh, a volume expected to grow fivefold by 2030
SOURCE World Energy Council/Oliver Wyman, 2016
the disadvantage it once was, thanks to better server cooling technology. A further advantage is the country’s energy system, which allows waste heat from data centres, whether as hot water or hot air, to be used to heat buildings, including residential property. “Data centres can provide a fantastic contribution to district heating without the use of fossil fuel,” says Kim Behnke from the Danish District Heating Association. Along with Sweden, Finland and the Baltic countries, Denmark is among the only countries where two-thirds of residential property relies on district heating to keep warm. Waste heat from Apple’s data centre will provide district heating to the nearest town, Viborg, and its nearly 100,000 citizens.
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The big picture Lack of space in cities restricts opportunities for outdoor exercise, resulting in city-dwellers wasting energy on journeying to the outskirts in search of open areas. The energy saving solution to the problem is close by, however. Rooftops are readily available outdoor space that can be used for sporting activities. In central Copenhagen the roof of a multi-storey car park has been transformed into a 2400 square metre adult fitness zone where people can run and workout all day, all year, 24 metres above the ground. The all-weather exercise surface is produced from the granulated remains of old tyres and Nike shoes. PHOTO Rasmus Hjortshøj / Coast studio
TO SAVE POUNDS
14
FORESIGHT
TEXT Sofie Buch Hoyer PHOTO Lars Just ILLUSTRATION Frode Skaren
Energy efficiency
SPENDING PENNIES
Energy efficiency
The payback period for energy saving investments can be painfully long and the risk of no payback at all frighteningly big. The main contractor on Europeʼs largest energy performance project has provided a solution. Such is its confidence in the punching power of efficient new technologies like LED light bulbs it is guaranteeing the energy savings — and promising to pay the difference should they not be achieved
O
n the outskirts of Copenhagen, Hvidovre Hospital can be seen in a whole new light. Staff, patients and visitors moving about the hospital wards find their way lit by the soft glow of high colour-temperature light bulbs. It is as if they were bathed in natural daylight. The greatly improved hospital lighting is part of a major Energy Performance Contracting (EPC) project that has taken the record as Europe’s largest. Some 15,000 new LED-bulbs have done away with the dismal yellow light cast by the hospital’s old fluorescent strip-lighting. The project is also providing the hospital with 5000 additional solar cells and improved ventilation, heating and cooling to reduce its energy consumption by 33%. The energy renovation will save the hospital €2.2 million a year and the environment from a large quantity of needless CO2 emissions. Carrying out the €23 million project is German industrial engineering giant Siemens, which is guaranteeing the energy savings. If they are not achieved, it will pay the difference. “We will use the promised savings to pay off the inFORESIGHT
vestment over time, which in ten years will have cost us almost nothing,” says the hospital's environmental manager, Lars Munch Reul.
RISK AND BENEFITS SHARED The EPC or Energy Saving Company (ESCO) model, in which the customer shares the risk and financing of an energy saving investment with the energy supplier or the technology provider, is setting new standards for building renovation. By outsourcing an entire energy efficiency project, from development to financing to monitoring, the ultimate beneficiary does not have to shoulder full responsibility for every step, a process which often consists of multiple procurements over several years. “The potential for reducing and reorganising energy consumption in buildings through e.g. EPC agreements has still to be fully explored. Often it brings positive spin-off benefits, such as a healthier indoor climate, improved productivity and greater comfort,” says Jesper Jensen at the Danish Building Research Institute. 15
Energy efficiency
IN THE LIGHT OF BETTER KNOWLEDGE Much of the early scepticism about energy efficiency legislation has been put to shame, exemplified by the shining example of the light emitting diode (LED). Far from imposing cost and discomfort on citizens, government mandates to phase out inefficient incandescent light bulbs reduced energy bills and improved the quality of electric lighting. No wonder the inventors of the LED won a Nobel Prize in 2014 for their efforts. Yet when legislators across North America, the EU and other countries first legislated a shift to cleaner lighting, the hostile reaction from far and wide took many by surprise. Opposition to spending pennies to save pounds took a startlingly strong hold. LED light bulbs were feared too cold and aesthetically unpleasing for home comfort. In the US, there were cries of government overreach. Republicans tried to annul the law. Euro-sceptics in the UK and other member countries cited the case of the LED as another example of EU meddling. Preventing freedom of light-bulb-choice to law abiding citizens was put on the blacklist of reasons to leave the union and abandon those croissant-scoffing eurocrats to their own devices. Phasing out energy intensive light bulbs, however, did not only lead to unexpectedly fierce opposition, it also created a whole new industry in energy efficient and cost effective lighting. The LED light bulb is not the investment it once was. Competition for a slice of the mandated market caused prices to drop more than 80% in recent years. Technological advances solved the early problems of harsh blue light and as prices came down sales of LED bulbs began to take off. Companies and institutions that have invested in more efficient lighting are experiencing substantial savings. With the benefits of hindsight, even the one-time sceptics are acknowledging that this particular case of government meddling accelerated the market prospects for a bright new light bulb technology that shines 25 times longer and is 90% more energy efficient than the old dullard. Good government has its bright sides. 16
What began as an American concept during the bottlenecks in energy supply in the 1970ies has become a global market worth $24 billion in 2015, according to the International Energy Agency (IEA). Along with the EU Commission and the European Investment Bank, the IEA is working to spread knowledge of the ESCO model far and wide. In recent years, beneficiaries of the ESCO approach have been schools, universities, sports halls and hospitals in Europe. Globally, an energy saving potential of 50% in public buildings is estimated.
NORDIC FINANCIAL EFFICIENCY Denmark jumped aboard the ESCO wave in the first decade of the century. Since then, Nordic ESCO projects, like that at Hvidovre Hospital, have become known for their financial efficiency in pooling all potential savings into a single undertaking. Quickly harvesting the returns from low hanging fruit, such as lighting and air conditioning, can help pay for longer term investments in more integrated energy solutions, such as solar cells and complete reorganisation of the energy supply apparatus. Even so, the ESCO concept is still not widely known and understood. Operational staff at the target company or institution can be hesistant about embracing change when they fear that efficiency could mean becoming redundant. The success of an ESCO
Hospital cures its energy ills A central building management system, renewed lighting, better air-conditioning and improved ventilation are among the measures implemented at Hvidovre Hospital in Denmark. The project has been awarded the European Energy Service Award 2017
“We will use the promised savings to pay off the investment over time, which in ten years will have cost us almost nothing”
project, however, is dependent on it being developed and driven in a close partnership between the customer and the Energy Performance Contractor. “EPC projects are an eye-opener, especially for the public sector, because they don’t have an impact on liquidity. But they demand trust, flexibility and volume when a contract is entered into. It’s often difficult for companies and institutions to understand the risks of the investment, which lie outside their normal fields of competency,” says Troels Ranis from the Confederation of Danish Industry.
MARKET FAILURES Today, buildings are responsible for 30% of the world’s energy consumption and could contribute 45% of FORESIGHT
Energy efficiency
FORESIGHT
17
Energy efficiency
crease energy production, whether for heat or electricity, points out Brian Vad Mathiesen, a professor at Denmark’s Aalborg University. He stresses the need for far more integrated energy system designs that focus explicitly on building stock and not just energy savings generally. “There is huge potential in increasing the penetration of renewable energy by reducing end consumption. Buildings can contribute to a smart energy system by entering into a new collaboration with energy supply technologies to maximise synergies in the system,” says Vad Mathiesen and mentions smarter district heating networks with reduced temperatures and energy flexibility in households as an example (see figure page 27). The potential for district heating to save energy is well documented. The Heat Roadmap Europe says district heating can meet 50% of Europe’s entire heat demand by 2050, with 25-35% coming from large scale electric heat pumps. “The waste heat available today from industrial processes and power generation could in theory heat all the houses in Europe. Buildings play a central role on the demand side in the future energy system,” says Vad Mathiesen. Today, district heating covers around 10% of total heat demand in Europe. •
energy-efficiency related CO2 reductions in 2040 thanks to tougher building regulations and tightening of minimum energy performance standards on heating and cooling equipment. Market failures, however, put realisation of this energy efficiency potential at risk. The owner-tenant dilemma remains unresolved, with the investor in energy saving measures frequently not benefitting from lower energy bills because the savings accrue to the owner. Only about 1-2% of the building stock in Europe is renovated each year. More incentives are needed to boost private investments in energy efficiency if the EU’s climate goals are to be reached, but also to improve the quality of life for citizens across Europe, as the Healthy Homes Barometer 2017 points out. One in six Europeans lives in a building which is damp, does not have sufficient daylight or is uncomfortably hot or cold.
