The Tipping Point is Here: Death to zombie power and rise of clean energy

Optimism, opportunity and options are propelling us into a renewable future where fossil fuels are more easily marginalized in the energy mix. But as we learned in part one of this post, from Marty McFly in Back to the Future, getting there takes focused perseverance against the clock. Just as Doc was able to harness the power of lightening to accelerate Marty back into the future, our future depends on harnessing existing technologies to build an environmentally sustainable energy future.

This post will establish three overriding factors that ensure the sustainable energy system built with existing energy technologies emerges. This is the source of optimism, while looking back at previous energy transitions holds us back and impedes our future progress. As I outline further below, the fossil fuel zombies are already being slayed. The market has shifted in favor of private investment into cleaner electricity generation while governments are the ones maintaining risky coal and nuclear power plants. The tipping point for a sustainable energy transition is already here, we just need to kill the zombie power plants.

Shaun of the Dead shows us how to slay zombie power

A slow death?

Yes, one can say there is a ticking time bomb to our planet. But it is important to see time as relative to other factors affecting how we dispose of the source of the danger. There are three factors representing how we fight off the end: time, quantity and quality.

  1. Time, refers to the time it takes (usually decades) for a technology to be developed, deployed and then widely adopted to become a dominate technology (possibly around 80% market dominance).
  2. Quantity, this is in relation to the scale of economies, the increase in production of a technology (or service) and the inverse drop in production cost. And,
  3. Quality, refers to the embedded efficiency of a product or service. Produce more, then greater resources can be spent on finding efficiencies in the product or service itself. Thus, the importance of R&D, not just on new technologies, but on existing technologies.

Time: The diffusion of apples and oranges

There’s an apple and oranges debate in energy transitions literature. Debates in academia are very good as it gets people talking and responding to each other, which means people are engaged and defending their positions (not just churning out boring journal articles). These debates make us think even harder about what it is we do and why we do it.

The energy transition literature is interesting because it is multi-disciplinary, which means we all come from different perspectives and fields of study and tackle together examining how the energy transition is progressing – or not. Each of us gets to write about our field of expertise, but also get on the edge of other’s territory, which can be a bit confrontational since we don’t have a common understanding of the same literature or data.

A few years ago, one of these academic debates blew up. In short, this is what happened: First an article written by Benjamin Sovacool[1], challenged conventional academic assumptions of a slow energy transition. He points out, “there have been many transitions – at varying scales and sectors – that have occurred quite quickly – that is, between a few years and a decade or so, or within a single generation.” Examples include, cookstoves, air conditioners and the use of natural gas in the Netherlands or nuclear power in France.[2] In the present energy transition, according to Sovacool, a lot of small transitions lead to a big transition. This assumption runs counter to some established technology transition literature. Because under this new thinking, the past does not define the future transition and rapid national-scale transition can happen faster than previous epochs.

Here, we can draw on the internet for wisdom to understand Sovacool’s position. ‘Your past informs, but does not define your future’.

A debate arose as how do you define an energy transition. With a key question of, ‘what percent of market share is a sustainable energy transition reached?’ Professors, Grubler, Wilson and Nemet objected to Sovacool’s quick transition concept as deviated from a more Economics and Innovation approach (I’m badly labeling here because it is not my discipline). Grubler et al., point out reaching a pre-specified market penetration threshold requires consistency in comparison. Instead of relying on the accepted “time it takes to move from 1% to 50% … is identical to the time required to grow from 10% to 90% market share.”[3] Which means this could take a very long time – of decades. So don’t get too excited about any change anytime soon, technology transitions take a long time, so we are not yet at a sustainable energy system.

To arrive at this longer transition phase, Grubler et al., deploy an economic logistic function with the ‘typically accepted’ S-curves to demonstrate how long it could take to reach 99% of market share. Sovacool, rather than going for 99% deployment, or even 50%, goes for a short 25% market dominance (?!) threshold, thereby shortening the time, and leading the opposing authors to label it an ‘apple-to-oranges’ comparison. In short, market share takes time to achieve and how it is accounted for it, influences your perspective to state when the transition is fully complete or how long it will take to get there. You can’t say a transition occurs when there is only 25% market share compared to 90%.

Or can you?

Depends on what you are counting? In a responding piece Sovacool and Geels[4] come back and say, yes, there’s apples and apples, and there are oranges and oranges. But more clearly, they’re talking about Idared apples  and Navel oranges’. While Grubler et all, are talking about just generic apples and generic oranges.

Ok, maybe this is still confusing…. In other words, for Sovacool and Geels, the energy transition is not just about technology ‘A’, but about a large variety of technologies, services and practices. These  collective smaller changes culminate in systemic change at all points in the energy system; this includes, “regulations, markets, infrastructures and cultural symbols. Therefore, transitions are multi-actor processes, involving interactions between firms, households, policymakers social movements, scientific communities and special interest groups.”[5] From their viewpoint, we can measure the global diffusion of Idared apples, but we should also account for the global diffusion of navel oranges as it reflects a much deeper transformation of trade flows, agriculture and cultural acceptance of foreign fruit into people’s diets. The collective agricultural, distribution and consumption system developed around Idared and Navel oranges is representative of a deeper food system transition. Now, you can expand this example to the energy system.

Soon we could have talking oranges….

The speed of technology diffusion may also be accelerating. For example, if we are speaking of the bronze age (taken from a random internet picture), it looks like things took a long time to diffuse. No doubt the trade route between the United States and China was largely land based 5,000 years ago (um…).

(Can you imagine how long a trade dispute like the current one Trump has put in place would take to negotiate?)

Fortunately, in our modern world, there’s a tighter timeline for technology diffusion. But if we are talking about past diffusion then there is a slight lag in modern energy technologies. In Figure 1, the difference in years for the diffusion of coal and nuclear is less than a decade. While more modern technologies of electric bikes and cell/mobile phones, there is virtually no difference.

Figure 1: Diffusion of selected technologies (Source: Massoud Karshenas and Paul Stoneman, “Technoloigcal Diffusion,” in Handbook of the Economics of Innovation and Technological Change, ed. Paul Stoneman, second (London: Basil Blackwell, 1995), 265.) Source: [6]
Nonetheless, identifying the market dominance of a technology, from niche to prolific, is an important point and it reflects your point of view of how you argue for when a technology transition and the diffusion of a technology has pushed out the old and the new tech dominants. Because it is also important to recognize the ‘core’ may not be the ‘core’ in the future. Because some countries really do live by the ‘do not let your past define your future’ motto. And China is just that. From the 2015 IEA Energy Outlook the future is clearly not the past energy system. In Figure 2, between 2014 and 2017 emerging markets (with a huge lead with China) are catching up to developed markets in the deployment of solar and wind.

Figure 2: (Source: Deloitte. “Deloitte Insights: Global Renewable Energy Trends, Solar and Wind Move from Mainstream to Preferred.” Deloitte, 2018. p 16)

Rather than thinking ‘rim’ and ‘periphery’ are slow to adapt and absorb newer energy technologies, we should identify diffusion occurring 5,000 years ago, or even 50 years ago, is not the same speed in this millennium. In these emerging markets, certain market instruments, like financing, sophisticated market regulations, and advanced business models, may be lacking and thus inhibiting an even greater roll-out, but language like ‘core’ and ‘periphery’ inhibit a proper acknowledgement of how energy technology is being diffused. Innovation is happening in the periphery because there are opportunities and cost benefits. China’s holistic drive towards an energy sector with more renewables is for the long-term strategic economic (and geopolitical) advantage a sustainable energy system brings, in terms of both renewables and energy efficiency.

“China re-tunes the engine of global energy demand China’s transition to a less energy-intensive model for growth has major implications for global trends. China carries huge weight in the world of energy: it remains by a distance the world’s largest producer and consumer of coal throughout our Outlook period; it deploys more renewable power generation capacity than any other country; and by the 2030s it overtakes the United States as the biggest consumer of oil and has a larger gas market than the European Union. China’s total energy demand in 2040 is almost double that of the United States. But structural shifts in the economy, favouring expansion of the services sector rather than heavy industry (both steel and cement production are likely to have peaked in 2014), mean that 85% less energy is required to generate each unit of future economic growth than was the case in the past 25 years [my emphasis]. Policy choices also change the face of China’s energy system and the pace at which it expands. China is set to introduce an emissions trading scheme in 2017 covering the power sector and heavy industry, helping to curb the appetite for coal. From a mere 3% in 2005, half of China’s energy use today is already subject to mandatory efficiency standards, and continued improvements in efficiency, alongside large-scale deployment of wind, solar, hydro and nuclear power, lead to a flattening and then a peak in China’s CO2 emissions around 2030.”[7]

Phase-out: Killing the zombie power plants

Quality can also be applied to kicking out the old. Thus, the debate on how we account for the transition, whether it is ‘problem centric’ or ‘solution centric’. Or rather, how many zombie power plants do we have in the world that pump out CO2 leading to our demise? And here we have good news. Figure 3, demonstrates the addition and subtraction of coal. Sure, we shouldn’t be adding new coal fired power plants to the mix, but it is happening for local reasons and with the state financing these – usually in emerging economies like India and China. But here’s even more good news, rather than retaining the assets for 40 years, which was the typical age of the coal capacity that was retired in 2017, we can find out that in China the average retirement age was 20 years because of newer stringent environmental controls. Importantly, while coal is profitable, it is also profitable quickly, with an estimated nine-year payback period, shutting down capacities in China hasn’t resulted in financial problems.[8] This payback period also means newer facilities can be taken off-line not at the 40-year timeline, like the zombie (profitable) plants in West, but at nine years with full cost recovery by owners, or even less with financial support.

