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Issue 6 – 2nd quarter 2014

ELECTRICITY IEA Security Action Plan Energy Secretary Davey speaks on UK supply The future of the grid Energy storage CEO of E.ON: how to cut prices

INTERNATIONAL ENERGY AGENCY The International Energy Agency (IEA), an autonomous agency, was established in November 1974. Its primary mandate was – and is – two-fold: to promote energy security amongst its member countries through collective response to physical disruptions in oil supply, and provide authoritative research and analysis on ways to ensure reliable, affordable and clean energy for its 28 member countries and beyond. The IEA carries out a comprehensive programme of energy co-operation among its member countries, each of which is obliged to hold oil stocks equivalent to 90 days of its net imports. The Agency’s aims include the following objectives: n Secure member countries’ access to reliable and ample supplies of all forms of energy; in particular, through maintaining effective emergency response capabilities in case of oil supply disruptions. n Promote sustainable energy policies that spur economic growth and environmental protection in a global context – particularly in terms of reducing greenhouse-gas emissions that contribute to climate change. n Improve transparency of international markets through collection and analysis of energy data. n Support global collaboration on energy technology to secure future energy supplies and mitigate their environmental impact, including through improved energy efficiency and development and deployment of low-carbon technologies. n Find solutions to global energy challenges through engagement and dialogue with non-member countries, industry, international organisations and other stakeholders.

IEA member countries: Australia Austria Belgium Canada Czech Republic Denmark Finland France Germany Greece Hungary Ireland Italy Japan Secure Sustainable Together Korea (Republic of) Luxembourg Netherlands New Zealand Norway Poland Portugal Slovak Republic © OECD/IEA, 2014 Spain International Energy Agency Sweden 9 rue de la Fédération Switzerland 75739 Paris Cedex 15, France Turkey United Kingdom United States Please note that this publication

is subject to specific restrictions that limit its use and distribution. The terms and conditions are available online at

The European Commission also participates in the work of the IEA.



HOW WE MUST BUILD THE ELECTRIC FUTURE lectricity is a driving force in the changing economic landscape. A “great electrification” is taking place as growth in emerging economies and changing technologies puts air conditioners, computers and much more at the disposal of billions. Such electronics offer access to a global economy and political space increasingly dominated or simply facilitated by information technology. In terms of mobility, electric vehicles ranging from luxury Teslas in California to ultracheap electric scooters in Kunming are becoming commonplace – whether for climate, pollution or economic reasons. As a result of all this, electricity demand is expected to grow more than demand for any other final form of energy. The principal scenario of the IEA World Energy Outlook sees world electricity demand increasing by more than two-thirds from 2011 to 2035. Most of this incremental demand will come from non-OECD countries as emerging economies develop further. While power demand and poverty alleviation can form a virtuous cycle, this shift carries a high price tag. The global power sector will need USD 17 trillion in investment to meet this rising demand as well as replace ageing infrastructure in OECD member countries.


By Maria van der Hoeven Maria van der Hoeven is in her third year as Executive Director of the International Energy Agency, where she has worked to promote IEA effectiveness in global energy security. Before taking the helm of the Agency, she served as Minister of Economic Affairs for the Netherlands from February 2007 to October 2010, during which time she demonstrated leadership on energy policy at the national, regional and global levels.

Tectonic shifts throughout the electricity system It is not only how much electricity is consumed and who is consuming it that is changing, but also how it is generated. Coal’s share will fall from 41% to 33% in 2035, but it will remain the largest generation source. With gas holding at 22%, fossil fuels will still account for more than half of all generation – bad news for a low-carbon transition. Renewable energy will increase to 31% from 20%, but integrating high levels of variable sources such as wind and solar will be difficult in some markets. The greatest potential for renewable power will be in precisely those growing markets where demand is highest and integration of renewables most cost-competitive: the shift to cleaner power generation may owe more to economics than climate policy. Against this dynamic backdrop, policy makers face new challenges in assuring reliable, affordable electricity supplies for their populations and their economies. At the IEA, we have taken a lead in recognising the potential risks and assessing potential responses. In 2011, energy ministers tasked the Agency with developing an Electricity Security Action Plan. This work is continuing but has already led to critical reports showing the best ways forward for aspects of the system ranging from the grid to regulation. One of our most recent books, The Power of Transformation: Wind, Sun and the Economics of Flexible Power Systems, is a critical analysis of how variable renewable energy can be effectively and economically integrated into both new and existing power systems. And the 2014 edition of our flagship technology report, Energy Technology Perspectives, focuses on electricity, gauging how greater electrification can unlock opportunities to enhance the energy system’s efficiency, security and reliability, reduce the cost of required infrastructure and further decarbonise overall energy supply. The need for a systematic approach to the transformation One thing our research and analysis make clear is that a more electrified future requires a change of perspective. As we enter the energy era where fossil fuels increasingly take a backseat to other sources of electricity, we must rethink how we incorporate new and developing elements. From renewables generation to transport based on electric motors, we have to drop the classical approach of adding new technology to an existing system. To achieve a cost-effective improvement in energy security and decarbonisation, we must instead first consider all available options and then transform the system as a whole. And the IEA works to determine and reveal just how to do that. With the analysis and recommendations you will find in the pages ahead, plus links to the full reports, we offer readers of IEA Energy and the rest of the world a preview not just of the benefits of a more electrified world but also the best way to build it.










Our more electrified future requires that we change our approach The greatest risk to electricity security? Sharing your opinion may win you a book UK Secretary of State for Energy & Climate Change Ed Davey on electricity security









• • • • •

Gas: A way Asia can reduce the big premiums it pays for LNG Coal: Time for a bath, or is it? Energy efficiency: New and finer measurements of gains reinforce progress Oil: Rail versus pipelines in North America’s oil boom Nuclear: The halt to expansion is easing, but not enough to slow climate change

• Renewables: Modern forms of renewable heat are hot, especially solar thermal • CCS: Just how much CO2 can be stored underground? The IEA helps find out Paper and screens: the two pillars for good dissemination of energy data








TO 2050







The solvable challenge: how to transform our electricity system effectively and reliably For successful decarbonisation, security should be the top priority The best steps for creating reliable, sustainable electricity systems Proof that large shares of variable renewables can integrate into grids cost-effectively Investing in smart operations as well as transmission and distribution equipment Johann Teyssen, head of E.ON and Eurelectric, on reducing high retail energy prices










• Storage: Even mature technologies are struggling in today’s energy markets • EVs: In garages, the first step towards a dynamic vehicle-to-grid power system In climate talks, let’s focus on how technology offers opportunities for action From Ireland to Japan, IEA member countries share effective energy policies The Journal of the International Energy Agency

ISSUE 6 – 2ND QUARTER 2014 19





How do we keep the lights on – and decarbonise the electricity system amid increasing energy demand? The answers are in the IEA Electricity Security Action Plan. It offers member and non-member countries alike guidance on the best ways to cement electricity security sustainably.




SPOTLIGHT A sharing of ideas started the IEA regional energy efficiency policies initiative


GETTING IT RIGHT Bespoke How2Guides individualise IEA advice on building a low-carbon energy system


GLOBAL OUTREACH The many steps that led to the IEA Joint Declaration on Association


COMMENTARY The rise of Southeast Asia’s least-cost option for electricity



Smart energy system control







From around the world, snapshots of the IEA in action Four new books and two selected research papers Distributed energy resources

Issue 6 - 2nd quarter 2014 International Energy Agency Communication and Information Office 9 rue de la Fédération 75739 Paris cedex 15 (France) Phone: +33 1 40 57 67 10 Email: © OECD/IEA, 2014. All rights reserved ISSN: 2225-6334 Cover photo: GraphicObsession

Sketching out how today’s energy system compares with a low-carbon version for 2050

Executive Editor Rebecca Gaghen Managing Editor Robert Youngblood Production and Layout Angela Gosmann Cover Design and Graphics Bertrand Sadin Address advertising inquiries to Laurent Djaoui of LD Media Development via; 23 rue du Roule, 75001 Paris; or +33 1 82 83 38 70. Printed in France by Imprimerie Chirat.

The International Energy Agency (IEA) produces IEA Energy, but all analysis and views contained in the journal are those of individual authors and not necessarily those of the IEA Secretariat or IEA member countries, and are not to be construed as advice on any specific issue or situation. Read IEA Energy in PDF format at For such material in this journal indicated as being provided under the terms of the relevant Creative Commons public licence, the IEA does not impose any terms (restrictive or otherwise) in addition to, or replacement for, the terms of any such licence(s).




WHAT DO YOU THINK? What are the greatest risks to a secure electricity supply: a) inadequate investment; b) government policy; c) variable renewables; or d) climate change? One respondent, selected at random, will win a free copy of the The Power of Transformation: Wind, Sun and the Economics of Flexible Power Systems. Share your thoughts and submit your raffle entry by 15 July 2014 at:


Which area is most important for IEA co-operation with emerging economies: a) data; b) climate change; c) energy efficiency; or d) energy security?



Christina W. | Medstead, United Kingdom


40% 35% 30%

20% 15%

hile I do think that efficiency is very important and closely related to climate change, I believe that in countries with limited resources this is always considered. Energy security is also very important, but it is so self-evident that it won’t be forgotten. Thus, climate change, which is easy to ignore on a local level, is the most important. Technology is the key. Lasse L. | Helsinki, Finland



limate change is a global problem, and emerging economies are key if we want to prevent the worst. The IEA’s excellent reputation will aid such a co-operation. Constraining it might be the IEA member countries’ willingness to do their part. Marit S. | Brussels, Belgium



o-operation between oil-producing countries involving OPEC and non-OPEC members should improve the situation. Geopolitical tensions hold the potential to harm it. Bilal A. | Karachi, Pakistan

C 6

10% 5% 0% Data




feel that most emerging economies lack energy security and are struggling to provide their citizens with adequate energy in a reliable, sustainable and dependable manner. Energy security for most emerging economies is important to back up economic growth. Many emerging countries do not have enough fossil-fuel energy (which is still to be used for decades). Developed countries need to improve transfer of knowledge and technology [for] emerging economies/developing countries to use renewable energy. Wasiko T. | Jakarta, Indonesia



ata inform leaders of all the above (climate change, EE, security), in addition to legacy industries’ growth. Providing leaders (not to mention IEA readers) with recommendations supported by data-based analysis is much preferred to opinion articles based on more narrow perspectives (i.e. only EE or climate change). Sam P. | New York, United States


The winner of the previous raffle for a copy of the World Energy Outlook 2013 is Paolo Canfora of the European Commission – Joint Research Centre – IPTS, Sevilla, Spain.

The Journal of the International Energy Agency



HOW THE UK PURSUES ELECTRICITY SECURITY he United Kingdom enjoys a relatively high level of energy security, but it has not always been like this. During the 1970s, power cuts became commonplace. In 1974, the three-day week imposed as a result of coal strikes prompted Time magazine to write about “Britons bundled up in sweaters inside their chill homes and offices, scurrying at night through streets in a curiously darkened country”. Thankfully, this is a picture of Britain’s past. In recent history, electricity capacity margins have been high. And network resilience systems mean that power interruptions due to weather or technical failure are dealt with swiftly. This energy security is built on a framework of regulated, competitive markets that incentivise reliable supply. It is supported by home-grown resources, with oil and gas from the North Sea, nuclear power and the new boom in renewable energy. Renewables now provide about 15% of our electricity needs and, alongside a strong drive for energy efficiency, help us meet carbon reduction ambitions.


Rising reliance on imports, and major investments in infrastructure But there is no room for complacency. Despite considerable reserves remaining in the North Sea, the United Kingdom is increasingly dependent on imports and more at the mercy of the volatile global markets that serve a more competitive, energy-hungry world. And events in Ukraine have shown how quickly circumstances can change. At the same time, we Britons face more than a decade of structural transition as our networks are upgraded and around one-fifth of our generating capacity is replaced. This will require about GBP 110 billion of capital investment in electricity infrastructure this decade alone. Our priority is to ensure that we have sufficient power capability at all points during this transition. The UK Energy Security Strategy tackles both the physical challenge of new power generation and grid infrastructure and the price challenge that requires us to balance risk with affordability. Our solutions are designed to be lasting, to 2050 and beyond, alongside our decarbonisation timescales. Key to delivering energy security in the long term is making sure we have a diverse energy mix, not over-reliant on any one source or fuel. So we have embarked on a significant Electricity Market Reform to create one of the world’s first low-carbon electricity markets. Long-term fixed-price contracts will incentivise investment in low-carbon electricity generation. A capacity market will help guarantee security of supply. And a new regulatory regime in the wholesale and retail markets will boost competition, encourage new entrants and bear down on prices for consumers. Investment is already flowing. Britain has become Europe’s renewables hotspot, with investment increasing by more than 20% over the last year. Annual investment in the electricity sector as a whole is now at record levels. And we have an electricity infrastructure pipeline of projects to 2020 worth over GBP 100 billion.

By Edward Davey Edward Davey, the Liberal Democrat Member of Parliament for Kingston and Surbiton, was appointed UK Secretary of State for Energy & Climate Change in February 2012. The Department of Energy & Climate Change works to ensure secure, clean, affordable energy supplies for the United Kingdom and promotes international action to mitigate climate change.

Edward Davey: photo courtesy of DECC

In support of the single European energy market We recognise that booming investment and market reform will not suffice to guarantee our energy security. That requires working with our neighbours for mutual benefit. So we are foremost among European nations arguing for the completion of the single European energy market. We must step up integration and interconnection so that countries can buy clean, competitive, low-carbon electricity from wherever it is cheapest. Europe must not fail to exploit the potential advantage of a single energy market. That means across Europe we must fully implement the European Union’s energy liberalisation legislation and facilitate the investment needed in physical links between countries. So we are entering a challenging period, with increasing competition in the global markets and domestic margins tightening. But with the historic resilience of existing networks, our home-grown resources, our ambitions in Europe and the plans in place for domestic electricity market reform, the United Kingdom is well-placed to weather any storm.


A new perspective on a changing energy system: the power matrix

The energy system is changing. It has evolved into a complex system with an abundance of new players and new technologies. The Power Matrix reflects this new state of the energy system. According to the initial situation, challenges, and aims, an individual Power Matrix evolves in every country and in every region. With its unique market experience, Siemens provides efficient and sustainable solutions throughout the entire Power Matrix.

Answers for energy.



FOCUS A WAY TO REPRICE ASIA’S COSTLY GAS By Anne-Sophie Corbeau Anne-Sophie Corbeau has been an IEA Senior Gas Analyst since 2009. She previously worked at Cambridge Energy Research Associates, focusing on European gas markets, and in Peugeot’s fuel cell and hydrogen department. She studied engineering in France and Germany.

sian gas markets are multifaceted. Some are mature such as Japan and Korea, others are emerging giants such as China and India, and still others are rapidly developing ones, such as in Southeast Asia. But regardless of their degree of maturity and size, most of these markets will need to import more gas, as domestic production (when relevant) cannot keep up with rising consumption. Asia will represent almost half of global incremental gas consumption over the medium term (2012-18), and half of this increase will need to be met by additional imports. Because of the region’s geographical specificities, liquefied natural gas (LNG) is expected to play an ever larger role in filling that gap, with Asia absorbing 80% of incremental LNG imports. Japan, Korea and Chinese Taipei have been importing LNG for decades, but other countries are relatively new to the game. China and India started in 2005-06, while various Southeast Asian countries began only over the past three years.


LNG carrier: photo by Kenhodge13 via Flickr,

A changing market with old pricing Global LNG markets are facing unprecedented uncertainties due to growing pressures on the current pricing system that is based on oil indexation. Oil indexation had remained relatively unchallenged in Asia since it started some 40 years ago, with countries such as Japan willing to pay a premium compared with other countries to guarantee security of gas supplies. Japan paid USD 0.8 per million British thermal units (MBtu) more than Germany for gas in 2003-04.

