Category Archives: renewables

The case for additional actions in sectors covered by the EUETS is now even stronger

Recently agreed reforms to the EUETS mean that excess allowances in the MSR will be cancelled.  This further strengthens the case for actions such as phase-out of coal plant, increasing energy efficiency and deploying more renewables.

About a year ago I looked at whether additional actions to reduce emissions in sectors covered by the EUETS do in practice lead to net emissions reductions over time [i].

It is sometimes claimed that total emissions are always equal to the fixed cap, and by implication additional actions do not reduce total emissions.  This is sometimes called the “waterbed hypothesis” by analogy – if you squeeze in one place there is an equal size bulge elsewhere.

Although often repeated, this claim is untrue.  Under the EU ETS at present the vast majority of emissions reductions from additional actions will be permanently retained, reflecting the continuing surplus of allowances and the operation of the MSR.  Furthermore, over the long term the cap is not fixed, but can respond to circumstances.  For example, tighter caps can be set by policy makers once emissions reductions have been demonstrated as feasible.

When I last looked at this issue, the fate of additional allowances in the MSR remained necessarily speculative.  It was clear that additional excess allowances would at least not return to the market for decades.  It also seemed likely that they would be cancelled.  However, no cancellation mechanism was then defined.

This has now changed with the trilogue conclusions reached last week, which include a limit on the size of the MSR from 2023.  The limit is equal to the previous year’s auction volume, and is likely, given the size of the current surplus, to lead to large numbers of allowances being cancelled in the 2020s.

With this limit in place there is a very clear pathway by which allowances freed up by additional actions, such as reduced coal burn or increased renewables, will add to the surplus, be transferred to the MSR then cancelled (see diagram).  Total emissions under the EUETS will be correspondingly lower.

There is now a clear mechanism by which additional actions reduce total emissions

Modelling confirms that with the limit on the size of the MSR in place a large majority of reductions from non-ETS actions are retained, because additional allowances freed up almost all go into the MSR, and are then cancelled.  This is shown in the chart below for an illustrative case of additional actions which reduce emissions by 100 million tonnes in 2020.  Not all of the allowances freed up by additional actions are cancelled.  First there is a small rebound in emissions due to price changes (see references for more on this effect).  Then, even over a decade, the MSR does not remove them all from circulation.  This is because it takes a percentage of the remainder each year, so the remainder successively decreases, but does not reach zero.  If the period were extended beyond 2030 a larger proportion would be cancelled, assuming a continuing surplus.  Nevertheless over 80% of allowances freed up by additional actions are cancelled by 2030.

The benefit of additional actions is thus strongly confirmed.

The large majority of allowances freed up by additional actions are eventually cancelled

Source: Sandbag

When the market eventually returns to scarcity the effect of additional actions becomes more complex.  However additional actions are still likely to reduce future emissions, for example by enabling lower caps in future.

Policy makers should pursue ambitious programmes of additional action in sectors covered by the EUETS, confident of their effectiveness in the light of these conclusions.  Some of the largest and lowest cost gains are likely to be from the phase out of coal and lignite for electricity generation, which still accounts for almost 40% of emissions under the EUETS.  Continuing efforts to deploy renewables and increase energy efficiency are also likely to be highly beneficial.

Adam Whitmore – 15th November 2017

[i] See https://onclimatechangepolicydotorg.wordpress.com/2016/10/21/additional-actions-in-euets-sectors-can-reduce-cumulative-emissions/  For further detail see https://sandbag.org.uk/project/puncturing-the-waterbed-myth/ .  A study by the Danish Council on Climate Change reached similar conclusions, extending the analysis to the particular case of renewables policy.  See Subsidies to renewable energy and the european emissions trading system: is there really a waterbed effect? By Frederik Silbye, Danish Council on Climate Change Peter Birch Sørensen, Department of Economics, University of Copenhagen and Danish Council on Climate Change, March 2017.

Prospects for Electric Vehicles look increasingly good

Electric vehicles update

Indicators emerging over the last 18 months increase the likelihood of plug-in vehicles becoming predominant over the next 20 years.  However, continuing strong policy support is necessary to achieve this.

Several indicators have recently emerged for longer term sales of plug-in vehicles (electric vehicles and plug-in hybrids).  These include targets set by governments and projections by analysts and manufacturers.