Figure 3 (Source: International Energy Agency. “World Energy Investment 2018,” 2018. https://webstore.iea.org/download/direct/1242?filename=wei2018.pdf. p59

So there are two points here on coal fired power plants. First, the state has now stepped in to ensure the operation of coal fired power plants. This will be discussed further below, but it indicates, overall coal is a risky venture that the private sector is not supporting. It takes policy intervention by governments to keep coal going. Second, rather than going about our daily business and working on the 40 year timeline, we should put the lifespan of coal fired power plants at 10 years. Any power plant older than a decade is labelled as a ‘Zombie power plant’. They only operate for the profit making of the owners while the environment is destroyed. Phasing coal out after a decade is necessary to push out this aged technology and speed up the energy transition. In this clip from ‘Shaun of the Dead’, it is clear Shaun doesn’t see the new reality around him. We should also take notice of the zombies around us and eradicate them (watch the movie for how this is done!).

Although, it has to be acknowledge the social reasons for coal fired power plants, and the connected jobs, this means local decision making on closures may not appear so easy. Thus, the intervention of governments to keep coal zombies alive. Both India, Poland, South Africa and in the mind of Trump, coal remains important and should be protected for social, rather than environmental reasons. Nonetheless, coal is financially cheap and to keep low power prices, it remains an option, even if both technologically, environmentally and financially coal power plants have a limited future.

The opportunity mind-set

There is a radical shift to a new global energy system. By creating a new system, the old system is destroyed. In a sense it is just replacement of the old system with ‘good’ technology that matches the social, economic and environmental needs of the world. It isn’t just one technology or a symbolic technology, but the whole energy system that is systemically replaced bit-by-bit over time and which may not be perceptible until after it happens. Sovacool and Geels point out the historical ‘opportunity driven’ mindset in the past compared to the ‘problem-driven’ (we’re all going to die) mindset that drives the present transition.

The problem-driven transition creates a purposeful transition by companies, governments and people. This goes on to affect the speed and scale of the transition. Learning and innovation are accelerated, diffusion of technologies exceeds the speed of historical processes (yes, citations are needed here, literature gap!?). The question shifts from ‘how long does it take?’ to, ‘when and where is the tipping point?’ Resource scarcity and the cost of extraction and energy production are viewed as tipping point drivers.

My argument is the tipping point is where the private sector falls away and government ownership and subsidies are needed to support older technologies to keep them in the marketplace. Therefore, for both new and old technologies the end price is influenced by government policies and the commercial cost of production.[9] And here’s the good news: we may have arrived at a point where the private sector is largely investing in clean, renewable electricity generation; while government supports the zombie power plants.

Some governments become the enablers of fossil fuel generation, rather than a driver for a clean energy future. Through ownership, subsidies and policies fossil fuel generation is artificially competitive against renewable energy. The ownership by governments of coal fired power plants and nuclear power plants demonstrates the high risk and low interest of the private sector into coal and nuclear generation. The tipping point has arrived.

Quantity: Economies of scale

Returning to the latest statistical data sets developed by the IEA. The stagnation and decline in investments and innovation in the energy sector may be more indicative of the long-term small cuts inflicted on the fossil fuel sector caused by innovation and realignment of policy priorities towards renewable energy. In other words: as more technologies move from the R&D laboratory they are diffused around the world in a range of countries and community settings. This can include large scale solar PV projects financed by utilities and pension funds or solar PV projects in small villages that rely on a community-based approach to build and fund the system. The technology is only part of the diffusion process, engagement and development of business, finance models and legal structures supporting property or proprietary rights is also required. The diffusion and location of a particular technology is only representative of other deeper state and social changes.

In the area of production and diffusion, as greater efficiency is developed both in the production process and in the operational processes, economies of scale increase for specific technologies, making deployment broader and deeper in a variety of markets, or market segments. In short, as the cost per unit of production for a certain technology drops, more people or companies can afford to use the technology. In this tighter relationship between companies and communities, there needs to be a tighter match between the needs of the community and what the technology delivers. When government incentives are lacking, the free market operates much more on a consumer pulling basis – think of consumers purchasing Iphones, rather than incentivized to purchase electric cars. If a technology matches to a need they have, or through encouragement by government or private entities, diffusion happens.

Figure 4, demonstrates the decline in cost since 2010 of technologies in the energy related sector. The dramatic decline in LEDs, electric vehicle (EV) battery packs, PV modules, and fuel cells but the limited drop in upstream oil and gas extraction (even with hydraulic fracturing) indicates the success of R&D, and a range of broad based innovations in policy, technology and financing to get more sustainable energy technologies deployed across the globe. This is a mix between both consumers pulling technologies to market to meet their demands and government incentives pushing technologies out of the labs.

Figure 4 (Source: International Energy Agency. “World Energy Investment 2018,” 2018. https://webstore.iea.org/download/direct/1242?filename=wei2018.pdf. p 209)

Quality: Improving financing and killing zombies

The quality of innovation is also important to drive down the cost and assist in the diffusion of energy technologies. Between 2013 and 2017, the reduction in financial risk and lower interest rates reduced the cost of offshore wind generation by 15% (Figure 5, below).[10] Thus not only can technology improve efficiency, but improvements in financing projects can lead to more projects – or at least cost savings on projects.

Well-developed financing schemes are essential for the growth and competitiveness of renewables. Gaining a 15% in technical efficiency on a wind turbine blade could take years for R&D to get it right, in addition to the time it would take to deploy. Instead, finding efficiency in the financial world enables and assist wider deployment of renewables and other innovative technologies that seek to break both the cost barrier with fossil fuels but also the risk aversion barrier for institutions to support and invest in new technologies. Essentially, this 15% efficiency improvement in four years is a heavy step in a few short years to closing the 25% or even 90% market deployment gap that energy transition academics debate. It is a qualitative improvement reflective of economies of scale and compressing timeline for gaining financing for (lower risk) renewable projects.

Figure 5 Source: International Energy Agency. “World Energy Investment 2018,” 2018. https://webstore.iea.org/download/direct/1242?filename=wei2018.pdf. p 150

IEA 2018

Competition against coal can be fueled not just in the technology space, but also in the financial markets and at the level of companies seeking profits. In the world of companies, financial risk and market opportunities abound and motivate change that impact on technology transitions. As Figure 5, demonstrated the 15% financial risk reduction in funding wind power in four years can happen. In this respect, maybe an annual compounded reduction in coal-fired power plants can be created. Remember, the timeline for a sustainable energy system is ‘problem focused’, not only ‘opportunity focused’. We need to create economic opportunity (renewable deployment) by identifying the problem (greenhouse gas emissions). Firms are very good at moving away from problems and seeking opportunities that hold both short term and long term advantages. Normally (and most literature would say this) policy influences actions by private firms. But emerging problems also emerge as no-go zones for businesses, why would a private firm choose to invest in a losing technology like coal, with actually or looming climate change related regulations and legislation, when there’s enough financial upsides in renewable to shift a company into a longer-term strategic focused industry?

Through changes in policy and company strategies, the climate change problem becomes the opportunity. And it is the opportunity in renewable energy that is driving even coal companies to divest from their traditional (and only) energy resource they’ve relied on for decades, it seems probable a fuller and faster transition with limited pain both for companies, society and the environment. The Japanese company, Marubeni, is representative of some companies in the power sector, but also reflects the trends identified in IEA Energy Investment 2018 report of private firms withdrawing from coal generation and state-owned firms taking over (discussed below).

“The Japanese energy conglomerate Marubeni will no longer build coal-fired power plants, and it plans to slash its ownership in coal-fired energy assets in half by 2030, according to the Japanese newspaper Nikkei (in Japanese; paywall). Tim Buckley of the Institute of Energy Economics and Financial Analysis called the move “one of the biggest breaking stories of 2018 in terms of energy transition [away from fossil fuels].” (source link)

Marubeni had large ambitions to develop more coal power plants. Currently, with 3.5 GW of coal power plant capacity, the company had plans to expand to 13.6 GW (which is a bit ridiculous growth by any conventional sense). They do not plan to close the door completely, with the intent to invest in the “Best Available Technology which at present is USC: Ultra-supercritical steam generating technology)…”  So they are not out of the coal game, but what is more indicative a broader shift is the new strategy.