But oil indexation in LNG contracts has generated particularly high prices over the past few years. Over 2012, Japan’s premium was USD 5.2/MBtu above the average of the UK National Balancing Point and the German border price. The gap grew as European utilities renegotiated over 2010-12 their longterm contracts to introduce partial spot price indexation. Asian utilities have done no such renegotiation, at least not in terms of including spot indexation in existing contracts. Besides, after the Fukushima Daiichi accident led to a halt of nuclear power in Japan, utilities there had to hunt for LNG supplies, which made it difficult for them to bargain on prices. The shale gas (and shale oil) revolution in North America has already profoundly changed global gas markets by lowering Henry Hub gas prices, which serve as US benchmarks, changing expectations in terms of LNG flows and triggering renegotiation of contracts’ prices in Europe. Consuming countries, in particular in Asia, are increasingly focused on lowering prices, and a solution could be to include Henry Hub indexation in future supply contracts rather than the traditional crude oil indexation. Asia may not be able to get prices as low as those in Europe, given that the region is on average farther from key producers – notably the largest one, Qatar, but also the Gulf of Mexico

projects in the United States. The example of Japan is the most visible, but except for a few legacy contracts, Asian countries are all paying high costs for imported LNG, with the 2012 price for the region at about USD 15/MBtu. Options that could close Asia’s premium Using Henry Hub indexation rather than oil is the only credible medium-term way to change the pricing indexation. Based on current Henry Hub prices of about USD 4/MBtu and on the formulae adopted by exporters, LNG can be delivered to Asian markets at about USD 11/MBtu, significantly below current prices. But Henry Hub dynamics differ significantly from those in Asia, which means that producers are reluctant to accept its prices as an alternative to oil indexation. Then there are the current low levels and volatility of Henry Hub prices. All Asian countries have expressed high interest in a longer-term alternative: developing a natural gas trading hub in Asia. Recent trends have been encouraging, and such a hub would change the way LNG is marketed and traded, introducing increasing flexibility. As the IEA highlighted in previous work, the lengthy transition would require substantial transformation of Asian gas markets, such as a hands-off government approach to energy issues, third-party access to infrastructure and wholesale price liberalisation.

Asia will absorb nearly half of new global gas demand to 2018, including 80% of incremental LNG imports.




WHY MOST COAL AVOIDS A BATH By Carlos Fernández Alvarez Carlos Fernández Alvarez joined the IEA in 2010 with more than 20 years of experience in the energy sector. He began as a consultant for electricity producers, focused on system modelling and nuclear plant safety assessments, before joining the Spanish government.


Why wash coal? Coal is a sedimentary rock made from buried vegetation, transformed through the action of pressure and temperature over tens or hundreds of millions of years. But not just the organic material becomes coal: the vegetation was usually accompanied by inorganic material, impurities in the form of mineral matter, also commonly known as ash, which forms as part of the coal. Other impurities get added during the stripping process while mining. The proportion of ash in coal is very variable, from less than 10% in high-quality coal to more than 40%. Ash has several negative effects. It raises transportation costs per energy unit because the ash (which has no useful heating value) gets transported as part of the coal; it cuts power plant efficiency by hampering heat transmission; and it complicates plant operation and maintenance because of corrosion, fly and bottom ash


The costs and benefits of coal washing Metallurgical coal, with its higher quality specifications, generally must be washed. But while customers want coal of a certain quality – and consistent quality is as important as quality itself – most thermal coal is not. Why not? To begin with, coal and ash discrimination is not perfect, so the result is two fractions with higher and lower calorific value than the original raw coal. Unless a nearby power plant can burn the rejected fraction, part of the coal’s energy is lost. While it is difficult to assign a number to that rejection fraction, it tends to range from 5% to 20%. If unburned, this fraction must be disposed of in an environmentally friendly manner,

Coal washing requires a lot of water and energy.

which can be problematic. And for economic and energy-related reasons, especially in places (such as India) with a coal shortage, the energy in the rejected fraction is an issue. For example, raw coal of 4 000 kilocalories per kilogram (kcal/kg) and 38% ash can produce two fractions: fourth-fifths of the raw coal that now has 4 500 kcal/kg and 30% ash, and the remaining one-fifth with 2 000 kcal/kg and 70% ash. If the poorer fraction is not burned, 10% of the raw coal’s energy is lost. Assuming USD 50 per tonne as variable mining costs and USD 5 per tonne as washing costs, the cost of washed coal is 37% higher on a tonnage basis and 22% higher on an energy basis. Consequently, washing coal that does not need to travel far is a complex issue. A policy or regulatory framework that requires internalisation of externalities (such as emissions) would help promote the use of cleaner coal, with positive impacts on plant efficiencies, emissions and the environment.

The Journal of the International Energy Agency

ENERGY EFFICIENCY, MEASURED FINELY By Emer Dennehy Emer Dennehy joined the Energy Technology Division in 2013 to focus on energy efficiency indicators. She arrived at the IEA from the Energy Policy Statistical Support Unit of Ireland’s Sustainable Energy Authority. She has an engineering master’s in sustainable energy from University College Cork.

s an energy resource, energy efficiency has the unique potential to contribute simultaneously to long-term energy security, economic growth, and even improved health and well-being; in particular it is a key means to cut energy consumption and greenhouse gas emissions. Critical to achieving those gains is not just the adoption of more efficient devices but also the identification, measurement and then promotion of behaviours and lifestyles that limit or reduce energy consumption. Energy-smart behaviours, choices and practices are critical to unlocking energy savings and ensuring that these savings persist into the future. Lifestyles make up a significant part of the large gap between potential and actual levels of efficiency and are the key to reducing the even larger gap between consumer attitudes and actual actions. Conversely, negative behavioural factors can cancel out energy savings achieved from technical improvements. Energy efficiency indicators help explain how economic and human activity interacts with energy use, but often cannot predict the variation in overall energy consumption or quantify the impact of individual variables or factors on it. So, selecting and developing indicators is only the first step in analysing the energy situation. Each indicator has its own purpose, but also limitations in what it can explain. Providing an accurate picture requires a set of several indicators. The lack of sufficient data is currently the biggest problem in developing energy efficiency indicators.


Decomposition distinguishes among effects One of the most important issues from an energy policy perspective is to what extent improvements in energy efficiency have been responsible for the changes in final energy intensity in different countries. To fully understand that, indicators must distinguish among different impacts: the effect of changes in activity, economic

Coal washing: photo by Xstrata Technology, via Wikimedia Commons,

oal washing removes impurities in the rock, improving quality and price while reducing eventual emissions. So why is most coal not washed? Coal washing is known as preparation, processing or beneficiation when it is combined with crushing the rock. Different processes exist for cleaning coal, most of them based on the difference in density between coal and other, heavier rock, although finer-size coal can be cleaned by flotation. The most common way to wash coal is by (usually magnetite-based) dense media separation, in which crushed raw coal is introduced into cyclones or a bath, where the heavier rock falls to the bottom while the lighter coal floats and then is removed for drying. But whichever form is used, coal washing consumes energy and water and adds to the producer’s cost. In China, for instance, washing contributes to the 18% of total national water use that goes to coal, the second-largest source of water consumption after agriculture.

removal, etc. Higher ash contents also lead to a greater variety of pollutants, while the lower coal-burning efficiency increases CO2 emissions. So removing ash through coal washing improves product quality, and hence prices, and it saves money in transportation and end-use at the consumption point.


structure and other factors that influence energy demand, and the result of changes in energy intensity – or output divided by energy – which are a proxy for technical energy efficiency. The IEA makes this distinction by using a decomposition approach in its analysis. Decomposition, or factorisation, analysis quantifies the impacts of different driving forces or factors on energy consumption in a sector or country, identifying the largest sources of potential reduction and priority areas for development of energy efficiency policies. Decomposition of energy end-use trends often distinguishes among three main components affecting energy consumption: aggregate activity, sectoral structure and energy intensity. But if more detailed data are available, the decomposition can be extended to investigate the specific drivers of energy consumption. For example, rather than just using the number of dwellings as an activity variable when analysing energy efficiency in the residential sector, if data on both floor areas and number of dwellings are available, then the influence of both number of dwellings and dwelling size can be monitored. Therefore a key issue with decomposition analysis is the choice of activity variable, as this selection will determine what energy consumption drivers can be measured and tracked. The activity variable should be chosen from easily available data and be linked directly to stated policy and programme objectives. Both physical activity variables (e.g. production in tonnes) and activity value (value added in monetary terms) are valuable for measuring energy efficiency, and both should be tracked on a consistent basis. Unit train: photo by roy.luck via Flickr,

Manuals on collecting more and better data The need to collect more data and develop more robust indicators was a key message from last year’s inaugural Energy Efficiency Market Report, which focused significantly on indicators analysis. The IEA developed the manual Energy Efficiency Indicators: Essentials for Policy Making and is preparing a companion publication, Energy Efficiency Indicators: Fundamentals on Statistics, to detail how to collect additional data that facilitate creation of the most appropriate and reliable indicators to enable reliable international comparisons. Download the manual Energy Efficiency Indicators: Essentials for Policy Making:

R A IL V S . P I P E L I N E S : H OW TO MOV E O I L By Charles Esser Charles Esser is a supply analyst in the IEA Oil Industry and Markets Division He previously was a consultant on energy analysis projects for law firms and non-governmental organisations and was an International Crisis Group energy analyst and a US State Department energy officer.

he North American surge in oil production has taxed infrastructure from rig services to hotel rooms, but changes to few sectors have drawn more attention than what has happened to the rail system. In just the United States, rail carried nearly twice as many car loads of crude oil from production sites last year than in 2012, and more than 40 times as many as in 2008. The 400 000 car loads last year transported 770 000 barrels per day on average, according to the Association of American Railroads.


Tank cars heading to North Dakota to fill up with oil.

North American rail shipments of oil are by no means unprecedented, but until the recent surge in production, they were largely limited to stopgap, temporary use, with pipeline construction favoured. While not more than 10% of all US crude output moves by rail at present, production from the Bakken and Niobrara formations as well as other midcontinent crudes heavily dependent on rail is expected to continue growing. Existing pipelines in the region are running


at capacity, and so up to 70% of North Dakota oil, for example, now reaches refineries by train. Recent spills upset long track record Not surprisingly, accidents have increased as well, with the US Pipeline and Hazardous Materials Safety Administration reporting that the 4.35 million litres of crude spilled in 2013 by US railroads exceeded the total since the government agency began keeping count. As that does not include Canadian spills, it excludes the July explosion in Lac-Mégantic, Quebec, that besides killing 47 people spilled more than 5.6 million litres of North Dakota crude. The spills since the production surge altered a long safety record in which pipelines spilled three times as much oil as rail from 2004 to 2012, according to IEA Oil Market Report analysis of US Transportation Department data. Since the US pipeline agency started tracking spills in 1975, there were no rail spills in eight years and in five years no spill exceeding 3.8 litres. However, pipelines carried far more oil then; less than 0.3% of total US tonnes-miles moved by rail for more than half of the period, while pipelines transported more than three-quarters. But while a spill by rail was six times more frequent than for a pipeline during that period, the average pipeline spill was far graver. Also, the department records any rail spillage, regardless of size, while a pipeline must release at least 19 litres for the incident to count; removing small rail spills cuts the incidence ratio from 6:1 to 2:1. Beyond spills, the issue of dangerous railbased explosions has raised specific concerns about older-model tanker cars’ resistance in the event of an accident and about certain types of crude oil, or other substances mixed with the crude oil, that could have particularly explosive properties. Rail’s high costs but also high upside Rail is a relatively costly way to ship oil, but it has distinct advantages over pipelines where transport infrastructure does not exist or is insufficient. In North America, it is easier to obtain regulatory approval for regional or cross-border rail links than for a pipeline. Other advantages include flexibility and the relative speed of rail infrastructure deployment. “Unit trains”, long freight trains that carry only oil, offer producers economies of scale and substantially lower costs compared with traditional freight trains. But pipelines do have their advantages. After the initial investment, operating costs are about one-third on average of rail, and pipelines are more energy-efficient and emit less carbon.




NUCL EAR R EB IR T H : STILL NOT E N O U GH By Henri Paillère Henri Paillère is an analyst in the Nuclear Development Division of the OECD Nuclear Energy Agency. He has more than 18 years of experience in nuclear engineering and technology. Prior to joining the NEA, he worked for Alstom and the French Atomic Energy Commission.

hree years after the Fukushima Daiichi accident, nuclear power is developing slowly, with overall growth running as much as 25% behind the rate the IEA sees as necessary to hold global temperature rise to 2 degrees Celsius (°C). Reversing a steady expansion since the early 1970s, the accident in Fukushima resulted in a 10% decline in nuclear electricity production from 2010 to 2012 amid safety evaluations by all countries operating nuclear power plants. But the sharp pullback is likely to prove short-lived, as ten new construction starts in 2013 added to the seven starts in 2012. This brings the number of nuclear reactors under construction at the end of last year to 72. Fukushima’s impact on output was essentially the permanent shutdown of eight reactors in Germany as well as the eventual halt to all 50 of Japan’s operable reactors while awaiting permission to restart in a new reinforced regulatory framework.


So far, nearly all existing reactors worldwide have been cleared for continued operation, though some older models require upgrades to improve resistance to major earthquakes and flooding, such as additional emergency power supply systems and cooling capabilities. While three countries – Germany, Belgium and Switzerland – decided to phase out nuclear power, countries such as China, India and Russia have maintained ambitious development programmes. Several other countries, such as Belarus and the United Arab Emirates, are constructing their first units, and projects are advancing in Turkey and Viet Nam and are under development in Bangladesh, Jordan, Poland and Saudi Arabia. The United Kingdom and Finland have confirmed plans for new reactors. The United States is seeing its first new-build projects in more than 30 years, though four reactors there were closed in 2013 for economic and regulatory reasons. A critical element of a low-carbon system The forthcoming IEA flagship technology publication Energy Technology Perspectives 2014 features a scenario, the 2DS, that provides an 80% chance of attaining the 2°C target by more than halving energy- and processrelated CO2 emissions from 2011 levels. No single technology can provide such reductions, but at 18% of the energy mix, nuclear power is a critical element of the proposed portfolio of technologies to achieve the 2DS by 2050. Despite those 72 reactors under construction, Energy Technology Perspectives 2014


The Journal of the International Energy Agency

Newer technologies coming to the fore The shift of nuclear power to non-OECD countries is accelerating the transition to the more robust Generation III reactors, which are designed to reduce the likelihood and mitigate the consequences of severe accidents. Nearly half of the reactors under construction use the technology, and following the Fukushima accident, China announced that it would build only Generation III reactors. Another promising technology is advancing, too: small modular reactors, which have generating capacities ranging from tens to a few hundred megawatts and which can be deployed as single or multiple units in areas with a small grid system. In addition to various levels of pre-licensing activity, especially in the United States, Russia is constructing the first plant that employs the technology. Overcoming cost and public reluctance Two critical challenges for the industry are public acceptance and financing. Nuclear power has high capital costs and low running costs, a problem shared with other low-carbon technologies such as hydropower and offshore wind. The United Kingdom decided to promise a guaranteed rate for electricity that will be generated from its first new nuclear power reactors in 20 years. Russia’s “build, own, operate” model is attracting interest from some countries. It allows them to offset the high capital costs of nuclear investments to long-term guaranteed electricity prices paid by the customers. Other examples of financing include loans from export-import banks, the most recent example being China’s USD 6.5 billion loan to Pakistan for the construction of two reactors, as well as part-equity financing which some vendors are offering. As far as public acceptance is concerned, levels of support differ greatly from nation to nation, with consistently high levels in countries such as the United States and the United Kingdom, but a continuation of the strong decline observed after the Fukushima accident in countries such as Japan or Korea.

Vogtle Unit 3: ©2013, Georgia Power Company, all rights reserved

The AP1000 Vogtle reactor in the United States is part of the country’s first new-build project in 30-plus years.

estimates that installed nuclear capacity in 2025 will be 7% to 25% below the 2DS target. With modern Generation III light-water reactors requiring close to 60 months just for construction, time is running short under the scenario.


