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Building a sustainable future

BY PHIL GRANT

As world leaders prepare to do battle over ways to control global emissions in a bid to mitigate against climate change at COP21, Phil Grant looks at some of the key energy issues.

Energy issues are often in the news during the winter and this year will be no different particularly with the United Nations Climate Change Conference, also known as COP21, taking place in Paris. This summit could have immense significance, as it aims to achieve a legally binding worldwide agreement on reducing carbon emissions. National governments and other interested parties have been encouraged to submit their plans for how they intend to reduce their emissions. 

Most of these plans are ambitious in their nature, committing to an average global reduction in fossil fuels of between 30% and 40% over the next twenty years. China and India both pledged to drastically reduce their fossil fuel consumption, leading to a great deal of commentary suggesting that a global energy revolution is underway. 

It is certainly true that we are in the midst of a transition. Traditionally, we have been reliant on large scale, transmission connected fuel plants, consisting of both coal and gas power. In recent years renewables have emerged from R&D to play a significant role in the overall generation mix driven by falling costs and increasing efficiency. We are in transitory phase towards an energy system with smaller, local networks, comprised of renewables, small-scale generation and innovative storage technologies.

Cause for caution

However, care is required before proclaiming any sort of imminent energy revolution. The transition will need to be stable and well planned, and will require the investment of considerable time and money. In addition, different markets will move at different rates depending on local resources, political will and existing infrastructure. 

For this reason, thermal power stations will still play an important role in keeping the lights on worldwide and should not be written off too hastily. The post-Paris transition will impact both developed and developing nations, although their commitments and strategies may be somewhat different. 

Opportunities for developed countries

Many developed nations have invested in, and subsidised, renewables and we are now seeing costs falling significantly as a result. Developing nations, who are often concerned about slowing down their own industrial progress, are in an excellent position to benefit from this. 

This global technology deployment and investment can be used to benefit all nations. One way of facilitating this would be to enhance the Joint Implementation and Clean Development Mechanism initiatives. These allow for nations to meet their emissions targets through sustainable investment in other countries. This more flexible approach leads to investment taking place where the potential return is highest and the costs are lowest. 

Developed countries have taken a lead in research and development for some renewable technologies and could do the same for the more fledgling technologies. Not only will this give them a competitive advantage but as soon as these technologies have been developed, they can be delivered at scale to developing nations at a lower cost. We have already seen this scenario materialise with wind and solar power; in the next few years batteries and innovative storage will become the next frontier of development. Carbon capture storage has also been vaunted as an opportunity to make fossil fuels more sustainable; however it can only become globally commercially viable through research and development and it remains a challenge for Governments to omit to this funding. 

Opportunities for developing countries

Developing countries have their own unique opportunities around embracing renewable energy, as they do not all have the same large scale generation plant and network infrastructure as developed countries. This means they may be able to make the transition more rapidly through bypassing a stage in the development process. 

There are parallels here with the mobile telecommunications sector. Africa bypassed the need for landlines and so was able to adopt mobile technology more easily; this could be replicated in the energy sector through the use of renewable and distributed energy technology. 

Making it happen

The international community faces a ‘funding gap’ to drive the renewables transition; the IEA has estimated that $90 trillion of investment will be needed by 2030. Governments from both developed and developing nations need to put in place investment frameworks to de-risk the market and encourage private sector investment, to ensure the network has the right amount of capacity and the right type of capacity. 

Renewables costs have fallen to such an extent that the need for direct subsidies has now been reduced. However, as merchant renewables are still vulnerable to international fuel prices, investment can be substantially derisked through the use of revenue stabilisation mechanisms. 

There can be no doubt that we are in the middle of an exciting transitional period for global energy, as the drive towards decarbonisation through the deployment of renewables accelerates. Both developing and developed countries have a role to play in making this happen, through whether it’s through targets, investment or collaboration. Although fossil fuels will not be going away any time soon, COP21 provides a great opportunity to create the political and investment frameworks to decarbonise the energy sector and ensure a more sustainable future. 

ABOUT THE AUTHOR

Phil Grant is a Partner in Baringa Partners' Energy Advisory Services practice.

FURTHER INFORMATION

http://www.baringa.com

Posted 30/11/2015 by Michelle Fisher

Tagged under: COP21 , Climate , United Nations Climate Change Conference , Renewable energy

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