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Fundamental change is taking place on the world’s energy scene. Are you ready?

Oct. 31, 2016
Peter Garforth explores embracing the grand energy transition.

Since the start of the global Industrial Revolution in the late 1700s, primary energy use has inexorably grown along with economic growth. We have become so used to this linkage that it’s almost impossible to conceive of GDP growth unlinked to the need for more coal, oil, gas, and other fuels. However, a recent report by the World Energy Council suggests that global primary energy use per capita could peak as soon as 2030. This will be accompanied by continuing economic growth.

This dramatic outlook has even been given a name – the Grand Energy Transition. Driving this transition is an increasingly familiar combination of efficiency, new technologies, accelerated deployment of ever cheaper renewable supply, and the electrification of transportation. The ability to locally tailor and actively manage energy services for single buildings and plants through neighborhoods and entire communities is technically and economically feasible thanks to digital networks.

The last few weeks have also seen some major players ratify the Paris climate agreement, including key greenhouse gas emitters such as China, the European Union (EU), India, the United States, and Canada. The total 75 countries that have ratified exceed the 55% of global emissions needed for the agreement to come into force. This sets the stage for continuing decarbonization of global energy systems. By some estimates, decarbonization needs to be as fast as 6% per year to meet the 2050 goals.

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Getting fewer headlines is a recent agreement by most of the world’s major airlines to reduce or offset a large part of their future emissions. This is the first time the global aviation industry has made such a commitment, albeit voluntarily, and the agreement is likely to trigger investments in offset projects including efficiency and cleaner or renewable supply. It’s also likely to accelerate the development of alternative jet fuels.

The maritime industry, another major energy user, is looking for ways to reduce emissions by switching from bunker fuel to liquefied natural gas (LNG). Recently, Singapore was added to a group of major ports looking to have unified LNG fueling standards, including those in the United States, Belgium, and the Netherlands.

Announcements like these in the space of a few weeks underlines the growing speed with which fundamental changes are taking place on the world’s energy scene. Collectively, these changes are reshaping the very core of a system that has remained fundamentally unchanged for decades. The increased range of options to assemble a reliable local energy solution also creates leapfrog opportunities for more isolated regions and less developed parts of the world to create world-class systems. This isn’t unlike the telecommunications revolution we’ve seen in the last couple of decades.

Industrial energy managers, especially those operating at a corporate level, need to stay abreast of how the Grand Energy Transition is progressing in the countries and regions where their current and future facilities are located.

The most likely short-term uncertainties will be the impact on both natural gas and coal. Increased use of gas for power generation, land and sea transportation, and maybe even aviation is going to have major effects on prices. The flip-side of this will be the declining use of coal, a trend already well underway in most major world markets. The risks to utility pricing should be assessed and factored into energy management options.

As has often been discussed in this column, the importance of having long-term energy plans for major sites cannot be overstated. These should be tailored to the local conditions and recognize the very real uncertainties in energy regulation, reliability, and pricing. They should have sufficient flexibility to keep the site competitive in the face of future energy uncertainties. The accelerating wider transformation is making the need for these plans less and less optional.

The changing energy scene is also causing governments to reprioritize policy and resources. Sometimes this can happen quickly. Being prepared with detailed, scenario-driven energy plans can be key to accessing resources. Recently, two of our larger Canadian customers reaped the rewards of having an approved 20-year energy plan at the ready. When the Canadian government released $2 billion for “sustainable infrastructure,” they were well prepared to rapidly submit credible proposals supported by comprehensive energy plans. They received tens of millions of dollars in incentive funding as a result.

The energy manager also has to make sure energy is included as factor in site selection for new facilities. The opportunities and risks for years to come need to be well understood, incorporated into a virtual site energy plan, and included in the final decision.

The various disparate threads needed to make the global energy transformation a reality are beginning to combine. The speed of change is ramping up, and the timeline is now well inside the operating lifetime of many plants. The energy manager’s job is not only getting more interesting; it is getting far more strategic.

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