Security, Climate And Technology
U.S. Energy Policy for the 21st Century is Dependent on Emerging Technologies
The world today depends on fossil fuels to meet over 80 percent of its energy needs, a simple fact of the way the industrial world has grown up. But dependence brings with it major challenges: rising demand because of economic growth and new consumers; the global distribution of resources; growing concerns about environmental impacts of energy production and use; and the timescales associated with transforming how we produce, deliver and consume energy.
All this places the United States and the world at an energy crossroads.
Meeting the world’s hunger for energy without fundamentally altering the global climate, increasing geopolitical tensions or causing serious economic dislocation begs for, indeed requires, new technology solutions.
There is, however, no simple or single technology option: In the coming decades we will need a host of new technologies to diversify our fuel mix and control greenhouse gas emissions, and at the same time not hinder economic growth.
The challenge is large but there is also good reason for optimism-largely fueled by a range of new technologies. Some are ready for deployment. Others, though promising, may be a decade away. And some, while more uncertain and higher risk, could have far-reaching impact.
But this optimism must be tempered with realism. The scale of the energy industry is enormous. Therefore, so must be the scale at which these technologies operate if they are to have a major effect. Scale also translates into time.
Policies will have to be thought through and aligned. Also, since both markets and environmental challenges are global, international cooperation must be integral to effective solutions.
Of special urgency is the risk of climate change from global warming. Using atmospheric greenhouse gas concentrations before the industrial age as the baseline, a "business as usual" energy supply trajectory would nearly double those concentrations by mid-century, locking in average temperature increases of several degrees along with the expectation of severely disruptive impacts on human health and the environment. Such concentrations are thought by most engaged scientists to be at the upper limits of prudence.
Scenarios that address these challenges successfully, in response to policies that price carbon dioxide emissions, call for major advances in three key areas-energy efficiency, transportation fuels that are not petroleum-based and widespread electricity generation that yields little or no carbon dioxide into the atmosphere.
Greatly enhanced energy efficiency provides both the best short-term opportunity for addressing the major energy challenges and an essential component of a long-term strategy-perhaps a 40 to 50 percent reduction in primary energy use compared to mid-century "business as usual" needs, without a major impact on GDP.
But how to get there? The technology pathways for efficiency involve buildings, vehicles and industrial processes. Two-thirds of U.S. electricity is used for residential and commercial buildings.
Improved lighting, HVAC, appliances, active energy management, cogeneration and energy-efficient design could dramatically reduce our power requirements. Also, new approaches such as passive ventilation and daylighting can both reduce energy use and improve comfort.
In addition, new designs for the coming "gigacities" can minimize both energy use and pollution. We can also achieve dramatic improvements in vehicle efficiency. Options include advanced engine design integrated with new approaches to fuel utilization, hybrids and plug-in hybrids, "lightweighting," hydrogen and fuel cells, and others.
Hybrid technology appears ready in the next couple of decades, with further advances in battery technology, to deliver both very good overall efficiency and a considerable reduction in oil requirements. The second technology category includes technology options for alternative transportation fuels. This can include biofuels, conversion of coal or natural gas to liquid fuels, electricity and hydrogen.
Biofuels are currently receiving a great deal of attention, as they are renewable and strongly supported by the agricultural sector. Scientific and technological advances are needed to utilize agricultural and forest waste products and "designer" energy crops effectively and economically.
Such advances look quite promising over the next decade or two. Challenging issues also remain in the design of the appropriate infrastructure from field to fuel and of the regulatory structure for assuring fuel quality. And plug-in hybrids would lead to electricity becoming a major transportation "fuel."
For the third technology category-electricity production without significant carbon dioxide emissions-we have to think across a wide range of options: nuclear power; renewables, including wind, solar, geothermal and waves; and fossil-fuel use with carbon capture and geological storage.
Nuclear power provides about a sixth of the world’s electricity. Expansion will be based on evolutionary improvements of current technologies, such as passive safety systems and new construction techniques. More advanced technologies may include modular gas-cooled reactors for the midterm and possibly,for the long term, novel reactors and fuels that considerably mitigate waste management concerns.
Wind and solar renewables are expanding rapidly and demonstrating considerable cost reduction. Eventually, direct use of solar radiation appears the most promising energy option given the large amount of solar energy reaching the earth.
However, many scientific and technical advances are needed to realize massive deployment: new manufacturing techniques, new materials, new solar conversion processes and new storage technologies that enable use of a large-scale, intermittent energy supply.
Nevertheless,the competitiveness of solar technology in significant markets with high electricity prices is improving rapidly.