“After abandoning further [traditional] investment in coal, Marubeni will now boost renewables from 10% to 20% of its energy portfolio, and it will reassign employees from its coal business to renewables development, according to Nikkei. The company is already building a 1.17-gigawatt solar project, one of the world’s largest and cheapest solar developments.”[11]

Marubeni is a great example, as this is an industry wide trend. As the IEA remarks, it is State Owned Enterprises (SOE) that are taking over the fossil fuel sector, as the private sector withdraws seeking profits elsewhere. “In 2017, the share of national oil companies in total oil and gas investment remained near record highs, while the share of SOEs in thermal [coal] generation investment rose to 55%. In the case of new nuclear plants, all investment is made by SOEs.” [12] So, the investments that once made money (think of German utility firms, RWE and EON collapse of stock prices and attempts to divest from fossil fuels and traditional businesses. Not only is thermal [coal] generation a dying investment area, but to keep the sector going, the state indirectly has to step in to give it support. The private sector now gets the bad nature of coal, now policymakers need to withdraw their support. The profits and greener pastures, are literally elsewhere and in greening energy through innovative means.

“Utilities in mature electricity markets are finding that their thermal power generation assets exposed to wholesale market pricing are becoming less profitable or even unprofitable and are seeking profitable opportunities in other areas, such as renewables and networks.” (my emphasis)[13] The message is clear to the private sector: The time to get out is now before fossil fuels become a financial liability and sink the company (similar to E.ON and RWE and their need to place their ‘old’ coal assets into a single ‘sinking’ ship). Divesting from fossil and investing in renewables becomes the smart long-term strategy for profit growth and course correction with broader market trends identified at the start of this article. The long term issue for traditional coal and nuclear based utilities is how to achieve equal profits in this new business space.

Boring is the new black: Sustained innovation is deployed

The flashy generation technologies of solar, wind, coal and nuclear dominate the headlines and thinking around our energy system. However, it is how the network that transfers the electricity where significant investments and transformations are occurring. The scale and amount of money for the transformation is modest but moving electricity around (and storing it) in a smarter and quicker way holds a significant impact. Just as the finance example of 15% savings for a project demonstrates a substantial shift, so does the ability for the network to communicate more efficiently impact cost savings for infrastructure and ultimately, how many resources are used to produce power. The multiplier effect within the system of smart energy holds significant opportunities to operate more efficiently.

Spending on the electricity infrastructure is rising. Figure 6, demonstrates the overall growth and infusion of money into smart meters. Importantly, the cost of the infrastructure (such as smart meters) is reducing, thus more can be done with less money. This is why the sustained investment into network operations is compounding over time and transforming how power plants are used and consumers consume.

Figure 6 (Source: International Energy Agency. “World Energy Investment 2018,” 2018. https://webstore.iea.org/download/direct/1242?filename=wei2018.pdf. p71

Conclusion: Defining our future

Part one of this post on energy transitions ended with the idea that, ‘optimism, opportunities and options’ propel new energy tech towards global deployment. Outlined in this second post is how the three factors of ‘time, quantity and quality’ are transforming the energy sector. Time doesn’t change, but the speed and scale of processes do change. Diffusion of technologies is not the same as 5,000 years ago, so why should it be the same as 100 years ago? Just as the core and the periphery change over time, so does the use and spread of technologies alter depending on local requirements.

The scale of transformation within China and the broader realigning towards more environmentally sustainable energy technologies alters the pace of change as the quantity of deployed technologies increases. Economies of scale, in both production techniques and cost of production drive a more cost-effective uptake of these new technologies that are competitive against established and older technologies. With greater production, and traditional R&D combined with innovative coupling of technologies, business models, and social adaptations greater efficiencies and higher impact on energy savings and production occurs. This ‘smart’ revolution in terms of both finance and communication methods enables a holistic transformation to occur that steadily replaces old technologies and techniques for operating and managing the energy system.

In the past, we could look at the diffusion of the steam or diesel locomotive as a particular technology that altered broader networks as they were built (such as farming and manufacturing). But now we have areas of the world with these ‘old world’ technologies are recognized as dumb networks and zombie power plants. In other areas that missed the first, second and even third industrial revolution, there limited engrained networks of transport, production and communication. Fortunately, we have new technologies, like mobile phone networks and renewable technologies able to be both decentralized and centralized. The variety of technologies that form a sustainable energy system is diverse and includes more than just power output, but practices in consumer behavior, network operations and production of generation to power a wide variety of markets, from villages to countries.

The past does not define our future. It is time to wake up and look around. The technologies and practices exist to deliver optimism, opportunity and options to build a sustainable energy system. It is time to kill the zombie power plants, dumb energy networks and inefficient consumption habits. It doesn’t take a radical transformation to build a sustainable energy transition, it simply takes sustained steps with a short-time line of a decade or less, to phase out older technologies and open up the space for the existing low-cost energy technologies we’ve already developed.

References

[1] Benjamin K. Sovacool, “How Long Will It Take? Conceptualizing the Temporal Dynamics of Energy Transitions,” Energy Research & Social Science, Energy Transitions in Europe: Emerging Challenges, Innovative Approaches, and Possible Solutions, 13 (March 1, 2016): 202–15, https://doi.org/10.1016/j.erss.2015.12.020.

[2] Sovacool, 203.

[3] Arnulf Grubler, Charlie Wilson, and Gregory Nemet, “Apples, Oranges, and Consistent Comparisons of the Temporal Dynamics of Energy Transitions,” Energy Research & Social Science 22 (December 1, 2016): 18, https://doi.org/10.1016/j.erss.2016.08.015.

[4] Sovacool and Geels, “Further Reflections on the Temporality of Energy Transitions.”

[5] Sovacool and Geels, 233.

[6] Grubler, Wilson, and Nemet, “Apples, Oranges, and Consistent Comparisons of the Temporal Dynamics of Energy Transitions,” 22.

[7] International Energy Agency, “World Energy Outlook” (International Energy Agency, 2015), 1–2, http://www.iea.org/Textbase/npsum/WEO2015SUM.pdf.

[8] International Renewable Energy Agency, “Renewable Capacity Highlights,” 59.

[9] Sovacool and Geels, “Further Reflections on the Temporality of Energy Transitions,” 235.

[10] International Energy Agency, “World Energy Investment 2018,” 209.

[11] Michael J. Coren, “One of the World’s Biggest Power Plant Developers Just Gave up on Coal,” Quartz, September 17, 2018, https://qz.com/1392948/japanese-energy-giant-marubeni-just-gave-up-coal-for-renewables/.

[12] International Energy Agency, “World Energy Investment 2018,” 16.

[13] International Energy Agency, 17.

Three Trends Threaten Renewable Energy: Why Marty McFly demonstrates the opposite

There are three worrying trends emerging in the renewable energy sector identified in three separate reports on the energy sector: 1) “at the global level, investments and productivity growth rates are still historically low;”[1] 2) A decline of business investing into green energy R&D activities;[2] and 3) Stagnation and decline of investments into electricity networks, generation and storage. [3] Jointly, these could drive a reduction in investments and our ability to transition to a sustainable energy system.

The scale of the technological change is vast and this two-part post uncovers the tremendous opportunities and tech that is driving an effective diffusion of green energy tech. While the three trends point to a broad based decline or stagnation, it is important to understand instability in emerging industries – whether electric cars signified by Elon Musk melt downs or a drop in green patents, are short term set-backs, they do not portend the dominance of the fossil fuel industry. Here, I outline why we are actually set for a global growth in effective green technology while old fossil technologies die off and become dinosaurs once again (hint, they become zombies first).

First, we need to assess where we are on this transition timeline to determine whether: a) there is a green energy transition, and b) when do we cross the Rubicon for green tech. To do this we look at scenarios then define what diffusion and investment mean. And second, we assess the opportunities and motivations for making a sustainable energy transition. In the second part we’ll explore the stagnation of fossil fuels and the competitive edge that propels green tech forward – regardless of short term instabilities.

Future scenarios: Lazy and Ambitious

There are two basic future scenarios the International Energy Agency outlines for power generation. Figure 1. This ‘New Policies Scenario’ (NPS), is current or announced policies that impact the generation mix. Essentially, there’s an expansion of renewable energy technologies, but not a sufficient amount to displace current fossil fuels of coal and gas. Here, the technology trend is ‘opportunity focused’: the technology status quo is maintained with additional investments going towards renewables.