INTEGRATED ENERGY Renovating buildings is also one of the cheapest ways of reducing emissions. Saving energy in buildings provides a greater economic reward than installing more renewable energy, provided the investment in energy efficiency is less than the investment to in18
ELECTRIC AVENUE
SCANDINAVIA SHOWS THE WAY FOR CLEAN TRANSPORT
While engine noise and petrol fumes are steadily disappearing from the streets of Norway, a European leader in electric vehicles, Denmark is hosting the first vehicle-to-grid hub supplying support services to a local electricity network What in the 1990s began as an initiative in Norway to reduce air pollution and noise in urban areas has since become an efficient weapon against climate change. Electric vehicles (EVs) charged mainly from hydro power are not only displacing cars run on petrol and diesel oil, but also their associated emissions. Market incentives in Norway that eliminate the price difference between EVs and cheaper alternatives have facilitated the transition. Norway today has the highest proportion of EV owners in the world. At the start of 2017, 37% of all new cars sold in the country were powered by electricity. Over 100,000 citizens, 4% of the population, FORESIGHT
Three times better The cost of operating an electric car is likely to reach parity with fossil-fuel powered vehicles in 2018, according to a recent analysis by UBS, a bank. Electric cars are roughly three times more energy efficient than those run on petrol
Energy efficiency
FORESIGHT
19
Energy efficiency
drive an EV. Like other big cities in the country, capital city Oslo grants EVs access to bus lanes, free public charging points and privileged parking rights. “Even though Norway has a high level of economic welfare, among other things because of oil resources, other countries can still follow our EV policy by introducing the polluter-pays concept in motor taxes,” says Christina Bu at the Norwegian Electric Vehicle Association.
FROM HORSES TO HORSE POWER Unlike internal combustion engines, which convert about 20% of the energy from fuel into propulsion, an EV uses energy much more efficiently with a 60% conversion rate. That difference may mean a faster penetration for EVs than achieved by their forerunners. It took the combustion engine 50 years to outcompete the horse after its introduction in North America. The rate of EV growth globally, although slower than earlier expected, surged in 2016 with 30% more vehicle sales than the year before. The International Energy Agency expects 35-40% of all new cars on the road to be electric by 2040, with growth spurred by rapid technology advances and China’s commitment to decarbonisation. Market analysts Bloomberg New Energy Finance and McKinsey both estimate that EVs will achieve cost-parity with conventional vehicles by 2025-2030, while UBS, an investment bank, says the total cost of consumer EV ownership will drop to that of a petrol car already by 2018, given the rate at which battery prices are falling. Key questions remain, however, including how to deal with the limited driving range offered by current batteries, the overall cost of the transition to electric mobility, and the lack of fast-charging infrastructure for EVs.
Lifecycle global emissions
Electric and petrol cars compared
CO2e grams/mile 600 500 53% Reduction
400 51% Reduction
300 200 100 0 Midsize Gasoline Car
Midsize 84-mile BEV
Battery manufacturing
Full-size Gasoline Car
Full-size 265-mile BEV
Operation
Vehicle manufacturing
NOTE: Assumes 135,000 miles travelled by mid-size vehicles and 179,000 miles by full-size vehicles and accounts for the different usage patterns of EVs with 84-mile range and 265-mile range. Manufacturing emissions estimated using average electricity grid emissions in the US. Average electricity grid emissions intensity during vehicle operation is based on a sales-weighted average of where EVs are being sold today. SOURCE: Union of Concerned Scientists
KEY CONCERNS How much additional electricity is needed to meet EV charging demand and from what generating source it is to come are major questions still to be answered, along with how EVs can be smoothly integrated into electricity systems without causing supply disruption, both at the level of individual buildings and the grid network. Based on growth in the use of electric vehicles in Europe, from 0.03% in 2014 to 4-5% by 2030, the European Environment Agency believes the pressure on existing power grids could pose a challenge for electricity production. Eurelectric, the European association of electricity providers, says the biggest challenge is not in the wholesale but in the retail market. 20
“Major disincentives apply to electricity consumption in the form of levies applied to the price of kilowatt hours on retail bills. The cost of the actual electricity amounts to only about one-third of the average European household’s electricity bill,” says Eur- electric’s Kristian Ruby. The remainder of the bill is made up of standing charges and various levies. Cost reflective electricity bills would be an important step to further incentivise the use of electricity in transport, he says.
NETWORK SERVICES An experiment in Denmark is exploring the potential for EVs to supply support services to electricity FORESIGHT
Energy efficiency
INTERVIEW
A PATH TO GROWTH AND WELFARE
Energy efficiency improves energy security, lowers energy bills and reduces global warming emissions. The International Energy Agency (IEA) agrees that energy efficiency is the world’s “first fuel” in that it works to save all other fuels. Why more companies are not tapping into the potential is a concern, says Brian Motherway, the agency’s head of energy efficiency. Q IEA’s Energy Efficiency Market Report 2016 states, “There is no realistic, or affordable, energy development strategy that is not led by energy efficiency.” Yet 70% of the world’s energy use is not governed by efficiency performance requirements. How concerned should we be about this energy efficiency gap? A There is growing recognition among governments and stakeholders worldwide that efficiency needs to have a stronger place in energy in the future, whether it’s driven by climate change, growth, competitiveness, energy security or anything else. We see a growing use of energy efficiency policies but it’s not going fast enough. We would certainly call on governments around the world to put more focus on energy efficiency.
“It’s not about curtailing growth. In fact, it’s the opposite”
Q The IEA concludes that policy plays a central role in driving energy efficiency. Given that the energy you do not use is also the cheapest, why would companies not seek more energy efficient ways of doing things without policy drivers?
A This is the economic oddity associated with energy efficiency. In theory, a lot more should be happening, but in practice it’s not and this is the challenge for business people and governments. There is a great opportunity to improve efficiency but it doesn’t happen by itself and that is a lesson learned from around world. There are too many barriers: people not being aware of the opportunities, where to get the finance from, what kind of solutions to choose, etcetera. It needs policy support to kick-start it. But then again, energy efficiency can be delivered by the private sector, it can be funded by various means — it doesn’t have to be all funded or delivered by the state. Q A key concern in the debate about decarbonisation is how it can be done without slowing economic growth — does cutting greenhouse gas emissions reduce or enhance general welfare? How should this discussion be approached? A Historically, energy use and economic growth have been linked. But that is no longer the case. Energy demand has stopped rising in many OECD countries and even begun to decline, despite continuing economic growth. Countries everywhere, from China to Europe to the US, are showing you don’t need the same levels of energy growth in order to drive economic growth. We see countries focus on energy efficiency for many reasons, not just decarbonisation. But if countries are still growing their energy systems, energy efficiency can make that growth a lot cheaper. It can make investments in power stations, grids, etcetera a lot more affordable. It can also drive growth in jobs, it can improve industrial competitiveness, it can improve energy security. A really important feature of energy efficiency is that it reaches beyond energy policy to wider social and economic policy development. I think that’s one of the reasons it’s starting to get more attention in recent years. Q Are the advantages of energy efficiency for economic and social development well understood? FORESIGHT
A No. In fact, there are still many people who associate energy efficiency with a sense of sacrifice in growth, or people not getting the services or the lifestyles they want. There is still work to be done to communicate that providing comfort, well-being, what people need for their jobs and transportation can all be done, but using energy much more efficiently. This agenda is not about curtailing growth, it’s certainly not about losing jobs or reducing people’s lifestyles. It’s the opposite. Technology advances are making a big difference to achieving this balance. Now digital technology is making so many things smarter in terms of energy control. It is very much an economic and social enabler.
“This is the economic oddity of energy efficiency. In theory, a lot more should be happening, but in practice it’s not”
Q The IEA warns that a prolonged period of low energy prices can put a brake on reductions in the volume of energy used to create economic wealth. How big a threat does a continuation of low energy prices represent to energy efficiency? A The cure is policy, again. On a personal level and at a national level, if prices are lower there is a temptation to take away a little bit of focus on energy efficiency and not treat it as seriously. That is certainly the wrong response. If the prices aren’t delivering what is needed, that’s where policy comes in. We do see evidence that where prices have come down and have had a potentially negative impact on energy efficiency delivery and investment, it’s policy that protects against that. I think the current price environment and the uncertainty created by that only reinforces the call for a stronger policy focus around the world. • 21
Energy efficiency
CONNECTED CAR SIMULATIONS IN AMERICA Power system operating costs and curtailment of generation from renewable energy facilities can be reduced by putting the battery capacity of fleets of electric vehicles at the disposal of national grid networks, according to the US Department of Energy’s National Renewable Energy Laboratory (NREL). The laboratory draws its conclusion after running simulations of vehicle-to-grid two-way connections for three million electric vehicles (EVs) with a round trip charging efficiency of 50%. The simulations demonstrate power system savings of $310 million, a 1-3% reduction in electricity cost, a 1.5% reduction in peak demand on the network, a 1-4% reduction in grid-related carbon emissions and a 25% reduction in renewables curtailment. Thirty US cities recently asked the auto industry about the possibility of investing $10 billion in 114,000 electric vehicles — including garbage trucks and street sweepers — to help cut carbon emissions from the transport sector. That number of vehicles, corresponding to 72% of plug-in vehicle sales in the US in 2016, would provide EV manufacturers with welcome market visibility at a time of shifting federal policies and fluctuating gasoline prices at the pump.