Coal can also be a "carbon-free" energy source if most of the produced carbon dioxide is captured and stored geologically. With current technology, this is expensive, but there is much promising research on new ways of converting coal to energy and less expensive carbon dioxide capture.
A major governmentled effort is needed to resolve remaining uncertainties, both technical and regulatory, around long-term geological carbon dioxide storage at large scale. This array of promising technologies-some ready today, others with an excellent prognosis in a decade or so, and still others as higher-risk candidates for "home runs"-offers an optimistic view of our capacity to deal with our energy needs.
However, as already observed, this optimism must take into account other realities. First is the issue of scale. For many of these technologies, overcoming key scientific and technical barriers is only part of the story. If biofuels were, for example, to replace half of current U.S. gasoline use, we would need about a hundred thousand square miles of land.
This raises issues not only of land use, but also of water resources, ecological stewardship, etc. As another illustration of scale: If all of the carbon dioxide emitted by U.S. coal plants today were compressed to a liquid for geological storage, its annual volume would be about 50 percent more than a year’s worth of U.S. oil consumption.
These system challenges reflect the enormous scale of the energy enterprise. They will be met only through a complex interplay of multiple technologies, not some "silver bullet."
Second, policies that are synergistic with societal objectives are essential. U.S. energy policy does not currently incorporate societal imperatives such as oil security or climate change risks into energy prices, as it does for a variety of pollutants.
Instead, we face a complex and somewhat idiosyncratic set of incentives and subsidies that advance introduction of "winning" technologies. Also transforming the multi-trillion dollar energy business, with its vast, durable, and rather expensive infrastructure, takes time-about a half century for significant change.
Finally, these key energy challenges are global in nature and will need far more international cooperation than has been evidenced. Climate change risks clearly have global implications and require global solutions.
However, the global nature of the oil market similarly means that increased demand and security concerns of any region ripple through the world’s economies.
Energy represents one of this century’s grandest challenges:global in scale, powering economic growth, reducing poverty in developing countries, threatening to the environment and to human health, risking geopolitical conflict. Technology is a necessary but not sufficient enabler for resolving these problems.
The right mix of sustained research, technology investments and policies will, however, empower the nation’s scientists, technologists and entrepreneurs to respond to these challenges. Getting that mix right will also present an opportunity for building a sustainable energy future for the 21st century and, considering the inherently long lead times, well beyond.
Daniel Yergin, chairman of CERA, received the Pulitzer Prize for "The Prize: The Epic Quest for Oil, Money & Power" and the United States Energy Award for lifelong achievements in energy and the promotion of international understanding. Visit CERA at http://cera.ecnext.com.
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Will Innovation Transform Energy?
Energy Industry of the Future Will Rely on Emerging New Petroleum as well as Alternative Energy Technologies
Something big is going on throughout the energy business. It’s a great bubbling of innovation in every part of the industry. This bubbling is the brew of many different ingredients-from the impact of high prices and geopolitical uncertainty to the growing focus on "clean tech" and climate change. Will Innovation Transform Energy?
Though invisible to the consumer, an enormous amount of technological advance is embedded in every gallon of gasoline. Less than 30 years ago, the absolute "deep water" frontier for drilling was 600 feet of water.
Today, companies are working in what is called ultra-deep water, drilling through as much as 12,000 feet of ocean. Explorers can now use a new technology called WAZ-wide azimuth seismic-to "see" deep resources previously not visible through salt barriers thousands of feet below the seabed.
Companies are integrating a wide variety of information technology capabilities to turn the "digital oilfield of the future" into the digital oilfield of the present, increasing efficiency and output. The large-scale conversion of natural gas into high-quality, diesel-like fuel is getting closer.
What is very visible today in the public’s eye is the innovation in renewables of every sort. Renewables received much attention in the 1970s and early 1980s, but faded away in the face of falling fuel prices and ample supplies. Their rebirth is partly the result of market forces. But it is also driven by continuing technology improvements and by mandates and subsidies from federal and state governments in the United States and the European Union, and by similar programs in countries like India, China and a growing number of other nations.
This year will certainly see the incentives and mandates expanded in the United States, as is already evident with the higher target for ethanol in the State of the Union speech.
The effects of the surge in alternatives are being felt in unexpected ways. Growth in renewables is going so fast that it is straining capacity in people, materials and supplies. If you want to order turbines and blades for windmills or silicon for solar photovoltaic cells today, you may have trouble finding supply. Livestock raisers and dairy farmers in the United States-along with Mexicans for whom tortillas are a staple are complaining about the sharp rise in the price of corn being fueled by rapid growth in corn-based ethanol production.