Figure 1: (Source: https://www.iea.org/weo/)

In Figure 2, in the ‘Sustainable Development Scenario (SDS), coal drops down and becomes marginal while natural gas stays consistent.  Importantly, because of policies, markets and sustained efforts, there is a ‘problem & opportunity’ focused effort to replace old tech with new tech. Essential to this is business drives change because fossil fuel is either overtly punished or constrained by government policies and markets. Firms feel profit pressures from both activities shareholders and in realized profits or lost opportunity costs in fossil fuels, (e.g. more money is made from renewables than fossil fuels). For a wide range of private firms, it’s more profitable to allocate resource to new tech, rather than old tech.

Figure 2: Source: https://www.iea.org/weo/

The pressures from governments, society and markets is now driving the shift towards the SDS image of more renewables and less fossil fuels in the power sector. This assumption runs counter to a number of recent indicators that demonstrate a lessening in R&D into renewables and investments into the power sector. In three 2018 studies there are similar trends in a drop-off or stagnation of investment and R&D in renewable energy and efforts to build an environmentally sustainable energy system. These three trends are:

  • A decline of business investing into R&D activities. From a growth of 8.1 % in 2006 to a reduction of growth to 4.2 % in 2016 [4] (Figure 3)
  • A decline of green energy patent filings.[5] That mirrors the R&D activities decline (Figure 4)
  • Stagnation and decline in the electricity sector in generation, networks and storage (Figure 5).[6]
Figure 3: Global R&D expenditures growth, 2006 – 2016, Business R&D expenditure (source: GII 2018, 5)
Figure 4: (Source: GII 2018, 13)
Figure 5: (Source: International Energy Agency. “World Energy Investment 2018,” 2018. https://webstore.iea.org/download/direct/1242?filename=wei2018.pdf. p 24

Overall, it looks like there’s stagnation and an emerging depression into the energy system that should be running high with new patents and investments to roll out new technologies to tackle climate change. However, this trend may not represent a decline or roll-back in efforts to build a more sustainable energy system. Rather, they could represent just the start – the tipping point – or even the pause – before the great transformation happens. And here’s why: Don’t confuse fiddling in the lab with deploying new tech.

The Marty McFly equation

Watch the video before proceeding. Because the answer lies in Back to the Future.

1.21 GW!! How is Doc Brown going to generate that much power?! Equally important for our theoretical discussion, is this demonstrates the ‘problem-opportunity’ nexus, or rather, what could be re-labeled as the ‘Back-to-the-Future Opportunity’. The problem: Get Marty back to the future so he can be with his girlfriend (if there’s ever a better reason to build a 1.2 GW power plant, “this is it,” as Doc Brown says).

The opportunity: By working to develop the technology to harness the power, you also develop usable technology to travel to the future or back to the future. Translating that to today’s problems: To ensure we even have a future, we need to break from our past and accelerate our deployment of technology to build a sustainable future. We do this through the motivation for love or for profits. Love and profits are now fueling the creation and deployment of sustainable energy technology. There’s a reason Elon Musk is leading this charge just through his vision and charisma, and it is working to push his own and other business leaders to deploy (not just develop) new technology.

An example is displayed in the movie, Revenge of the Electric Car. The movie charts the shutting of GMs electric car program to the rise of Silicon Valley and Musk taking over and pushing electric cars, with GM and Nissan also attempting to get (back) in the game. The motivation needs to exist to push-out electric cars (or other more sustainable tech) to enable a comprehensive energy transition. This positive motivation pushes out, rather than attempting to hold back – a technology.

Thus, drawing on our car analogies, in both Back to the Future and Tesla, the equation for launching a sustainable energy transition is:

Problem + Opportunity + Motivation+ Deployment = Solution

Deploying the flux capacitor in electric cars

The technology transitions literature, as the academic literature goes, describes decades for a change to happen (discussed more in part 2). If we consider our Back to the Future problem (for those that remember the movie), Marty will dead if 1.2 GW is not put into the car before him and his siblings disappear from the photograph, because Marty’s parents won’t get together. In a similar vein, the planet will be in very bad shape if technologies are not deployed. The speed of the transition, then must occur more rapidly than the languid transition from steam locomotives to diesel, this was an ‘opportunity’ transition, where profits were realized through the transition, rather than shifting because of an identified problem and looming market and regulatory disruptions (discussed in the second part).[7]

This ‘Back-to-the-Future Opportunity’, means the looming death of the planet – while not a sufficient encouragement for innovation for some – is fostering a technological push for innovation of new energy technologies. Just as electric cars and Doc Brown teach us, is not so much innovation in the lab, but deployment of the technology.

Fortunately, there’s a well of academic literature on the topic of deployment and diffusion of technology. There’s an important warning from Karshenas and Stoneman, regarding the R&D figures above. It may be a common fallacy, “to associate technological change with research and development or the generation of new technology. However, it is only as new technologies are introduced into the economy” that benefits are realized.”[8] Diffusion of technologies is essential and the measurement of technological change, not what technologies are sitting in labs. Separating R&D of firms from the diffusion of technology is important to keep in mind as we assess whether our present efforts for saving the world will impact our current technology shift towards a clean energy system – or embracing a languid energy transition.

While the decline in R&D appears to be across the energy sector, for both renewables and traditional fossil fuels, there continues to be a substantial growth in renewable energy generation. There is a steady growth in deployed RES projects, 2017 broke previous years’ growth in the capacity of RES projects. With solar leading deployed wind in terms of GW capacity added in 2017 (Figure 6).[9]

Figure 6: Source: International Renewable Energy Agency. “Renewable Capacity Highlights,” 2018 2018. http://www.irena.org/newsroom/pressreleases/2018/Apr/Global-Renewable-Generation-Continues-its-Strong-Growth-New-IRENA-Capacity-Data-Shows.

By comparing the information above (stagnation and decline of invested money into new ideas and projects), with RES capacity growth, the truth in the statement by Karshenas and Stoneman of decoupling R&D activity with diffusion activity becomes a reality. The good news is that RES is really being deployed globally and making a huge difference. Just as emerging market countries were able to leapfrog to mobile phone devices, they are avoiding the fixed fossil fuel infrastructure and embracing renewable energy.

Another picture provides a projected future trend. By removing all the fossil fuels and nuclear (from figure 2, above) we can see the compounded growth of RES in the electricity mix (Figure 7, below), with the amount doubling between the mid-2020s and 2040s. It’s almost an explosion of RES propelled by the problem of fossil fuels (which stagnates), positive opportunities in RES and the motivation to realize the benefits (profits, love or both) from contributing to a sustainable future. In short, we’ve built the flux capacitor, now it is time to deploy the technology. Fossil fuels decline because they can’t compete against, both the economic and the environmental benefits of RES. The same reason we no longer use steam locomotives with wagons of coal, instead diesel and electrified locomotives dominate. The technology is superior.

Figure 7: SDS edited Green scenario (Source: https://www.iea.org/weo/)

Conclusion:

So, can love save the world? In one sense, yes. Optimism, opportunities and options propel new energy tech towards global deployment. There are now options besides fossil fuels, and the technology is ripe for deployment. This technology, is not sitting in laboratories, but is being deployed. The short-term trends of lower R&D and patent filings could reflect either short-term declines or an acknowledgement that we have what we need to substantially push out – or at least reduce – fossil fuels.

There are still lingering questions that I have not addressed in this article. How do we know a decline in coal fired power plants will happen? How do we know we’ve reached a tipping point when the transition accelerates and decline of fossil fuels is happening? Some of the answers lie in zombie power plants with the solution foreseen in the movie Shaun of the Dead and in a fruit fight between energy transition academics. The answers will be found in the second article to be posted next week.

Figure 8: All energy pioneers (source: https://www.youtube.com/watch?v=f-77xulkB_U)

Finally, I think it is important to reflect on ‘Back-to-the-Future Opportunity’ equation. Each person pictured (Figure 8) transformed the entire fields of electricity production and distribution. The optimism that once dominated electrification of the world can assist – but not determine – the future energy system. Just as Elon Musk has gone a bit crazy on Twitter and in public, getting to the future isn’t without some craziness and false starts. Regardless, the broad-based field of energy requires a holistic transformation of the economy, politics, society and perceptions of the environment. Part two will begin to address how to assess our efforts in moving from optimistic projects to real action to reach a tipping point in a sustainable energy transition.

References:

[1] Soumitra Dutta, Bruno Lanvin, and Sacha Wunsch-Vincent, eds., “Global Innovation Report 2014 | The” (World Intellectual Property Organization, 2014), 4, http://www.globalinnovationindex.org/content.aspx?page=gii-full-report-2014.

[2] Deloitte, “Deloitte Insights: Global Renewable Energy Trends, Solar and Wind Move from Mainstream to Preferred” (Deloitte, 2018), https://www2.deloitte.com/insights/us/en/industry/power-and-utilities/global-renewable-energy-trends.html?id=gx%3A2el%3A3dc%3A4direnenergy%3A5awa%3A6di%3A09132018.