The chart shows these indicators compared with three scenarios for the growth of plug-in vehicles globally if policy drivers are strong.  (The scenarios are based on those I published around 18 months ago, and have been slightly updated for this post – see the end of this post and previous post for details.) The green lines show the share of sales, and the blue lines show the share of the total vehicle stock.  Other indicators are marked on the chart as diamonds, shown in green as they correspond to the green lines.  I’ve excluded some projections from oil companies as they appear unrealistic.

The scenarios show plug in vehicles sales in 2040 at between just over half and nearly all of new light vehicles.  However the time taken for the vehicle fleet to turn over means that they are a smaller proportion of the fleet, accounting for between a third and about three quarters of the light vehicle fleet by 2040.  The large range of the scenarios reflects the large uncertainties involved, but they all show plug-in vehicles becoming predominant over the next 20 years or so.

The indicators shown are all roughly in line with the scenario range (see detailed notes at the end of this post), giving additional confidence that the scenario range is broadly realistic, although the challenges of achieving growth towards the upper end of the range remain formidable.  Some of the projections by manufacturers and individual jurisdictions are towards the top end of the range, but the global average may be lower.

Chart.  Growth of sales of Plug-in light vehicles

 

The transition will of course need to be accompanied by continuing decarbonisation of the power sector to meet greenhouse gas emissions reduction goals.

Maintaining the growth of electric vehicle sales nevertheless looks likely to require continuing regulatory drivers, at least for the next 15 years or so.  This will include continuing tightening emissions standards on CO2 and NOx and enabling charging infrastructure.  If these things are done then the decarbonisation of a major source of emissions thus now seems well within sight.

Adam Whitmore – 13th October 2017

 

 

Background and notes

This background section gives further information on the data shown on the chart.  In some cases it is unclear from the reports whether projections are for pure electric vehicles only or also include plug-in hybrids.

Developments in regulation

Policy in many countries seems increasingly to favour plug-in vehicles.  Some recent developments are summarised in the table below.   These policy positions for the most part still need to be backed by solid implementation programmes.  Nevertheless they appear to increase the probability that growth will lie within the envelope of the projections shown above, which are intended to correspond to a world of strong policy drivers towards electrification.

Policy developments 

Jurisdiction Policy commitment
UK Prohibit sale of new cars with internal combustion engines by 2040[1]
France Prohibit sale of new cars with internal combustion engines by 2040[2]
Norway All new sales electric by 2025[3]
India All cars electric by 2030 (which appears unrealistic so goal may be modified, for example to new cars)[4]
China Reportedly considering a prohibition on new petrol and diesel.  Date remains to be confirmed, but target is for 20% of the market to be electric by 2025.[5]

 

Sales

The market is currently growing rapidly from a low base.  Total vehicle sales were 0.73 million in 2016, compared with 0.58 million in 2015.  Six countries have reached over 1% electric car market share in 2016: Norway, the Netherlands, Sweden, France, the United Kingdom and China. Norway saw 42% of sales being EVs in June 2017

Manufacturers’ projections

Several manufacturers have issued projections for the share of their sales they expect to be for plug-in vehicles.  Some of these are shown in the table.

Manufacturers’ projections for sales of plug-in vehicles

 

Manufacturer Target/expectation for plug-in vehicles
Volkswagen 20-25% of sales by 2025[6]
Volvo All new models launched from 2019[7]
PSA ( Peugeot and Citroen brands) 80% percent of models electrified by 2023[8]

 

Clearly individual manufacturers’ projections may not be achieved, and to some extent the statements may be designed to reassure shareholders that they are not missing an opportunity.  So far European manufacturers have been slow to develop EVs.  Also these manufacturers may not representative of the market as a whole.  Other companies may progress more slowly.

However others may proceed more quickly.  As has been widely reported, Tesla has taken over 500,000 advanced orders for its Model 3 EV, itself equivalent to almost the entire market for electric vehicles in 2015.  And in line with the Chinese Government’s targets manufacturers in China are expected to increase production rapidly.

Projections by other observers

Projections by other observers are in most cases now in line with the scenairos shown here.

  • Morgan Stanley project 7% of global sales by 2025[9]
  • BNP Paribas project 11% of global sales by 2025, 26% by 2030[10]
  • JP Morgan profject 35% of sales by 2025 and 48% of sales by 2030[11]
  • Last year Bloomberg’s projections showed growth to be slower than with these projections. However they have since updated their analysis, showing 54% of new cars being electric by 2040[12].
  • DNV.GL recently published analysis showing EV’s accounting for half of sales globally by 2033, in line with the mid case in this analysis.