The Power of Transformation Wind, Sun and the Economics of Flexible Power Systems




BASKING IN THE SUN Much fossil fuel is burnt to produce heat, but renewable options abound, from wood pellets to geothermal. Solar hot water is already a winner. ore than 40% of the world’s primary energy supply of natural gas, and 20% of both coal and oil supplies, go to producing heat. Using renewable energy sources would cut CO2 emissions and increase energy security, especially for countries heavily reliant on fossil-fuel imports. Renewable sources already play a large role, at almost one-quarter of global energy use for heat. But most of this is in the form of traditional, inefficient use of biomass in developing countries to heat and cook, leading to deforestation and indoor smoke pollution. Modern biomass, such as wood pellets, plus solar thermal and geothermal heat, accounted for only 3% of the total global energy use for heat in 2011, though use grew dynamically in the last decade. There are several reasons why modern renewables are little used for heat in buildings and industry. One is that policy makers have paid considerably less attention to the renewable heat sector than the electricity sector. Only about 35 countries have dedicated policies to encourage renewable heat, while more than 100 have policies for renewable electricity. As a new IEA Featured Insight, Heating Without Global Warming: Market Developments and Policy Considerations for Renewable Heat, explains, solutions to enhance the contribution of renewable heat abound. Some are basic and



Concentrating on big potential Many of these technologies can be competitive under favourable circumstances and in applications such as domestic hot water provision, swimming pool heating, even space heating. But a number of issues hinder development, such as subsidies for fossil fuels, the lack of a price on CO2 emissions, or poor consumer awareness. A range of renewable heat technologies exists, but solar thermal heat has been the most dynamic growth market in recent years. Solar energy theoretically could provide 6 200 times the current world primary energy supply. Numerous technologies exist to harvest this potential for heating and cooling, ranging from simple solar stoves for cooking, to flat-plate collectors and evacuated tube collectors for hot water production and space heating, up to concentrating solar thermal installations for future use in high-temperature industrial applications. In the last decade, global use of solar thermal heat in buildings almost quadrupled to 0.7 petajoules – equivalent to 7% of the annual heating demand of US households – produced from a global total of 235 GW thermal of installed solar collectors. Countries such as Israel and Austria have long histories of deployment and the highest per-capita installed solar heat capacities. In Israel, which has required installation of solar water heaters in new buildings since 1980, 80% of households now obtain their hot water from solar thermal systems, thanks also to their costcompetitiveness with fossil fuel-based systems. But with a ten-fold increase in solar thermal heat capacity in the last decade, China now accounts for two-thirds of global use of solar

The Journal of the International Energy Agency

Anselm Eisentraut joined the IEA in 2008. As Bioenergy Analyst in the Renewable Energy Division, his publications include two Technology Roadmaps: Biofuels for Transport and Bioenergy for Heat and Power. He heads IEA medium-term market analysis for biofuels and renewable heat.

heat in buildings. Most systems there provide hot water only, and installation is driven by their cost-competitiveness. More recently, several cities and municipalities, including Beijing, have adopted solar obligations for larger building complexes, meaning that solar thermal systems next need to be better integrated into high-rise buildings, such as facade or balcony systems. In all countries with considerable solar thermal energy use for heat, support policies such as solar thermal obligations and investment subsidies, as well as more general support measures such as CO2 taxes on fossil fuels, drove initial deployment. In several countries, the initial market push provided by the policies made solar thermal water heating cost-competitive with fossil fuel or electricity-based systems even in the absence of support policies. Impediments to a global success story Does this mean that such success stories can easily be replicated anywhere in the world? As Heating Without Global Warming points out, the resource availability (sunshine) obviously is important, but so are factors such as the costs of solar thermal systems compared with fossil fuel-based heating systems. In China, mass production of solar thermal water heaters lowered system costs considerably and led to a wide network of retailers and installers. Solar thermal heat in buildings has mainly been for hot water systems, with more modest growth in space heating or combined installations. One reason is the complexity of solar thermal heating systems, requiring significant up-front investment and extending the payback period through fuel savings compared with a fossil fuel-based heating system. Further technology improvements and cost reductions will increase circumstances where solar thermal heating systems are cost-competitive. The statistical data for Israel are supplied by and under the responsibility of the relevant Israeli authorities. The use of such data by the OECD and/or the IEA is without prejudice to the status of the Golan Heights, East Jerusalem and Israeli settlements in the West Bank under the terms of international law.

Rooftop: © OECD/IEA, 2014

Four in five Israeli households use solar water heaters.

already mature, such as solar water heating, geothermal energy from hot springs for district heating, and efficient wood-burning stoves and heating systems. Though not entirely renewable, heat pumps, which extract low-temperature heat from the ground, water or ambient air, are increasingly popular: global heat-pump capacity has doubled since 2005 to 42 gigawatts (GW) in 2011, equivalent to the heat capacity of 15 large-scale combined heat and power plants.

By Anselm Eisentraut



WHAT LIMITS TO CCS? Varied systems give divergent answers on how much CO2 can be stored underground, so the IEA has been busy helping develop a uniform tool. ou have to know the storage capacity of rocks deep beneath land or seafloors for carbon capture and storage (CCS) to work at locking away carbon dioxide (CO2) there. Numerous proposed classification methods for carbon storage resources exist, but none has been uniformly adopted, resulting in inconsistent and often contradictory estimates. In fact, some estimates have found storage capacity for individual countries that exceed other estimates of similar geology and vintage for total global potential. So the IEA has spent much of last year helping develop a uniform way to calculate CO2 storage potential.


The constraints in determining capacity Just as fossil fuels still underground are either resources (total potential material) or reserves (the share that can be extracted profitably by current methods), CO2 storage classification systems also divide potential spaces based on technology, cost and certainty. A storage resource is anything useful and potentially available, while the portion of a geologic resource that has economic value now, and is thus a commodity, is a reserve. But to differentiate between resources and reserves requires a globally accepted and clear

definition of CO2 storage potential, and that became an important step in the IEA effort to build a universal tool to assess storage capacity. CCS requires a porous geologic formation whose properties allow injection, and then indefinite retention, of CO2. The formation’s storage potential is based on the mass of CO2 that can be stored within the subsurface rocks’ pore space. Many constraints limit determination of that mass. The first is shortcomings in geological knowledge about the subsurface. Engineers also face restrictions related to injection technologies. Economists have to figure out the costs involved, while policy makers must resolve sociopolitical factors, including regulatory limitations and public views of subsurface CO2 storage. Some constraints result from government policy; one example is minimum depth requirements for CO2 injection. So each jurisdiction or organisation can yield a different estimate based on assumptions about those limits. Then basic initial estimates must account for variables ranging from whether the site is onshore or offshore, whether or not the CO2 will be injected to enhance oil recovery, and which physical and chemical mechanisms and geological features will retain the CO2 at depth.

Wolf Heidug: courtesy of Dagmar Heidug; map: photo courtesy of CO2CRC, all rights reserved

This map is without any prejudice to the status of or sovereignty over any territory, to the delimitation of international frontiers and boundaries, and to the name of any territory, city or area.

Sedimentary basins worldwide offer CCS options, but first their capacity to effectively hold CO2 must be assessed.


By Wolf Heidug Wolf Heidug joined the Carbon Capture and Storage Unit in 2010 as a senior analyst, focusing on economic instruments to support CCS, particularly as combined with enhanced oil recovery and the use of biomass. Prior to the IEA, he was general manager for CO2 policy at Shell International.

Another key component of any storage assessment is the storage efficiency – that is, the fraction of accessible pore volume that the CO2 will occupy. Many factors determine this ratio, including the volume of rock contacted by the CO2 plume, how easily the CO2 will move relative to water present within the pore space and how much water the plume will displace. Turning theory into methodology To put these considerations into a methodological framework, the IEA joined with representatives from the geological surveys of Australia, Canada, Germany, the Netherlands, the United Kingdom and the United States for workshops to build a transparent and robust assessment of geologic CO2 storage resource throughout the world, across geologic settings, regardless of the amount of available geologic data. The goal was to create a uniform and coherent process, independent of specific policy choices, to allow comparison of storage assessment results. The first and fundamental concept to be addressed in any storage assessment is the technically availably storage resource (TASR). The TASR answers the question: how much storage resource is there in total? It comprises the pore space that can be reasonably expected to retain CO2 over a long period of time without adverse environmental impact; in this sense it represents an “upper limit”. Since the TASR is not constrained by economic or policy considerations, it gives a better understanding of the trade-offs that are made when developing policies to control access to resources. Because of this, the TASR allows comparison of different countries’ storage endowments. Further IEA recommendations outline the next steps to develop storage assessments in a straightforward and uniform way, taking into account systematically applicable policy constraints and limited knowledge of deep depths. Following these recommendations can give a clear picture of how much CO2 can be stored in different jurisdictions and nations – essential knowledge for CCS to fulfil its potential role as a key CO2 emission abatement technology.




FROM PAPER TO SCREENS o not collect statistics for the sake of collecting statistics but collect only those statistics for which there is a use. This principle is true for all statistics; it applies to energy data especially in this time of resource problems due to the overall economic environment. So, what data to collect? There is no single answer to this question because data are linked to needs, and needs depend on the combined economic and energy situation of each country. However, energy balances could be considered the common basis for all countries in terms of data needs and collection. One could add that the growing role of energy efficiency in energy policy leads to new needs for end-use consumption as well as activity data. Collecting and processing data are the two main functions of energy statisticians, but one should not forget dissemination. Having collected the best data available would indeed be meaningless if these statistics were not properly disseminated and used. In its previous issue, IEA Energy included a presentation of the Sankey Flow graphic representation of energy balances, available on the IEA website, that complements the Agency’s various publications on energy statistics and balances. But Sankeys are not the only example where the IEA is complementing a paper document with electronic means of dissemination. For many years, the IEA has disseminated its Key World Energy Statistics (KWES) on paper. This booklet is a short compilation of data released in IEA statistics publications. Since the early 2000s, the IEA has also made the KWES available on the statistics webpage and it quickly became the most downloaded document from the whole IEA website. In line with the fast development of mobile phone applications, the IEA launched a KWES app in 2011, at first limited to iPhones. The application provides all of the booklet’s data, tables and graphs but in a more user-friendly environment. This is particularly true for country indicators, which can be ranked in ascendant or descendant order as well as formatted to ease cross-country comparison. The IEA has just introduced an Android version of the app. In the age of electronic communication, it is obvious that dissemination through the Internet and mobile phones is key for providing the right data to the right user at the right time. Nevertheless, there is still room for paper documents and the dissemination of the annual and quarterly IEA statistics books, and the massive popularity of the KWES are clear evidence of the importance of keeping print versions. Therefore, I might not have chosen the right title for this column: “From paper to screens” should in fact be changed to “Paper and screens: the two pillars for good dissemination”.


By Jean-Yves Garnier Jean-Yves Garnier joined the IEA in 1995 and heads the Energy Data Centre. Before coming to the IEA, his career spanned over five years in Indonesia, three years in Côte d’Ivoire, two years in Djibouti, two years in Berkeley and the rest in Paris, where he was in charge of National Energy Plans and energy efficiency policy as well as building energy information systems.

Download the KWES: Download the iPhone app: Download the Android app:


An Android version, like this KWES app for iPhones, is also available.

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Scrreenshot: © OECD/IEA, 2014

The KWES booklet tops IEA downloads.

Global player in energy: power, natural gas, energy services. More answers at

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JUNE 9 -12, 2014 Fairmont The Queen Elizabeth



Christine Lagarde

Maria van der Hoeven

Nizar Al-Adsani

Marie-José Nadeau

Managing Director, International Monetary Fund (IMF)

Executive Director, International Energy Agency (IEA)

Deputy Chairman and Chief Executive Officer, Kuwait Petroleum Corporation (KPC)

Chair, World Energy Council (WEC), and Executive Vice President, Corporate Affairs and Secretary General, Hydro-Québec


Tan Sri Dato’ Russell K. Shamsul Azhar Girling Abbas President and Group Chief Executive, Petroliam Nasional Berhad (PETRONAS)

President and Chief Executive Officer, TransCanada

Angel Gurría

Gérard Mestrallet

Secretary-General, Organisation for Economic Co-operation and Development (OECD), and Co-Chair, 20th edition of the Conference of Montreal

Chairman and Chief Executive Officer, GDF SUEZ, and Co-Chair, 20th edition of the Conference of Montreal


Ólafur Ragnar Grímsson, President, Republic of Iceland — Alex Archila, President, Potash, BHP Billiton — Bertrand Badré, Managing Director and Chief Financial Officer, The World Bank Group — Antonio Brufau, Chairman and Chief Executive Officer, Repsol — R. Chidambaram, Principal Scientific Advisor to the Government of India, and Former Chairman, International Atomic Energy Agency (IAEA) — Patricio G. Contesse, Managing Director, Sociedad Quimica y Minera (SQM) — Serge Dupont, Deputy Minister of Natural Resources, Canada — Charles K. Ebinger, Director, Energy Security Initiative, The Brookings Institution — John Micklethwait, Editor-in-Chief, The Economist — Hans Kristian Olsen, Chief Executive Officer, Nunaoil — Thierry Vandal, President and Chief Executive Officer, Hydro-Québec







BLAZING THE PATH TO A SECURE FUTURE By Maria van der Hoeven, Executive Director

fter a century of technological and organisational stability, the electricity sector is undergoing a deep and systemic transformation that will pose new electricity security challenges. Wind and solar power are important contributors to energy sustainability and can help economic growth; but integrating these variable renewable energy sources into the power grid successfully, securely and affordably remains one of the most pressing challenges facing policy makers and industry.


The energy transformation poses security challenges.

Fully realising the advantages of wind and solar power While the IEA has not yet predicted a “golden age” of renewable energy, the rapid growth of wind and solar power is a bright spot in the otherwise bleak picture of global progress towards a cleaner and more diversified energy mix. Electricity generation from all renewable sources should grow by 40% in the next five years to account for one-quarter of the global power mix. Our analysis shows that by 2016 at the latest, global renewable electricity generation will overtake that of gas and produce twice as much as nuclear, making renewables the most important power source after coal. This positive outlook is underpinned by two key trends: renewable energy technology costs are declining, and renewable power deployment is expanding geographically. Renewable energy policies are in place in 140 countries, driven by a variety of overlapping objectives. Those include meeting growing demand, but also diversifying energy sources, promoting economic development, preserving the environment, improving local air quality, creating jobs, and contributing to the fight against climate change. In countries facing a growing demand for electricity, or a pressing need to replace ageing capacity, renewables are now cost-competitive with new fossil-fuel plants in many applications.

Solar power plant: photo from US Air Force Photographic Archives As a work of the US federal government, the image or file is in the public domain.

To integrate renewables, we must transform the electricity system Yet against this backdrop rise concerns over the inherent variability of renewable energy sources without storage such as solar photovoltaics and wind (pages 20-21). This has led us at the IEA to assess the challenge of integrating variable renewables in more detail, both in technical and economic terms. I am happy to say that the conclusion is that high shares of renewables can be integrated into power systems relatively easily and in a cost-effective way – both in stable systems where demand is relatively flat, like much of Europe, and in dynamic systems where needs are growing, including many emerging economies (pages 24-25). But as I said earlier in this issue of IEA Energy, achieving this requires a change of perspective: a true transformation. The challenges and opportunities of integration lie not only with renewable energy generation itself, but also with other system components. That kind of transformation offers a real opportunity to do more than simply integrate a higher share of renewables. Generation from wind and solar technologies has grown annually at doubledigit rates for a decade, but fossil fuels accounted for more than 75% of net new electricity generation during the same time period. The continuation of this trend is not compatible with the 2 degree Celsius target that world leaders have pledged to meet. The good news is that IEA analysis, and specifically that carried out within our Energy Technology Perspectives project (pages 22-23), clearly shows that a technological transformation of the entire energy system is possible – and that it is economically advantageous. Technological developments will help us to achieve a highly integrated and smarter energy system. But change cannot happen by focusing on individual technologies. To meet all the challenges to a secure and sustainable energy future, we must consider the larger picture. That is precisely why we at the IEA emphasise the need for an integrated approach to system design in our recommendations. Such an approach can help both member and non-member countries to further the objectives of the IEA itself: realising a secure and sustainable energy system that fosters economic growth for all.





PRIORITISE SECURITY The electricity sector must provide a reliable supply and decarbonise. To meet those goals, the IEA offers its Electricity Security Action Plan.


Making sure market changes work Electricity shortages are not an option in developed countries and are increasingly unacceptable for the growing markets of emerging economies. Over the past three years, competitive electricity markets have been under increasing scrutiny. The decade-old debate


concerning market design and reliability rages on. Will market reforms introduced in the 1990s actually provide the price signals to incentivise construction of power plants necessary to meet electricity demands? How can policy makers ensure security of supply in competitive markets? This once-in-a-century transformation – a dual-policy push to move from a fossil-fuelbased monopoly to a low-carbon market-based arrangement – is the context of IEA work on security of supply. The strong growth of renewable energy has been driven primarily by non-market measures.

As Senior Analyst in the Gas, Coal and Power Markets Division, Manuel Baritaud leads IEA work on electricity markets and policy developments. He was an economist at AREVA and oversaw regulation of transmission and distribution network tariffs at CRE, the French Energy Regulatory Commission.

An example of challenges is the Electric Reliability Council of Texas. Known as Ercot, it serves about 85% of the US state, and following liberalisation in the early 2000s, it worked smoothly, with new investments coming online, mainly gas power plants. But demand in Texas is surging, driven by dynamic economic growth and air conditioning, while wind power develops rapidly in the gusty western part of the state, far from major cities. Due to a lack of transmission capacity, generation from wind farms at times is curtailed to maintain grid security.

Utilities forecast higher carbon prices as they built costly modern combined-cycle gas turbine plants like this one.

In Europe, these already have had powerful impacts on electricity and carbon markets, with unintended consequences ranging from an increasingly strained business model for flexible gas plants to a low price for carbon. Some Asia-Pacific countries are introducing renewables at the same time they are unbundling monopolies and taking other actions to increase competition. Unbundling and competition change the investment model and risk profile of electricity, and when combined with the impact that renewables have on electricity markets, they challenge the financial sustainability of the electricity industry within the current regulatory and market design.