Renewables may be called "alternatives," but they already constitute a considerable business. The one is that is well on the way to becoming conventional is wind power, which has gone through a considerable evolution over the last two decades. Along the way, costs have declined by a factor of ten.
Last year’s worldwide investment in wind and solar is estimated at over $40 billion. Yet, while the prospects for renewables are very large, they also need to be seen in context. In this case, the context is the huge scale of the overall system and the long lead times that are needed to develop any form of energy.
Moreover, these sources eventually have to establish themselves as economically competitive in the marketplace on a large scale. Even with all the advances, they are still a very small part of the overall energy mix. In the United States, wind is 1 percent of total electric generating capacity. But wind and the other renewables will continue to grow.
Underpinning the "great bubbling" is the rapidly growing spending on energy innovation.
A decade ago, I chaired a task force on energy research and development for the U.S. Department of Energy. That was a time of low interest in energy; and, not surprisingly, interest in the subject of our task force was also relatively low. After all, in the aftermath of the First Gulf War, there was little concern about the availability of future supplies. Climate change was hardly on the horizon as an issue. It’s a very different situation today. The reasons are multiple.
Prices and worry about supplies and energy security are important. So is the prospect of the vast growth in energy demand in Asia, which will change the global energy balance. Also looming large are environmental worries and the growing quest to reduce carbon emissions because of climate-change concerns.
All these factors mean that energy is now a major focus for technology investment. Governments and companies continue to be big players, and they are stepping up their investment. Research-and-development spending by the U.S. Department of Energy was $1.8 billion last year and is currently expected to grow by at least 25 percent in 2007-and could be even more with the new Congress.
And now there are new players: venture capitalists. The funding sources that brought immense innovation in information technology and life sciences-and created Silicon Valley along the way-are now honing in on the energy industry. To be sure, some prominent venture firms are standing back, saying that venture capital does not fit the longer time horizon and larger capital requirements of the energy business. But many others see this as their next frontier.
"Clean tech" is the new rubric under which much of this money is flowing, and the flows are increasing significantly. In North America, venture-capital investment in energy reached $2.1 billion in 2006-four times what it was in 2004, according to the Cleantech Venture Network. Venture capital is not merely a source of money; it is also a source of focused, results-driven discipline. This also means a wide diversity of ideas and technologies will be explored.
Inevitably, many of the new initiatives will end up being venture’s version of dry wells. That’s the character of research and development- and venture investing. The kind of surge we’re seeing today comes not only with hope but also with hype. This will remind some of the Internet boom. That boom left many deflated hopes and even more deflated valuations. But it also initiated a transformation of the way the world works.
And, by contrast, in the Internet boom there was often no clear idea of how to make money. It was about "firstmover advantage" and "land grabs." This time, the opportunity is clear and can be measured against costs and prices in the marketplace.
The innovation frontier in energy is very broad. The systematic application of biology to energy is new, and could end up having a big impact. Ethanol is already being called a "firstgeneration" biofuel, and there is a growing debate as to the biology driven "second-generation" fuels.
Another area that will receive much greater focus is energy efficiency. This is building on a more solid foundation than may be recognized. It’s often said that the United States has made little progress on energy conservation or energy efficiency. In fact, the United States, along with countries like Japan, is twice as energy efficient as it was in the 1970s.
Much technological effort will go into the effort to double once again. This push is not limited to the United States. German Chancellor Angela Merkel has made energy efficiency the centerpiece of her agenda as chairman of the G-8 nations and president of the European Union.
This "great bubbling" represents what is the broadest drive ever for energy innovation. It has the potential over a period of 10 or 15 years to work major transformations in how energy is produced, transported and consumed. But it is not a sure thing.
Two ingredients will likely be required if it is to have this effect. One is consistency-maintaining the level of financial commitment and stability over the cycles. And that gets to the second ingredient: Prices, and what people expect of them, will also be an important part of this brewing future. One way or the other, they will likely add much spice over the coming years.
Daniel Yergin, chairman of CERA, received the Pulitzer Prize for "The Prize: The Epic Quest for Oil, Money & Power" and the United States Energy Award for lifelong achievements in energy and the promotion of international understanding. Visit CERA at http://cera.ecnext.com.
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The Future Of Electricity: Center Of Gravity Shifting To Asia
Electrical Generating Capacity Rapidly Moving to China
The global electric power landscape is changing fast, and increasingly, the action in it has been shifting to Asia. On average, in each of the last three years, China alone has added as much new generating capacity as all of existing capacity in Texas. The shift to Asia will continue.
CERA’s Dawn of a New Age scenarios project that Asia will account for well over half of the increase in worldwide power generation capacity over the next 25 years. By comparison, North America will claim only a little more than 10 percent.