In contrast BP predicts much slower growth in their projections[13].  However BP’s view seems implausibly low in any scenario in which regulatory drivers towards EVs are as strong as they appear to be.  Exxon Mobil gives lower projections still, while OPEC’s are a little above BP’s but still well below the low case shown here.[14].

Notes on changes to projections since May 2016

These projections are updated from my post last year but the differences over the next 15 years are comparatively minor.  The projections are for light vehicles, so exclude trucks and buses.  Note that percentage growth in early years has been faster than shown by the s-curve model – however this is likely to prove a result of the choice of a simple function.  What matters most for emissions reductions is the growth from now and in particular through the 2020s.

Assumption change Rationale
Higher saturation point Continuing advances in batteries reduce the size of the remaining niche for internal combustion engine vehicles
Longer time to saturation The higher saturation point will need additional time to reach.
Somewhat slower growth in total numbers of vehicles Concerns about congestion and changed modes of ownership and use are assumed to lead to lower growth in the total vehicle stock over time.  This tends to make a certain percentage penetrations easier to achieve because the percentage applies to fewer vehicles.

 

 

[1] http://www.bbc.co.uk/news/uk-40723581

[2] http://www.bbc.co.uk/news/world-europe-40518293

[3] http://fortune.com/2016/06/04/norway-banning-gas-cars-2025/

[4] https://electrek.co/2016/03/28/india-electric-cars-2030/

[5] http://www.bbc.co.uk/news/business-41218243

[6] http://www.bbc.co.uk/news/business-36548893

[7] https://www.media.volvocars.com/global/en-gb/media/pressreleases/210058/volvo-cars-to-go-all-electric

[8] http://www.nasdaq.com/video/psa-prepared-for-electric-vehicle-disruption–says-ceo-59b80a969e451049f87653d9

[9] https://www.economist.com/news/business/21717070-carmakers-face-short-term-pain-and-long-term-gain-electric-cars-are-set-arrive-far-more

[10] https://www.economist.com/news/business/21717070-carmakers-face-short-term-pain-and-long-term-gain-electric-cars-are-set-arrive-far-more

[11] https://www.cnbc.com/2017/08/22/jpmorgan-thinks-the-electric-vehicle-revolution-will-create-a-lot-of-losers.html

[12] https://about.bnef.com/electric-vehicle-outlook/

[13] https://www.bp.com/en/global/corporate/energy-economics/energy-outlook.html

[14] https://www.economist.com/news/briefing/21726069-no-need-subsidies-higher-volumes-and-better-chemistry-are-causing-costs-plummet-after

Underestimating the contribution of solar PV risks damaging policy making

Underestimating the contribution of solar PV risks damaging policy making

The continuing lack of realism in projections for solar PV risks damaging policy making by misdirecting effort in developing low carbon technologies.

Solar PV continues its remarkable growth …

Electricity generation from solar PV continues to grow very rapidly.  It now supplies over 1% of global electricity consumption and this proportion looks set to continue growing very rapidly over the next decade as costs continue to fall.

Chart 1 Rapid growth of solar PV generation continues

Sources: BP statistical review of world energy [i].  1% of consumption based on data for generation with an adjustment for losses.

Many studies have underestimated this growth and continue to do so …

This growth has been much faster than many predicted.  In 2013 and again in 2015  I noted[ii] that the IEA’s annual World Energy Outlook (WEO) projections for both wind and solar PV were consistently vastly too low.  Specifically, the IEA’s projections showed the annual rate of installation of wind and solar PV capacity remaining roughly constant, whereas in fact it both were increasing rapidly.  Updated analysis for solar PV recently published by Auke Hoekstra[iii] shows that this position seems remarkably unchanged (see Chart 2).  The repeated gross divergence between forecasts and outturns over so many years makes it hard to conclude anything other than the IEA is showing a wilful disconnection with reality in this respect, though their historical data on the energy sector remains very valuable.

Chart 2:  IEA projections for solar PV capacity continue to vastly underestimate growth

Although the IEA’s projections are particularly notable for their inability to learn from repeated mistakes, others have also greatly underestimated the growth of solar PV[iv].    Crucially, as a recent study in Nature Energy[v] shows, this tendency extends to many energy models used in policy making, including those relied on by the IPCC in its Assessment Reports.