The Journal of the International Energy Agency

The 2010 introduction in Texas of a mechanism that uses market-based prices for managing transmission congestion, known as locational marginal pricing or nodal pricing, helped to ensure efficient use of the existing network infrastructure. In addition, regulators approved transmission investment of up to USD 7 billion to reinforce the extra-high-voltage electricity grid, helping to reduce curtailment. Still, a recent adequacy assessment raised an alarm over a possible shortage of capacity in the next few years. So Ercot raised the maximum wholesale price that can be charged during scarcity situations. It also changed the remuneration of

Chemiepark Knapsack power plant, Hürth, Germany: Permission is granted to copy, distribute and/or modify this document under the terms of the GNU Free Documentation License, Version 1.2 or any later version published by the Free Software Foundation

ow to keep the lights on – and decarbonise the electricity system, plus increase energy security? All while meeting ever-larger demand driven by rising population, growing economies and ubiquitous microelectronics? The electricity sector, key to tackling climate change, is changing rapidly. From the United States to Italy to India, vulnerabilities are increasingly evident worldwide as shifts in the grid upend the entire system of old. Rapid deployment of wind and solar power raises new challenges for electricity systems, and there are opposite trends in generation: switching from coal to gas in North America, and from gas to coal in Europe. At the same time, electric heating and air conditioning stress the system even as digitalisation of the economy makes it impossible to work without a reliable electricity supply. While OECD member countries generally perform well in terms of electricity security, their liberalised systems must manage not just the quick spread of wind and solar power but also ageing network and generation infrastructure plus the need to become more resilient. Emerging economies, with demand expected to grow by as much as 300% by 2050, face huge system-wide investment demands, from renewable and traditional generation to the development of regional, interconnected grids, to improved delivery and use of energy. The IEA built its Electricity Security Action Plan (ESAP) over the past three years to offer member and non-member countries alike guidance on the best ways to cement electricity security and keep the power flowing. And countries need the plan, particularly as the introduction of variable renewables such as wind and solar photovoltaics adds ever-greater complexity.

By Manuel Baritaud


generating capacity needed on short notice to meet a generator outage or forecast errors. These measures better reward flexibility provided to the system, as having flexibility products that correspond to system needs is increasingly important to accommodate rising input from variable renewables. Ercot’s changes, implemented in close consultation with generators, succeeded in de-mothballing capacity to maintain an adequate planning reserve margin. Responses around the world Other systems, experiencing similar concerns, are taking steps to alter electricity markets to ensure adequate generation. In Europe, France introduced a capacity market in 2001 to address rapidly growing peak demand. The United Kingdom is introducing a major electricity market reform that will include a market-based mechanism to remunerate power plants that remain available even if their capacity is not actually generating electricity. The government took the action in anticipation of the need to replace ageing capacity in coming years. That includes nuclear reactors plus coal plants that will be retired to comply with the Large Combustion Plants European Directive on the limitation of emissions of certain pollutants such as sulphur dioxide, nitrogen oxide and dust. Low profitability of gas plants is a particular concern in Europe. There are several reasons for this situation. First, the economic crisis hit utilities severely, while carbon prices under the EU Emissions Trading Scheme are well below what was anticipated when utilities invested in modern gas power plants; by contrast, coal has become less expensive. Second, faster-thanexpected deployment of wind and solar power reduced the call on gas power plants and created excess capacity. As a result, over the course of 2012-13, more that 22 gigawatts (GW) of gas power plants were closed or mothballed, or more than Austria’s total generation capacity. Debate over how to keep the system secure But those gas plants might be needed in the coming years to provide the flexibility and capacity necessary to complement variable renewables. In this context, there is a strong interest in using capacity mechanisms to remunerate the plants. The need, timing and, where introduced, design of capacity mechanisms is currently one of the most debated issues in terms of electricity security of supply, not only in North America but also in Europe. There is no doubt that if generation adequacy is perceived to be at risk, a capacity mechanism

can effectively create a safety net. In such situations, governments usually are responsible for taking action. Still, such mechanisms are a significant departure from the efficient electricity markets proposed under liberalisation. Experience in the US Northeast has shown that capacity markets are complex and difficult to design. System operators and regulators must calibrate many parameters. Such details rely on discretionary decisions that strongly influence capacity prices and power-plant revenues. Demand response, or customers’ ability to change consumption on short notice to respond to system needs and market prices, is also evolving rapidly. Experience in North America suggests that capacity markets are a tool to promote investments in responsive electricity demand, which is reaching 13 GW, or around 10% of peak demand for the PJM Interconnection, a regional transmission organisation that serves much of the US Northeast. Policy makers are seeking the most efficient solution among old generating capacity, new power plants or investments to manage demand. Equally important is co-ordination among system operators. Much progress has been made in Europe to create a well-integrated and well-functioning continent-wide market: coupling of markets ensures a more efficient use of available transnational network capacity. Framework guidelines and network codes constitute a very important step towards better co-ordination. These developments facilitate the cross-border trade of energy closer to real time, as is necessary to integrate variable renewables. Balancing local and regional concerns But the regional integration of electricity markets is threatened. Local governments tend to be concerned with investments locally, while an integrated market is supposed to drive investment decisions on a regional basis. New developments could lead to a re-fragmentation of markets, even as geographically larger ones are needed to integrate renewables. This risks re-creating inefficiencies in terms of excess capacity and location of investment decisions. The IEA keeps working with member and non-member countries to identify the “right” sets of policies and regulations for the lowcarbon transformation. The newest step for the ESAP is an advisory panel that will contribute to IEA activities. This forum of public and private stakeholders will bring together ministries, system operators, utilities and professionals to help keep the lights on and the systems affordable during the transformation.


WHAT THE IEA RECOMMENDS The IEA Electricity Security Action Plan advises governments, industry and other stakeholders on how best to maintain well-functioning electricity markets that are co-ordinated across large areas and make the most efficient use of existing network infrastructure. Critical recommendations include: • Provide more certainty covering lowcarbon policies and the targeted deployment of technologies, including renewable and other low-carbon energy sources (e.g. nuclear), to the extent possible, and increase market certainty for conventional generation. • Assess and potentially improve the regulatory framework for electricity reliability across multiple jurisdictions. • Ensure undistorted price signals especially during tight market conditions and provide appropriate remuneration of flexibility services. • If generation adequacy is at risk, introduction of a capacity mechanism could create a safety net. If such a system is deemed necessary, ensure that the adopted capacity mechanism is adaptable over time and can be removed as low-carbon policies improve and energy markets are better designed. Ensure proper integration of capacity markets across jurisdictions. • Facilitate co-operation in network investment needs, generation, demand response and flexibility requirements to facilitate trade and to accommodate increasing shares of variable renewables, while recognising the integrated nature of electricity security and electricity markets. • Better allocate network costs to responsible market participants in a technologyneutral fashion, including renewable generators as they increase their market shares. • Expand market-based mechanisms to network activities, such as new investments, and put in place workable solutions to co-ordinate game-changing developments on the distribution grid.

Download the IEA publication Secure and Efficient Electricity Supply, which lists ESAP conclusions and policies:



TO 2050


ELECTRIFIED FUTURE As electricity demand surges, the IEA details an integrated approach to a decarbonised system that yields reliable, affordable and clean electricity. lectricity is increasingly at the core of global energy system, but much like the IEA saw with oil security upon its founding 40 years ago, the warning is clear: only a strategic approach to develop an economic, secure and clean electricity system can meet surging demand and limit carbon emissions. Electricity has many advantages in a lowcarbon future: it emits no carbon dioxide (CO2) at the site where it is consumed; it can power large and small machines; and end-users need not stockpile it. But it is hardly carbon-free, contributing more than 13 gigatonnes of CO2 emissions in 2011. Almost 40% of global primary energy goes to its generation, though it represents just 20% of total final energy needs. Wind and solar grew at double-digit annual rates in the past decade, but more than 75% of new electricity generation in that time came from fossil fuels, half of it from Chinese coal-based output alone. Unless the electricity supply is decarbonised, the growing electrification of economies will not slow climate change. But successful reduction in emissions in the electricity system will not only cut CO2 from generation, it will also automatically decarbonise sectors using that power.


A burgeoning share of the energy mix Electricity use is rising fast. Already, electricity makes up more than 17% of overall

energy use; 40 years ago, that figure was 9%. Its demand growth is on track to outpace that of overall energy. Just three years ago, oil products represented 40% of global energy demand, with electricity and all non-oil fuels each at less than half that amount. By 2050, electricity demand will grow by as much as 127% above 2011 levels, for at least 23% of all energy use. In OECD member countries, electricity already has more than a 20% share, but under a carbon-constrained scenario, demand in those markets rises by an average of 16% through 2050, with the main growth in transport. Still, as use of fossil fuels declines because of the scenario’s decarbonisation, electricity’s overall share in the energy system approaches 30%. But the same scenario sees electricity demand in non-OECD countries surging by up to 300% from 2011 levels. Transport is a factor for those countries, too, but the biggest expansion comes from providing universal access and enabling economic growth, as demand mushrooms in all sectors. Benefitting from low-emissions electricity Overall emissions from the electricity sector rose by 75% from 1990 to 2011 because of higher demand and little change in emissions intensity – or the amount of CO2 released per unit of electricity created. To cut emissions


The Journal of the International Energy Agency

A mechanical engineer, David Elzinga, as Senior Project Manager, leads the IEA flagship technology publication Energy Technology Perspectives, as well as Agency work on electricity system technologies such as smart grids, including system modelling, policy and technology analysis.

enough to hold global temperature rise to 2 degrees Celsius (°C) – a scenario called the 2DS – the flagship IEA technology series, Energy Technology Perspectives (ETP), sees that the 80% increase in electricity generation from 2011 to 2050 to meet demand will require a 90% cut in emissions. That means a reversal in capacity and generation from fossil fuels to renewable energy. More than 65% of global electricity generation now is fossil fuel-based, while all renewables, including hydropower, make up 20%. (The rest is largely nuclear power.) The 2DS calls for fossil fuels to fall to just under 20% of capacity by 2050, while renewables top 70%. How to get there from here Falling costs are already making the reversal possible. For instance, price reductions in solar photovoltaic systems since 2009 have accelerated global deployment, even as per-unit government support declines. Similar gains apply to other renewables, such as wind, and will spread as deployment experience increases and technologies develop. While piecemeal efforts like installing more solar panels cannot suffice by themselves, they are in fact triggering the next big step. The scale of distributed generation from renewables is moving the system beyond the historical form of large-scale centralised electricity production. The system now needs to be “smart” enough for all components to operate together seamlessly. Greater reliance on electricity and the increasing adoption of renewables to generate it requires more strategic planning to optimise existing infrastructure and determine what is needed where and when. Looking at the system as a whole The IEA calls for increased “systems thinking”, necessary to develop a smart integrated electricity system and ensure that short-term challenges do not undermine the deployment needed to realise long-term benefits. Such a systems perspective increases complexity but also enables more efficient use of energy resources. The approach is catching on:

Glacier: © genepy/Fotolia

An IEA scenario to limit global warming sees a 90% cut in carbon emissions from electricity generation by 2050.

By David Elzinga


TO 2050





Other renewables Otherrenewables



Otherfossilfuels 10000 Naturalgas 0 2011





Renewables and fossil fuels should reverse ratios in the global energy mix by 2050 to attain the internationally agreed goal of holding average temperature increase to 2°C.

Graphic: © OECD/IEA, 2014

the energy community is realising how it must integrate a broad range of technologies – such as storage, demand response and smart grids – and policies across the supply and demand sectors to establish a system that can be operated efficiently, flexibly, reliably and affordably. New technologies offer alternative ways to plan and operate the electricity system. These different approaches can also reduce or defer investments, though they can complicate operations, especially in environments requiring high levels of reliability. Using smart grid technology with more information and communications technology can help to address this new intricacy, even as it raises the risk of new security threats such as hacking of systems and computer viruses.

The necessary investment will be significant, so the research, development, demonstration and deployment should be increasingly targeted only at those technologies with system-wide benefits, not just sectoral benefits. In the highly regulated electricity industry, adaptable regulation will need to support new opportunities and approaches provided by novel technologies.


The 4DS and 6DS reflect less stringent ambitions for emissions and climate change mitigation. Ultimately, the analysis explores how to transform the global energy system to break the link of economic activity, energy demand and emissions – optimising costs and benefits globally. The scenarios do not necessarily reflect the lowest-cost approach, which can miss many subtleties (e.g. political preferences and capital constraints) plus is not always suitable for end-use sectors: buildings, transport and industry. The energy system does not always develop according to optimum approaches, as some technology decisions may be based on other considerations, such as behavioural aspects, or influenced by political and economic circumstances. So in its 2014 edition, ETP includes several 2DS variants for

The modelling and analysis of the IEA flagship technology series ETP do not predict the future. Rather, the three ETP scenarios – 6° Scenario (6DS), 4° Scenario (4DS) and 2° Scenario (2DS) – reveal the impacts of different technology and policy choices, providing a quantitative approach to support decision-making in the energy sector. Energy modelling is the backbone of the ETP series of publications. It combines forecasting, which shows the end result of specific choices, and back-casting, which lays out plausible pathways to a desired end state. The series starts from the globally agreed-upon target of reducing emissions to limit global temperature rise for its core 2DS, taking into account rising global population and steady economic growth.

Maybe not easy, but well worth it Flipping global electricity generation from fossil fuels to renewables will be challenging, to be sure, but it will provide significant benefits beyond limiting climate change. In terms of energy security, a decarbonised electricity system diversifies the fuel mix and lessens dependence on fossil fuels, which many

countries import. And a critical advantage of a systems perspective is policies that employ governance and market arrangements to incentivise efficient, flexible, timely and innovative responses to maintain power system security and adequacy, while discouraging short-sighted and wasteful patchwork investment. Already, consumer engagement is changing, as electricity users become “prosumers”, or small-scale electricity producers and consumers, by, for example, installing rooftop solar panels. They stand to live in a cleaner world, with more cost-effective use of electricity. Detailed analysis of electricity’s growing role in the energy system is found in ETP 2014. Order the book today:

how different sectors can meet or possibly exceed long-term carbon reduction goals in different ways. • High Renewables illustrates an expanded role of renewables in the electricity sector based on reduced deployment of nuclear power and delayed commercial introduction of carbon capture and storage. Faster deployment of renewable technologies reduces their costs. • Electrifying Transport projects massive electrification of transport. The 2DS is already ambitious in terms of transport electrification, especially for light-duty road passenger applications, but this variant sees aggressive electrification of road freight vehicles. • Electrified Buildings examines greater deployment of heat-pump technology for both space heating and domestic hot water in the European Union and China.





GO WITH THE FLOW IEA analysis confirms that variable renewables can integrate into electricity grids cost-effectively, but different systems face particular challenges.


expected to make an important contribution to decarbonising the global energy system. Can variable renewable energy (VRE) serve as a central pillar of a secure and low-carbon energy system, and if so, can it do so at a reasonable cost? Over the last two years the IEA investigated these questions in detail as part of a project involving seven case studies over 15 countries. And in short, the answer to the questions is yes. But achieving such a positive outcome requires the right approach to integrating wind and solar PV. The first step is a change of perspective. Not just wind and sun cause variability All power plants can fail unexpectedly. Demand for electricity fluctuates widely across the day, as demand can be twice as high during peak hours of the day than during the night. In countries where electricity is used for heating or air-conditioning, demand varies with seasons. Even special social events – such as a sports championship match – can lead to rapid swings in demand. As a result, all power systems feature resources that help them deal with variable demand and ensure system stability during

Counties like India, with expanding, dynamic energy systems, have an advantage integrating variable renewables.


