At the launch of DNV GL’s 2018 Energy Transition Outlook

‘Greatest source of risk – and opportunity”

Author and strategist, Gabrielle Walker, moderated a lively industry panel at the international launch of our annual Outlook, on Monday 10 September 2018 at the Tate Modern in London.

Here are some of Gabrielle’s take-aways from the session:

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Remi Eriksen, group CEO of DNV GL, started the morning off by outlining the key points of this year’s report. He described likely progress in many important areas including energy efficiency and the rise of EVs. But he also had a stark warning. Once again, the report highlights a significant gap between the Paris climate goals and the path we are currently taking. “Humanity is very far away from delivering an energy transition not associated with dangerous levels of global warming,” he said.

Unstoppable momentum

Remi’s message was followed by our panel, and at first the panellists focused on the positive message contained in the Outlook. Luke Warren, chief executive of the Carbon Capture and Storage Association, said that he found a lot to be optimistic about in the report. “It’s clear that the energy transition is now underway and that it has momentum. I think it’s remarkable how far the energy system has come in the last decade.”

Jonathan Cole, who runs the offshore wind business at Iberdrola renewables, agreed. “The first thing that strikes me,” he said, “is this unstoppable consensus around the energy transition.”

Investor perspective

Ingrid Holmes, associate director of policy at Hermes Investment Management, appreciated the transparency of the report about its underlying assumptions, saying that too many scenarios or forecasts bury their assumptions and make it hard to assess their conclusions. But she also regretted that lack of mention of the important role of changing market sentiment in the pace and extent of the transition. “We’re seeing a sea-change in investor sentiment,” she said, “with new obligations on investors to take climate and sustainability issues into account. It’s all about being a good steward of capital. There’s no point in generating short-term returns now if we have an unliveable society by the time people come to retire.”

Ingrid mentioned that the credit team at Hermes is increasingly looking at integrating environmental issues into investment decisions; not just at the asset level, but also in terms of companies’ strategies around the transition. “They and the equities teams are working on the assumption that we will get to a net zero carbon economy in 2050 and looking at a range of drivers to achieve that,” she said. “And they’re looking to invest in companies that are embracing this agenda.”

Closing the gap

However, even though changing market and investor sentiment might help to accelerate further change, there is still a very substantial gap between our declared climate goals and the current pathway. While Remi had already pointed out that it would take a mix of measures to close this gap, he had highlighted three that he said needed particular focus:

  • Uptake of more renewables
  • Carbon capture and storage (CCS)
  • Further improvements in energy efficiency.

Digitalization

The panellists considered each of these in turn. First, uptake of renewables. Perhaps not surprisingly, Dirk Idstein head of EMEA at Enel X had his mind on the potential role of the digital revolution. In this case, though, it wasn’t for providing data, but for the impact on infrastructure. He mentioned the rising adoption of cleaner energy sources to power data centres.  “Increasingly data centres want to become ‘good citizens of the grid’,” he said.

Jonathan welcomed this: “It’s amazing the impact that data centres will have on grid infrastructure.” Already data centres consume more energy than the aviation industry and by 2030 Microsoft will need 40GW just to power its own data centres in the US. However, the good news, he said, is they have committed to do this entirely by renewables. “As infrastructure participants, data centres can really change the game.”

Technology shifts

The message from Ingvild Saether, CEO and president of Teekay Offshore, was that to enable more uptake of new technology leaders have to be braver. She said that Teekay has just made an $800 million investment in shuttle tankers that will be in use until 2040. The question they faced was whether to stick to the old technology for these new tankers or invest in the new. “It’s always hard to convince your board and your customers that there’s less risk going with new technology than with old,” she said. “DNV GL was an important influencer for us in making the decision of going to LNG and batteries to reduce the emissions from these vessels compared to the ones they are replacing by 70-80% in CO2 equivalent. It’s a very significant shift; but it requires brave decisions.”

Partly, she said, the challenge comes from outdated business models. “My view is that there is a higher risk staying with the old technology than moving to the new. But the business models are tailored to the old system. So, you need to, for example, get the oil companies to take the risk on LNG instead of diesel oil.”

CCS

Liv Hovem, CEO of Oil and Gas for DNV GL, also felt that the role of oil and gas companies will be important. She said that the report told a story of fast and slow transitions – contrasting a rapid shift in renewables with a slower pace of change in oil and gas. She stressed the need for a greater sense of urgency and said that oil and gas companies would need to broaden their portfolios, moving more into gas and renewables as well as carbon capture. “The oil and gas industry will have an important role to play in decarbonising, especially by investing in CCS,” she said.

That brought the panel round to Remi’s second proposal for bridging the emissions gap—ways to capture carbon and store it. Luke, of course, said that CCS would be “absolutely critical.” “I don’t see a way in which we can decarbonise without it,” he said.

Ingrid agreed on the importance of CCS, though she felt that it was unlikely in the power sector – for Europe at least. “For the power sector I think its moment has come and gone because we now have much cheaper renewables. Why would a power company want to introduce new chemical systems when they can just use wind? But I think it is an issue for industry and I think there is a strong public good argument to be made for [CCS] networks to be built out, to allow heavy industry to continue.”

But how to accelerate investment in this space, when progress has to date been very slow? “This is an area where I think the investment industry can work in partnership with the companies that it owns, to have constructive dialogue with government in supporting the roll out these kinds of networks,” she said. 

Luke pointed out that existing successful plants mean that the issue is no longer about whether the technology will work. “Now it’s about how you make it commercially viable.” He said we are starting to see changes in the conversation around CCS, as organizations do deeper thinking about the energy transition and realise that the technology offers a whole suite of options: helping with heavy industry emissions, potential negative emissions, flexible dispatchable power and large-scale low-carbon hydrogen. “Instead of just talking about it [CCS] as an additional cost on existing processes, we’re thinking more about the potential for future value to the economy.”

Energy efficiency

And finally, the discussion turned to energy efficiency. For this, the focus was the unprecedent role of increasing consumer demand “One of reasons why we’re in such an exciting time in the energy transition,” said Jonathan, “is that for the first time in the history of this movement it’s starting to be consumer led. Electric transport, for example, is happening because consumers want it, not because it’s being forced on them.”

In the future, he said, we will need consumers to play an even more active part – helping to shift demand to suit the grid and providing storage through their EVs. 

Dirk also pointed out how the digitalization trend integrates with the emissions story. For him, using data wisely could provide a whole suite of powerful energy efficiency measures. “That’s the next step of getting energy efficiency to be a major force for the environment.”

Greatest source of risk – and opportunity

However, all agreed on the spectacular scale of the challenge ahead. Said Jonathan: “You can be terrified at the enormity of that task or you could be excited. Probably for most of us there’s a huge opportunity and we should be excited. I believe there’s never been a more interesting time to work in the energy sector. This report really highlights that for me.”

And Remi Eriksen agreed: “The energy transition is our greatest source of risk,” he said, “but it’s also our greatest source of opportunity.”

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