This is largely because models have underestimated both the effect of policy support on deployment and the rate of technological progress, and so have underestimated the resulting falls in cost both in absolute terms and relative to other technologies.  Where new information has been available there has often been a lag in incorporating it in models.  Feedbacks between cost falls, deployment and policy may also have been under-represented in many models.  Consequently models have understated both growth rates and ultimate practical potential for solar PV.

This damages policy making  …

Does this matter?  I think it does, for at least two reasons.

First, if policy is based on misleading projections about the role of different technologies then policy support and effort will likely be misdirected.  For example, means of integrating solar PV at very large scale into energy systems look to have been under-researched and under-supported.  Other low carbon technologies such as power generation with CCS may have received more attention in comparison to their potential[vi].

Second, there is a risk of damaging the policy debate.  In particular there is a risk of exacerbating polarisation of the debate, rather than creating a healthy mix of competing judgements.  There is already a tendency for some commentaries on energy to favour fossil energy sources, and perhaps nuclear, and for others to favour renewables – what one might call “traditionalist” and “transitionalist” positions.  Traditionalists, including many energy companies, tend to point to the size and inertia of the energy system and the problems of replacing the current system with new sources of energy.  Transitionalists, including many entrepreneurs and environmentalists, tend to emphasise the urgent need to reduce emissions, the speed of change in technologies and costs now underway, and the exciting business opportunities created by change.

Both perspectives have merit, and the debate is too important to ignore either.  The IEA provides an example of distorting the debate. It will naturally, due to its history, tend to be seen as to some extent favouring the traditionalist viewpoint.  If this perception is reinforced by grossly unrealistic projections for renewables it risks devaluing the IEA’s other work even when it is more realistic, leaving it on one side of the debate. An opportunity for a balanced contribution from a major institution is lost.  The debate will be more polarised as a result, risking misleading policy makers, and distorting policy choices.

Securing balanced, well informed debate on the transition to a low carbon energy system is quite challenging enough.  Persistently underestimating the role of a major technology does not help.

Adam Whitmore -26th September 2017

 

 

[i] http://www.bp.com/content/dam/bp/en/corporate/pdf/energy-economics/statistical-review-2017/bp-statistical-review-of-world-energy-2017-renewable-energy.pdf

[ii] For details see here, here and  here

[iii]  https://steinbuch.wordpress.com/2017/06/12/photovoltaic-growth-reality-versus-projections-of-the-international-energy-agency/

[iv] An exception, as I have previously noted is work by Greenpeace.  Some previous scenario work by Shell was also close on wind and solar, but greatly overestimated the role of CCS and biofuels.

[v] The Underestimated Potential for Solar PV Energy to Mitigate Climate Change, Creutzig et. a. Nature Energy, Published 28/08/17

[vi] CCS still looks essential for decarbonisation in some cases, and given lead times for its development continued research and early deployment is still very much needed.  This is especially so for industrial applications.  Deployment in power generation looks likely to be more limited over the next decade or more, though some may still be needed when to move to very low emissions, and eventually to zero net emissions.  However the contribution of CCS to power generation now looks likely to be much less than that from solar PV.

Additional actions in EUETS sectors can reduce cumulative emissions

It is often claimed that additional actions to reduce greenhouse gas emissions in sectors covered by the EUETS are ineffective because total emissions are set by the level of the cap.  However this claim is not valid in the current circumstances of the EUETS, and is unlikely to be so even in future.  Additional emissions reduction measures in covered sectors can be effective in further permanently reducing emissions.

This post is longer than usual as it deals with a very important but relatively technical policy issue.

The argument about the effectiveness of additional actions to reduce emissions …

Many additional actions are being taken to reduce greenhouse gas emissions in sectors covered by the EUETS.  These include energy efficiency programmes, deployment of renewables, replacing coal plants with less carbon intensive generation, and national carbon pricing.

It is often argued that such additional actions do not reduce total emissions because the maximum quantity of emissions is set by the EUETS cap, so emissions may remain at the fixed level of the cap, irrespective of what other action is taken (see the end of this post for instances of this argument being used publicly).

However, this argument does not stand up to examination.

Assessment of the argument needs to take account of the current circumstances of the EUETS.  Emissions covered by the EUETS were some 200 million tonnes (about 10%) below the cap in 2015.  This year emissions are likely to be 13% below the cap.  The EUETS currently has a cumulative surplus of almost three billion allowances, including backloaded allowances currently destined for the Market Stability Reserve (MSR), and the surplus is set to grow as emissions continue to be less than the cap.

