This is a long overdue
post! The BP Statistical Report came out
in April, the Pope’s Encyclical was published in June, oil prices have stayed
below $50 a barrel for over a year, the Obama administration issued its Clean
Power Plan in August, Climate Talks in Paris were held in December. Lots of items to cover, so let’s get down to
it.
Overall Energy Use
First, a quick review of
the global energy scene in 2014 as reflected in the BP Statistical Review of
2015. Since 2006, the year for which the
data were used in the writing of A Cubic
Mile of Oil, energy use has increased from 3.19 cmo to 3.74 cmo. Most of
0.55-cmo increase in energy consumption since 2006 has come from increased use
of coal (0.23 cmo), natural gas (0.14 cmo), and oil (0.10 cmo), and not
surprisingly, the global emission of CO2 from energy use increased
from 31.2 GtCO2 in 2006 to 36 GtCO2 in 2014. The updated
pie charts of energy sources are in Figure 1.
Figure
1. Distribution of sources of global primary energy in 2006 and 2014.
Energy consumption in the last
8 years has increased by 17.4%. The period includes the financial crisis of
2008 and a marked decline in energy consumption and economic output for two
years. Yet, the net increase in energy consumption corresponds to a compounded
average growth rate (CAGR) of almost 2%. I should note that the increase in
energy demand in 2014 was less than 1% compared to the 2-3% increases seen in
recent years. The low energy demand
reflects a softening in the global market. Annual GDP growth in China is down
below 7% and there is considerable economic uncertainty in several European
countries such as Greece, Spain, Italy, and Russia.
Nuclear Power
There was a noticeable
reduction in the production of nuclear power; from 2806 TWh (0.17 cmo) in 2006
to 2537 TWh (0.15 cmo). The share of nuclear nuclear power to primary energy consumption
dropped from 5.4% to 4.0% during this period. Japan shut down all its nuclear
power plants following the massive earthquake and tsunami in 2011, which caused
a major accident at Fukushima. Japan has now begun the slow process restarting
those plants. The plan is to resume generating power from all the plants by
2020 but there remains much public opposition to restarting nuclear power plants.
Following the general
elections in 1998 Germany’s coalition government, which for the first time included
the Green Party, adopted a plan to phase out nuclear power. The new Social
Democratic Party government led by Angela Merkel reversed that policy in 2009,
but reinstated it following the Fukushima disaster. It closed down nine out of the
17 power plants, as a result, instead of providing 25% of domestic electricity,
nuclear power provided only 16%. Between Germany and Japan, almost 360 TWh of nuclear
power production was lost. Some of the lost nuclear production was made up by
increases in China (72 TWh) and India (17 TWh).
Replacing the loss of 300
TWh of nuclear power by coal would increase CO2 emissions by 0.3 Gt
CO2, or about 6% of the increase in emissions since 2006. The steady
increase in CO2 emissions does not augur well for climate change.
The IPCC reports have been steadily increasing the certainty with which
anthropogenic emissions of greenhouse gases (GHG) are expected to cause
catastrophic damage. Shutting down nuclear plants at a time when there is an
urgency to transition to CO2-free energy is counterproductive.
Low Oil Prices
Starting in mid 2014,
crude oil price began a precipitous decline from over $100/bbl to the current
price of about $35/bbl. There are a number of factors for this decline. Commentators
in the US tend to attribute this decline to the rise in the US production of
tight oil (aka, shale oil). Since 2006 the US oil production has steadily increased
by about 3 million bbl/day. It may seem a small fraction of the global
consumption which is around 90 million bbl/day, but given the tightness in the
market between the supply and demand, a swing of 3 million bbl/day is
significant. However, the story of low
oil prices a bit more complicated and involves events and policy changes
elsewhere in the world as well. Increase in US production took place at a time
when global demand was high and when events in the Middle East had constrained
the supply. The excess oil in the US more or less offset the loss of oil from
Iraq and Libya in the world market. When Iraq oil started to flow and the
global demand was softening a global glut was imminent, but that was prevented
by the sanctions against Iran. Now with prospects of the nuclear deal and the
lifting of the sanctions, 2.5 million bbl/day from Iran would once again flow
into the global market and that fact combined with low demand has depressed oil
futures. For over 40 years now, the US has had a policy of not exporting crude
oil. With the recent availability of excess domestic crude, the US refiners increased
their capacity to produce refined fuels—something that was also aided by the
increased supply of fracked natural gas. The US recent lifting of the US ban on
exporting crude oil only exacerbates the situation and further depresses oil
futures.