TARGETS MATTER Large or small, towns and cities are three times as likely to take action on climate change if they have targets to reach, according to C40, a clean energy support network of 90 large cities. Places as demographically diverse as New York (population 8.5 million), Copenhagen (1.3 million) and Sønderborg (28,000) in Denmark are proving the theory in practice. New York is aiming to cut emissions by 80% by 2050. Copenhagen and Sønderborg have targets to be carbon neutral by 2025 and by 2029, respectively. Small communities are often more ambitious in their efforts than cities, says C40's Frankie Downy. Sonderborg is busy realising plans to integrate local wind and solar production into the town's district heating network. 22
networks in the world’s first fully commercial vehicle-to-grid hub. In collaboration with Italian electric utility ENEL and Californian company Nuvve, ten Nissan e-NV200 vans are making a combined 100 kW of their battery capacity available to a local electric utility in Denmark. When the EVs are plugged into the main electricity network, the utility will use the flexibility offered by the stored power it can access and the free battery capacity it can use to help it sta-
“Our strategy is for electric cars to be integrated into society and actively contribute to the energy market. The car will become more than just a means of transport”
bilise the local network. In return, the EV owners get paid for the flexibility services made available (full story page 32). “Our strategy is for electric cars to be integrated into society and actively contribute to the energy market. The car will become more than just a means of transport,” says Nissan’s Ann Strøby.
SHIPPING JOINS IN
Meantime, electrification of transport is now extending from roads to the shipping industry. In 2015 the world’s first electric car ferry, named Ampere, started operation in Norway. According to research by German industrial conglomerate Siemens, seven out of ten ferries in Denmark would run more profitably on electricity than diesel oil, while at the same time saving 45,000 tonnes of CO2 emissions a year. Most Danish ferries operate relatively short routes with an energy consumption of less than 2000 kWh a trip, making them well suited to electric means of propulsion. An electric ferry is to be added later this summer to the Helsingør-Helsingborg route across the sound between Denmark and Sweden. It is expected to be the first of many. Under the 2015 Paris climate accord, every signatory country is obliged to set national carbon reduction goals that for the first time include the transport sector. In Europe, total emissions have fallen by 22% since 1990, but for transport, including air travel, emissions are 20% above 1990 levels. • FORESIGHT
Above and beyond Sonderborg, a town in the far south of Denmark, is well on its way to achieving zero emissions of CO2 by 2029. It all started in 2007, when the town entered a public-private partnership, ProjectZero, with the aim of reducing Sonderborg’s contribution to global warming. Initially the intention was to cut CO2 emissions by 25 per cent by 2015. Time passed, investments were made, patterns of energy use changed. By 2016, the entire Sonderborg-area had cut its emissions by 35 per cent. It is now on target for zero emissions by 2029.
To learn more visit ProjectZero at www.projectzero.dk
Bright Green Business
Energy efficiency
INDUSTRIAL ENERGY SAVINGS
EFFICIENCY IN THE HANDS OF ENGINEERS EVERYWHERE
Industrial electric motors alone use a third of the world’s electricity, much of it in profligate use of energy that can be reduced with good engineering solutions. The world’s engineering industry has a major contribution to make in bringing down industrial energy use in all applications, everywhere President Donald Trump might have pulled the US out of the Paris Agreement on climate change but that will not reduce demand for General Electric’s wide-ranging energy efficiency solutions, says company global executive director Deb Frodl. “Clean energy technology is such an essential part of business and government strategies all over the world. Renewables are now mainstream and I think that we will see the industry continue to lead the clean energy transition,” she adds. Twelve years ago, when GE was considered one of the largest industrial polluters, the company launched a multi-billion dollar green brand, Ecomagination, which accelerated its move towards cleaner energy like wind and solar power as well as technologies that improve environmental well-being, including aircraft engines with lower emissions and better water purification technology. The company has particularly focused on wind power. It re-entered the wind turbine manufacturing business in 2002 through the purchase of bankrupt energy giant Enron’s wind division. More recently it bought Danish LM Wind Power, a long established leading supplier of rotor blades to the wind industry and acquired a one-time Spanish wind turbine manufacturer through its merger with globalised French engineering company Alstom, which had earlier bought the wind firm. Development of digital technology to support GE’s global business empire is a core company mission, wind power no exception, and it is seeking to expand its role as a digital pioneer. “We are now able to connect people with industrial machines through analytics and data for better business outcomes and we strongly believe that co-developing solutions is the best way to accelerate decarbonisation,” Frodl says.
SPENDING MONEY TO SAVE MONEY Globally, the industrial sector is responsible for around one-third of primary energy consumption 24
The big engine that could In 1933, the world’s largest diesel engine was delivered to the HC Ørsted power plant in Copenhagen, where it operated for the next 30 years. It was last put to use during a power failure in 2003 that hit Copenhagen and large parts of Sweden when it was used to bring the power system back up again. The now pensioned engine has a maximum generating capacity of 15 MW
and greenhouse gas emissions. Industry will have to significantly increase its energy productivity by improving energy efficiency and switching to low-carbon or carbon-free energy sources if the global climate change mitigation targets agreed on under the umbrella of the United Nations are to be met. While 60% of the potential for energy efficiency improvements in the industrial sector is yet to be realised, information, financial, and regulatory barriers often prevent enterprises from fully exploiting the opportunities. According to Tim Farrell at the Copenhagen Centre on Energy Efficiency, which serves as the energy efficiency hub for Denmark's Sustainable Energy for All initiative, there is a general lack of appreciation of the value of energy efficiency in improving productivity and the economy. “There is a shift in the narrative in the policy making arena towards considering multiple benefits of energy efficiency such as job creation and improvements in health and well-being in development of energy efficiency actions. Identifying and prioritising these multiple benefits can redirect the investment flow towards energy efficiency projects,” says Farrell. The broader benefits of energy efficiency can be difFORESIGHT
Energy efficiency
FORESIGHT
25
Energy efficiency
ficult to monetise, quantify or even measure. Yet the International Energy Agency recently concluded that energy efficiency measures can deliver returns of as much as €4 for every €1 invested once the value of multiple benefits are included.
GENTLEMEN, IMPROVE YOUR ENGINES Today, 30% of global electricity, some 6000 TWh, is used in industrial electric motor-driven systems. The total demand for energy services provided by industrial motor engines is set to more than double by 2040, with nearly half the increase coming in China and India. As much as 60% of the achievable energy reductions in motor systems lie in optimising the whole and not just individual component parts, according to Denmark’s Danfoss, a large privately held engineering company offering energy efficiency solutions. Installing variable speed converters is one of the best measures for saving electricity, says the company’s head of industry affairs, Aksel Jepsen. “Nearly all technical systems are dimensioned for worst-case load scenarios. By matching the rotational speed of the machine to the actual load with the help of our frequency converter, energy efficiency can be improved,” he explains. Danfoss has already helped many large ocean going ships save up to 80% of the energy used in their engine cooling systems, including several belonging to Danish shipping giant Maersk. The savings are achieved by adapting the pumps for flexible loading dependent on the temperature of the ambient seawater used to cool the engines. Another energy efficiency success was achieved for Denmark’s second largest city of Aarhus, which Danfoss helped to maximise energy production at a city wastewater treatment plant and minimise energy consumption to the extent that more energy is produced than used by the facility, which serves 200,000 people. Another Danfoss specialisation is hybrid propulsion solutions that marry diesel engines with electric motors to achieve fuel savings, particularly on car ferries operating in the Netherlands, among other places. The company’s entire business concept is now focused on delivering industrial solutions that save energy and reduce CO2 emissions, says Jepsen. “When you work strategically with energy efficiency the gains spread like rings in water. The necessary production apparatus gets smaller and cheaper and it's no longer necessary to operate it at worst-case loads all the time. An entire chain reaction of positive effects is set in motion,” says Jepsen.• 26
CLEAN IMAGINATION Since GE launched its Ecomagination initiative in 2005, the company has invested $20 billion in cleaner technology solutions, generating $270 billion in revenues. GE has also reduced greenhouse gas emissions in its operations by 42% since 2004 and reduced freshwater use by 53% since 2006. The company aims to invest another $5 billion in Ecomagination solutions by 2020. According to GE global executive director Deb Frodl, Ecomagination can be summed up in three key insights: vision, embodied in a strategy led from the top involving mobilisation of stakeholders through public commitments and everybody moving in the same direction; collaboration, with GE partnering with other companies to create the best solutions; and transparency, implemented through annual reports as a key way of monitoring successes, achievements and lessons learned.