In these circumstances emissions reductions from additional actions will mainly increase the surplus of allowances, with almost all of these allowances ending up in the (MSR).  These allowances will stay there for decades under current rules, and so not be available to enable emissions during this time.

Indeed, in practice these allowances are unlikely ever to enable additional emissions.  The argument that they will assumes that the supply of allowances is fixed into the long term.  In practice this is not the case.  Long term supply of allowances is determined by policy, which can and does respond to circumstances.  Additional surpluses and lower prices are likely to lead to tighter caps than would otherwise be the case, or cancellation of allowances from the MSR or elsewhere.

The remainder of this post looks at these issues in more detail, including why the erroneous view that additional actions don’t reduce cumulative emissions has arisen.

Why current circumstances make such a difference

The argument that additional actions to reduce emissions will be ineffective reflects how the EUETS was expected to operate when it was introduced. It was assumed that demand for allowances would adjust so that the quantity of allowances used would always equal to the cap, which was assumed to be fixed.

This is illustrated in stylised form in the diagram below.  The supply curve is vertical – perfectly inelastic supply.  Demand for allowances without additional actions leads to prices at an initial level.  Additional actions reduce demand for allowances at any given price, effectively shifting the demand curve to the left by the amount by which additional actions reduce emissions.  This leads price to fall until the lower price creates sufficient additional demand for allowances, so that total demand for allowances is again equal to the supply set by the cap.  Because the supply curve is fixed (vertical) the equilibrium quantity of emissions is unchanged, remaining equal to the cap[1].

Chart 1: A price response to the change in demand for allowances can lead to emissions re-equilibrating at the cap when allowances are scarce …

first-chart

However, at present, large increases in emissions (such that emissions rise to the cap) due to falling prices are clearly not occurring, and they seem unlikely to do so over the next few years.  As noted above, the market remains in surplus both cumulatively and on an annual basis.  The price would be close to zero in the absence of banking of allowances into subsequent phases, because there would be a cumulative surplus over Phase 3 of the EUETS, and so no scarcity[2].

If demand were further reduced in the absence of banking there would be no price fall, because prices would already be already close to zero.  Correspondingly, there would be no increase in demand for allowances to offset the reduced emissions from additional actions.  The emissions reductions from additional actions would be retained in full. This is again illustrated in stylised form in the diagram below. 

Chart 2: With a surplus of allowances and price close to zero (assuming no banking) any reduction in demand for allowances will be retained in full …

chart-1

In practice the potential to bank allowances and the future operation of the MSR supports the present price.  It is expected that in future as the cap continues to fall allowances will become scarce.  There is thus a value to allowances set by the cost of future abatement.

Additional actions now to reduce emissions increase the surplus, and so postpone the expected date at which the market returns to balance.  This reduces current prices.  This will in turn lead to some increase in emissions.  However, this increase will be small – much smaller than if the market were short of allowances now.

Quantifying this effect 

Modelling indicates that if additional actions are taken over the next 10-15 years, then the increase in demand for allowances due to falling price will be less than 10% of the size of the reduction in emissions[3].  Correspondingly more than 90% of the emissions reductions due to additional actions are retained, adding to the surplus of allowances which, which end up in the MSR.  Modelling parameters would need to be in error by about an order of magnitude to substantially affect this conclusion.

This effect arises in part because of the low level of prices at present.  This means that even a large percentage change in price leads to a small absolute change, and thus a small effect on demand for allowances.  Even a 50% price fall would be less than €3/t at current price levels.  It also reflects that the shape of the Marginal Abatement Cost curve, with price falls only increasing abatement by a small amount.  This means that even if prices are higher than current levels the effect of price falls on demand for allowances is still relatively small.

The relatively small response to price changes is consistent with the current market, where there is a lack of sufficient increase in demand to absorb the current yearly surplus (or even to come close to doing so).

The 90%-plus of the allowances freed up by additional actions are added to the surplus end up over time in the MSR.  They then stay there for several decades.  This is because even without additional actions, and even with some reform of the current proposals for Phase 4 (which covers 2021 to 2030), the MSR is likely contain at least three billion allowances by 2030, and perhaps as much as five billion.  This will take until 2060 to return to the market, and perhaps until the 2080s, at the maximum rate written into the legislation of 100 million per annum.