Saudi Arabia has
traditionally played the role of the swing producer and. as recently as 2013,
dropped its production by a million bbl/day to stabilize oil prices. In June
2014 Saudi Arabia reversed its policy and decided in favor of retaining market
share by increasing oil production back up to over 10 million bbl/day. This
oversupply caused the oil prices to tumble and while it has been largely a boon
to oil consumers, the price drop is causing economic hardship in many oil
producing countries, including Russia, Brazil, Venezuela, Iraq, and also Saudi
Arabia itself.
Saudi Arabia’s has
sufficient cash reserves to support running the current level of deficit for
about five years. It is counting on the fact that many of its competitors will
not be able to sustain their deficits that long, and will be driven out of
business. Under the current circumstances it makes little sense to drill for
new oil, particularly in hard-to-produce resources like tight formations, deep
water, or under the Arctic Ocean. Companies will produce oil only from wells
whose up-front costs have already been paid and for which the cost of continued
production can be recovered at the prevailing price of oil. Wells that are no longer economical will be
shut down.
Saudi Arabia’s strategy
has already had an impact in the US where rigs used for fracking oil is down
from 1900 in January 2015 to 650 in December. The total oil production dropped
by 400,000 bbl/day. That the drop in rig count is far more precipitous than the
drop in production reflects the fact that there is little appetite for digging
new wells, and it is wells with poor productivity that get shut down first. If
and when the oil price increases oil from fracked formations can resume in a
short time. This quick start-up and shut-down of production allows fracking
companies to act as the new swing producers. However, if the low prices
continue for several years and investments in new production and distribution
facilities are not made, any future rise in oil prices will likely be very
steep.
Rise of Renewables
The past eight years have
witnessed a marked increase in the production of electricity from wind, solar
and geothermal energy sources, from 138 TWh in 2006 to 992 TWh in 2014. The installed capacity of wind increased
five-fold from 74 GW to 373 GW, and for solar it soared 27-fold from 6.7 to 180
GW. The last eight years have seen a substantial drop in the cost of electricity
from these technologies. In 2006, PV panels used to sell for about $3/watt,
their price has dropped to about $0.75/watt.
The levelized cost of electricity from solar in 2006 was around 36¢/kWh;
in 2015 it is below 10¢/kWh. Many Power
Purchase Agreements (PPAs) from solar facilities in 2015 have electricity priced
at less than 5¢/kWh. Most notably perhaps are the two agreements signed by the
utility NV Energy, owned by Warren Buffet’s Berkshire Hathaway: one with SunEdison
for power from a solar plant in Colorado for 4.6¢/kWh; and the other with First
Solar for power from their plant in Nevada for 3.87¢/kWh. Wind power prices
have also come down over these years. In
2006, wind energy costs were about 15¢/kWh; in 2015 PPAs signed for wind power
in the interior states in the US having a purchase price of about 2¢/kWh. These
low prices do come with subsidies in the form of a 30% investment tax credit
for the solar power and a 2.3¢/kWh of production tax credit for wind
power.
Since 2000 wind and
solar power have enjoyed an exponential growth in production. The growth has
been driven by market forces—falling prices—as well as government policies like
Energiewende in Germany and Renewable Portfolio Standards in many
states across the US. Advocates of of these energy sources project this growth
to continue at this level or even at an accelerated pace such that electricity
production from these sources will soon provide the majority of global
electricity, which in 2014 was 24,000 TWh. The graph below (Figure 2) shows the
amount of electricity produced by wind and solar plants on a logarithmic scale.
