Transition

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'Right now we are on a road to a place nobody wants to go'

FACE TO FACE | The global energy transition is taking shape faster than anyone could have conceived of ten years ago, but far from quickly enough to ward off the worst impacts of climate change. As DNV GL publishes its latest Energy Transition Outlook, Ditlev Engel, CEO of the consultancy’s energy unit, spoke with Darius Snieckus

This is the third Energy Transition Outlook now from DNV GL and much as last year the positive trajectories [away from fossil fuels toward renewables] are being reinforced. But as you say in your foreword to the report, the shift and the pace of change, “profound” as it is, is “not happening quickly enough” to meet the 2015 Paris Agreement’s goal of limiting global warming to 1.5°C [above pre-industrial levels]. From your oversight on this report, what are your views on the progress we are making – and not making?

It is important to differentiate between the progress we are making on technology and the progress we are making on regulation. The progress on technology is very encouraging – both in terms of the daily impact on the transition and also on the cost [of energy] level – and so while are ‘technology-optimistic’, we remain very much ‘climate concerned’. The issue we are faced with now is on the regulatory front – implementation and decision-making. Hopefully this report will give the governments of those countries that are not transitioning fast enough the confidence that technology is not the concern.

We need to get the rubber on the road. We don’t put forward scenarios [in the ETO]: it is a forecast and we include measures which we believe if combined will close the gap in achieving the 1.5°C – because right now we are modelling a 2.4°C rise in temperature [by 2100] if we let technology ‘do its thing’ [so] there is still another 1°C that regulation has to fix.

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Right now we are on a road to a place nobody wants to go. And wind and solar – much as we are predicting a phenomenal uptake [to 3TW and 5TW, respectively] – it is still not enough. The role of government the world over now is to find the ‘other 1°C’ by finding ways of better implementing the build-out of wind and solar at speed.

And that, in the first instance, is a matter of streamlining permitting, licensing and so on?

Yes, how long should it take to permit an onshore or offshore wind plant or a solar farm, because currently it is far too slow a process. The risks and costs linked to climate change versus risks and costs linked to other permitting issues – what is more important?

The economist Joseph Stiglitz wrote recently that the climate crisis is our generation’s Third World War because – in the analogy he drew just as when the US was attacked during the Second World War no one asked, ‘Can we afford to fight the war?’, likewise now global heating is an existential threat that we cannot afford not to fight. We are facing the reality of a ‘war effort’ that necessarily tears up the rule-book on permitting and so on …

‘Business as unusual’ has to become the new ‘business as usual’. It requires a different mindset on the part of the politicians and on the part of the planning and permitting authorities et cetera. We need a new agenda. The investment houses I speak to are utterly confident about the technology [needed to accelerate the energy transition]; what they are concerned about is the regulation and where that is heading.

On the technology, the ETO points to a 1,000% growth in solar power to 2050 and 500% increase in wind by the same date, as well as a 50-fold expansion in battery production to support EVs – all needed for the world to stand a chance of bridging the gap and getting us to the 1.5°C target. And then – on your report's ‘checklist’ – there are other items including more ultra-high voltage transmission networks, zero-carbon hydrogen for heating, transport and industrial manufacturing and so on. How hopeful are you these sorts of numbers will be reached – even if not in time to prevent world-changing impacts of climate breakdown?

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We look at this from a cost point of view and in this respect it is all do-able. Wind and solar we know can still improve their costs of energy and even hydrogen [will see its cost come down dramatically] – even though perhaps not so far as some are saying today, and it will not have the same dominant role from a cost perspective [as wind and solar]. Wind and solar keep being the disruptors. They are staying ahead of the pack [of other renewables and storage technologies] and so from a cost perspective it is hard for other technologies to catch up. It is a challenge. Again it comes back to regulation …

Regulation is the red thread then and – if can I mix my metaphors – is it still also the ‘black swan’, as you called it last year when we spoke? Has your opinion changed?

Not really. In the energy transition some things, so far, are more stable than others – even ‘black swans’ … . Investors share this central concern: how much visibility will be [provided by government regulation] and how will it pan out – and what shocks should we expect? There is another element, one that we haven’t talked about before, and that is the NDCs [nationally determined contributions, a key component of the Paris Agreement], which are coming up for revision now. The decisions around NDCs will be extremely important in determining how each government addresses their commitment to climate action when they submit the plans to the UN in 2020. This needs a lot of focus and attention in the coming months.

If we could come back to the question of the ‘cost’ of the energy transition: at the end of your foreword you refer to the transition as “affordable” but of course in terms of capital investment, we know spending levels globally in new-build renewables as compared to fossils has slipped from a promising three year trend to 2018 and in a Carbon Tracker report out last week, it is apparent that many energy companies that should be leading the transition – chiefly the oil & gas majors – are spending pennies on the pound in advancing their own energy transitions, which has resonance for us all on this planet. What is the solution, in your opinion, for changing the micro and the macro trends here?

'Renewables must become integral to the global energy system'

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In the ETO we only base our views [on the shift from fossils to renewables] on the price per kilowatt hour, not on the externalities – which is what a carbon price can do because it also starts to take into account that it costs something to pollute [whereas] today pollution is generated in many places for ‘free’. For the energy transition to happen most quickly – and here we are talking about regulation again – requires a revision of our values and how we think about subsidising and incentivising energy [production], because we are still using an old, out-of-date business model and sitting renewables on top of it. We have to rethink this across governments – not just in the energy ministry – and across society and also the way we price the social costs along with the cost of energy. The ‘ruler’ we have used in the past is no longer fit for purpose, in this regard.

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