[3] International Energy Agency, “World Energy Investment 2018,” 2018, 24, https://webstore.iea.org/download/direct/1242?filename=wei2018.pdf.

[4] Deloitte, “Deloitte Insights: Global Renewable Energy Trends, Solar and Wind Move from Mainstream to Preferred” (Deloitte, 2018), https://www2.deloitte.com/insights/us/en/industry/power-and-utilities/global-renewable-energy-trends.html?id=gx%3A2el%3A3dc%3A4direnenergy%3A5awa%3A6di%3A09132018.

[5] Dutta, Lanvin, and Wunsch-Vincent, “Global Innovation Report 2014 | The,” XXXIV.

[6] International Energy Agency, “World Energy Investment 2018,” 2018, 24, https://webstore.iea.org/download/direct/1242?filename=wei2018.pdf.

[7] see Benjamin K Sovacool and Frank W. Geels, “Further Reflections on the Temporality of Energy Transitions: A Response to Critics,” Energy Research & Social Science 22 (December 2016): 232–37, https://doi.org/10.1016/j.erss.2016.08.013.

[8] Massoud Karshenas and Paul Stoneman, “Technoloigcal Diffusion,” in Handbook of the Economics of Innovation and Technological Change, ed. Paul Stoneman, second (London: Basil Blackwell, 1995), 265.

[9] International Renewable Energy Agency, “Renewable Capacity Highlights,” 2018 2018, http://www.irena.org/newsroom/pressreleases/2018/Apr/Global-Renewable-Generation-Continues-its-Strong-Growth-New-IRENA-Capacity-Data-Shows.

New Podcast, Energy and Innovation!

Wow. Today we’re launching (with the help of CEU and Ian Cook) a podcast called Energy and Innovation! So please take a listen. There’s some great guests and of course, great content.

Energy and Innovation Podcast

I thought it would be a modest extension of the blog in a new format. But things are a bit more complicated than I thought. So I still have a lot of learning to do, but I’m excited that we got this out and are preparing new episodes.

So take a listen and be sure to follow us in iTunes (and other platforms later).

Professor Stefan Bouzarovski was the first brave soul to take the plunge with me to talk about energy poverty. You can find a summary of the interview here, and the transcript of the interview are with the podcast episode.

CEU also has other podcasts that can be accessed here.

 

Confronting Energy Poverty: An interview with Professor Stefan Bouzarovski

This is a short summary of an interview I conducted with Professor Stefan Bouzarovski, for the Energy and Innovation Podcast, with the first episode to be released on Friday, September 21, 2018

update: The episode can be found here.

Or on iTunes.

Autumn is approaching. The nights are getting colder and for homeowners in the Northern hemisphere, the chill is upon them. Energy poverty is a hidden nemesis that plagues not just the poor households, but affects people living in energy inefficient homes. Energy poverty affects not just the thermal comfort of individuals, but their self-perceptions and can lead to feelings of social exclusion and isolation as they struggle to live in cold homes.[1]

“One of my main points, energy poverty is not a subset of income poverty. If you look at energy poor households. There is a group of energy poor, but are not considered income poor,” stated Professor Stefan Bouzarovski.

There are different recognitions of the issue of energy poverty. France is pointed out as a good example of a country tackling energy poverty through housing measures, while traction on the concept is active in Poland.

Energy poverty is complex issue due to issues like housing, which can be owned or rented by occupants. Family and age status, whether there are children or pensioners occupy the dwelling. This is relevant because people are at home all day long and it can be difficult to get ‘out of the cold’ in the winter. These complexities mean there needs to be a range of policy issues that come together to assist people with their heating – or cooling – needs. In 2017, The European Commission established the EU Energy Poverty Observatory (EPOV). Professor Bouzarovski is the chair of the EPOV steering committee.

A quick overview of the EPOV demonstrates it is full of data and case studies on energy poverty. Exploring and working with the data on the website shows how important data is in understanding and comparing the extent of energy poverty. Some very interesting findings emerge by clicking through the data sets with the website set up for making quick charts and comparisons. For example, creating a map on the inability of households to keep a warm home, indicates both regional and national disparities, demonstrated in figure 1.

Figure 1: Map of Europe indicating the inability to keep homes warm (Source: EU Energy Poverty Observatory)

 

Creating a chart on arrears on utility bills provides an interesting perspective on shifting policies and what percentage of households were unable to pay for household utilities like, gas, water, and electricity. Figure 2 demonstrates diverging abilities across the EU on households’ abilities. At one extreme is Hungary (1), demonstrated its energy policy resembling a drunken sailor between economic growth, private ownership, then regulated rates. While Germany and the UK (2) indicate, moderate shifts over the same period, and Poland and Lithuania (3) demonstrate a sustained (if vacillating) push in reducing utility arrears. The EPOV data and ability to quickly analyze it provides a snapshot on a range of issues indicating and affecting energy poverty. This is very useful for both students and researchers producing quick summaries or more in-depth studies on energy poverty.

Figure 2: Arrears on Utility Bills (Source: EU Energy Poverty Observatory) – with my commentary

 

 

 

 

The approach towards examining energy poverty is expanded in Professor Bouzarovski’s new (open access – free) book, ‘Energy Poverty (Dis)Assembling Europe’s Infrastructural Divide’ published by Springer. In chapter 1, he outlines the emerging field of energy geography as a providing the ability to shift away from the one-dimensional analysis of energy poverty, encompasses a nuanced accounting of institutional change and place influencing the patterns of energy poverty. In particular, (as related in the forthcoming Energy and Innovation podcast interview, to be published on Friday, September 21, 2018), Geography enables the ‘how’ and ‘why’ aspects of energy poverty to be explored and explained (and possibly answered).

Energy Poverty
(Dis)Assembling Europe’s Infrastructural Divide, 2018, by Stefan Bouzarovski, full book can be downloaded from here

Reflecting on his multiple leadership roles in policy and academia, Bouzarovski states in the interview, “if we are academics, we are placed in a unique place, which is to be thinkers, to be the place where new ideas get generated, and where critical evaluation happens, nowhere else in society does that happen.” He points out there is a social relevance for our research and we shouldn’t underestimate the impact it can have.

In an age of populism when science and academic freedom are under attack, these observations of Professor Bouzarovski are highly relevant. Uncovering negative social and policy impacts in the politically charged topic of energy won’t win friends and influence all people, but as Bouzarovski identifies, can lead to “progressive outcomes.” These outcomes, and the research leading to a greater contribution to tackling energy poverty can be found on the EPOV website and in Bouzarovski’s prolific output. As he concludes his Energy Poverty book, energy poverty and vulnerability, persist due to particular power interests and ideologies. Academics can make a strong effort to uncover these disparities and develop solutions for society.

References:

[1] Bouzarovski et al., “Unpacking the Spaces and Politics of Energy Poverty.”

“Energy Poverty – (Dis)Assembling Europe’s Infrastructural Divide | Stefan Bouzarovski | Palgrave Macmillan.” Accessed September 18, 2018. https://www.palgrave.com/gb/book/9783319692982.

Put People First: Linking human development and energy innovation

There’s a century old quote of physicist and Nobel Laureate Wilhelm Ostwald that succinctly captures the link between innovation and energy. “If it were possible to invent a transformer that would yield only a few per cent more, that would bring the working classes more relief than all the welfare institutions in the world.”[i] This focus on people is important to maintain as new technologies and policies are developed. The Global Innovation Index 2018[ii] focus on innovation in the energy sector provides a succinct, but lengthy, overview of how countries are lifting their citizens out of poverty or leading the world in technology transformation. The report provides a global overview of progress in transforming the energy sector, it also provides in-depth discussion of the opportunities realized if a clean energy future becomes a reality. The report delivers both a global and local perspective, essential for understanding the state of our energy system.

Wilhelm Ostwald, photo credit

Studying the energy sector often requires a focus on the large macro picture of statistics and charts or unique case stories. These methods emphasize different aspects of how technology impacts at a global or local level representing policy choices or people and businesses. This macro/micro lens means it is hard to straddle to account for diversity while comparing country-to-country progress.

Working through the GII 2018 is like leafing through an energy systems encyclopedia. Spanning over 400 pages, I found the chapter on India most representative and concise for representing the findings of the report.[iii] India still has 35 million people without energy services and 780 million without clean cooking facilities. That is, they rely on ‘traditional’ biomass methods in the form of animal dung and other organic material for cooking and heating. While advances in biomass make it an excellent choice for advanced economies, as the report states, the small scale cooking fire, can be replaced by still simple but much safer technologies, like cook stoves or liquified biomass. Thus Ostwald’s call for greater efficiency in energy technologies provides a means to focus our efforts on relieving suffering and making a tangible difference in those regions where advanced technologies are not fully diffused to populations that need them.