While it is true that for a period solar installations were doubling every two
years and wind every four, the doubling rate has slowed down. The slow down
since 2011 relative to the growth during the preceding five years is a sobering
reminder that once the installation base gets large enough resource
constraints—such as material supplies, labor and capital—slow down the process.
Rosy forecasts by proponents notwithstanding, unless drastic policy measures
are taken, it does not look like wind and solar will generate even 10,000
TWh/yr by 2025, by which time total electricity demand could well exceed 36,000
TWh.
Figure 2. Growth of wind and solar power generation has
been remarkable, but current rate is not fast enough to allow wind and solar to
be the dominant electricity producers by 2030.
Battery Storage
Storage of electrical
energy is an important factor for increasing the penetration of intermittent
sources like wind and solar. The only
significant electrical storage capacity in the grid currently is in the form of
pumped hydro. Although there are a number of battery systems, such as flow
cells and liquid metal cells, in early stages of development, they currently do
not provide any grid-level storage.
Noteworthy advances in Li-ion
batteries have also been made in these intervening years. In 2006 Li-ion
batteries cost about $1000/kWh, and that was a serious impediment to their broad
application electric cars. Cost of Li-ion batteries has now dropped to about
$300/kWh. The 24-kWh battery pack in Nissan Leaf cars, which cost an estimated
$18,000 in 2010 can now be replaced for $5,500 plus the used battery. If we include the $1,000 for value for the
used battery, the cost of the new battery pack would be $6,500 or
$270/kWh. Life of the battery packs has
also increased through better management of heat and charging/discharging
currents. A lifetime of over 1000 deep-discharge
cycles is now quite typical. For residential applications Tesla announced its
PowerWall units in April 2015. Each $3,500 unit can store 7 kWh—there is also a
10 kWh unit available for $3,500. The price is still steep for use as a simple
backup power system during power outage; the main value of these units is for
homes with PV systems as they extend the use of solar power during nighttime
and largely eliminate the need for grid power.
CO2 Emissions
There has been increasing
pressure on the world’s largest emitter, China, and the largest per capita
emitter, the US, to curb emissions. US and China emissions of CO2 in
2006 were 6.4 and 6.9 Gt respectively. In 2014, the US emissions were down to
6.0 Gt, but China’s emissions had risen to 9.8 Gt. On a per capita basis, US
emissions still far exceed those of China—18 metric tons per capita in the US
versus 8.2 metric tons in China. In Nov. 2014 presidents Obama and Xi Jinping
signed an accord under which the US would reduce its GHG emissions to 28% below
2005 level by 2025 and China would peak its emissions by 2030 after which it
would reduce them. President Obama followed up that pledge by issuing the Clean
Power Plan (CPP) in Aug. 2015 under which there would be a federal standard for
reducing CO2 emissions from power generation by 32% over 2005 levels
by 2030, but it would be up to individual states to determine the mix of
technologies to achieve those goals.
It is not clear how successful CPP will be in
cutting down GHG emissions. Market forces have already led to a substantial
reduction of emissions in the US by the switch from coal to natural gas, and
perhaps more could be achieved with further decline in the cost of wind and
solar power. Politically, the CPP has not garnered much support. Many state governors have already announced
their opposition to The CPP. Nevertheless, the joint agreement with China and
the CPP have helped pave the way for the COP21 Climate Talks in December.
The Papal Encyclical issued
in July also drew attention to the growing threat of climate change and its
disproportionate impact on the impoverished.
Pope Francis noted, that “… our industrial system, at the end of its
cycle of production and consumption, has not developed the capacity to absorb
and reuse waste and by-products,” and called for “changes of lifestyle, production and consumption, in
order to combat this warming or at least the human causes which produce or
aggravate it.” His statements about combating climate change received much
attention, but there was another deeper message in his statement, the one about
consumerism and social injustice it engenders when “(w)e fail to see that some
are mired in desperate and degrading poverty, with no way out, while others
have not the faintest idea of what to do with their possessions, vainly showing
off their supposed superiority and leaving behind them so much waste which, if
it were the case everywhere, would destroy the planet.” The pope recognized the
need for vastly expanding renewable energy sources, but also noted that, “(f)or
poor countries, the priorities must be to eliminate extreme poverty and to
promote the social development of their people.”