The Journal of the International Energy Agency

Simon Müller co-ordinates IEA work on grid and system integration of renewables and is lead author of The Power of Transformation and Deploying Renewables 2011. Previously, he worked for the MED-EMIP (Mediterranean Energy Market Integration Project) and the German government.

unexpected swings. In fact, there are four principal sources for this flexibility: flexible power plants, grid infrastructure, storage, and active demand-side response and management. All four have important implications for integrating wind power and solar PV. Integration means transformation The classical view expects VRE to be integrated as an addition to what is already there; it assumes that the rest of the system does not adapt. But integration is not simply about adding renewables without fully adapting the rest. Instead, reaching high shares of VRE costeffectively calls for a transformation of the system as a whole. That transformation involves three pillars. The first is system-friendly VRE deployment. Wind power and solar PV generators are commonly seen as the “problem”, with the solution having to come from somewhere else. But these renewable power plants can facilitate their own system integration, and they will need to do so to achieve system transformation cost-effectively. The main idea behind system-friendly VRE deployment is minimising overall system costs, in contrast with only minimising generation costs for renewables. For example, a number of roof-top PV systems deployed in a city can be more valuable from a system perspective than a distant, large-scale PV plant, even if the roof-top systems’ direct generation costs are higher. The second pillar is making better use of what exists. Improving system operations has proven to be a major success factor in countries that have pioneered VRE integration. In Germany, for instance, the improved co-ordination of the four balancing areas of the grid reduced the need for holding certain reserves despite the rapid growth of variable generation. However, changing operational practices may face institutional resistance, and thus delay, despite their cost-effectiveness. Only when the first two pillars of system transformation are fully exploited does the third component come in: investment in additional

India: photo by Land Rover Our Planet via Flickr,

atching electricity supply and consumption has been a delicate balancing act since the early days of electrification in the late 19th century. Generation fluctuates, as does demand. But now, with the deployment of variable renewable energy, the very source of power fluctuates as well. The sun doesn’t always shine, and the wind sometimes does not blow. At low shares – depending on system circumstances, that means around 5% to 10% of annual generation – existing resources can deal easily with the variability and uncertainty inherent to wind and solar photovoltaics (PV), as their impact is usually small compared with what was there already. But even at such low shares, some basic rules must be heeded to avoid trouble: use good forecasts for wind and solar output, avoid undesirable deployment “hot spots”, and make sure that wind and solar PV power plants can help to stabilise the grid when needed. But what does it mean for power systems when wind power and solar PV take a much larger share? Both technologies have seen very rapid growth in past years. And thanks to impressive cost reductions, they are

By Simon Müller


70 000


4 200 MW less peak load

65 000 60 000

Demand (MW)

55 000 End of game 11 800 MW/28 min

Before the game 6 420 MW/40 min

50 000 45 000

Typical day Brazil vs Chile

Halftime +3 300 MW/6 min 2 410 MW/14 min

40 000

:00 10 :00 11 :00 12 :00 13 :0 0 14 :00 15 : 00 16 :0 0 17 :00 18 :0 0 19 :00 20 :00 21 :00 22 :00 23 :00 00 :00


:00 :00 08




:00 :00



:00 :00





:00 :00

35 000 Time

Swings in demand, like in Brazil during the last World Cup, show the need for resources to handle variability.

Graph: © OECD/IEA, 2014

flexibility. A transformed system has more adaptable power plants, such as flexible gas and reservoir hydro plants. These can start and stop quickly and change their output dynamically. What is more, they remain cost-effective, even when used just “part-time”, when the wind is not blowing or the sun is not shining. Aggregating wind and solar power over a large area using a robust and smart grid helps to smooth variability and increases the amount of capacity that can be relied upon to meet demand at all times. Storage can also be important, in particular where there are frequent peaks in generation, such as in the case of solar PV. But as a broad generalisation, it costs about ten times as much to store electricity for later than to move it to a different location. So storage is costeffective where it has a very high value: for example by simultaneously providing system services and avoiding the need for particularly expensive grid investments. The flexible resource where clear policy action could make the largest difference is the demand side. Shifting demand to times where electricity is abundant – for example by using heat or cold storage – can be a very cost-effective integration option. So can be the rollout of smart-grid infrastructure. The new IEA book The Power of Transformation that came out of the seven case studies highlights in detail what options exist to achieve such a transformation. According to the modelling carried out for the publication, a successfully transformed power system featuring 45% VRE can come at little additional long-term cost compared with a system with no variable renewables at all. Costs differ for dynamic and stable systems Such a transition can be difficult, though, and the scale of the challenge differs based on circumstances.

“Stable” power systems are characterised by stagnating electricity demand, as in many European countries today. In such places, the cost of rapid deployment of renewables has often risen to the top of the political agenda. As the market is not expanding, new renewables take a piece of the pie from incumbents with established capacity. This outcome is based on fundamental economics; market effects are thus not purely a consequence of variability. These systems are faced with a double challenge: scaling up the new system while scaling down the old. This can raise tough policy questions. How to make sure that dirty and inflexible assets are retired with priority? How will governments handle the distributional effects when such retirements become necessary before plants reach the end of their lifetime? Who pays for stranded assets? These questions have just started to enter the policy debate. But the situation is different for the second category, “dynamic” power systems in emerging economies such as Brazil and India. These are characterised by high demand growth. Here there is great opportunity, and here the IEA foresees the majority of new wind and solar power plants. With proper investments, a flexible system can be built from the very start, in parallel with the deployment of variable renewables. Because of their systems’ dynamic natures, emerging economies can leap-frog to a 21st century power system.

Read about The Power of Transformation: Download the summary: Order the book: Read about the Grid Integration of Variable Renewables Project:


The IEA Grid Integration of Variable Renewables (GIVAR) Project aims to build understanding of the characteristics of power systems and markets that hinder or enable the reliable, economic integration of large shares of VRE, and to use this knowledge to further improve IEA analysis of power systems, including in the flagship publications World Energy Outlook and Energy Technology Perspectives. GIVAR focuses particularly on wind and solar PV. Other VRE technologies include wave, tidal and run-of-river hydropower. The relevant distinguishing feature of these technologies is that they rely on energy sources (wind, insolation, etc.) that can not themselves be stored in the same way as, for example, biomass, gas or coal can be stockpiled. This means that output of electricity based on these technologies fluctuates along with the resource. At large shares, this increase in variability affects power system operation and investments. The 2005 Gleneagles Group of 8 Summit tasked the IEA with assessing the challenges of efficient VRE integration in power systems. A Phase 1 report in 2008 identified strategic elements to facilitate VRE deployment. The 2009 IEA Ministerial meeting gave the GIVAR project additional impetus, as delegates called on the IEA to carry out “a study of electricity security, including the impact of electricity from variable sources”. In 2011, Phase 2 of the project presented a new IEA-developed method to shed light on managing power systems with large shares of variable renewables. Phase 3, whose results inform the new book The Power of Transformation, deepens the technical analysis of previous IEA work while also analysing economic aspects of VRE integration. A revised version of the IEA Flexibility Assessment Tool (FAST2) provided technical analysis of system flexibility in case study regions. Economic modelling of system operation on an hourly basis revealed the effect of high shares of VRE on total system costs.


Advanced Clean Coal Can Energize the World

25 percent

lower carbon dioxide emissions rate with supercritical plants versus the oldest plants

1 million

cars removed from the road = carbon benefit from each large supercritical plant

Sources: Platts World Electric Power Plant Database, December 2013; International Energy Agency December 2012; and International Energy Agency “Technology Roadmap: High Efficiency, Low-Emissions Coal-Fired Generation,� December 2012.

Clean, affordable electricity from coal is vital for energizing developing and developed nations. Coal powers modern living, drives the best economies and lifts hundreds of millions out of energy poverty. It is also the fastest-growing fuel, set to become the world’s largest energy source in coming years.

550+ gigawatts

of advanced coal technology in use or development globally

Today’s high-efficiency “supercritical” coal plants have state-of-the-art controls and ultra-low emission rates. Even the carbon dioxide emissions rate is 25% lower than the oldest plants. Every large advanced coal plant brings the equivalent carbon benefit of removing 1 million cars from the road. Let’s work together to end global energy poverty and increase access to low-cost electricity by deploying advanced clean coal technology. That’s a powerful environmental solution for people and economies. Visit

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MODERN NETWORKS Energy networks of the future will need not just new and expensive heavy equipment for transmission and distribution, but also smarter operations. iberalisation of many electricity markets as well as shifts in generation and demand have overturned the monopolistic electricity system of the past, one planned and operated by vertically integrated utilities whose main concern was maintaining reliable regional supply. The very way electricity systems are used has changed, increasing and diversifying power flows, an evolution now magnified by the large-scale introduction of variable renewables. Adaptation will require heavy investment and smarter operations not just in renewables generation but also transmission and distribution. That would accommodate the growing demand and trade as well as the shift in generation from large centralised power plants to such diffuse sources as windmills along mountain ranges and solar panels on rooftops in multiple neighbourhoods.



French power lines: plans call for huge investment.

sound structures and frameworks which deliver least-cost power systems and acceptance at the same time. Frameworks that focus solely on minimising network costs can fail to account for the resulting system-wide benefits across the electricity system. And those that focus only on following supply- and demand-side developments are prone to overlook acceptance and economic inefficiencies. The need for much more transmission There is often scope within liberalised markets to encourage competitive and private investment into network infrastructure. Getting

The Journal of the International Energy Agency

As a member of the Gas, Coal and Power Markets Division, Dennis Volk focuses on competitive electricity systems. He also provides global power forecasting for IEA market reports. During Germany’s market liberalisation, he worked for the Bundesnetzagentur, the national energy regulator.

the frameworks right is essential to support the necessary investment – which is not small, even for those countries with mature and almost saturated markets. The ten-year network development plan from the European Network of Transmission System Operators for Electricity calls for investing about EUR 104 billion in the refurbishment or construction of more than 50 000 kilometres (km) of high-voltage power lines, a 17% increase over the existing network. In the United States over the same period, the North American Electric Reliability Corporation sees need for about 64 000 km of new highvoltage transmission. In OECD member countries alone, the New Policies Scenario of the World Energy Outlook calls for about 30% of all power sector investment needs until 2035 to go to distribution. Again, without efficient network planning and operational procedures, the risk is that billions will be spent poorly. A complete rethink on distribution IEA member countries’ experience shows that distribution not only requires significant investment into the right technologies but also a change in perspective to make that investment effective. Customers’ prices for both electricity delivery and network use are often annual charges with no real-time component, and operators usually lack the capabilities to monitor and manage flows on their network in real-time. The priority in distribution investment is expanding beyond simply meeting peak demand reliably. Besides the integration of renewables and electric vehicles, and the resulting bidirectional flow of electricity, investment now must accommodate new pricing and services for different forms of customer demand and usage as well as better co-ordination of transmission and distribution. All of which means new forms of regulating, planning, operation and pricing. Download the IEA Insight paper Electricity Networks: Infrastructure and Operations:

Power lines: © Angela Gosmann, 2014

Liberalised but never fully unregulated Renewables and growing demand are not the only source of change, of course: the system is still dealing with the effects of market liberalisation. Besides separating out the network business of integrated utilities, new business models and offerings have empowered customers, enhancing private and competitive operations and investments as well as increasing transparency. In the process, research, policy focus and regulations have had to improve how electricity networks are developed and then operated. IEA member countries’ experience shows that each successful conversion to a modern competitive market offers lessons for those markets and nations that have yet to take the next steps. More market-based solutions for planning, delivering and using network services can help moderate power systems in their transition. These measures can result in higher transparency, technological neutrality, more competitive service-price formation and service demand as well as fair cost allocation. This can spur the decarbonisation of power systems naturally while keeping supply costs minimal and the lights on. While the electricity system is changing on many levels, some things are staying the same.

Future investment in distribution and transmission infrastructure remains subject to regulatory frameworks, environmental impacts and public acceptance. There is still no single liberalised electricity market globally where all new investments are determined and undertaken by market participants without regulatory support. One crucial takeaway for IEA member countries already is that timely and efficient investment depends on the planning framework and the nature and scope of regulated incentives. Governments and regulators have to set up

By Dennis Volk

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JOHANNES TEYSSEN The chairman and CEO of E.ON, who is also president of the Eurelectric utility association, addresses high prices and other security concerns. n the past years we have seen an obvious divergence: in Europe average wholesale electricity prices fell during the last few years to a level of EUR 38/MWh to EUR 42/MWh. So just looking at these traded prices, Europe is at parity with the United States, as confirmed by the European Commission. Retail prices for commercial and private household clients have, however, increased considerably during recent years. Thus, at present exchange rates, EU industrial retail electricity prices are more than twice those in the United States and Russia. Such high retail prices are the result of additional taxes and state levies to pay for energy policies, and not of high power generation or transmission/distribution components. Indeed, the current high level of taxes and charges, which in some cases represent more than 50% of end customer prices, are reversing the achievements of market integration and of price convergence among EU member states. Key to stabilise or even reduce electricity prices is a two-pronged approach: reduce taxes and the costs of levies through more efficiency


in the European energy policies. This can be done by minimising the number of inconsistent EU-wide energy and climate targets. Taxes jeopardise competitiveness and distort competition, both at national and cross-border levels; they should be reduced and harmonised as much as possible. The EU Emissions Trade Scheme should be recognised as the key driver to the low-carbon transition and be the only single binding target for 2030. This will avoid more costly and possibly overlapping policies. And the transition towards more renewables has to happen within markets and with less subsidy. All these measures will lead to more competition, reduce costs and thus help our customers. How best to integrate renewables Learning from various national experiences, the European Union should progressively integrate renewable energy sources into the market, while co-ordinating support schemes at the EU level in order to improve efficiencies in the development of renewables. I believe that the draft state aid guidelines by the


The Journal of the International Energy Agency

Specific E.ON activities to aid streamlining Specific E.ON activities to integrate renewables in the system involve continuously improving the production forecast for the next days as part of the trading business; better operation of the renewable plants to achieve a more predictable generation; research and pilot deployments of storage; and demand response. The storage projects cover such already mature technologies as pump-hydro but also pilot projects involving chemical batteries and in power-to-gas, as in Falkenhagen, Germany.

Johannes Teyssen: © E.ON, all rights reserved; pumped hydro facility: © Rolf Sturm/E.ON, all rights reserved

E.ON already employs mature electricity storage techniques like its Walchensee, Germany, pumped hydro facility.

European Commission provide in general a correct answer to this challenge. And I fully support market integration for new deployed technologies – in the form of tender and “feed-in-premium or equivalent measures involving the direct marketing of the electricity produced” or investment aid or green certificates (as proposed by the Commission), and a more progressive market integration for lessdeployed technologies. Future support schemes should focus on innovative developments through research and development (R&D), taking a neutral approach towards all promising low-carbon technology options. On a European level all renewables operators should take responsibility for balancing. That is, they should forecast, schedule and operate on equal footing with other generation. I welcome the new discussion In Germany about redesigning the promotion of renewables to introduce a soft cap on the yearly increase of renewables – by adjusting premiums when the increase is too high – and also to introduce tenders as a price-finding mechanism for mature technologies.



Furthermore we are supporting research such as at our E.ON Research Centre at the Technical University of Aachen in Germany. As the roll-out of smart technologies is already taking place and will play a crucial role in integrating the renewable “prosumer” in the market, we have pilot projects in urban areas, such as in Malmö, Sweden, but also on the German island of Pellworm. And last but not least: our conventional fleet of gas- and coal-fired power stations is the reliable backbone of system adequacy compensation for times of low renewables production, compensating for fluctuating input into the electricity system. Cleaning up coal-fired generation For environmental reasons, emissions from coal energy production must be reduced, and measures must be taken to convert methods of energy production over to lower-emission technologies. E.ON has set itself the goal of halving the CO2 emissions per kilowatt hour of its energy production by 2025, compared with 1990. E.ON is following a double strategy to reduce the CO2 emissions of its coal power plants, namely by means of very efficient new coal-fired power stations such as Maasvlakte, Netherlands, or Karlshamn, Sweden, and by testing carbon capture and storage (CCS) technology, with the goal to make this technology competitive and hence in the end affordable for the customers. Due to current low CO2 prices, any CCS project needs the full and proper support of the


Wind farm and offshore drilling platform: © E.ON, all rights reserved

There should be more recognition in EU and national energy policies for the role of natural gas in the future energy mix. I believe that natural gas will continue to play an important role in the EU energy mix in the long term for numerous decades. In addition natural gas will further gain importance as a fuel to be used to compensate very fluctuating renewable electricity generation. This implies a continuing need for the maintenance and expansion of natural gas infrastructure. The diversification of gas supply resources and import routes such as pipeline expansion and cross border-interconnectors should be supported where they already exist and properly accelerated to ensure

An E.ON wind farm off the UK coast. The company focuses on achieving more predictable generation from wind.

European Union and member states since this is climate-relevant R&D at this point. Huge outlays to smooth the transition A huge amount of investment is planned, e.g. in network infrastructure, smart meters, renewable energy sources, and storage. The investment is ultimately paid for by end customers who in turn benefit from the resulting clean, reliable and competitive energy system. It is seen as critical, particularly in the current economic situation, to ensure both the competitiveness of businesses and the affordability of energy for household customers. The drive towards renewable sources of energy and a single EU energy market, combined with the availability of new technology, raises

competition in the European Union, and subsequently price competitiveness. Politics must support this task of the industry by improving the energy dialogues between the European Union (as consumer countries) and existing and new suppliers. Shrinking seasonal spreads at their current levels alone discourage shippers from contracting storage; in the long run, this situation undermines the availability of storage capacity. Less gas would then be available in case of supply disruptions, which can cause social damage due to reduced system stability. Prolongation of the current market situation and the introduction of capacity mechanisms in the power market may therefore provoke a discussion about the appropriateness of an “energy-only market” in the gas market, too.

the expectation that policy goals can be met efficiently by smarter operation of the system. Smart markets can benefit customers by reducing the cost compared with business as usual, and by enabling new products and services for those who choose them. There are currently several ongoing initiatives to define the market design for the upcoming smart market, which will be made possible by the introduction of automatic metering in the market-relevant periods (15, 30 or 60 minutes). The smart market will make it possible for consumers, generators and storage operators to benefit, on a voluntary basis, from the flexibility options that can be offered to make the system more efficient. Distribution system operators (DSOs) will have to play a major role in

E.ON sees a growing role for natural gas.