Important in the chapter on India is how the authors connect with the Human Development Index to demonstrate the improvement of conditions for Indians. Topping the list is Iceland, with India ranked with very low quality of life (see below). I like this chart, since it is both simple and draws from a complex scoring mechanism that compares countries health, education and income measurements. From this we can start to paint a picture of the social requirements of energy. People do need energy services to access other areas that improve and enable them to live a healthy life. The chapter authors give a thorough review of the inter-connected aspects of the energy system with how people utilize energy technologies.

Human Development Index (source: Global Innovation Index 2018, p 144

The people of India need solar PV and nuclear energy to power their electric cars and create a cleaner environment while also lifting the living standards of all income groups. As the report states, electrification is the key way the country can improve access to energy resources. While biomass technology is important to distribute for cooking needs and providing access to resources, on the larger scale of the national economy, development growth needs to progress with electrification and movement away from fossil resources. This leads to the other key paradox of the report. Advances in energy supply technologies (mainly generation sources, like solar PV and wind) need to play a foundational role in a new energy system, the innovation and deployment is actually occurring in the area of energy end-use technology. Thus, the tremendous impact LED lighting technology has made (such as in India) is massive and measurable, deploying more innovative technologies to power the LEDs is required.

Inverted policies and efforts

Just as there is a macro and micro perspective on the energy system, there are also two sides of the energy system, split between ‘supply-side’ and ‘demand-side’, or ‘energy end-use’, as described in the report. Here the findings of the report are very interesting for identifying the strong state led efforts that are focused on the production of energy supply, rather than finding ways for consumers to reduce and benefit from efficiency improvements on the demand side. The chart below identifies where innovation efforts reside, demonstrating a huge misalignment between innovation efforts (going into energy supply), yet a huge impact on innovation outcomes and objectives on the energy-use side comes from  the smaller input. Overall, the indication a strong misalignment between the resources going into energy innovation and where the benefits are seen.

Direction and objectives of Innovation efforts and outcomes (Source: Global Innovation Index 2018, p 123)

The bigger question then is who benefits from this misalignment? And that question will have to be taken up in another post. But it is clear centralized top-down efforts led by government and large companies still directs the money. Households, irrespective of the level of development, get the short-end of the funds while the supply-side giants consume huge amounts of R&D budgets and incentives.

In a sense, nothing really has changed much in the past 100 years of expanding our energy system. Referring to Ostwald’s quote again, the efficiency improvement in the transformer is reflective of an expansionist and supply driven focus. This reflects the time of building out of large scale centralized systems. In our current example of India, this is still needed. But as the authors note, efforts in energy efficiency – not just in LED, but in heavy industry, have reduced demand by 83 billion Kilowatt hours in 2015-2016, and making Indian industry more internationally competitive. Less energy consumed by consumers or devices, means more consumers or devices can be powered with less generation. Less generation means money can be spent elsewhere in the energy system.

Maybe Ostwald’s quote can be updated to read, “If it were possible to invent an innovative energy system that would bring the global working classes more relief than a centralized one, it would be focused on the needs of the working class rather than the politicians and large companies building dirty coal fired power plants, gas and oil pipelines, funneling money to offshore companies, neglecting energy efficiency for households and attempt to understand how people use energy for heating and cooling and double efforts to build a clean energy system that protects our environment and improves our health, instead of funding pet electric projects that do not substantially displace oil fueled vehicles from our cities, instead politicians allow citizens to die in higher numbers from air pollution and chemical additives in our water. Investing in people and their energy needs would bring the working classes more relief than all the welfare institutions in the world.”

Yes, I think Ostwald would say this. After 100 years, it is time to invert the chart.

References

[i] Janet Stewart, ‘Sociology, Culture and Energy: The Case of Wilhelm Ostwald’s “Sociological Energetics” – A Translation and Exposition of a Classic Text’, Cultural Sociology, 8.3 (2014), 333–50 <https://doi.org/10.1177/1749975514523937>.

[ii] ‘Global Innovation Index 2018: Energizing the World with Innovation’, ed. by Soumitra Dutta, Bruno Lanvin, and Sacha Wunsch-Vincent (Cornell SC Johnson College of Business; INSEAD; WIPO, 2018) <https://www.globalinnovationindex.org/home> [accessed 21 August 2018].

[iii] Anil Kakodkar, ‘India’s Energy Story: A Quest for Sustainable Development with Strained Earth Resources’, in Global Innovation Index 2018: Energizing the World with Innovation, ed. by Soumitra Dutta, Bruno Lanvin, and Sacha Wunsch-Vincent (Cornell SC Johnson College of Business; INSEAD; WIPO, 2018) <https://www.globalinnovationindex.org/home> [accessed 21 August 2018].

Make Innovation Great Again: Creative construction and destruction of energy innovation

In 1841, ‘The National System of Political Economy’ was put forward by Friedrich List attempting to explain how Germany could overtake England in industrial development.[1] National competition and attempts to understand this competition have a long history. Today, one of the many ways this is expressed is in statistical analysis and case study research. The latest example is the Global Innovation Index 2018 which focuses this year on energy innovation. The report provides a robust account of how nations innovate and in one sense, how nations beat other nations at the innovation game.[2]

What I like about the report is that innovation in the energy sector is viewed as a driving force that must save the world from climate change. This is why the topic of innovation holds such power over the energy sector: Just maybe we hold the keys to prevent our own demise. To improve our ability to prevent the destruction of the Earth and of the human race, we must innovate. An innate desire to improve our living by harnessing ideas and technologies. Nations innovate and compete. Those that do not stagnate and decline. Those that erode the means and complex interactions speed their demise.

The Global Innovation Index (GII) project was launched by Professor Dutta at INSEAD in 2007 with the simple goal of determining how to find metrics and approaches that better capture the richness of innovation in society and go beyond such traditional measures of innovation as the number of research articles and the level of research and development (R&D) expenditures (pg 55).

In one sense innovation got us into this environmental mess. The inventions that produced steam power, harnessed coal and facilitated mass transportation created more and more CO2. We must now redevelop our global energy system to prevent further environmental destruction. What makes the topic of innovation so exciting is it brings together issues of economy, society, politics and the environment. We must find new ways accelerate and foster innovation to deploy new technologies and reduce the use of natural resources.

The Global Innovation Index 2018 attempts to highlight the winning areas and combination of factors that facilitate energy innovation. The report provides both a global snapshot of technology trends and detailed case studies of how countries and companies drive and use innovation to transform the energy sector.

The GII 2018 provides an effective snapshot of the structure that surrounds the energy sector (see below). There are two primary categories, ‘Innovation Input’ and ‘Innovation Output’. The first includes, institutions, human capital and research, infrastructure, market sophistication and business sophistication. The second, of outputs, is focused on knowledge and technology outputs in the creative process. These factors are measured and mapped to produce a scoreboard of success (and failure). The report emphasizes successful examples, but it’s important to also take the inverse view of see those that don’t or choose not to succeed.

Figure 1 Inputs and Outputs for Global Innovation Index (source: Global Innovation Index 2018)

 

On the successful side, the ultimate goal of all this coordination and cooperation is to build successful clusters of industries where, as Freeman[3] finds references to 1890 when observations of “the secrets of industry were in the air”. Likewise, the GII 2018, has a special section on clusters identified by patent filings and journal publications, these outputs represent the agglomeration of other innovative factors that lead to the outputs (see above). These inputs and outputs based around academic and industry cooperation are important for a country’s standing in the global innovation index.

Making countries worse

On the unsuccessful side – in an inverse example, if a country wanted to become less competitive and less innovative than other countries in its category or neighboring countries, it would seek to shut down and kick out institutions and people that file patents and publish scientific articles. By contrast, if a country wanted to increase its ranking as an attractive and innovative place with a cluster of innovation – where “the secrets of industry were in the air”, then it would seek to attract and build strategies and implement policies to increase the number of people carrying out these activities in their country.

France and French President Macron’s appeal and invitation to scientists after US President Trump’s assault on climate change research is an example of a country actively building up its economy. Hungary’s Prime Minister Orban kicking Central European University (CEU) out of the country or shutting down gender studies programs is an example of a country choosing to become less competitive and innovative and choosing to become closed minded and static 🙁 . Underscoring this example is that if CEU moves to Vienna then all the journal publications would be counted in the favor of Vienna and Austria (ranked 66th) which already has a strong identifiable cluster of innovation. Budapest is not even on the global list, while regional peer Warsaw is ranked 98th. (see map below and pages 204-207).

Innovation clusters and public policy and politics go together taking decades and centuries to develop. If a country or city wants to become an innovation hub and foster a more dynamic economy, then it needs to facilitate an innovation focused local environment (it’s not lost here, that the Orban government has also taken funding away from the Hungarian Academy of Sciences – thereby preventing it from excelling like it’s Polish peer)

Figure 2: Map of Innovation Clusters in Europe (Source: Global Innovation Index 2018)[4]

Politics Trumps Innovation?

