“Energy transition,” the profound transformation of how energy is produced and consumed, has emerged in Europe from the widely accepted truth that in order to address existing climate challenges we must both reduce energy consumption and replace fossil fuels with renewable energies. But is this truth universally accepted? Many of the specialists we surveyed for the World Energy Markets Observatory,* did not see the European “energy transition” model as the most obvious solution. Although they face the same challenges and pressures with respect to energy and climate change, other parts of the world prefer approaches that diverge from the European guidelines.
Energy transition drivers
All industrialized countries have ambitious targets for reducing gas greenhouse emissions given the urgency of the challenges countries are facing (e.g., air quality in Asia). But for many of them, these targets will be difficult to reach, given their heavy reliance on fossil fuels (Asia, Australia, Poland, South Africa, etc.). That said, the use of renewable energy is rising sharply worldwide, with an additional capacity of 132 GW added in 2016. The surge in solar capacity in China (+ 100 GW of additional capacity in 2017) is particularly noteworthy.# This trend can be attributed to falling costs and strong government support. The cost of solar energy fell by 85% between 2009 and 2016, while the cost of onshore wind is set to decrease by 25% by 2025. Nonetheless, coal and gas prices remain relatively competitive outside Europe. In regions outside Europe, the demand for gas is increasing, and this demand is fueled by abundant supply due to the production of unconventional gas in the US and easier access thanks to greater numbers of floating storage regasification units (FSRUs).1
In Europe: Replacing fossil fuels with renewable energy
In Europe, energy transition is part of an effort to substitute fossil fuels with renewable energy and involves a massive influx of it. The pioneering and ambitious objectives of the 2008 EU climate and energy package will soon be achieved. The growing share of renewable installations more than offsets the costs of dismantling fossil fuel power stations, leading to a general increase in production capacity in 2017. The EU’s overall production capacity increased by 24.5 GW in 2016 and this increase is mainly attributable to the increased production capacity of renewable energy (+21.1 GW) and to the dismantling of fossil energy production capacity. (- 12 GW).2
USA: A local dynamic based on Distributed Energy
The departure of the United States from the Paris Agreement is not expected to significantly impact the dynamics of energy evolution in the United States since this evolution is driven by states, communities (city, neighborhood, etc.), and businesses. Increased consumer choice, combined with the integration of digital technologies are behind the transformation of the American energy system. There is renewed interest in micro-networks and distributed energy solutions that provide greater independence, partly
because of climate events (hurricanes) but also because consumers want greater freedom of choice. This trend developed in a context where the United States, the world’s largest gas producer since 2011 thanks to
the exploitation of shale gas, offers ultra-competitive gas costs and aggressively competes on retail prices with prices that are among the lowest in the world.
Asia: Aggressive competition between gas and coal, the unbreathable air in China
Relatively developed economies such as Hong Kong and Singapore aim to reduce emissions by 26% to 36% under the 2030 Action Plan. But this objective is hardly achievable given the systematic use of fossil fuels. It is likely that this dependence will grow along with economic development. Despite the development of renewable energies (including hydroelectricity), gas is, in Asia, the preferred substitute for coal. Gas is considered to be the lesser evil; a relatively clean energy with modern cycle-type means of production and which makes it possible to cover the base on a large scale. Energy transition, as it is conceived in Asia, is based on promoting the energy efficiency of new buildings (with regulatory “carbon audits”) when building business parks or residential skyscrapers. In China, the Blue Sky policy is behind the growth of renewables, with China accounting for half of the world’s installed renewables.
Australia: public opinion matters
Australia has a goal of zero greenhouse gas emissions. Social pressure is very strong and this issue has been central to successive governments since the Abbot government in 2014. Australia’s climate target requires that emissions reach about 434 Mt in 2030, a drastic reduction of 160 Mt. Australia’s reliance on fossil fuels, particularly coal, for generating electricity (84%) is such that achieving these objectives is unlikely. The energy mix in Australia is evolving, however, and integrating more energy forms, such as wind power, large-scale solar power, and therefore storage. What has strengthened the concept of energy transition in Australia, it is the failure of networks and the big blackouts of September 2017.
Energy transition – consistency, but at what level?
The activity of the regions on the different aspects of energy transition
Energy transition is accelerated by the lack of infrastructure (Asia) or infrastructure failure (United States, Australia) that has quickly shifted consumer behavior and choices. Interest in Distributed Energy and micro-grids is common outside Europe. Renewable energies, coupled with storage, integrate with local grids (city, district) and energy applications are digitalized for more efficiency and more autonomy. It is obvious that the factors driving the transformation of production and use vary from one place to another. For a long time, we have been calling for coherent policies that focus on reducing GGEs. Other measures (energy efficiency, renewable energy development, transformation of use) were merely the means to achieve this. However, it is the end result and reaching the goal that must be our target. Flexibility on how we achieve this must be accepted and supported.
*WEMO 2017, World Energy Market Observatory – Capgemini
#RTE (2017), Irena (2017)
1 In Asia, for example, the cost of coal LCOE ranges from USD 65–90/MWh, gas ranges from USD70–80/MWh while the cost of solar energy is still USD 115–140/MWh which does not constitute, for the time being, a sufficiently attractive differentiating factor
2 Entso-E (2017) + Wind Europe Statistics (2017)