The Hållbarheten in Malmö, Sweden, is an element of E.ON pilot programmes to integrate renewables.

The firm’s Pellworm project includes energy storage.

turning this into reality: the load and even more the volatility of power flows in the distribution grid will increase significantly, creating a challenge for DSOs to maintain quality and reliability of the service while optimising grid operation in the interest of the customer. From a customer’s perspective, market design should be assessed on the cost-effective impact of system changes, which should cause minimal disruption.

dispatchable supply of energy. Hence we can expect some new nuclear power stations in countries where E.ON has activities. We at E.ON will rather focus on other technologies in the foreseeable future.


THE USE AND SUPPORT OF EXISTING POWER PLANTS AS A CHEAPER OPTION SHOULD ALWAYS BE POSSIBLE. European energy market and to meet security of supply at least cost. Both the Pentalateral Energy Forum [a grouping of European countries to promote regional co-operation towards improving integration of electricity markets and supply security] as well as the relevant market parties have suggested co-ordinating their efforts on the future market design. I support this approach. Various countries view nuclear power as a viable option – for instance, the United Kingdom proposed recently Contracts for Differences for new nuclear power stations – especially as an option that would deliver a secure and

The Journal of the International Energy Agency

Worry over water as the climate changes The availability of sufficient amounts of water is one of the central challenges for the energy sector, according to a recent World Energy Outlook projection. Climate change will impact the availability of water around the world. Water is an important resource; in the production process it is primarily a cooling agent for thermic energy generation and for nuclear power plants. Water is also used to generate steam. Within E.ON’s operations, 95% to 99% of the water is reused. To investigate to what extent water consumption in water-scarce areas is related to our business processes, in 2012 the E.ON Water Management Site Decision Matrix was devised together with the World Business Council for Sustainable Development. This will help the systematic identification of regions in which water scarcity poses risks for operators and for the communities. Water availability is therefore a fixed component of risk management. Reliance on IEA fact-based analysis Apart from the excellent reports – with the World Energy Outlook as the flagship publication – the IEA offers interesting fora, where global energy leaders are finding a very challenging and competent discussion platform. The enlightening exchanges based on Agency material, together with the distinguished experts from the IEA, always help me to base decisions on a sound factual basis.

Hållbarheten house: photo from E.ON,; Pellworm project: © E.ON, all rights reserved

Improving electricity security In principle, the energy-only market used to be able to provide sufficient investment incentives or incentives to keep some of the existing plants online to guarantee security of supply. However, the increasing presence of low (almost zero) marginal cost intermittent technologies will lead to increasing dependence on peak prices for conventional generators. Dependence on scarcity periods for these conventional generators needed in terms of generation adequacy is too uncertain for new investments and may even lead to decommissioning of existing plants. A new market design based on a combination of energy and capacity mechanisms is therefore necessary to offer reliable capacities and finally ensure security of supply. Consequently I support capacity remuneration mechanisms (CRMs), not as a subsidy but as part of a new market design justified by the need to provide a real service to consumers: to provide the qualified capacity required to guarantee security of supply. CRMs should be open not only to generators, but also to demand response, storage and cross-border participation where physically possible (i.e. interconnections to neighbouring countries). To keep the costs for our customers as low as possible, the use and support of existing

power plants as a cheaper option should always be possible. For the same reason, a technologyneutral approach should be used. It should be emphasised that CRMs should have only one single aim: to guarantee generation adequacy (i.e. to provide reliable available capacity to cover demand at all times). A mix of two aims will lead to inefficient, distortive solutions. For well-interconnected countries (for instance, in central western Europe), we support cross-border participation of neighbours as an effective means to reduce the costs associated with guaranteeing security of supply and with the aim to foster the development of internal electricity markets. Indeed, facilitating crossborder CRMs under EU harmonised rules offers an excellent opportunity to integrate the





BRIDGING THE GAP Storage can support the energy system. But even mature technologies, both electric and thermal, are struggling in today’s energy markets.


But even cost-competitive technologies face difficult regulatory and market conditions that hinder deployment, and many other technologies require more investment, research and development to increase performance and lifetime while reducing cost. A new IEA Technology Roadmap presents recommendations to make sure that economically viable technologies are compensated for the many services that they can supply. It also provides timelines for targeted investment to help less competitive technologies reach the deployment stage. Promising technologies for electricity In electricity storage, pumped storage hydropower (PSH) represents the vast majority (99%) of installed electricity storage capacity. Overall, PSH, compressed air energy storage (CAES) and some battery technologies are the most mature, with flow batteries, superconducting magnetic energy storage (SMES), supercapacitors and other advanced battery technologies at much earlier stages of development. Three storage technologies – PSH, CAES and a generalised battery storage system – are featured in the modelling framework of a Department of Energy study that evaluated the potential for the United States to transition to up to 80% renewable electricity supply. The results showed that increased storage needs would rely primarily on CAES technology.

Battery storage systems are at varying states of cost-competitiveness, and scientists are trying to improve quality.


The Journal of the International Energy Agency

Melissa C. Lott is lead author of the Technology Roadmap: Energy Storage. A former Presidential Management Fellow at the US Department of Energy, she recently left the IEA to pursue a doctorate at University College London. She also writes for Scientific American’s “Plugged In” blog.

Both PSH and CAES have significant potential in the energy system, utilising water and air as storage mediums. PSH involves using electricity in low-demand periods to pump water; subsequently, during periods of higher demand, this water flows back through turbines. CAES uses the same principle for compressing air in canisters – or even subterranean spaces – and subsequently heating it up using natural gas or another thermal resource. But both of these large-scale storage technologies struggle at times with siting and financing questions, given their system sizes and specific topographic requirements. Big PSH facilities (gigawatt-scale systems) exist around the world, while the United States and Germany are home to the only two CAES facilities in commercial operation. The Technology Roadmap: Energy Storage suggests assessments for PSH and CAES over the next six years, including analysis and cost estimates for potential sites and upgrades to existing installations. Retrofits for PSH and CAES could take up to two decades: for PSH they will allow technology upgrades that will improve service capabilities and enhance system efficiency, while better compression and use of previously wasted heat can help CAES recover nearly 70% of the energy stored. Germany has already started work on an underground adiabatic CAES facility using a salt formation; it plans a second underground site this year that will also recycle the heat generated during compression upon release. This recycling could reduce or eliminate the need for natural gas. PSH, too, is going subterranean, as underground reservoirs provide a promising option for efficient and cost-competitive smaller-scale electricity storage: a well is drilled that allows water to be pumped from a reservoir to another one closer to the surface or to a man-made aboveground holding area before being drained back down through turbines. Battery storage systems abound at varying levels of cost-competitiveness. Scientists in the United States and elsewhere are working to improve conventional lead-acid batteries

Melissa Lott: photo courtesy of Mary Lott; smart power centre: photo courtesy of Portland General Electric Company via Flickr, all rights reserved

nergy storage technologies – including systems large and centralised as well as small and distributed – can bridge the gaps between energy supply and demand. Their uses are not limited to supporting variable renewable generation. Rather, they can help to optimise many parts of the global energy system. Storage systems have potential application across the electricity grid, in dedicated heatingand-cooling networks and in off-grid applications. By setting aside energy for use when and where it is needed, energy storage – both electricity and thermal (for heating and cooling) – can decouple supply from demand, increasing system flexibility and improving reliability. Storage systems can be defined by how long they can store energy, from systems that hold solar power from the day for use at night to seasonal systems that save summer heat to warm homes in the winter. On the shortestterm basis, electricity storage systems can shift supply and demand within an area to correct load imbalances, avoiding brownouts and blackouts. In the case of a blackout, storage can supply “black start” capabilities, which are used to initiate a restart without having to pull electricity from the crippled grid. Electricity and thermal storage technologies currently exist at widely varying stages of development and cost-competitiveness.

By Melissa C. Lott




PSH: photo by jitze via Flickr,; China Pavilion: photo by jaizi via Flickr,

After it is pumped to the higher reservoir, water drains through turbines to recover electricity at this PSH facility.

Stored ice cools Shanghai’s China Pavilion.

for large-scale fast-response storage, while German researchers are among those testing demonstration projects for high-efficiency lithium-ion batteries similar to those used on much smaller scales in laptop computers and electric vehicles. Sodium-sulphur systems are in place in Japan and the United States: in Texas, an installation of 80 modules, each weighing 3 600 kilogrammes, provides voltage regulation and has delayed a city’s need to upgrade ageing transmission infrastructure, as the battery system’s cost was less than replacing power lines that are frequently exposed to lightning strikes. More experimental are supercapacitors and SMES, with supercapacitors having far greater power density than regular batteries and SMES using extremely cold temperatures to gather, hold and release electricity with minimal loss. The IEA sees 15 more years of concentrated research to improve those technologies to commercial levels, with further gains later.

In warm climates, ice can optimise cooling supplies. While electricity demand is low, water is frozen and stored in an insulated tank onsite. During periods of higher demand, the ice is used to cool water or other refrigerants in a building’s air-conditioning system, offsetting the need for electricity. An estimated 1 gigawatt of ice storage is deployed in the United States to cut peak energy consumption in warmer areas of the nation, while many countries in Asia increasingly use ice storage. China has deployed hundreds of ice storage projects since the 1990s. Shanghai’s China Pavilion uses a combination of heat pumps and ice storage to provide approximately 160 days of cooling a year. In Beijing, ice storage has saved almost USD 1.4 million a year in electricity costs for the International Financial Centre building, while China Petrochemical Corporation’s research and office building has offset more than one-third of its peak electricity demand by using ice storage. In Japan, Tokyo Denki University’s Tokyo Sanyo Campus has used both ice and liquid water tanks for energy storage since 2012. Funded by the Ministry of Land, Infrastructure, Transport and Tourism, the project employs 400 cubic metre (m3) ice storage tanks tied to 690 m3 water storage tanks for freezing water with cheaper off-peak electricity; the ice is subsequently melted to meet cooling requirements. While the project’s primary objective is to lower campus CO2 emissions associated with energy consumption, it also aims to increase energy efficiency and cut peak demand.

Getting warm on thermal applications Besides electricity, thermal storage is increasingly common and valuable, with largescale forms stockpiling energy to provide cost-competitive heating and cooling supply for buildings and industry around the world. Thermal storage systems also can be used to reduce heat waste from industry, electricity production and other activities. Large underground thermal energy storage systems are already used for space heating in many developed energy systems. Canada, Germany, the Netherlands, Sweden and other countries are home to systems that use aquifers or man-made boreholes to store heat during the summer months for use in the winter; in Canada, this type of thermal storage system is supplying approximately 95% of winter heating needs for Drake Landing Solar Community, a section of Okotoks, Alberta, near Calgary.

On a much smaller scale, ice storage is cooling commercial and residential buildings in countries including the United States, Japan and China (see sidebar). France relies on thermal energy storage in residential electric water heaters to cut about 5% of the country’s peak electricity demand in winter. More than one-third of French households use “two-period meters” that allow grid operators to remotely delay replenishment of hot water by minutes or hours. The need to know more One impediment to market assessments and forward projections is the lack of comprehensive data on energy storage, complicated by unsupportive market design and a absence of transparent energy price signals. An even greater cipher is the upper limit for storage. A lack of comprehensive accessible data as well as conflicting viewpoints regarding what should be included in the baseline make it hard to compile an accurate global estimate. Many of the existing data sets for electricity do not systematically include information on both power and total storage volume, and missing data make it incredibly difficult to calculate the practical potential for off-grid systems. For thermal storage, the absence of a comprehensive inventory of waste heat and the corresponding potential demand for this heat has slowed deployment. An IEA collaborative on combined heat and power plus district heating and cooling is filling the gap, but the initiative will require several more years of concentrated work. Download Technology Roadmap: Energy Storage and its annexes:





GARAGE-BASED GRID Two-way charging of electric vehicles in solar-powered homes could be just the first step towards a dynamic vehicle-to-grid power system. fter Hurricane Sandy pummelled the eastern coast of the United States, causing severe power outages, one of the smaller news items to come out of the 2012 storm was how some electric vehicle (EV) owners used their Nissan LEAFs as emergency backup power devices to reverse-charge their homes. They were not exactly using their cars as approved, but it was still ingenious. And Nissan and other companies had already thought of the idea. After the Fukushima accident, Nissan brought out in Japan its LEAF to Home system to address demand for vehicle-to-home (V2H) power; it has since sold more 2 000 systems. The package, which sells for the equivalent of about USD 4 300, not only functions as an emergency backup device but also allows for an interconnection with rooftop solar panels. This means that during sunny hours when the car is parked at home, the battery is charging. At full charge, a Nissan LEAF battery can provide almost two


days’ worth of electricity consumption for a typical Japanese household. Other companies are also developing and marketing similar systems. Cars are parked 95% of the time, and given the increasing challenge of storing electricity generated by variable renewables as well as when and where to source the electricity to charge EVs, a framework linking them to solar-powered homes looks tantalising. The trick is to make sure that the vehicle is charged when the driver needs it, that the home utilises the battery for consumption when possible, and that the solar panels are being well used. Optimally, V2H increases EVs’ potential value, supports home solar generation and makes it possible to get off the grid to better fit overall supply with demand. Powering much more than just homes But a broader and dynamic application, vehicle-to-grid (V2G), can increase the reliability of the entire electricity system by


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Tali Trigg became an IEA Energy Analyst in 2010. He specialises in transportation technology policy, with an emphasis on smart growth, electric vehicles (spearheading the Agency’s work on the Electric Vehicles Initiative) and bus rapid transit.

helping the grid avoid peaks, like when people all plug in their EVs at much the same time after coming home from work, and providing extra decentralised energy storage. V2G is not a prerequisite for large-scale vehicle electrification, but the forthcoming 2014

V2H MAY BE THE SOLUTION TO SUCCESSFUL INTEGRATION OF RENEWABLES AS WELL AS A WAY TO HELP MAINTAIN THE INTEGRITY OF THE GRID. edition of the IEA flagship technology publication Energy Technology Perspectives estimates that the on-board battery storage in EVs could provide cost-effective demand response capacity, fully halving the need for capital-intensive large-scale storage technologies required for an electricity system that limits global temperature rise to 2 degrees Celsius by 2050. Software is part of the necessary backbone for all V2H and V2G systems, but a critical physical component is the power control system (PCS) that makes electricity management bidirectional, determining when the household draws from the battery and when the car charges from the solar panels or the grid. Besides Nissan, India’s sole EV manufacturer, Mahindra Reva, recently released the e2o, which also offers bidirectional capacity. Ford Motor and SunPower proposed another solution this year: a non-plug-in hybrid car that charges using an advanced solar canopy roof. The costs and technology have not yet come to a point where the technology is entirely viable, but it opens up a new way of considering vehicle electrification without relying on the grid. Similarly, BMW has teamed up with SolarCity (whose chairman, Elon Musk, is better known as the CEO of Tesla Motors)

i3: photo courtesy of BMW of North America, LLC, all rights reserved

BMW offers a discount on solar panels for buyers of its i3 but so far does not market the EV as a home battery.

By Tali Trigg



to offer customers of BMW’s i3 EV a home solar package solution with a 10% discount for panels.

LEAF to Home Interconnection: illustration courtesy of Nissan Motor Co. Ltd., all rights reserved

Pilot projects leading the way for V2H In one Nissan pilot programme in Osaka, the cost savings ranged from the equivalent of about USD 190 for cars driven 12 000 kilometres (km) a year, to USD 460 for those driven 7 000 km. The higher rate of savings for less driving came from the greater amount of time the car was parked. The end result of the Osaka programme was that solar power utilisation rose from 40% to 70% and dependence on the grid dropped from 75% to 50%. Despite the news from Hurricane Sandy, V2H may have less impact in the United States than Japan because Americans drive more and their households use more electricity; a LEAF’s battery can power “only” one day of the average US household’s electricity consumption. Still, a project in San Antonio, Texas, uses electric delivery trucks to play an active role in demand side management. Similarly, a project on the Hawaiian island of Maui by Hitachi and Nissan is demonstrating the potential for connecting renewable generation with EVs. The programme relies on a smart grid but also a Direct Load Control, which connects EVs to households so they can power (in this case) electric water heaters. The demonstration project, which wraps up in March 2015, involves 40 households and is part of a range of demonstrations on the island that involve 350 EVs. It will be a while before final results are delivered from the V2H pilot programme and the rest of the suite of experiments, but already the Maui tests are showing the high potential for isolated systems such as islands to demonstrate the viability of vehicle-to-grid/ home/building (V2X). A technology with uncertain prospects Nevertheless, the potential for V2G is currently uncertain, with a recent roadmap by the California Independent System Operator stating that despite its technical feasibility, “knowledge about the economic, environmental and grid benefits is underdeveloped, inconsistent or not validated”. But as the IEA projection for storage capacity shows, EVs are more than cars: they are batteries that want to be used, especially as battery degradation from energy exchange with V2X is less than from driving and as the various trials for homes and other buildings

Nissan started selling its LEAF to Home interconnection system in Japan after the Fukushima accident.

further limit the effect by trying never to deplete batteries to less than half their charge. The next application after homes could be office buildings. There, EVs can “shave the peaks” of electricity load during working hours, when people are at their desks while their cars sit outside. In this scenario, EV batteries could provide power to the building until late afternoon, when the cars draw back a charge before the workers use them to return home. In one test, Nissan estimated that 70 LEAFs cut 8.5% of workday consumption at a major office centre. The problems of success Load-demand is increasing across the board (in the United States, it is rising by 4% per year), putting pressure on the antiquated electricity grid to adapt and become more dynamic. The system’s integrity is also a priority as increasingly frequent harsh weather events threaten the grid. To address these issues, especially considering the growth of variable generation from wind and solar power, the driving force behind the demonstration projects in Hawaii is not environmental targets nor job creation per se, but rather to solve the problem of successful deployment of solar power. In Hawaii, 10% of households have rooftop solar, which has begun to overload the grid. The experiments aim to find out whether or not V2H may be the solution to successful integration of variable renewables as well as a way to help maintain grid integrity.