Lighting accounts for nearly 6% of global CO2 emissions. A global switch to energy efficient light emitting diode (LED) technology could save over 1400 million tonnes of CO2 and avoid the construction of 1250 power stations
Flexible finesse The bigger the pool of energy, the less the ripples in generation and consumption are felt and the more flexibility there is for balancing supply and demand. By merging the heating and electricity sectors into single giant energy systems, security of supply from variable renewables is enhanced at far less overall cost than otherwise. Using heat pumps at times of high renewables power production becomes a system management tool and a green supply of heat to buildings. An air-source heat pump can deliver one-and-a-half to three times more heat energy than the electrical energy it consumes. A heat pump sucks heat from the outside air and compresses it, to raise the temperature, before releasing it inside the building. FORESIGHT
Energy efficiency
System synergies
With system integration and flexibility come more cost-effective solutions
WIND TURBINES
POWER PLANT
TODAY
E-G
DISTRICT HEATING
NATURAL GAS
2050
THERMAL STORAGE
WIND TURBINES
SOLAR ENERGY
SOURCE Aalborg University, Future Green Buildings
A-C
LOW TEMPERATURE DISTRICT HEATING
BIOGAS
FORESIGHT
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Energy efficiency
INTERVIEW
MAKE THE REAL COST OF ENERGY VISIBLE
Even with good knowledge of how to save energy and a professed desire to do so, many consumers fail to invest the time and money required A standing joke among economists is about the money-grubbing nature of mankind. One economist says to the other: “Look, a $20 bill on the sidewalk.” The other responds: “No, there can’t be.” The point being that if $20 had been lying around, somebody would have picked it up. The untapped potential of energy efficiency is like piles of $20 bills unrecovered by residential and commercial consumers, says Tim Brennan at Maryland university. Q Is part of the problem the way energy efficiency is framed for consumers? Should policy makers put more emphasis on the financial gains rather than climate benefits? A Some energy efficiency policies may do little to reduce carbon emissions but may make electricity affordable by shaving off spikes in demand. That would allow a reduction in the stock of generating and transmission capacity, cutting overall cost. There is a risk, however, that a regulator could use energy efficiency targets to drive prices below competitive levels. That can sound good for consumers, but the overall economics of electricity supply depend on there always be some customers willing to pay the full cost of producing it. Q What do you suggest as the solution to this dichotomy? A Many economists, including me, have proposed that energy suppliers adopt real-time pricing so users see prices that reflect the high cost of keeping capacity available for use at peak times. This 28
doesn’t do much for the environment, as only a small fraction of time during the year is relevant. But on hot summer afternoons when electricity is needed for air conditioning, people running washing machines and clothes dryers is wasteful. Q Competition between consumers to reduce their energy use has proved to be a good motivator, nudging them to consume less even if they don’t care about the environment. Is it a good idea? A Nudging isn’t competition as people normally use the term, but something like neighbour envy. It can be useful, in that if I see that others using less energy than I am, perhaps I am missing some opportunities to save money, just as I FORESIGHT
might check who my neighbours use as a plumber or where they buy groceries. Beyond that, it isn’t clear. Q Are policy makers or utilities getting the most out of nudging consumers to improve energy efficiency? A I am sceptical about nudges, because how do the nudgers know what is best for consumers? And who elected the nudgers to lead consumers away from choices they would otherwise make? Two other kinds of policies get more support, at least among economists. One is the provision of information. The second is to get prices right, for example through carbon taxes or emissions-permit pricing to reflect the full costs of energy. •
Boosting the energy efficiency of buildings Tap into the unparalleled potential for district energy savings with smart metering
Smart metering allows district heating utilities to find the potential for where and how to optimise the energy performance of existing building stock. With frequent data from smart meters, utilities gain insight into the performance of buildings in their supply area. This allows them to target their efforts at the buildings that consume the most energy and take the next step in order to uncover their potential within three main areas: substation efficiency, building envelope performance and end-user behaviour.
Learn how at kamstrup.com/efficiency
Business
RESOURCE EFFICIENCY
More often than not, waste and packaging materials find their way into the environment. As more companies consider the entire life cycle of their products, however, resource waste is expected to ease. New sustainability initiatives point to a new phase in the drive for efficiency in resource consumption
30
FORESIGHT
TEXT Rasmus Thirup Beck
WE LIVE IN A MATERIAL WORLD
Business
PACKAGING DESIGNED FOR THE COMPOST HEAP
FROM SOUR MILK TO LUXURY TOILET PAPER
Plastic packaging of food is ubiquitous in the supermarket. It is used to wrap everything from meat to apples. Once the food is gone, the plastic is trashed and at best gets dumped in landfill or incinerated. At worst, it becomes environmentally hazardous litter. In the oceans alone, eight million tonnes of plastic are dumped every year, estimate scientists, forming a toxic link in the food chain. Breakthrough solutions to plastic pollution are now on the way. London firm Snact has teamed up with Israeli packaging company Tipa to develop a type of biodegradable packaging that will disappear in six months along with the rotten apples, potato peelings and other organic material sent for composting. Tipa has taken the lead in developing the product, which is being used to package everything from T-shirts to Dutch carrots. In the US it is sold as zip bags which degrade in just three months. Tipa is not alone in its efforts. British firm Futarama sells biodegradable packaging film and cellophane which, in the case of customer Nestlé, is used to wrap the firm’s classic Quality Street toffees, chocolates, and caramels. The US Department of Agriculture has gone one step further and developed a packaging film that can be eaten. The next step is to get it to taste good. •
Milk that has been standing too long in the refrigerator often develops a bad reputation. But that may change. Lucart, an Italian paper material giant, together with innovative minds at German firm Qmilk, has developed a toilet roll made of old milk. Not only might it resolve the challenge of sour milk in the fridge, but also the abundant surplus of waste milk that dairies otherwise pour down the drain. Milk toilet paper, which reached the shelves of Italian supermarkets before Christmas as Carezza de Latte — caress of milk —is an offshoot of Qmilk’s breakthrough a few years earlier with a hypoallergenic textile made from sour milk, the difference being that the textile needs to be woven, but the toilet paper does not. “From a purely dermatological standpoint, it is really good,” says Qmilk’s founder, microbiologist Anke Domaske. That applies to lactose intolerance sufferers, too. It is lactose free. •
LEGO SEARCHES FOR A NEW RAW MATERIAL
The interlocking toy building bricks from Danish company LEGO are made from hard plastic in a myriad of colours. Envisioning them any other way is hard, but the time has come. At company headquarters in the town of Billund, LEGO is working on discovering, developing, and implementing a new, sustainable raw material for the more than 60 billion blocks that are produced each year. In June 2015, the company invested $150 million in the project, which is overseen by a newly established Sustainable Material Centre. In addition to employees from all corners of the group, about 100 material specialists have been employed to meet the challenge. The final choice of material is still unclear, but traditionalist LEGO lovers can take comfort in knowing the blocks have changed before. The LEGO story began with them made from wood. •
FORESIGHT
A GREEN, GREEN BOTTLE
In the beginning was beer in a green glass bottle. Later, a green metal can came along. On the way now is beer in a bottle made from wood. That’s right. Wood. In collaboration with the Danish packaging company ecoXpac, beer giant Carlsberg is developing a new, sustainable bottle made of compressed wood fibre. It will be 100% organic and biodegradable. Expected on the market in less than two years, the bottle will significantly reduce Carlsberg’s carbon footprint, 45% of which consists of glass and aluminium packaging. Development of the bottle is complete, but Carlsberg is postponing the launch. First, it wants to ready its customers for the prospect of a wooden bottle. “There is a great deal of emotion attached to enjoying a cold beer from the bottle,” notes Carlsberg director of sustainability, Simon Boas Hoffmeyer. Using wood as the base material for a bottle is the brainchild of Carlsberg Circular Community, which oversaw the product’s development. In January 2014, the year in which the group was founded to work on efficiency in use of resources, the bottle received a cradle-to-cradle certification for its recyclability. •
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Business
GARAGE SALES
Japanese electric vans, Italian charging equipment, and American IT are coming together to make commercial vehicle-to-grid systems for regulation of grid frequency a Danish reality with global perspectives
VEHICLE TO GRID
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says Thomsen. “From an economic perspective, it’s interesting for fleet owners to view their vehicles as revenue-earning assets, even when they are parked.” It is still too early to say how much revenue the sale of frequency regulation will return and Nuvve has too few customers to declare the software off-theshelf. Research by the Technical University of Denmark (DTU) suggests earnings from sale of frequency regulation may amount to about €1350 annually per car. DTU’s Peter Bach Andersen says the calculations assume that electric vehicles are plugged in and available to the grid between 16:00 and 06:00 and can both charge and release energy. He stresses that for EVs to provide useful volumes of frequency regulation requires aggregating the capacity of many before they can function as a virtual power plant.