Warsaw’s 98th place in the cluster ranking and the Polish Academy of Sciences as the top scientific organization (near 20% of publications), as identified in the GII 2018 report, is notable for the only location and organization in Eastern Europe (outside of Russia) to be in the top 100 (ahead of two Chinese cities). Creating the environment for top performance of a city or region requires not just industrial engineering output, but as the report states, input from the creative industries.

As Freeman identifies, “List’s clear recognition of the interdependence of tangible and intangible investment has a decidedly modem ring. He saw too that industry should be linked to the formal institutions of science and of education.”[5] Freeman quotes List:

“There scarcely exists a manufacturing business which has no relation to physics, mechanics, chemistry, mathematics or to the art of design, etc. No progress, no new discoveries and inventions can be made in these sciences by which a hundred industries and processes could not be improved or altered. In the manufacturing State, therefore, sciences and arts must necessarily become popular” (my emphasis).[6]

Clustered innovative regions and cities go together with open mindsets and fostering of relations between universities and industries. A recent conversation with Professor Andreas Goldthau highlighted this Macron initiative to both attract scientists to France and solve the world’s environmental problem.

President Macron’s speech, now labelled as the “Make our Planet Great Again” has put serious money into the initiative. France put up €30 million and Germany €15 million, Professor Andreas Goldthau is benefiting from this Franco-German partnership. He is now developing a research project to examine the impact of the energy transition on the global south. Countries that want to be competitive invest in innovative ideas in areas of education and industry to tackle are most pressing societal and environmental needs. Countries that deny or ignore these issues fail to innovate in meaningful and impactful ways that improve the lives of their own citizens and those around the world.

” Societies that manage to create or attract critical masses of talented people (inventors, entrepreneurs, scientists, engineers, researchers) and give them the tools and environments to be creative have, in the long run, come out ahead.”

Peter Engelke

The GII 2018 is a great example of how nations compete in the area of innovative energy technologies and solutions. At a deeper level, the leaders in the field demonstrate the impact decades of building up institutions and cooperation between industry and academia. The connections are not always clear, but open societies where arts and free thinking are allowed flourish, in turn they benefit the industrial output of nations. This mindset and public policy make economies grow for the benefit of societies. Conversely, politicians like Trump and Orban that attempt to control academic output and thought push the human drivers of any industrial complex out or away from elevating a nation’s innovative eco-system to a new level. Better design, better social engagement are stamped out by the political machine that only is focused on elusive industrial output.

As Freeman states[7], just because the Soviet Union put greater resources into R&D didn’t guarantee better innovation, qualitative factors affecting the national system of innovation also are at the heart of a countries industrial output. Gas pipelines and nuclear plants feed industry, but it is the social scientist or artist that develop or influence social policy to ensure industry benefits society. It is the job of the politician to create the environment for these two spheres to come together for the benefit of society and the planet.

References

[1] Freeman, Christopher. “The ‘National System of Innovation’ in Historical Perspective.” Cambridge Journal of Economics 19 (1995): 5–24.

[2] Dutta, Soumitra, Bruno Lanvin, and Sacha Wunsch-Vincent, eds. “Global Innovation Index 2018: Energizing the World with Innovation.” Cornell SC Johnson College of Business; INSEAD; WIPO, 2018. https://www.globalinnovationindex.org/home

[3] as cited from Foray 1991; Freeman, “The ‘National System of Innovation’ in Historical Perspective,” 9.

[4] Dutta, Lanvin, and Wunsch-Vincent, “Global Innovation Index 2018: Energizing the World with Innovation,” 202.

[5] Freeman, “The ‘National System of Innovation’ in Historical Perspective,” 6.

[6] List 1841, cited by Freeman, 6.

[7] Freeman, 12.

Misdirected US Sanctions for Nord Stream 2: Empower European consumers instead

The US is getting ready to impose sanctions on Russia and companies building the Nord Stream 2 pipeline, running between Russia and Germany under the Baltic Sea. According to the Wall Street Journal, the US is aiming sanctions against firms and banks building and financing the construction. This would affect European based firms as well. The imposition of sanctions is a blunt and weak tool for the US to exert its influence over European energy policy. In particular, a limp response to extract Eastern Europe away from Russia’s leverage over European gas supplies.

There are two divisions in Europe over Nord Stream 2. The pipeline is opposed by most East European countries taking delivery of Russian piped gas through the Soviet era gas system. It will enable Ukrainian transit to be discontinued, resulting in higher priced gas shipped from Germany to be delivered to the Central Eastern European (CEE) region. The former Eastern bloc countries vehemently oppose the construction (except for Hungary, which weakly does – but as a enabler of Russian policy in NATO, the EU and the world, we shouldn’t be surprised).

The German argument for the expanded pipe, is Germany (and Austria) have been buying Russian gas since the Cold War. This co-dependency attempts to exert some financial influence over Russia by enabling important market access to West European markets. In addition, energy relations provide important areas of cooperation and relationship building between countries. The resource of gas and the pipelines provide an important area of cooperation between countries.

The US government is attempting to interfere in this relationship. This is consistent US policy. President Reagan imposed export restrictions on US technology for compressor stations used to build the original pipelines from the Soviet Union to Germany and Austria. This slowed down the building and operation of the pipelines (the Soviet replacements kept breaking down), but it did not stop it. Potential US sanctions will have the same effect. They will slow down but not stop the energy relation between Russia and Germany – or the EU perspective supporting Nord Stream 2. In fact, due to the deteriorated relations between Trump and Merkel, US opposition will only reinforce German (and French) support for Nord Stream 2.

The US opposition is self-serving due to the attempt to increase LNG exports to Europe. Consistency in policy is apparent in this, but so is the self-interest to increase US LNG exports to Europe. Which is a bit short sited, since LNG is market based and only limited bilateral relationship can overrule market prices to force countries and companies to take US gas. US LNG must still be globally competitive for European firms to buy and trade US gas over other LNG sources or against Russian pipeline gas.

A view from the deck of the LNG regasification ship (FSRU) Independence sitting in the harbor in Klaipada, Lithuania

If the US move is a geopolitical gesture to ensure the CEE region, from the Baltic states to the Hungary continue to have gas deliveries via Ukraine – and bring in transit payments to Ukraine, then the US should build a new energy strategy directed at the CEE region. One of the reasons I’ve stopped writing about Russian pipeline politics is the palm on the face idea of ‘why should we even use Russian gas?’ US policy should be directed at diversification of CEE energy technology and resources. The goal should be to reduce the need for Russian gas and use alternative American (or European) energy technologies.

Obviously, this includes supporting and encouraging the building of LNG facilities. The LNG terminal in Lithuania is a great example of diversification that erodes Russian leverage over the country and places Russian gas on a market basis with LNG. The US support for the Krk LNG terminal in Croatia is also a long standing one. LNG, just as US shale gas and hydraulic fracturing technology is also obviously self-serving examples of US attempting to export technologies and services to make money. It has a hegemonic ring to it. With the CEE region already balancing EU energy market rules with Russian resource dependency, US gas exports add an extra layer of complexity which only deliver superficial moral support to the idea of gas diversification.

Instead, the US needs to more actively engaged across the whole energy system. The EU has already linked the idea of energy security to energy efficiency and innovation. In the Energy Union, the core tenet for diversification and increase of security of supply is to create a competitive integrated energy market. Investment into energy innovation (as broad and undefined as this is) is a priority. Energy efficiency measures are also pushed on countries. However, policy implementation compared to the huge scale of needs is a drop in the bucket.

Sixty-eight percent of EU imported gas is used in the heating sector, according to the European Commission. If the US wants to counter Russian influence in the CEE region, then it needs to address directly what matters to the region’s politicians and citizens. Heating bills hold a direct leverage over political decision making. A disagreement with Russia holds the potential to aggravate and increase the price of gas – and heating. Lithuania directly challenged Russia and was met with higher import prices compared to its Baltic neighbors. The answer of Lithuanian politicians and business community was building up a biomass heating industry, from forest to city. A plethora of existing (US) technologies exist to alter and lower heating bills. From solar water heating to energy efficiency measures.

Importantly, the US should engage financially with consumers in the CEE region. The US government should invest through international financial institutions, such as the European Bank for Reconstruction and Development (EBRD) and private national and regional banks, to create a ‘green’ fund for consumers to borrow or receive grants to modernize their heating (and cooling) systems. EU and national institutions are failing to make an impact in this area. The US has an opportunity to build on EU policy initiatives and through a simple financial engagement go directly to the consumers of Russian gas. Rely on the already established financial system and infuse the region with the financial resources necessary to diversify and reduce the demand for Russian gas.