A GLOBAL PUSH FOR V2X The intergovernmental Clean Energy Ministerial’s Electric Vehicle Initiative (EVI) has held several public-private roundtables in the past on topics ranging from managing expectations (October 2012 in Stuttgart) to the role of fast charging (June 2013 in Tokyo). Most recently, EVI joined forces with the International Smart Grid Action Network (ISGAN) for a meeting on integrating EVs into the grid (November 2013 in Barcelona) that focused in part on V2X. This joint effort followed the Clean Energy Ministerial last year in New Delhi, where ministers called for closer collaboration. The two groups bring together innovators from multiple perspectives (automaker and utility; vehicle and grid) and besides the Barcelona roundtable has resulted in the start of co-operation with the US Lawrence Berkeley National Laboratory on predicting grid interactions from EVs. Future topics will focus on the vehicle and grid aspects of V2X.

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Read Global EV Outlook: featuring EVI research:




2015 CLIMATE TALKS: A ROUTE TO SUCCESS ver since taking on my role as the IEA Director of Sustainable Energy Policy and Technology, I have been concerned about the pessimistic nature of climate change discourses. While leaders worldwide have repeatedly acknowledged the importance of limiting global temperature increase to 2 degrees Celsius, most discussions on the means to do so have centred on the difficulty of overcoming the large inertial market forces that keep us on a path towards unpredictable climate instability. Additionally, while the number of recent extreme weather events such as hurricanes, storms or serious droughts have increased public concern about climate change impacts, there is growing scepticism about governments’ capacity to agree on measures that would avoid dramatic global warming. But demonstrating that climate change can be managed has been and remains a centrepiece of the IEA work on identifying options for energy sector decision makers. The findings of our Tracking Clean Energy Progress reports presented at the annual Clean Energy Ministerial meetings help energy ministers and CEOs alike gauge progress and see where additional efforts are most needed. Redrawing the Energy-Climate Map, the World Energy Outlook (WEO) special report last year, showed that existing, cost-effective solutions can have immediate impacts while keeping longer-term options open. And the scenarios published in the WEO and the IEA flagship technology book, Energy Technology Perspectives (ETP), keep highlighting the need to think about long-term objectives. All of our repeated urging to keep climate change at the centre of the global energy policy dialogue was rewarded late last year when IEA energy ministers issued the IEA member countries’ Statement on Climate Change, welcoming and encouraging our “work on developing cutting edge analyses on markets and technologies that offer cost-effective opportunities to reduce greenhouse-gas emissions”.

E By Didier Houssin Didier Houssin became Director of Sustainable Energy Policy and Technology in late 2012 after having served as Director of Energy Markets and Security. Before joining the International Energy Agency, he was Managing Director of BRGM, the French Geological Survey. Among other matters, his responsibilities there included overseeing carbon capture and sequestration, and geothermal energy.

Focus not on the impediments but on the ways to succeed To better capitalise on the opportunity provided by the 2015 climate negotiations in Paris, we need to move climate discussions away from focusing on the size of the challenge to both recognising the cost of inaction and realising the opportunities for action. The IEA is uniquely positioned to address these issues. Our ongoing work on the ClimateEnergy Nexus Forum keeps at the forefront the energy system’s vulnerability to climate impacts, demonstrating that the status quo comes with its own costs. The focus of ETP 2014 on the increased role of electricity in the future set-up explains how proper planning for a higher share of electrification could unlock opportunities to enhance the energy system’s efficiency, security and reliability as well as reduce the cost of required infrastructure and decarbonise the overall energy supply. Wide participation by multiple stakeholders in the consultative process for our Technology Roadmaps to a low-carbon energy system shows the large momentum towards action for change. Focusing attention on the means to achieve success rather than on the hurdles to be overcome can stimulate a broader consensus. Innovation as the driver for climate change mitigation The 2015 edition of ETP will provide even better visibility on how energy technology innovation – encompassing all stages of the research, development, demonstration and deployment processes – can enable an economically viable low-carbon energy system. As a result, the book will increase policy makers’ confidence that they can achieve short- and long-term climate change mitigation objectives. Innovation has always been at the core of changes in any established system, whether through novel technical solutions or by adaptation of existing solutions in new ways and in different environments. This will be true, too, for the changes needed to decouple our desired lifestyle improvements from an energy dependence that impacts our planet’s climate.


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Energy Technology Perspectives 2014 Harnessing electricity’s potential





POLICIES THAT WORK IEA members are sharing recent policy successes to help other nations also improve sustainability, energy security and economic growth. Here are some of those best practices, in the countries’ own words.


Map: Permission is granted to copy, distribute and/or modify this document under the terms of the GNU Free Documentation License, Version 1.2 or any later version published by the Free Software Foundation


In 2007, the Irish National Oil Reserves Agency (NORA) held approximately 75 days of Ireland’s 90-day total obligation of strategic oil reserves under IEA rules. NORA was heavily dependent on stock tickets, IEA-approved arrangements under which a company agrees to hold (or reserve) an amount of oil on behalf of the government, and much of the reserves agency’s wholly owned stocks were held outside of the country. But as an island nation with limited refining capacity and no indigenous oil production, Ireland decided that physical availability of wholly owned stocks of oil products in the country would improve security of supply, particularly in the event of a local disruption to imports caused by, say, prolonged bad weather. Also, having the strategic stocks on the island would provide indirect benefits to the national economy. So NORA doubled its levy on oil products, making its resources independent of central state funding, and maximised use of existing commercial storage while refurbishing and commissioning three new storage facilities. Stock tickets were eliminated, and Ireland today holds more than 70% of its stocks on the island. Now Ireland is considering using strategic stocks as a secondary fuel source in power stations in the event of a gas disruption, and NORA is pursuing additional primary storage to ensure that stocks can be quickly and efficiently released if needed.

ITALIAN LEVY FUNDS ENERGY RESEARCH In the transition from a state-owned monopoly to a liberalised market, the Italian government allowed for electricity end-users to pay for systemlevel research activities, with the electricity regulator setting the annual charge, about EUR 0.00015 per kilowatt hour in 2013. Funded research aims at innovation and improvement of the national electricity system in terms of economics, safety and the environment. In the three-year programming period that ran through last year, the largest sum, EUR 109.5 million, was earmarked for research related to production and sources of energy, including renewable sources, carbon capture and storage, and nuclear fusion and fission. EUR 68 million of investigation looked at system governance, while inquiry into the legal, technical and strategic framework of transmission and distribution was awarded EUR 23 million. End-use research such as demonstration and development projects was allocated EUR 59.5 million. Preliminary results indicate success: the main public research and development organisations have been encouraged to co-operate actively with private industries in programmes focused on the development and demonstration of innovative systems and prototypes for the production of renewable energy.

AUSTRIA’S HYDROPOWER HELPS STABILISE EUROPE’S ELECTRICITY SUPPLY Austria contributes to the stability of European electricity supplies by using hydropower for more than half of its domestic generation, more than five times as much as all other renewables, making Austria the country with the highest proportion of electricity generated from renewables in the European Union. But increased use of renewable energy for the future electricity supply requires a corresponding expansion of transmission and storage capacities, as Austria declared jointly with Germany and Switzerland in May 2012. Austria is part of Europe’s Green Battery system, and its Alpine storage plants facilitate continued development of renewable electricity production in Central Europe. Austria’s electricity utilities employ those storage power plants to supply both peak and balancing energy, significantly stabilising electricity supplies throughout Europe. The construction of power plants also contributes to the strength of the Austrian economy and thus to the creation of green jobs.

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ENERGY AND CARBON TAXATION IN SWEDEN An important tool to reduce greenhouse gas emissions is economic instruments, such as CO2 taxes and emissions trading, to make those who pollute pay for their impact on the environment. High energy taxes on fuels and electricity, as well as high CO2 taxes on fossil fuels, steer demand, putting an implicit price on fossil carbon while providing state revenue. Sweden has long and successful experience in taxing energy, with taxes on motor fuels since the 1920s and collection of an energy tax on electricity since the 1950s. The 1970s oil crisis increases awareness of the security of supply of oil products, which resulted in higher taxation of the products. In 1991, Sweden complemented energy taxation with specific CO2 and sulphur taxes, with significant increases to the CO2 tax rates since. A CO2 tax has the advantage of being a market-based instrument, which as low administrative costs lets households and firms choose the measures to cut fossil-fuel consumption – and thus greenhouse gas emissions – best suited to their specific situation. Biofuels, which are exempted from the CO2 tax, have increases substantially during recent decades. The Swedish experience shows that emission reductions can be combined with economic growth. From 1990 to 2011, CO2equivalent emissions fell by 16%, while economic activity increased by 58%.

A MORE COMPETITIVE ASIAN GAS MARKET Japan depends on imports of liquefied natural gas (LNG), so securing LNG supplies in a stable and inexpensive manner is critical to its economy. And with regional demand expected to soar, other Asian countries face the same challenge. Japan is taking major steps by importing LNG from North America, where shale gas output has cut prices; diversifying supplier countries by participating in upstream projects in Australia, Mozambique and Russia; and enhancing buyers’ bargaining power. Signs are emerging of substantial developments towards a more liquid and convergent market. Japan is involved in projects related to imports from the United States equivalent to 15 million tonnes a year – nearly 20% of the nation’s annual LNG consumption. Several new procurement contracts in the Asian gas market are now based on gas-on-gas pricing. The shifting balance of supply and demand points to a more globalised natural gas market. Examples of measures to enhance bargaining power are strengthening partnerships among consumer countries; expanding support for projects that reduce LNG import prices; and developing domestic natural resources, including methane hydrates.

SOCIAL HOUSEHOLD TARIFF COMBATS GREEK ENERGY POVERTY In the midst of its severe economic crisis, Greece liberalised low-voltage electricity tariffs. But to protect vulnerable consumers who suffer from energy poverty, the government introduced the Social Household Tariff (SHT) in January 2011, giving a discount of approximately 40% from the normal household bill on annual consumption of up to 5 000 kilowatt hours. Clear criteria define the categories eligible for SHT: vulnerable people on a low income. These include the longer-term unemployed, larger families, people with a disability and those medically dependent on energy-intensive equipment. All other consumers share the cost of the discount for those approved for the SHT. Approximately 280 000 customers were approved for the SHT through 2012 and, after eligibility criteria were broadened, 150 000 more were approved last year. Applicants upload an electricity bill and their identity card and tax registry numbers online. The increasing number of needy customers has resulted in major delays of even one year, as the approval process requires family income information derived from income tax returns submitted to and cleared by the Ministry of Finance. But once approved, the customer’s circumstances are checked automatically each year for renewal.

Read the first set of Successes on pages 28-29 of IEA Energy: Issue 5 – Ministerial:

Read more about these and many other undertakings by downloading the book Energy Policy Highlights:

This map is without any prejudice to the status of or sovereignty over any territory, to the delimitation of international frontiers and boundaries, and to the name of any territory, city or area.





REGIONAL PRIORITIES The IEA regional energy efficiency policies initiative was born of shared advice among Arab and Southern and Eastern Mediterranean countries. rab and Southern and Eastern Mediterranean (SEMED) countries are increasingly aware of energy efficiency’s multiple benefits, which range from better trade balances and health to increased economic productivity. As energy demand grows at well over 5% per year in parts of the region, decision makers in energy-importing and -exporting nations alike are looking to their neighbours, the IEA and other international organisations for advice. So despite ongoing regional unrest, experts from public, private, international and intergovernmental institutions of ten economies gathered in Jordan last year for talks that launched a multiyear, global project to tailor energy efficiency policy recommendations to local contexts. The IEA, the Regional Centre for Renewable Energy and Energy Efficiency, the European Bank for Reconstruction and Development and the Arab League hosted the roundtable, held under the patronage of the Jordanian Ministry of Energy and Mineral Resources.


Multitude of energy efficiency activities The experts used the roundtable to share their experiences with ongoing energy efficiency


Overcoming regional challenges Despite these and other initiatives, energy efficiency faces many barriers in SEMED-Arab countries. For example, some have a low capacity for enforcing regulatory policies (such as building energy codes) and for testing, manufacturing and servicing energy efficiency products. A particularly significant barrier in the region is heavy subsidies for energy, which in some countries approach 90% of prices. And like in other countries across the globe, institutional

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Sara Bryan Pasquier joined the Energy Efficiency Unit in 2008. As programme manager, she oversees the IEA Energy Efficiency Policy Evaluation and Policy Pathway series. Her recent publications include Progress Implementing the IEA 25 Energy Efficiency Policy Recommendations.

co-ordination across ministries (e.g. energy, construction, industry) can be challenging in SEMED-Arab countries, as can be private-sector capacity for identifying, developing and implementing energy efficiency projects. To overcome these barriers, the regional experts at the roundtable recommended six priority areas for government policy: cross-sectoral, buildings, appliances/equipment, lighting, transport and industry. The cross-sectoral recommendations touch on areas ranging from governance, investment and data collection to strategies and subsidies. The buildings and appliance recommendations urge mandatory energy codes for buildings, minimum energy performance requirements, and test standards and measurement protocols. The lighting recommendations suggest the phase-out of inefficient products and the promotion of high-efficiency street lighting. The transport recommendations cover a large array of policies, from mandatory vehicle fuel-economy standards and fleet renewal programmes to eco-driving and public transport system improvements. Policies for industry also span a wide range, covering energy management, high-efficiency industrial equipment (notably motors), and energy efficiency services for small and medium-sized enterprises. Exporting the initiative’s success globally From the SEMED-Arab roundtable, the programme has spread to tailor energy efficiency policy recommendations to regional contexts elsewhere. The IEA, supported by the Asian Development Bank and the International Copper Association and under the patronage of the Indonesian government, hosted a December 2013 meeting in Jakarta for South East Asian experts. Future roundtables are planned for Central and West Asia and Latin America. Conclusions from these talks will inform national policy making and guide regional energy efficiency exchanges, and will be published in the IEA report Energy Efficiency Policy Recommendations for Emerging Economies.

Dubai: ©

Windcatcher towers cool buildings in Dubai.

activities in the region. For example, the League of Arab States detailed its Arab Guideline for Improving Electricity Efficiency and Rationalizing Its Consumption at the End User. The plan calls on each member state to prepare a three-year National Energy Efficiency Action Plan (NEEAP) featuring annual reviews as well as an interim target for execution, with one body assigned responsibility for oversight and co-ordination. The Executive Office of the Arab Ministerial Council of Electricity approved the guideline in 2010. Officials from Lebanon presented their country’s NEEAP, which was approved in 2011 and covers 14 initiatives, including one to encourage financing of energy efficiency. This initiative is supported by the Ministry of Finance and the Central Bank of Lebanon. A Tunisian official reported on a national programme that requires companies consuming more than 800 tonnes of oil-equivalent annually to undergo energy audits. Tunisia subsidises up to 70% of the cost of those audits. An Egyptian expert detailed the country’s efficient-lighting initiative, which targets the residential sector. It combines an energy efficiency and conservation public awareness campaign with the distribution of more than 9 million subsidised compact florescent light bulbs. A Kuwaiti researcher showcased schoolbased pilot projects for demand-side management that are the country’s first step towards a comprehensive national plan for rationalising consumption.