NEXT STOP BRITAIN The collaboration between vehicle supplier Nissan, Enel, and Nuvve is betting on the Netherlands and the UK as the next markets. “Britain can lead the way in V2G. The grid is not as strong as in Denmark and Germany and the British need to integrate more renewable energy. This creates a need for frequency regulation, so we are seeing great interest,” says Thomsen. The newest EVs from Nissan can all provide services to the grid without technical modifications and come with an eight year warranty. Experience shows that electric car batteries wear relatively little, especially if they are not allowed to discharge completely too often. For this reason, the project partners in Frederiksberg have placed limits on how far a battery can discharge. • FORESIGHT
TEXT Jesper Tornbjerg
T
hink of a future in which millions of batteries are charged from the electricity mains to provide demand response services when the grid requires them. That future has been brought nearer by a project in Copenhagen, where a local utility has signed the world’s first commercial vehicle-to-grid (V2G) agreement. “After some teething problems, the system works really well. We are now in the process of selling frequency regulation to the electricity grid,” says operations manager Martin Messer Thomsen at Nuvve, an IT company. Nuvve’s software optimises the purchase and sale of services to the grid. Suburban utility Frederiksberg Forsyning supplies gas, water, and district cooling and heating to the residents of Frederiksberg, an inner city suburb. To provide the various services, it operates a fleet of vehicles, including ten electric vans. These are charged using custom charging equipment supplied by major Italian energy company Enel. The equipment can deliver 10 kW in both directions. When the electric cars are parked in the utility’s garage with their ten batteries fully charged, 100 kW of power is available. The little fleet’s energy is sold to the grid by Neas Energy, an energy trading firm, which bids it into the Danish-Swedish market for frequency regulation. The market is operated by the national transmission system operators (TSOs), Energinet.dk and Svenska Kraftnät, which continually signal their need for power to maintain grid frequency at 50 hertz. Where the power comes from is immaterial to the TSO, provided the price is right. “We are seeing an enormous interest in the idea,”
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Business
FINANCING TRENDS
Investors hungry for offshore wind Once seen as exotic fare, offshore wind investments have become a staple diet for pension funds. The crumbs that fall from their table are these days being eagerly fought over by new types of investor with healthy appetites and new ideas
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which it sells off chunks of ownership in mainly completed projects to secure money to construct more.
NEW MATURITY “There’s an increasing interest for investing in offshore wind farms. It’s a more mature market, investors are now more confident with offshore wind and it’s become a more global market,” says Henrik Poulsen, DONG’s boss. The energy group sees new investors emerging, typically from North America, the Middle East and Asia. DONG Energy’s traditional partners have been Danish and international pension funds or industrial players, among them Denmark’s PensionKassernes Administration (PKA). The PKA Alternative Investment Partner unit, started five years ago, has had annual returns, after costs, of just over 18%. “We’ve been very successful,” says unit head Anders Dalhoff. He believes pension funds are ideal financial partners. “They have plenty of cash, there’s no need to gear investments, which makes the transactions less complex, and then pension funds have perhaps the longest investment horizon of all and can stay in the asset until it stops producing,” he says. Like Poulsen, Dalhoff sees a trend in more new investors, with capital coming from the Far East, including Japan and China. “There’s no doubt that it’s difficult for a new investor to get into offshore wind. You need knowledge of the industry, yes, but you also need to be a credible partner,” Dalhoff says. FORESIGHT
TEXT Karin Jensen
M
oney in the bank or placed in bonds is not an attractive investment in a world of historically low interest rates. Investments that deliver healthy revenues long-term are in demand and offshore wind station projects often fit the bill perfectly. But getting in as a new investor is difficult. “There’s a lot of money out there and a lot of investors are very keen to get into offshore wind and are willing to compete on price,” says Henrik Stamer, CEO at K2 Management, a wind consultancy firm. Some of the new investors are “very hungry” and they know they must lower their level of ambition and their expectations for internal rates of return (IRR), says Stamer. “We hear that some are willing to accept a return of just 2%, which is very low. But these IRRs are of course more a theoretical calculation and once the offshore park is up and running, you can optimise it and perhaps increase the return after some years,” he adds. The lower returns on investment are a healthy sign that investors perceive lower risks in the sector, says Ivan Pineda of industry association WindEurope. “As the industry becomes more mature, the risk to return ratio is more balanced and investors are more confident in technology and industry to deliver long term revenue flows,” he adds. Denmark’s DONG Energy, the world’s largest operator of offshore wind farms, has been a particularly successful investor with its partnership model, in
Business
to offshore project owners without any government price subsidy. The prospect of lower earnings, plus taking on the risk of relying solely on revenue from sales of electricity on the wholesale power market, could scare off pension funds. “Obviously, when you don’t have subsidies to support the return, then it’s a different case you’re looking at,” says Dalhoff.
Increased appetite for wind power European investments in grid-scale power capacity
€ (bn) 45
HEDGING PRODUCTS
40 35 30 25 20 15 10
SOURCE WindEurope
5
2010
2011
2012
2013
2014
2015
2016
Wind energy
Utility scale solar
Hydro, geothermal and other RES
Nuclear
Fossil fuels
Biomass / Biomass CHP
NOTE Figures do not include fuel supply, distributed generation or residential ownership
MORE RISK, MORE GAIN The early investors in offshore wind have accumulated a deal of experience and are looking to move further up the value chain, taking on construction risk or even pre-construction risk. “When you have been a passive investor on a couple of projects, then perhaps it’s time to try one of your own or with a partner, take bigger risks but ultimately also get a higher return,” says Stamer. He believes that if traditional investors do strike out independently it would leave the door open for new investors to partner with experienced operators like DONG Energy. “It’s a safe investment. The return is lower, but you learn a lot and the next step may be to enter a project around the time of its financial close instead of when it has been fully constructed,” Stamer says. Another potential opening for new investors may lie in offshore projects that this year have been contracted to sell their output at prices far lower than seen before. In Germany, contracts were awarded FORESIGHT
Pineda, too, sees a future role for private investors. “Offshore wind investments are too big for some institutional investors and whilst risks are lower, many do not feel comfortable with this type of asset, especially when you see the developments towards fully merchant projects like the three projects in Germany,” Pineda says. “The great majority of projects, though, will need some sort of revenue stabilisation mechanism to go forward. We expect a more prominent role for longterm hedging products that allow for the same financial certainty that support mechanisms give today.” The risk lies in whether the industry can bring down costs sufficiently for offshore wind to remain an interesting business case. Stamer is confident it will. “Electricity prices will go up and costs of energy for offshore wind will go down,” he says, helped by economies of scale in larger wind turbines. Industry talk is of future turbines with rated capacities of 13-15 MW, up from 8 MW as the largest in commercial operation today. “If everything goes according to plan, then I’m sure the energy companies will be more than happy to issue guarantees for the investors,” says Stamer.
CUSTOMER POWER DIRECT Offshore wind generation could also become a product sold directly to corporate customers in bi-lateral power purchase agreements (PPAs), as is common with large onshore wind farms in the United States. “Perhaps sell 40-50% of what you expect to produce to these long-term PPA contracts and the rest to the spot market, that would certainly work as an investor guarantee,” Stamer says. Poulsen does not rule out the idea. “It probably won’t be long before we begin to see corporate PPAs in Europe, but it’s too early to say when this will happen,” he says. Dalhoff points out that in Europe corporate PPAs have so far been associated with large US information technology companies building data centres. These companies have policies in place that requires the centres to be run on green electricity, making them obvious customers for offshore wind generation, he notes. • 35
Business
DRIVING DOWN THE COST OF WIND
Variable pricing reduces variability of wind production
A
s electricity markets have evolved to integrate ever more wind power, the technology has also evolved in response to changing economic realities. Wind turbines today can be delivered in a variety of combinations of generator size and rotor diameter, providing the option to configure them for specific sites and markets and to deliver energy that has most value to the power system. The irony of wind generation is that on power systems with high shares of wind energy in the mix, the windier the weather, the lower the market value of the electricity produced. Swamp demand for a product with too much of it and market prices will fall. Electricity is no exception. Back in the days when wind turbines were still classed in the “promising” category, designers focused on creating machines that would prove their value by generating lots of electricity. The bigger the generator incorporated into a wind turbine, the more electricity it produces when the resource is at its best — in a good blow. Windy days often mean colder weather and more demand for electricity, pushing up its value. Particularly in northern Europe, the timing 36
of wind supply and consumer demand seemed like a match made in heaven. The market logic gets turned on its head, however, when sufficient numbers of wind turbines are installed to swamp the available capacity of the transmission network to take the electricity on windy days from where it is being generated to the centres of load where it is needed. Follow that thought into a future when all electricity comes from renewable sources, and installing turbines and grid technology dimensioned, at extra cost, for high volumes of generation delivered for short periods when electricity supply may be abundant, potentially defies economic sense.