This move toward Asia has big implications for everyone connected to the power industry-plant developers, fuel suppliers, equipment vendors, engineering and construction companies, service providers and, of course, investors.
The biggest factor in this change is China, which is industrializing on the strength of its vast coal reserves. Over the past three years, China added 200 gigawatts of coal-fired power-generating capacity.
This is equivalent to two-thirds of total U.S. coal-fired capacity, which, by comparison, was installed over the course of half a century. The Chinese government has ambitious plans to build more hydro, nuclear, renewable and gas-fired power plants to diversify its electricity sources.
But coal-indigenous, cheap and abundant-is set to dominate new power capacity in China for years to come.
China’s current path is much like the one taken by the United States several decades ago. Rising Chinese power demand comes from both strong economic growth and increasing electricity intensity-that is, the amount of electricity consumed per unit of economic activity. In the 1990’s, one percent real growth in Chinese gross domestic product (GDP) corresponded to 0.7 percent growth in electricity consumption.
But today, one percent GDP growth corresponds to 1.4 percent growth in electricity usage. China’s recent record of 10 percent annual growth in real GDP thus translates to double digit annual growth in electricity consumption.
Many forces contribute to increasing electricity intensity: infrastructure development to sustain high economic growth; China’s move up the value-added chain into energy-intensive manufacturing; and rising middle-class incomes, which now support larger dwellings, with a full complement of air conditioners and modern appliances.
If we look at in those terms, this pattern starts to look familiar. And it should. The United States experienced something like it half a century ago. In the 1960’s, coal-indigenous and abundant- was the leading option for expansion of U.S. power generation capacity. Real GDP grew 4.2 percent annually during that decade, while electricity consumption grew 7.3 percent, driven by industrial expansion, and by widespread adoption of air conditioning and electric heating.
Electricity consumption continued to grow faster than real GDP during the first half of the 1970’s. But this changed quickly after the first oil shock of the mid-1970’s. High oil prices led to improvements in end-use efficiency, and the recession of 1980-82 shook up the manufacturing sectors and led to the closing down of less competitive factories. These forces pushed growth in electricity demand below the rate of real GDP growth, where it remains today.
But China is still at the stage the U.S. was in the 1960’s and early 1970’s and so is likely to move along its current path of rapidly growing power demand for the coming decade, and perhaps longer.
What does the shift to Asia mean to those in the power business? Sustained economic growth in Asia has strengthened Asian power developers and produced financial institutions capable of handling the expansion of the Asian power system. Homegrown Asian firms are increasingly winning businesses away from their Western competitors.
In addition, heightened concerns for energy security have reinforced the government’s role in the power sector and an emphasis on using power generation equipment and design, engineering and construction services provided by Asian companies or by Western companies that work closely with Asian partners.
For example, China’s objective of self reliance means that all the resources needed for coal-fired power plants-such as plant design, boilers and turbines, and construction-are coming from Chinese companies.
Nuclear power development is proceeding along two tracks: indigenous reactor designs and resources on one, and imports of Western technologies with heavy technology transfer requirements on the other.
Sustained growth of the Chinese power sector, combined with the government objective of self reliance and technology transfer, will likely lead over the coming decade to the growth of strong local companies in equipment manufacturing, design and engineering, construction, services and project development.
These companies will compete not only in the domestic Chinese markets, but also in the regional Asian market. The rise of strong Asian competitors in the power sector will intensify competition for Western firms. Some Western firms have sought business opportunities in Asia through partnerships, but many have found it difficult to get a foot in the door, and as they share technology, they fear that they also risk strengthening their competitors.
Eventually, Western firms will face the prospect of competing with Asian players in Western markets. How will Western power companies respond?
Western utilities focusing on domestic markets will source components and services worldwide. Western firms that provide equipment and services will strive to maintain their competitive advantage by staying on the innovation frontier. Even with their much faster GDP growth, China and India will still have lower per capita income than North America and most of Western Europe for many decades ahead
Higher incomes in the West will support research, development and the use of advanced technologies, giving Western firms opportunities to stay at the technology frontier.
We can think of North American companies that are doing well amid fierce competition from Asia. These companies flourish not because they can pare costs to the bone, surviving on high volumes and thin margins, but because they remain at the frontier of technology and product design.
If Western firms in the electric power business can follow this strategy, they will find it a very competitive approach in a world of intensified competition.
Daniel Yergin, chairman of CERA, received the Pulitzer Prize for "The Prize: The Epic Quest for Oil, Money & Power" and the United States Energy Award for lifelong achievements in energy and the promotion of international understanding. Visit CERA at http://cera.ecnext.com.
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