The Energy Transition: Perspectives on the meaning of the term “Energy Transition”:Part 2
After going through Part 1 of this article series referring to the absolute quantities of primary energy consumption, we now look at the alternative perspective based on the proportion mix of energy. This can begin with observing how the mix of energy is and has been constituted. This means looking at how energy consumption by primary fuel type has changed in terms of contribution to the overall quantity of energy consumed. Using BPs 2019 statistical review of energy report we see here the representation of the proportional mix in primary energy over the last 3 decades.
Viewing this picture with the underlying background of the absolute primary consumption lens tells us a few things which can be briefly pointed out below:
Based on the absolute perspective of consumption explained in Part 1 where we see that the size of the pie is increasing, all energy types have been generally increasing in absolute quantity even though their mix proportion / size of pie slice may be changing.
Oil remains the highest source of primary energy as a proportion of total energy followed by coal. This is mainly a function of the growing transport and power generation needs of the globe in line with established population and GDP/capita trends.
Conventional LNG Ship that can carry approx 138 000 - 152 000 cubic meters of LNG
Natural gas has been steadily increasing in its mix proportion mainly due to being touted as a cleaner burning fuel for power generation compared to coal, use in home consumption as well as the technological advent of liquefying and transporting natural gas at scale as LNG. This means it can be transported and consumed elsewhere (as opposed to previously restricted supply chain based on direct pipeline connection). As at April 2019, the global fleet of LNG tankers was estimated to be about 525 vessels. Each vessel costs in the range of approx. $185 million for smaller more conventional vessels to approx $250 million for larger vessels.
Fukushima Daiichi nuclear power plant disaster triggered by Tōhoku earthquake and tsunami
After initial increase in the early 1990s (despite the Chernobyl nuclear disaster in 1986), nuclear energy began dropping in proportion after the 2011 Fukishima nuclear plant disaster in Japan. This had the impact of slowing new nuclear power capacity addition as well as phase out of existing cappcity especially in Europe amidst increase in concerns about the perceived risk of a nuclear disaster. For instance, Germany has since shutdown 8 of its 17 nuclear reactors and commits to close the remainder by 2022.
Hydroelectric energy has remained relatively flat in terms of proportion (granted this means increasing absolute quantity) because new capacity of hydro electricity has not seen a similar growth rate to other energy types. This is mainly because of increased environmental and societal push-back on highlighting the disruption to river ecosystems and community displacement.
Protest against the Nenskra Hydroelectric project of the Caucasus Mountains in Georgia, Eurasia
Since 2010 or so, renewable energy has seen an increasing proportion of the mix reflecting in the fastest growth rate among the energy types in this period. This has been driven by increasing regulatory pressure on emissions, government financial support e.g. subsidies, as well as simultaneous technologically driven reduction in the cost of batteries, solar and wind energy installation. The International Renewables Agency (IRENA) recently reported that 2019 was a record year for renewables installation with them contributing to 72% of new installed electricity capacity.
Unlike in Part 1 of the article series regarding the absolute energy consumption perspective, in this proportion perspective , an energy transition can be viewed as being under way because the long-standing fossil fuel energies of coal and oil are ceding proportion/mix ground mainly to their sibling, natural gas, as well as the unrelated stranger of renewable energy.
Despite this mix shift however, the absolute quantities remain dominated by fossil fuels and future projections from various studies still point to this fossil dominance dynamic as shown below in the case of the International Energy Agency’s (IEA) projections to 2040.
Parallels with the electric vehicle shift
This dichotomy between absolute energy quantity vs energy source proportion is mirrored to an extent in the automotive industry as well. Most cars still rely on internal combustion engine (ICE) technology but new car sales are increasingly hybrid or electric (see EV101 article on the basics and types of electric vehicles). With growing populations and middle classes in the developing world, this has meant that both broad variations of car engine technology continue to grow but the mix of hybrid and electric vehicles has been increasing as they displace share from ICE vehicles.
According to the 2020 Electric Vehicle Outlook report published by Bloomberg New Energy Finance, global vehicle stocks can be summarized here
The table shows the rampant pace at which electric vehicles are estimated to grow globally in the next 10 years. We can also infer from it that an increasing proportion of new car sales will be electric in order to facilitate this aggressive growth. This is reflected in how according to the same Bloomberg report, electric vehicles currently make up about by 2.7% of new car sales but this is expected to increase to 28% by 2030 and 58% by 2040. However, a large proportion of cars in the base of global vehicle stocks will continue to be combustion engine technology at least in the short to medium term. See below also JP Morgan’s summary of projections from various sources.
The caveat however is that it all depends on whether the growth rates indicated materialize or are even higher as well as what happens in the replacement of vehicles that currently constitute the 2020 base of 1.19 billion ICE vehicles. For example, do motorists increasingly replace an ICE vehicle with an EV or even more generally, do more people continue feeling the need to own a car with the increasing popularity of remote work as well as ride sharing and hailing etc.
Considerations for the future
With this basic outline of the two perspectives of what energy (and even vehicle) transition refers to as a foundation, we can begin to build on what these observations mean with respect to the future. This involves immersion into the sub-categories influencing the direction and intensity of the overall path to the future. The key considerations can be seen listed as follows:
Emissions legislation and trading mechanisms to internalize the cost of emissions into companies and countries’ bottom line financials
Emissions reduction and related technologies i.e. energy efficiency, fuel switching and carbon capture and storage (CCS)
Technological & scientific developments in Artificial Intelligence (AI), material sciences, batteries, fossil fuel extraction, blockchain etc
Overall human discourse e.g. Socio-Political debate on extent to which human activity is responsible for climate change, debate on whether renewables are truly renewable with respect to the processes embedded in extracting the minerals and compounds used to make renewables’ structures and batteries, whether nuclear energy is worth the risk and high capital cost given that it comparatively has a very low emissions footprint etc
The circular economy of petroleum products particularly plastics and how recycling can be improved
Economic developments with respect overall global prosperity e.g. recessions (such as current COVID induced one) and booms
Global geopolitics and trade flows e.g US-China relations, EU stability, OPEC relations, Afro-Chinese relations, Suez and Panama Canal dynamics e.t.c
Developments in Environmental Social and Corporate Governance (ESG) criteria i.e. investment selection criteria relating to how a company is performing on ESG considerations which will increasingly determine investment flows.
Changes in societies and customer behavior e.g. digital migration, demographics, corporate trust, home electricity set-up, etc
Regional differences in the interaction of all these above-mentioned factors e.g. pace of changes in developed vs developing economies.
The scope of discussion outlined by these sub-categories represent a window into what we aim to explore on FutureWattage through expansion in articles, thought pieces and interviews on the platform.
It is challenging gazing into where we could be in the future e.g. by 2100 for instance. However, while this may have felt like eons away previously, we are now basically equally close to 2100 as we are from the start of World War II in 1939 and even closer to 2100 than the first public television broadcast demonstration in 1927. This means we have a wide, dynamic and exciting scope to journey through and investigate regarding where energy and indeed the earth is going. Stay tuned!
By Tare Kadzura ACMA, CGMA, EMME
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