Any additional surplus will only return after this.  Even if the return rate of the MSR were doubled the return time for additional surplus would still be reckoned in decades from now.

This will be even more the case if proposals for the EUETS Phase 4 are not reformed, and the surplus of allowances being generated anyway is correspondingly greater.

The implications of the very long delay in the return of allowances

It seems unlikely that allowances kept out of the market for so long would ever lead to additional emissions.  It would require policy makers to allow the allowances to return and enable additional emissions.  This would be at a time when emission limits would be much tighter than they are now, and indeed with a commitment under the Paris Agreement to work towards net zero emissions in the second half of this century.

There are several policy mechanisms that could prevent the additional surplus allowances enabling emissions.  Subsequent caps tighter as unused allowances reduce the perceived risk of tighter caps, and additional actions now set the economy on a lower carbon pathway.  Furthermore, with a very large number of allowances in the MSR over several phases of the scheme, allowances may well be cancelled.  Indeed, over such long periods the ETS itself may even be abolished or fundamentally reformed, with allowances not carried over in full.  Or a surplus under the EUETS may persist indefinitely as additional actions succeed in reducing emissions.

As the market tightens towards 2030 it is likely that a higher proportion of any additional emissions reductions will be absorbed by the market via a price effect, but it still seems unlikely to be as much as 100% given the long term trend to lower emissions and the lack of additional sources of demand, especially in the event of large scale additional actions[4].  Some of the policy responses described would still be expected to reduce the supply of allowances.

Conclusions

The argument that emissions will always rise to the level of the cap manifestly does not hold at present, when emissions are well below the cap. and there is a huge cumulative surplus of allowances.

In future, it seems likely that more than 90% of reductions in emissions from additional actions will simply add to the surplus, and eventually end up in the MSR.  They at least stay there for several decades, because of the very large volume that will anyway be in the MSR.

While there is in principle a possibility that they will eventually return to the market and allow additional emissions this appears most unlikely in practice.  Policy decisions will be affected by circumstances and this can readily prevent additional emissions, through some combination of tightening of the cap and cancellation of allowances.

Even when the market returns to scarcity these policy responses are likely to hold to a large extent, for example with lower prices enabling more stringent caps.  The hypothesis of no net reductions in emissions from additional actions thus seems unlikely ever to hold true.

Spurious arguments about a lack of net emissions reductions should not be used as a pretext for failing to take additional actions to reduce emissions now.

Adam Whitmore – 21st October 2016

 

Note:  A more detailed review of the issues raised in this post, and the accompanying modelling can be found in this report.

 

Examples of statements invoking the idea of fixed total emissions

For example, in 2015 RWE used such arguments in objecting to the closure of coal plant:

“The proposals [to reduce lignite generation] would not lead to a CO2 reduction in absolute terms.   [The number of] certificates in the ETS would remain unchanged and as a result emissions would simply be shifted abroad.” [5]

Similarly, in 2012 the then Chairman of the UK’s Parliament’s Energy and Climate Change Select Committee, opposed the UK’s carbon price support mechanism for the power sector arguing that:

“Unless the price of carbon is increased at an EU-wide level, taking action on our own will have no overall effect on emissions”[6]

Neutral, well-informed observers of energy markets have also made this case.  For example, Professor Steven Sorrel of Sussex University recently argued that:

“Any additional abatement in the UK simply ‘frees up’ EU allowances that can be either sold or banked, and hence used for compliance elsewhere within the EU ETS[7]

 

 

[1] This is analogous to the well-established rebound effect for energy efficiency measures.  Improved domestic insulation lowers the effective price of energy, so consumers take some of the benefits as increased warmth, and some as reduced consumption.  The argument here is that in effect there is a 100% rebound effect for emissions reductions under the EUETS.

[2] Such a situation occurred towards the end of Phase 1 of the EUETS (2005-7), which did not allow banking into Phase 2.  Towards the end of the Phase there was a surplus of allowances and the price fell to close to zero.

[3] The price change is modelled by assuming the price is set by discounting future abatement costs, with a later date for the market returning to balance leading to greater discounting and so a lower price.  The increase in demand for allowances is modelled based on a marginal abatement cost curve and consideration of sources of additional demand.  See report referenced at the end of this post for further details of the modelling.

[4] There are likely to be path dependency and hysteresis effects in the market which prevent a full rebound.