BIRTH OF THE LOW-WIND TURBINE The challenge of “too much of a good thing” on the horizon is giving encouragement to the further development of wind turbines that operate closer to their rated capacity for longer periods in relatively lower winds. Instead of capturing maximum energy from the maximum wind resource, a wind turbine that increases the average power delivered over a longer period can make better use of times when market FORESIGHT
TEXT Andrew Burger and Lyn Harrison PHOTO Lars Just
By pricing the value of wind energy according to when and where it is produced, markets stimulate the development and sale of wind turbines that are configured to generate steady volumes of energy over longer periods of time, reducing their variability of supply
Business
FORESIGHT
37
Business
UNDERSTANDING CAPACITY FACTOR Capacity factor, also known as load factor, denotes the share of production relative to what the turbine could have produced if it operated at full load all the time. No power plant operates continually at full capacity. All suffer planned or unplanned downtime for repairs and maintenance. Wind and solar are no exception and their capacity factors are also influenced by the availability of the energy resource. A wind turbine with a low capacity factor is likely to be located in a region where the winds are seldom strong enough for it to operate frequently at the full rated capacity of its generator over long periods. By reducing the relative size of the generator, or increasing the size of the rotor, the rated capacity can be increased. Downsizing the generator relative to rotor diameter would sacrifice maximum generation at high winds, but the reduced cost of the equipment may mean a lower cost of energy over its life span. Getting the balance right is the trick. Taken to its extreme, if a large modern turbine with a rotor diameter in excess of 120 metres was equipped with a small generator with a capacity of just a few kilowatt it would produce power at full capacity nearly all the time, even in a sheltered valley; its capacity factor could be in excess of 95%. The machine’s extremely low productivity, however, would rule out any chance of commercial viability. It would generate insufficient revenues to ever pay for its cost. Achieving the correct balance between rotor diameter and generator size may depend on the market in which the wind turbine will operate. A market with plenty of wind that pays a good price for all the energy generated could tend to favour the installation of wind turbines with relatively big generators that reap maximum energy from high winds. Conversely, a market of moderate winds and variable prices driven by the forces of demand and supply could favour a wind turbine with a relatively large rotor for its generator capacity that produces electricity closer to its full rated capacity for longer periods, potentially when electricity is needed most and thus has most value. 38
prices for electricity may be higher, at least in areas with large volumes of wind capacity. Such machines began to be aggressively marketed a decade or so ago, but for a different reason. The best wind sites were taken and project developers wanted turbines that would operate profitably in weaker wind areas. A new breed of “low-wind” wind turbine was born with low specific power capacity. Relative to its rotor size, the low-wind turbine has a smaller generator than one designed for maximum energy capture in high winds and as a result operates at a higher capacity factor. It opens up regions of the world earlier dismissed as not having sufficient winds to make wind power economically viable. The lowwind turbine may also make sense if market prices persist in rising as the wind drops and supply falls.
THE RIGHT INCENTIVES The trend in sale of wind turbines with larger rotors relative to rated capacity has spread to most markets. Germany, swept as it is by moderate winds and only short periods of high winds, was an earlier adopter of the change. It could remain a trend setter. Corrections to market regulations by the German government now encourage sales of wind energy directly into wholesale markets, a job generally undertaken by electricity traders acting as professional middlemen. With their skills in squeezing most profit
“The challenge is to configure wind turbines that produce power for longer periods when market prices are high”
out of markets, traders are adept at identifying the times of day when prices are highest and how best to exploit them on behalf of the owners of the wind generation they are charged with selling. The more wind energy that can be sold when winds are moderate and market prices rise in response to falling supply, the better the return. Faced with this reality, owners have not needed much persuasion to abandon their long time reliance on kilowatt hour payments at a fixed rate under the country’s so-called “feed-in tariff ” for wind energy and move to what became known as the “market direct” FORESIGHT
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Business
System-friendly wind power
The market value of clever integration and lots of flexibility
0.03
Double inter connection capacity
0.04
Wind turbine con figured to market
Provide ancillary services flexibly
0.04
Both
Make CHP plants flexible Wind turbine con figured to market
0.06
0.09
0.06 0.05 0.00
0.05
0.10
0.15
MARKET VALUE INCREASE
MARKET VALUE INCREASE
Comparing the impact of individual integration options, the effect of configuring wind turbines for specific sites and markets is notable compared with other integration options.
Individual and joint impact of power system flexibility and market-configured wind turbines. The joint impact is smaller than the sum of individual impacts, indicating interchange ability between wind turbine and power system flexibility.
model. Increasingly, new owners have reason to buy turbines configured specifically for a site. “In the past, operating under feed-in tariff schemes, such as those employed in the EU, China and elsewhere, wind farm owners and operators didn’t care when or where they were producing — they were paid an amount proportional to the amount of energy they produced,” says grid integration specialist Simon Müller, who together with colleague Lion Hirth at the Hertie School of Governance in Berlin is pushing the case for what they call “system friendly wind power.” Paying a fixed price for electricity can catalyse a market for wind power where there is none, but there is a downside. “[It] creates an incentive to design and manufacture turbines that tend to overlook the overall impact on the system,” says Müller, who heads the Systems Integration of Renewables unit for the International Energy Agency. “So basically we were designing machines that convert wind to electricity that may not be worth a lot.” The new challenge is to design markets which are 40
0.17
Configured turbine if system is flexible
0.11 0.03
0.11
Flexible system if turbine is configured
0.05
0.00
0.12
Flexible system
not only highly sensitive to recognising the market value of electricity at different times in different places, but send out the right signals to stimulate investment in developing and installing wind turbines with the best relative configuration of rotor and generator size for any given location. Time of use pricing and locational marginal pricing are two possibilities. “A lot of the work we’re doing involves coming up with ways to change incentive systems so that wind industry participants recognise and value the incentives to manufacture and install these types of higher value designs,” says Müller. “There’s great potential for improvement if we get those right,” he adds. Wind turbines will always generate most in windy weather, creating a potential glut of electricity no matter how they are configured. The low-wind turbine is not a final solution, but in reducing the weight and size of the generator, gearbox and other components it lowers the cost of wind power. Moreover, shaving a wind turbine’s peak output while increasing its average power delivery provides for more efficient use of grid capacity, with a further cost benefit resulting. • FORESIGHT
Further reading The tendency of renewable energy to undermine its own market revenues and how to design electricity markets to deal with this challenge was studied in depth in a previous issue of FORESIGHT. For a detailed examination of the issue of prices falling as wind generation rises, read In Search of a Cure for Cannibalisation at www.foresightdk. com/in-searchof-a-cure-forcannibalisation/
SOURCE Hirth and Müller (2016)
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Cities
SMART FINANCE
Circular funding of energy savings The value of energy savings from building improvements undertaken by Siemens at a shopping mall in Copenhagen is sufficient to cover the loan the mall received from Siemens to pay for the work. Energy efficiency and efficient finance in one
44
gy saved. “We guarantee the energy savings, which means the customer is ensured that savings will happen and that the loan can be repaid,” says Nielsen. One ESCO project is the Frederiksberg Center, a shopping mall in Copenhagen where Siemens has identified energy savings of 33% with a value of €160,000 a year. Implementation of the energy savings, through initiatives like better ventilation or insulation is expected to take around six months.