Around the same time as
the Pope’s Encyclical, the World Bank also issued Sustainable Development Goals for the world which lists goals and
targets in 17 areas: eradicating poverty, providing adequate food and clean
water, reducing gender inequality, taking urgent action to combat climate
change, and ensuring access to affordable reliable energy is listed among the
goals. Achieving most of these goals requires increasing global energy supply.
Speaking about the enormous progress the world already made Dr. Jim Yong Kim,
president of World Bank noted that over a billion people have been lifted out
of poverty in the last 25 years, and he could foresee lifting another billion
in not too distant future.
The progress Dr. Kim noted
was made on the backs of coal and oil. Can we afford to do the same to help the
next billion? The SDG of removing poverty runs up against the need to curb CO2
emissions. Unfortunately, the one CO2-free energy source that is
capable to generating the required scale of power, nuclear, is something that
the World Bank does not support developing. In view of its policy of not
funding nuclear power I have to wonder how serious is the World Bank about the
SDGs.
In early December 2015
with much fanfare about 200 nations signed the COP21 Agreement to curb global
GHG emissions. It was an unprecedented achievement given the previous failed
attempts. All nations acknowledged the
peril the world faces from climate change being engendered by continued
emission of GHG, principally from the use of fossil fuels. The countries
pledged to cut down their GHG emissions either in absolute numbers or relative
to an expected business-as-usual (BAU) scenario. The individual countries
determine the GHG reductions they pledge to make. However, there is no
mechanism of punitive action to force the countries to stick to the pledged
contributions except a public shame. The intended nationally determined
contributions (INDCs) are reported to the UN and the emissions of each country
are measured and reported in an agreed-upon standard way, and both these are in
the public domain. The lack of enforcement is a recognition of political
realities; any Agreement that had forced compliance would not have had the
support of many countries.
COP21 Agreement sets a
goal of limiting the rise in global to temperature to 2°C above the
pre-industrialization level, with a stretch goal of limiting the rise to 1.5°C.
Even achieving the 2°C target is a daunting challenge, and requires a major
upheaval of the global energy system. It would require achieving a net zero
emissions by 2050, and limiting total emissions to about 350 Gt CO2.
The world currently consumes about 3.6 cubic miles of oil equivalent (cmo) of
primary energy and emits over 36 Gt CO2 from energy use. Under BAU the annual energy consumption is
expected to rise to more than 6 cmo by 2050. Burning of each cubic mile of oil
releases 12 Gt CO2, about 17 Gt if it is from coal and about 8 Gt CO2
if natural gas is the source of the energy. Even under an all-renewable, all-electric
scenario, which could conceivably avoid two-thirds of the primary energy, an energy
consumption of 6 cmo/yr would lead to a requirement of generating of 82,000 TWh
of electricity relative to 24,000 TWh in 2014; in other words, more than
tripling the current global electricity production.
I found it appalling when
it was brought to my attention (thanks to Morgan Bazilian) that the word energy appears only three times in the 31-page Agreement. The word
appears twice on page two where the Conference of Parties “acknowledges the
need to promote universal access to sustainable energy in developing
countries, in particular in Africa, through the enhanced deployment of
renewable energy.” The third time the word is used is on page 31 as part
of the the name of UN’s IAEA:
International Atomic Energy Agency. No wonder then that there is
such huge chasm between the target reductions in CO2 and the pledged
INDCs.
I paint a rather gloomy
picture, but I would like to end on a more hopeful note. Perhaps the most
important outcome of COP21 was the formation of the Mission Innovation fund by
many prominent philanthropists like Bill Gates, Richard Branson, Jeff Bezos,
Mark Zuckerberg, and others to help innovative solutions cross the “valley of
death” and transition to commercialization. They have been joined by 20
governments to double the collective annual budget of energy research from $10
B to $20 B. It may be too little too late, but I can only hope some of the
Mission Innovation funds will provide the necessary support to bring the
nascent nuclear power technologies that are inherently safe and scalable to
market.