The cherished ‘masonry heater’

I can speak from my own personal experience attempting to renovate my flat and install a new electricity and gas central heating system. There is government and private bank financing available, but both the terms and complexity of getting it and paying it back can be difficult for the average consumer. My main heating unit sitting in the corner of the living room dates to 1925, when the building was built. My solidarity with the average CEE citizen is deeply felt in the wintertime. There is a lack of practical and affordable funding to modernize both individual flats and buildings (as I also know with my neighbors, as retired residents are unable to take out loans).

If the US is serious about countering Russian influence and re-engage with the CEE region then they should engage financially. For example, my simple idea is to set up a €1 billion fund for the CEE region to be distributed through private banks where a mortgage and home energy improvement loan can be distributed together. The idea of how this funding facility could work is not original nor difficult to implement. The financial risks are very small for funders. But if imported gas and the politics behind it are such an issue, than reducing this dependency at the source of demand needs to be done. The other advantage of working directly with commercial banks, through international financial institutions, local politician can be avoided who have a strong track recording of stealing and misdirecting funds (Hungary, again is a very good example of this).

A €1 billion investment is certainly less complex than sanctions and enforcement of these on European financial firms. Why €1 billion? It can be more, but invest a sufficient amount that begins to change consumption patterns and puts a dent into gas consumed for heating purposes and reduces the social pressure on politicians to ensure good relations with Russia exist just to assure low energy prices in the CEE region. But by all means, find a way to avoid the dirty hands of politicians. Incentives banks that must comply with international oversight.

Avoiding the pitfalls of politics enables a direct connection to the people and undermines politicians maintaining the status quo with Russia. Hungary’s close relation is an example of a country ideologically aligned with Russia’s interests. It also must keep gas prices low to prevent social pressure for political change. Economically, the Hungarian regime is dependent on Russian energy prices. Hungarian consumers are forced by the government to maintain their serfdom to Russia through gas prices. Relieving this price pressure reduces Russia’s political leverage in the CEE region.

US interests in the CEE region should extend beyond LNG exports and terminals. The US should draw on its established strength in financial markets and begin to engage directly in the CEE region through energy investments. Reagan attempted to prevent the expansion of Soviet and Russian gas in Europe. Gas geopolitics will not go away. The US can work to undermine the long term impact gas prices have over European consumer and politicians. Constructive engagement through construction and renovating heating systems holds a larger policy impact than sanctions.

Our Relation to Energy: Why study energy systems?

Energy can range from the excitement we feel zipping down a slide to the steam billowing from a coal fired power plant. We all have a different intimate experience with energy. For the mechanical engineer, how a car engine works is just as important as a sociologist studying how people are affected by the influx of rig operators in a remote community. The study of energy is not an isolated experience of mechanical levers or crime statistics. Rather, to understand how our energy system works, how it evolves and how we solve pressing environmental problems – from a variety of angles – we need both a broad overview of the energy sector, but also draw on specific academic and professional disciplines to improve current practices and products. This post justifies a need to learn a holistic perspective on the energy system.

Academic disciplines abound to study specific sectors of science or the economy. However, an academic discipline of ‘energy’ does not exist. Rather, this hybrid topic touches on all types of academic disciplines. Nonetheless, there is a need to understand both the importance of teaching and learning about the broad energy system to develop deeper understandings within a discipline, or even within a job or organization dealing with the energy sector.

Why study energy?

Both the study and the teaching of energy requires tactile and experiential interactions with the topic. The accountant sitting in an oil and gas firm may only see numbers all day, but are they aware how those numbers fit into the goals of the company? Energy firms and technologies are not static. Assumptions in the past, when monopolies reigned strong and infrastructure lasted decades, may have required a go-slow approach to internal and external changes. Certainly, the evolution of technology did occur as did pressure for profits from shareholders; but global markets and global diffusion of technologies reduce protected markets. The refinement of wind technology in China or Demark quickly affects power output and performance in the US wind power industry. The gas turbine business of both GE and Siemens are now low performers because of the global strength of the renewable power business.[i]

Past infrastructure like nuclear power plants, oil and gas pipelines are still useful integrated parts of the energy system. But any new expansion of plants or networks are met with arguments for investments into other technologies. New transmission lines can be replaced by localized energy storage technologies, while oil pipelines can be met with calls to increase the electrification of transport. The creation of monopolies to ensure financial returns on large scale power projects, like nuclear or hydroelectric facilities, are harder to justify as renewable and gas generation offer reduced financial risks and lower environmental impact. Replacing the old with the new takes time, money, and innovative thinking to create new services and products that (hopefully) propel the energy sector towards a more sustainable path.

The sustainable energy trajectory the world is on, can be exemplified in one example of the Trump administration attempt to subsidize and prioritize old coal and nuclear facilities over new gas and renewable energy technologies (below). The administration failed in their arguments to the US federal energy regulator that these older technologies were needed. The failed effort demonstrates the competitiveness of smaller and more nimble energy technologies. It also exemplifies who does determine the shape of the energy system: People. The energy sector is defined as the “conversion and use of energy by people,” then energy systems are also controlled and changed by people. Over long-periods of time, new energy systems are created by altering both the technologies and how energy is used.[ii] Just as people and industry moved on from cassettes to store and listen to music, so have they moved on – even just gradually – where they get their energy from.

 

Source: Puko, Timothy. “Federal Regulators Rule Against Trump Administration on Power Plants – WSJ.” Wall Street Journal, January 8, 2018, online edition. https://www.wsj.com/articles/federal-regulators-rule-against-trump-administration-on-power-plants-1515451534.

 

Our place in the energy system

Mindsets on technologies and ways of doing business can dramatically shift. The growth in low-cost airlines and the dramatic change in travel patterns demonstrates the power of market competition. A similar transition occurred in the energy sector. The introduction of competitive energy markets pushes firms and governments to adjust (on a smaller timescale) to newer technologies that affect both energy production and consumption. There is an important reason to gain a broader knowledge of the energy system. This can assist individuals to understand how an individualized or group effort adjusts to continual technological, regulatory, environmental and societal changes. Gaining a basic knowledge of the integration of the energy system assists in noticing changes, adapting to imminent challenges (such as economic downturns) and planning for the future. Firms, governments, society and the environment benefit by gaining a holistic perspective of the energy system and how they sit within a larger environmental, economic and political process of change.

So how can we begin to understand our place within the energy system and how the energy system works? The ‘traditional’ energy system diagram is represented through a stepped approach of components of the power system. This chart encompasses the interconnection between natural resource use and end-user services and the conversion technologies along the way. It is a good first step in a holistic understanding. The problem, it leaves out people.

Source: Global Energy Assessment. “Global Energy Assessment: Toward a Sustainable Future,” 2012. P 43 http://www.iiasa.ac.at/web/home/research/researchPrograms/Energy/GEA-Summary-web.pdf.

Another way to represent the energy sector is in Chart 2. Here, the two ends of the chart express characteristics of the Earth. ‘Resources’ are the tangible elements we feel and draw on everyday. ‘Environment’ is the conceptual element that expresses how we understand and experience our interaction with the environment around us. This experience can influence our decision making. From the outside-in, we can work the chart to arrive in the center where our jobs and the institutional structures reside. Here ‘people power’ can drive change to influence the choice of technologies and perceptions in society. We actively construct both our jobs and state institutions that allow the activities that affect the use of resources and the quality of the environment.

Energy System with the Environment and People

Fundamental to this chart and understanding the outside-in approach, is our individual and social roles in giving institutions permission to exploit or protect the environment. Examples abound of individuals and communities taking action to protect and improve their environment, to allow or deny the use of specific energy technologies. While there are examples of despot regimes isolated from the problems and ravaging both people and the environment, there are also plentiful examples of societal pressure inducing changes. The global switch and proliferation of renewable energy technology demonstrates how communities and nations can make a switch towards environmentally sustainable energy technologies.

How we understand energy systems changes over time. The job we hold, the personal experiences we gain from travel, the solar panels on our neighbor’s roof, energy infrastructure is all around us. The environmental impact of our energy choices is also becoming more and more apparent. The interlinkages in our energy system affects us, our communities and even global corporate giants embedded in the global political-economy. The untouchables, become touched by social and technological shifts in the energy system. Developing a broad understanding of the energy system can impact the transition towards a more sustainable energy system.

 

[i] Crooks, Ed, and Patrick McGee. “GE and Siemens: Power Pioneers Flying Too Far from the Sun.” Financial Times, November 12, 2017. https://www.ft.com/content/fc1467b8-c601-11e7-b2bb-322b2cb39656.

 

[ii] Cherp, Aleh, Vadim Vinichenko, Jessica Jewell, Elina Brutschin, and Benjamin Sovacool. “Integrating Techno-Economic, Socio-Technical and Political Perspectives on National Energy Transitions: A Meta-Theoretical Framework.” Energy Research & Social Science 37 (March 1, 2018): 175–90. https://doi.org/10.1016/j.erss.2017.09.015.