LESS ENERGY, MORE VALUE “Lots of large property owners see an advantage in upgrading the value of their property through energy savings. You bring down operating costs and by doing that you make the property more valuable. It’s a win-win situation: you save energy and money for the owners and you lift the value of the property,” says Nielsen. ESCO project numbers are booming, adds Nielsen, not least in the public sector where numerous hospitals are looking at ways to save energy. In 2015, global ESCO turnover amounted to $24 billion, according to the IEA. China hosted the largest national market, with ESCOs employing more than 600,000 people reporting revenue growth of 7% in 2015. In the US in the same year, ESCO revenues were $6.4 billion, more than double that from ten years previously. • FORESIGHT
TEXT Karin Jensen
T
he cheapest energy is the energy never used. Preventing wasted energy by using it efficiently has been labelled the “fifth fuel” for driving down energy demand at least cost. The International Energy Agency (IEA) has named energy efficiency as the area with the single largest potential for affordably decarbonising energy use. To finance and get energy savings underway, Energy Service Companies (ESCOs) are widely promoted by the European Commission, the European Investment Bank and the IEA. The primary business of ESCOs is to deliver energy efficiency solutions. One company that has taken the promotion of ESCOs to heart is German industrial giant Siemens. Through Siemens Financial Services (SFS) the company is helping its customers finance energy efficiency projects. “We see more and more private companies asking us to help with the financing. They use their banks to finance core operations, but energy renovations are often non-core business. Furthermore, we don’t ask for security when making loans, so borrowing money from SFS will not limit a company’s potential to take out loans to finance other things, such as production,” says Lars Nielsen, ESCO director at Siemens. Siemens introduced the ESCO energy efficiency concept into Denmark around ten years ago, a model where energy renovation is paid for by the ener-
URBAN DESIGN FOR GARBAGE DISPOSAL
By reusing the energy created at nearly every stage of the waste incineration cycle, a unique engineering project in Denmark’s capital city has raised the bar for efficient energy capture. It also demonstrates how industrial scale waste incineration can be pleasantly integrated into an urban setting and double as a leisure facility to provide added value
TEXT Wiliam Anthony PHOTO Lars Just
A waste incinerator with a ski slope on the roof
Cities
FORESIGHT
47
Cities
S
porting an all season ski run on its dramatically slanting roof, the Amager Bakke waste-to-energy facility just south of Copenhagen’s city centre has not only set new standards for urban design and civic amenity, but also for capturing energy from the combustion of garbage. “We claim that it is the world’s most energy efficient waste-to-energy facility. We are driving energy recovery to its maximum potential,” says Tore Hulgaard at Ramboll, the Danish engineering consultant company for the power plant. “The environmental standards are unprecedented. Air emissions are far below limit values typical of waste-to-energy facilities,” he adds. The Amager facility is designed to produce heat, electricity, recyclable materials, and water from incinerating solid municipal waste, processing up to 560,000 tonnes annually or 35 tonnes an hour for each of the plant’s two lines. As part of greater Copenhagen’s integrated district heating system, it will supply low-carbon electricity to 550,000 people and heat to 140,000 households. About 95% of all buildings in the area, a combined 70 million square metres of floor area, are heated from the communal district heating network. On very cold days, the remaining 5% is supplied by back-up boilers. “Actually, there’s nothing new in the plant’s basic process of waste-to-energy, but the energy reclamation is twenty percent more efficient than the old plant,” says Morten Kramer Nielsen from Amager Resources Centre (ARC), the company behind the investment. The total net energy efficiency rate of 107% is among the highest in the world for waste-to-energy technology, he adds. “The new plant’s innovations come from how it reuses the energy again and again, increasing efficiency,” explains Kramer Nielsen.
EFFICIENCY EDGE Amager Bakke will recover resources that otherwise would not be recycled. More than 90% of the metal in the bottom ash will be filtered out, leaving a product for use by the construction industry that easily meets strict requirements for heavy metal content and leaching behaviour. Total true recycling will exceed 50%. The facility will also produce much more clean water than it uses through energy recovery using a twostep, flue-gas condensation system, which includes a heat pump. The water recovered will be as clean as distilled water. The flue gas condensation raises energy recovery around 20% — and that 20% gives Amager Bakke the edge. 48
Cities
FORESIGHT
49
Cities
In warm weather when there is little demand for heating, the plant can also increase its electricity generation without having to raise its heat output. The ability to ramp electricity production separately from heat supply adds useful flexibility to a national power system increasingly reliant on variable supplies of electricity from wind power.
SKI PRACTICE IN A FLAT SUBURB Amager Bakke rises from the flat and sandy suburb of coastal Amager south of Copenhagen to earn its name, which translates as Amager Hill. The permit for the project’s construction demanded that 30% of the site be dedicated to recreational purposes. Danish architect Bjarke Ingels thought he and his team at Bjarke Ingels Group (BIG) could do better. BIG designed the incinerator building with a slanting roof, big enough for a 440 metre long artificial ski slope falling from a high point of 85 metres. “Nobody had asked for a ski slope,” says Ingels, who won the bid among six finalists. “Although it started almost like a joke, when the laughter settled, we still felt convinced that it was a good idea. We made some calls to the trainer of the Danish national Alpine ski team and a ski slope operator. We ran some numbers. It still felt right. Miraculously, we won the competition. Then we had to figure out how to do it.” Construction on the $670 million facility began in 2013. The first waste fire was lit in spring 2017 and 50
MONEY FROM MUCK Amager Resource Centre (ARC), the company behind Denmark’s trail blazing Amager Bakke waste-to-energy power plant, is owned by five local municipalities. Project planning began in 2004 with a discussion about whether to upgrade ARC’s existing 1970 facility or build a new one. It was decided to build a new facility next to the old plant because connections to Copenhagen’s district heating network were already in place. With an expected return on investment of 3.9% a year for the next 20 years, Amager Bakke is set to generate a steady income for the municipal owners.
continuous operation will begin after a test phase, probably in autumn 2017. The entire facility will be inaugurated when the ski slope opens in mid-2018. The Amager Bakke plant, in sight of Amalienborg Palace, home of the Danish royal family, makes municipal waste disposal part of the Danish urban landscape, turning what might otherwise have been a monument to industrialisation into a recreational experience for its citizens. • FORESIGHT
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PHOTO ESSAY
THE RABALDER S K AT E PA R K
TEXT Lars Just PHOTO Lars Just
In Roskilde, west of Copenhagen, Rabalder Park reverberates with the sound of kids on wheels as soon as school is out for the day. But when downpours still their happy cries and send them scuttling for cover, the rumbling of wheels-on-concrete soon becomes the roar of water-on-its way. The concrete half-pipes and bowls of Rabalder Park are also a central element in Roskilde's flash flood defence system. Rainwater is led off the city's streets and into a system of channels and holding pools that feed it into a 23,000 square metre concrete bowl with the holding capacity of ten competition swimming pools. Architect Søren Nordal Enevoldsen says he designed the surface-water drainage system guided by the speed, adrenalin and freedom of the skateboarder's world to capture the free form and free flow of skateboarding in Rabalder Skate Park.
Policy
CARBON CAPTURE AND STORAGE
SHAKY CASE FOR SPENDING ON NEGATIVE EMISSIONS
Negative emissions may sound like the latest descent into climate-speak, but they are fast becoming a much talked about concept in the climate and energy discussion. In the second half of this century, reabsorbing and storing more CO2 from the earth's atmosphere than is created through industrial activity is increasingly referred to as a crucial weapon for successfully combating climate change. Tobias Nielsen at Lund university, Sweden, shares his thoughts on the topic. Negative emissions is shorthand for the removal of carbon from the earth’s atmosphere, mainly through photosynthesis. In theory, the captured emissions are stored in plants on land, underground or absorbed in oceans. Achieving negative emissions has the potential to bridge the likely “emissions gap” to full decarbonisation should conventional mitigation
efforts falter. The big question, however, is whether pursuing negative emissions will be a vital tool, or a dangerous distraction. The main technologies for achieving negative emissions are planting new areas with forest, reforestation of previously wooded areas, bioenergy with carbon capture and storage (BECCS) and biochar (see table). The technologies are needed primarily for two reasons. First, some emissions are almost impossible to eliminate, such as those from agriculture and aviation. Paddy fields for rice cultivation and cows will continue to emit methane, while passenger aircraft are unlikely to run on electric power or hydrogen any time soon. Second, proponents argue that negative emissions technology must be brought into play to compensate for the slow pace of conventional mitigation measures (see figure). Under the 2015 Paris climate agreement, countries aim to put in place pathways that can lead to so-called net-zero carbon emissions by 2050. In other words, carbon released during anthropological activity needs to be balanced by removing an equivalent volume of carbon from the earth’s atmosphere. Many national scenarios for reaching net-zero emissions and projections by the Intergovernmental
The great but unproved hope
Name
Technology
Net cost estimates range (US$)
Forestation
Planting new forests and replacing old forests involves sequestering unused land. As the forest grows, it stores carbon in its biomass and in the soil. Some of the carbon may be released when trees die.
$1-100/tonne CO2
Biochar
Biochar results from pyrolysis (heating in the absence of oxygen) of biomass. Biochar is a stable product that can be added to soils to improve soil quality. Terra preta (black soil) is manmade, highly fertile and has been used by indigenous people in the Amazon for hundreds of years.
$0-135/tonne CO2
Bio-energy with carbon capture and storage (BECCS)
BECCS combines two well-known technologies associated with climate change mitigation: bio-energy and carbon capture and storage (CCS). The BECCS process achieves negative emissions by storing the CO2 resulting from the combustion of plants, which have previously removed CO2 from the air through photosynthesis.
$45-250/tonne CO2
62
FORESIGHT
TEXT Tobias Nielsen, Lund University
Negative emissions technologies
Policy
Plot the breaking point
Emissions must fall to net zero between 2080-2100 to keep global temperature rise below 2°C
Annual global CO2 emissions
Budget overshoot
Net negative emissions to compensate for overshoot of carbon budget
SOURCE UNEP Emissions Gap Report 2014
0
Carbon neutrality
2010
2100
Panel on Climate Change (IPCC) rely heavily on negative emission technologies.