By Sara Bryan Pasquier



BESPOKE GUIDELINES New How2Guides help countries and regions individualise IEA advice to build the best low-carbon energy system for their resources and needs. or countries wishing to reduce their dependence on fossil fuels, IEA Technology Roadmaps present a valuable package of policies and concrete actions for increasing the role of specific low-carbon technologies in the global energy mix while reducing energy demand and increasing energy efficiency measures. But individual countries, especially emerging economies, regularly approach the IEA directly for particular, tailored support as they develop a co-ordinated national effort towards a lowcarbon future. That’s because planning an energy transition is challenging. The entity assembling the “roadmap” must draw stakeholders from the public and private sectors as well as civil society. First, it must select an appropriate technology mix: resource availability, market openness, industry capacity and expertise all factor into the choice. But the greatest hurdle is to identify barriers to deployment of the selected clean technology and the necessary technical, financial or policy solutions. Very conscious of the fact that one solution does not fit all, the IEA has developed its How2Guide series to offer practical guidance on how a country or region can adapt Agency recommendations to craft its own strategic roadmap to deploy selected low-carbon technologies. How2Guide analysis is based on specific experience and case studies identified in IEA workshops in member and partner countries


that also involve the private sector and other international organisations. Besides sharing tailored recommendations, the series reinforces IEA collaboration on clean energy technologies with its partner countries and regions. The debut How2Guide for Wind Energy As more emerging and developing economies opt to follow many OECD member countries in integrating a substantial wind power into their mix, the IEA started the series by publishing the How2Guide for Wind Energy in March. The manual offers menus of recommendations on policy, technical and financing options for deployment of utility-scale wind energy installations. It features a matrix of options linking barriers to realistic solutions; this matrix, in turn, is cross-listed with considerations such as planning, development, infrastructure, and finance and economics. Case studies come from countries and regions with tremendous wind energy potential, including Southern Africa and Asia, while concrete examples offer best practices by the United States, China and other IEA member and non-member countries with significant shares of wind energy in their mix. The next entries in the series Over the next year, the IEA expects to finalise two more How2Guides, one about bioenergy and the other on smart grids. The data and analysis for each How2Guide are based on existing

Group photo: © OECD/IEA, 2014

Attendees at an IEA-Asian Development Bank workshop in Manila on localised deployment of wind power.


By Marie-Laetitia Gourdin Marie-Laetitia Gourdin joined the IEA in 2010 and is now an Energy Analyst for the International LowCarbon Energy Technology Platform. She regularly organises clean-energy policy workshops with partner countries and is involved in the development of the How2Guide series.

work by the IEA and other organisations and on a series of regional expert workshops held in non-IEA countries. These identify examples of the issues and realistic solution in countries. For instance, in collecting the data and analysis for the How2Guide on Smart Grids, the IEA organised a series of workshops, in particular in Mexico – which is developing its own national roadmap for smart grids – but also with South Africa and, supported by the Asian Development Bank, Asian countries. The IEA has engaged with partner organisations, such as the International Smart Grid Action Network, to draw on their expertise. The collaboration with South Africa and Asia also led to identification of other areas of collaboration, in particular bioenergy. The How2Guide for Bioenergy will be developed this year in co-operation with other international organisations, such as the Food and Agriculture Organisation and the International Renewable Energy Agency. It is benefitting from regional expert workshops in South Africa, Thailand and elsewhere that highlight countries’ potential and different priorities: South Africa is very interested in the use of biomass waste, while Thailand offers a useful case study of sustainability of biomass supply, including in terms of regional markets and infrastructure. The next step for the How2Guide series is to provide training to specific countries on identifying local needs, challenges and realistic solutions for the sound deployment of clean technologies. The process is no one-way street, though, as the IEA also learns more about how to adapt international best practice and its own analysis to local needs in emerging economies.

Download the How2Guide for Wind Energy for free at http:// For more information about the IEA Technology Platform, which oversees the series, contact Co-ordinator Simone Landolina at simone.




BUILT ON TRUST: ASSOCIATION EFFORT ast November, the IEA and six key partner countries – Brazil, China, India, Indonesia, Russia and South Africa – together endorsed the Joint Declaration on Association during the 2013 IEA Ministerial meeting. It was the first time that these countries had publicly and jointly expressed their mutual interest in pursuing a stronger, more enhanced form of multilateral cooperation with the IEA, known as association. This historic achievement did not come overnight: it was possible only because of years of trust-building bilateral co-operation between the Agency and individual partner countries.

L By Kenneth J. Fairfax Kenneth J. Fairfax became IEA Deputy Executive Director in 2013. He also directs the Office of Global Energy Policy and oversees the Agency’s engagement with partner countries and other international organisations. Before joining the IEA, he was Ambassador to Kazakhstan for the United States, the culmination of his more than 25 years of service in the US Department of State.

Changes to the global energy map bring co-operation The changing reality of the world’s energy system is clear to many, including the IEA. Often the Agency has been the first messenger of key emerging shifts and issues in the energy landscape, stemming from its close monitoring of trends in global energy markets and policy systems. For instance, the IEA reported on the landmark change when China became the world’s largest energy consumer. That 2009 shift is part of why IEA member countries, which once represented nearly three-fourths of total global energy demand, now account for less than half – a share that will only decrease in coming years. The challenges of this shift are manifold. The sheer size of energy needs today and tomorrow is enormous. Global oil demand in 1974, when the Agency was founded, was about 56 million barrels per day (mb/d). Now this number stands at 91 mb/d and is expected to reach 100 mb/d in 2035. What is driving demand is the aspiration in emerging and developing countries for economic prosperity and a better quality of life. Providing reliable and sustainable energy at affordable prices to these populations is an enormous challenge. Facing huge structural shifts in global energy markets, the IEA has adapted, in particular by expanding its co-operation beyond member countries and across all sectors of its activities. Many steps led to the 2013 Joint Declaration on Association For many years, the IEA has co-ordinated activities with non-member countries, but more structured global engagement dates to 2006, when the Governing Board, the Agency’s decisionmaking body, approved an outreach strategy with a focus on a range of leading energy countries and regions. In 2009, for the first time all three key partner countries – China, India and Russia – participated in an IEA Ministerial meeting. Four more countries – Brazil, Indonesia, Mexico and South Africa – also took part in the Ministerials of 2011 and 2013. All seven key partner countries have agreed to bilateral work programmes with the Agency, recognising their critical presence in the global energy landscape. This laid the foundation for exploring association, which the IEA and the partner countries will continue to discuss in 2014. IEA outreach beyond association The full scope of IEA global co-operation is also expanding. Estonia will soon likely become the 29th member country, and Chile is in the accession process. The Agency also maintains strong partnerships with numerous other countries and regions. Through joint activities such as In-Depth Reviews of partner countries, the IEA Training and Capacity Building programme and Implementing Agreements – which foster collaborative technology research among member and non-member countries – the Agency has co-operative relations with more than 90 countries. Through broadening and deepening its engagement efforts in these ways, the IEA is proactively seeking to adapt to the shifting energy landscape and the related challenges faced globally. The association initiative builds on these continuous Agency efforts and offers an opportunity to make a significant contribution to global energy governance, founded on shared approaches to shared energy challenges for the benefit of all.


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THIRD ASIAN POWER n the past, when people thought of Asia in the context of the global energy landscape, they thought of China. Nowadays, they think of China and India. But Southeast Asia is rapidly becoming a third major player in the picture. Energy demand of the ten countries that make up the Association of Southeast Asian Nations (ASEAN) has risen two-and-a-half times since 1990 and is now around three-quarters of the level of India. Economic and demographic trends suggest that considerable growth is still to come, especially given that the per-capita energy use of the region’s 600 million inhabitants is low, at just half of the global average. And so my team and I prepared Southeast Asia Energy Outlook, a special report in the World Energy Outlook (WEO) series. Our analysis found that Southeast Asia’s energy demand is set to increase by more than 80% by 2035, a rise equivalent to the current demand of Japan. This supports a near tripling in size of the region’s economy and a population that expands by almost one-quarter.

I By Fatih Birol Fatih Birol, the IEA Chief Economist, is responsible for the Agency’s flagship World Energy Outlook, which is recognised as the most authoritative annual source for strategic analysis of global energy markets. He is also the founder and chair of the IEA Energy Business Council, which provides a forum to enhance co-operation between the energy industry and energy policy makers.

Download the WEO Special Report Southeast Asia Energy Outlook:

The rise of Southeast Asia’s least-cost option for electricity The power sector is fundamental to that outlook, and within it, coal is increasingly the fuel of choice over natural gas. Coal remains relatively abundant and affordable, while additional gas will have to be sourced from imports at prices currently around four times higher than in the United States. This creates a strong incentive for the region’s larger gas producers, namely Indonesia and Malaysia, to export new supplies rather than use them domestically. For those countries that must import gas, the choice is often even more clear-cut, as the cost of generating power from coal is now around half that of gas. This counters the shift from coal in other parts of the world: some three-quarters of the thermal power generation capacity under construction in ASEAN countries is coal-fired. Policy action could eventually swing the economics of power generation in favour of less carbon-intensive options. But, more immediately, priority needs to be placed on improving the efficiency of new coal plants from very low levels of current ones. In addition to improved air quality and reduced greenhouse-gas emissions, fuel use could also be cut significantly – for example, if the region’s coal-fired power plants were as efficient as those in Japan today, their fuel use would be one-fifth lower. This preference for the least-cost option to meet rising power needs is put into context when you consider the serious challenges that Southeast Asia – a region that includes some countries still in the early stages of economic development – faces in ensuring that energy remains affordable. Its oil imports are on track to increase from 1.9 million barrels per day (mb/d) today to just over 5 mb/d in 2035, making the region the fourth-largest net importer in the world, behind only China, India and the European Union. This proves very costly: by 2035 spending on oil imports triples to almost 4% of gross domestic product. Meanwhile, net gas exports, which are an important source of revenue, shrink by about three-quarters. Growing regional energy demand illustrates a global challenge Given the anticipated scale of Southeast Asia’s energy demand growth, developing policies to attract investment will be vital for enhancing energy security, affordability and sustainability. Some USD 1.7 trillion of investment is required in the region in energy infrastructure through 2035. Mobilising this will not be easy unless existing barriers are addressed, including subsidised energy prices, underdeveloped energy transport networks and the lack of greater stability and consistency in the application of energy-related policies. Our report was warmly welcomed when Executive Director Maria van der Hoeven delivered it to the Seventh East Asia Summit Energy Ministers Meeting last year in Bali, Indonesia. Delegates called for the IEA to build on the report’s momentum through follow-up work. As I consulted with experts from around the region to prepare the report, it became increasingly and abundantly clear to me that IEA and ASEAN member countries have become natural allies. We both need to build secure and sustainable energy supplies and markets as platforms for promoting economic development. These are global challenges to be tackled on a global basis.


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IEA-IEF-OPEC meeting | Executive Director Maria van der Hoeven with GECF Secretary General S.M. Hossein Adeli | Riyadh adh

Republic te of the Czech na Se e th at n tio WEO presenta Economist Fatih Birol | Prague Chief

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o Coronel, all rights reserved; Czech Senate: photo courtesy of the Ministry t of Industry and Trade, all rights IEA-IEF-OPEC Symposium on Energy Outlooks: photo courtesy of International Energy Forum, all rights reserved; Itaipu: photo by Caio Photography all rights reserved res reserved;11th meeting of the IEA Energy Business Council: © OECD/IEA, 2014; World Future Energy Summit: © World Future Energy Summit; International Petroleum Week: © Energy Institute/Here and Now Photography,




ENERGETIC READING THE POWER OF TRANSFORMATION Language: English; Release: available now Price: €100; ISBN: 9789264208025

ENERGY TECHNOLOGY PERSPECTIVES 2014 Language: English; Release: 12 May Price: €150; ISBN: 9789264208001

Wind and solar are crucial to meeting future energy needs while decarbonising the power sector. But their inherent variability raises unique and pressing questions. Can power systems reThe Power main reliable and cost-effective while supportTransformation ing high shares of variable renewable energy (VRE)? The Power of Transformation summarises the results of the third phase of the IEA Grid Integration of VRE project, undertaken over two years and rooted in seven case studies that comprise 15 countries on four continents. It lays out an analytical framework for understanding the economics of VRE integration impacts and, based on detailed modelling, analyses the impact of high shares of VRE on total system costs.

Starting from the premise that electricity will be an increasingly important vector in the energy systems of the future, Energy Technology Perspectives 2014 takes a deep dive into what needs to be done to provide sustainable options for generation, distribution and consumption. In addition to modelling the global outlook to 2050 under different scenarios for about 500 technology options, the book explores the possibility of “pushing the limits” in six key areas: decarbonising the energy supply; the enabling role of natural gas; electrified transport; energy storage; financing the transition to low-carbon electricity; and high-efficiency power generation in India

ENERGY POLICES OF IEA COUNTRIES: AUSTRIA 2014 Language: English; Release: available now Price: €60; ISBN: 9789264209602

MEDIUM-TERM COAL MARKET REPORT 2013 Language: English; Release: available now Price: €100; ISBN: 9789264191204

Austria’s energy policy rests on three pillars: security of supply, energy efficiency and renewables. Austria’s security of fuel supply is generally robust. The country’s decarbonisation drive Austria has strengthened as the economy and renew2014 able energy use have continued to grow, while use of fossil fuels has decreased. But greenhouse gas emissions from energy use, which peaked in 2005, need to be reduced further, and the transport sector offers prime opportunities for this. A well-functioning internal market can help reduce the growing concerns over energy prices and costs, both for industry and for citizens. Austria could address these concerns by implementing more energy efficiency measures and facilitating greater retail market competition.

Coal is the leading fuel source behind the growth of OECD non-members and the leading source of present power generation in OECD member countries. Yet the current low prices for coal add a new challenge to the sector, which is facing uncertainty due to increasing environmental legislation and competition from other fuels, such as US shale gas or European renewables. The Medium-Term Coal Market Report 2013 provides IEA forecasts on coal markets for the coming five years as well as an in-depth analysis of recent developments in global coal demand, supply and trade. This third annual report shows that while coal continues to be a growing source of primary energy worldwide, its future is increasingly tied to developments in non-OECD countries, led by China.

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Wind, Sun and the Economics of Flexible Power Systems

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Globally we use more energy to produce heat than for electricity or transport, and producing this heat and the fuels used are important factors in global energy security and in the emissions from energy use. Heat plays an important role in all energy economies in all regions of the world, and not just in colder climates or developed economies. So far, renewable energy plays a relatively minor role in this sector – the exception being the traditional inefficient use of biomass for heating and cooking, itself a source of serious environmental and social difficulties. A range of commercially available renewable technologies can contribute to the needs for heat, and in the right conditions these can already be competitive with fossil-fuel sources. Yet the renewable heating sector has not been addressed by policy makers with the same vigour as the renewable electricity and transport fuel markets. The issues that need to be addressed can include the creation of a level playing field through phasing out of fossil-fuel subsidies, putting a price on CO2 emissions and increasing consumer awareness. Heating without Global Warming: Market Developments and Policy Considerations for Renewable Heat outlines the best ways forward. Given the important role that renewable energy use for heat can play in achieving strategic energy policy goals, such as energy security, emission reductions and energy access, more attention must be given to the heat sector, and renewable heat in particular. Support policies for renewable heat should be closely linked to those for energy efficiency in order to effectively promote its use but not undermine energy efficiency targets.

Many studies have examined the technical feasibility of regional electricity systems, which are necessary to accommodate high shares of wind and solar power at least cost. But power markets do not integrate by themselves; instead, they require a policy commitment to create efficient markets over large geographic areas. Seamless Power Markets: Regional Integration of Electricity Markets in IEA Member Countries offers governments guidance for such policy by focusing on the market and regulatory frameworks needed to achieve these visions and suggesting priorities for governments as they use either consolidation of system operators or co-ordination of markets and operators, or both, to integrate electricity markets with nearby countries. Seamless Power Markets draws on the experience of market integration in IEA member countries in terms of consolidation and co-ordination of markets and system operations, shedding new light on the role of system operators. This Featured Insight, which addresses market integration as one of the five pillars of the IEA Electricity Security Action Plan, gives an overview of different models over wide geographic areas. It identifies market integration’s contribution to increased security of electricity supply as well as the barriers towards more co-ordinated approaches to reliability regulations before advising on how to develop bulk-power exchanges among regions. Then, assessing the implications of differences in low-carbon and technology-specific policies, it identifies barriers to physical market integration and lists best practice for integration of different capacity markets. Secure


SEAMLESS POWER MARKETS Regional Integration of Electricity Markets in IEA Member Countries




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OUR ELECTRICITY SYSTEM, TODAY AND TOMORROW The IEA book Energy Technology Perspectives 2014 sketches out changes for a low-carbon electricity sector of tomorrow that features large-scale integration of renewables, carbon capture, energy storage and much more.

Renewable energy resources


Centralised power and heat generation

Transmission and distribution

Pumped hydro



Renewable energy resources Smart transmission and distribution

Smart energy system control

2050 Centralised power and heat generation

Distributed energy resources CCS

Pumped hydro


Compressed air

Electrification of transport

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Graphic: OECD/IEA, 2014



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IEA Energy | Issue 6 - Q2 2014  

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