DANGEROUS DISTRACTION Depending on future negative emissions technologies to make up for an inability to reduce emissions today does not come without risks. It may inadvertently postpone critical and difficult climate action. Some policy makers are banking on future negative emissions redressing the damage done today and there are countries with climate action plans reliant on future increases of forest area. The ability of negative emissions technology, widely deployed, to deliver the promised CO2 reductions has yet to be proved. One IPCC report puts the potential at 1000 gigatonnes of CO2, while other studies question the significance of their implementation. Moreover, widespread deployment of negative-emissions technologies may involve unacceptable ecological and social impacts. Even if significant increases in forested areas could be achieved, securing the land requires competing with rising demand for it from the agricultural industry and for bioenergy crops. BECCS is widely viewed as the negative emissions technology offering the best potential for drawing sigFORESIGHT
nificant quantities of CO2 from the atmosphere. A recent study published by Nature, an international popular science journal, indicates BECCS could be used to sequester around 12 billion tonnes of CO2 a year globally. Scaling up bioenergy production to achieve that level would almost inevitably take land needed for food crops and biodiversity conservation. Meantime, the viability of storing vast quantities of CO2 underground remains unproved and has yet to be fully explored in practice. It is proving to be costly.
ETHICAL QUESTION The whole concept of negative emissions raises a sensitive ethical question. Should the people of today continue to rely on tomorrow’s technological developments to solve the challenges being passed down to future generations? Negative emissions technologies are potentially destined to play a key role in achieving emissions reduction targets, but their scalability and performance remains uncertain. Some regions are better able to accommodate increases in forest areas or test BECCS projects, but to depend heavily on negative emissions technologies may set the world on a high-temperature pathway. • 63
Policy
THE DANGERS OF USING A SHARP INSTRUMENT
Compared with auctions of renewables, which have driven prices so low that cost is no longer a big barrier to the energy transition, fixed power prices have become a blunt tool for leveraging renewables into mature energy markets. But auctions come with their own set of problems and pitfalls. Policymakers must learn to avoid them. Next year, all being well, the electricity system in Denmark will receive power from a new wave of solar projects. Five of these projects, a combined 50 megawatts of capacity, stand out from the rest. All are owned by Denmark’s European Energy and all have signed contracts valuing their output at €53/MWh, a near record low for European solar energy, which as recently as 2010 typically hovered above €200/MWh. Even more remarkably, it will be German, not Danish, electricity consumers paying to support them. The projects are the winning bids in a pilot of Germany/Denmark cross-border auctions for solar energy supply. The energy from the projects in Denmark will contribute to Germany’s renewable energy targets and a surcharge on German electricity consumers will top up their Danish power market revenues. The eye-catching low prices are among a succession of announcements of ever-cheaper renewable energy emanating from auctions of clean power purchase contracts for various technologies. Auctions, also known as tenders, are now the predominant tool with which governments around the world are enabling renewables deployment. The International Renewable Energy Agency estimates that by 2016 nearly 70 countries had adopted auctions as their primary means for leveraging renewable energy into electricity markets. Each announcement of auction results trumpets lower energy prices. Back in 2005, just six countries were experimenting with auctions as an alternative to offering direct price-subsidies for renewable energy.
Some of the prices resulting from auctions are impressive. In April, German and Danish utilities EnBW and DONG Energy accepted contracts to build North Sea offshore wind farms in the most recent German auction for zero subsidies. To be commissioned in 2024, the facilities will sell their energy at wholesale electricity prices. Meanwhile in Spain, onshore wind developers are signing up to build projects at prices nearly as low as €40/MWh, just the latest confirmation that electricity from renewable energy is often cheaper than from fossil fuels.
PRICE DISCOVERY By inviting prospective renewable energy project developers to tender for a limited number of contracts, while awarding only the best and most often cheapest bids, governments encourage competition between bidders. They have an incentive to meet all the tender’s criteria at their lowest feasible price, a figure unknown to the auctioneer. Through this “price discovery” process, policymakers seek to minimise costs while at the same time keeping a firm handle on the rate of renewables deployment. By providing policymakers and regulators greater discretion over the location and nature of renewables deployment, auctions may mitigate some of the challenges of integrating renewables into markets. This also offers a neat solution to cross-border coordination, by emphasising some of the hidden costs of renewables growth, such as grid expansion, in the bid valuation process.
BRIDGE TO SUBSIDY FREE ENERGY
A SIGN OF MATURITY
Auctions for renewable energy production promise to act as a bridge between feed-in tariff type instruments that have driven much of Europe’s growth in renewables and a future in which financial support is entirely withdrawn and all energy sources rely on wholesale markets. The European Commission has mandated auctions across Europe and other countries also regard them as the standard mechanism for pushing renewable energy into the market. Auctions fulfil investors’ demands for stable revenues and the obligations of governments to protect consumers from undue cost by bringing competitive market forces into action.
The shift to auctions illustrates a growing acceptance that specifying premium purchase prices, often in the form of so-called feed-in tariffs, is too blunt a market instrument with which to direct the growth of renewables. The trend towards auctions is especially important in mature markets with sizeable fleets of renewable energy installations already in place.
Low-cost green energy is good news and auctions are part of that story, but they are not a panacea for all the ills of electricity markets and their transition to cleaner energy sources. To what extent auctions are driving down costs, or simply benefitting from reduc-
64
NOT ALL GOOD NEWS
FORESIGHT
TEXT Oscar Fitch-Roy, University of Exeter
RENEWABLE ENERGY AUCTIONS
Policy
Market forces flex their muscle
Average solar and wind prices resulting from auctions, 2010-2016
money than the government-imposed penalties for abandoning it, the rational decision is simply to walk away, says NERA.
CITIZEN POWER
300 250
USD/Mvh
200 150 100 50
SOURCE IRENA, 2017
0 2010
2011
Solar prices
2012
2013
2014
2015
2016
Wind prices
tions that would happen anyway, is far from clear. Neither are auctions a solution to some of the biggest challenges facing renewables deployment. Moreover, they bring a few new problems of their own. The energy production promised in an auction may not arrive. Ever since auctions were used in the 1970s to allocate access to American oil reserves, the problem of the “winner’s curse” has seen overexcited bidders offering prices so low that when they come to deliver, they cannot make the numbers stack up and are forced to abandon their projects. Renewable energy has not been exempt from this folly. Projects bidding in to the UK’s Non-Fossil Fuel Obligation tenders in the 1990s were similarly at risk and some fell under the curse. Since then, policymakers have learned some understanding of why this phenomenon occurs and how to reduce the risk of projects never reaching construction. But worries about so-called “low realisation” persist. Commenting on the low bids in the recent German offshore wind auction, National Economic Research Associates (NERA), a consultancy firm, contends that the successful bidders could well have bought an option to “wait and see” how technology costs and electricity prices have developed when they come to make their investment decision some time next decade. If, at that point, the project looks to lose more FORESIGHT
At the other end of the renewable energy spectrum, citizen groups with intentions to invest together in clean energy production are struggling to get to grips with auctions. Community-led organisations and green power investment cooperatives are seen by some policymakers as an important component to democratise the energy transition. These legislators are concerned about the ability of citizens to participate in auctions, which given the size of the initial capital investment can be risky undertakings, let alone win them against professional participants. But by tweaking auction design, Germany has demonstrated at least one way to ensure the broadest possible participation in auctions. The government is not under any illusion that Germany’s famed grassroots community energy cooperatives are able to compete on a level playing field on prices alone. In recognition of this, its ongoing series of onshore wind tenders provide smaller players with special rules, such as longer lead times, lower qualification hurdles and more generous pricing than corporate bidders. This approach has been shown to work. In the first auction, more than 90% of the winning bids were put forward by supposedly community initiatives at an average price of less than €60 per megawatt hour. But these measures do not come without a cost. What the lower standards required of these projects means for eventual project quality and completion rates remains an open question, as does whether the backers of the winning bids were truly community-owned.
PRICES THAT COVER COST It has long been known that large volumes of wind and solar depress prices in the markets they are sold into. By underbidding fossil competitors, which have fuel costs to cover, solar and wind become victims of their own success, cannibalising their market revenues by driving down average wholesale market prices and accepting lower than average prices for their production. The only way to counter this erosion of the business case for renewables is to structure both the electricity system and its markets so that prices are upheld. The electricity system must become part of the wider energy system to become sufficiently flexible to accommodate rising renewables supply at prices that cover its cost, however cheap that supply turns out to be. • 65
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GO GREEN WITH AARHUS
GLOBAL CLIMATE CHANGE REQUIRES LOCAL ACTION! The city of Aarhus has therefore set an ambitious target to become CO2-neutral by 2030, as a step along the way towards the fossil-free society. And we have already come a long way! In 2017, we are not only celebrating that Aarhus is European Capital of Culture, but also that the city’s carbon emission has been reduced by half in the last decade! The city’s high ambitions together with the many innovative green tech companies, have made Aarhus a go-to city for international collaboration and a source of inspiration for both green businesses, universities and other cities. We will be more than happy to welcome you in Aarhus! Join the green city transformation on gogreenwithaarhus.dk or follow us on facebook.com/gogreenwithaarhus.