[5] See RWE statement, “Proposals of Federal Ministry for Economic Affairs and Energy endanger the future survival of lignite”, 20 March 2015. http://www.rwe.com/web/cms/en/113648/rwe/press-news/press-release/?pmid=4012793

[6] http://www.parliament.uk/briefing-papers/sn05927.pdf

[7] http://www.energypost.eu/brexit-opportunity-rethink-uk-carbon-pricing/

The constrained role of biomass

The role of biomass in the world energy system looks likely to be constrained, so there will be a need to focus on high value applications where there are few low-carbon alternatives.

This is the second of two posts looking at the role of biomass.  Here I focus on potential resource constraints.

A wide range of possibilities

The amount of biomass available to provide energy depends a lot on the amount of land available to grow energy crops, and how much that land can yield.   Different assumptions on these variables produce quite different estimates of the total resource, and numerous studies over the years have produced a wide range of results.    The amount of waste biomass available also matters, but potential availability from this source is smaller.

A comprehensive review of estimates of the biomass resource was carried out two years ago by researchers at Imperial College[i] (see chart).  It showed a variation in estimates of a factor of around 40, from of the order of 30 EJ to over 1000 EJ (1EJ =1018 J, or a billion GJ, or 278 TWh).  This compares with total world primary energy demand of just under 600 EJ, transport demand of around 100 EJ, and at least 250 EJ to produce present levels of electricity, assuming biomass combustion to remain relatively inefficient[ii].

Estimates of available biomass resource

biomass chart processed

Source: Slade et. al. (2014)

The authors examine reasons for differences in estimates, which I’ve summarised in the table below.  The differences are largely assumption driven, because the small scale of commercial bioenergy at present provides little empirical evidence about the potential for very large scale bioenergy, and future developments in food demand and other factors are inevitably uncertain.

Reasons for variation in estimates of total biomass supply

Range Typical assumptions
Up to 100EJ Limited land available for energy crops, high demand for food, limited productivity gains in food production, and existing trends for meat consumption.  Some degraded or abandoned land is available.
100-300 EJ Increasing crop yields keep pace with population growth and food demand, some good quality agricultural land is made available for energy crop production, along with 100-500Mha of grassland, marginal, degraded and deforested land
300-600EJ Optimistic assumptions on energy crop availability, agricultural productivity outpaces demand, and vegetarian diet
600 EJ + Regarded as extreme scenarios to test limits of theoretical availability

 

Reasons for caution

In practice there seem to me to be grounds for caution about the scale of the available resource, although all of these propositions require testing, including through implementation of early projects.

Land Availability

  • There will rightly be emphasis on protection of primary forest on both carbon management and biodiversity grounds, with some reforestation and rewilding.
  • There is little evidence of a shift away from meat consumption. With the exception of India, less than 10% of people in  most countries are vegetarian despite many years of campaigning on various grounds[iii].   In China meat consumption is associated with rising living standards.
  • Demand for land for solar PV will be significant, although a good deal of this will be on rooftops and in deserts

Yield

  • The nitrogen cycle is already beyond its limit, constraining the role of fertiliser, and water stress is a serious issue in many places (agriculture accounts for 70% of current fresh water use). The UN Food and Agriculture Organisation has projected fairly modest increases in future yields.

Policy support

  • Difficulties in limiting lifecycle emissions from biofuels are likely to lead to caution about widespread deployment.
  • Concerns about food security may limit growth of biofuels.

Small scale to date, despite many years of interest

  • There has been little progress to date compared with other low carbon technologies. Though traditional biofuels remain widely used, modern biofuels account for a very small proportion of demand at present.  World biofuels consumption currently accounts for only 0.2% of world oil consumption[iv] .  Many biofuels programmes have had subsidies cut and there is still limited private sector investment.

In this context some estimates of the potential for biomass to contribute to energy supply seem optimistic.  For example, Shell’s long-term scenarios (Oceans and Mountains) show biomass of 74 EJ and 87 EJ respectively for commercial biomass, 97-133 EJ including traditional biomass by 2060[v].  These totals are towards or above the more cautious estimates for the resource that might ultimately be available (see table above).  A recent review article[vi]  suggested that by 2100 up to 3.3 GtCp.a. (around 12 billion tonnes of CO2) could be being removed, and producing around 170EJ of energy.  However the land requirements for this are very large at about 10% of current agricultural land.  The authors suggest instead a mean value for biomass potential of about a third of that, or 60EJ.

On balance it seems that biomass is likely to account for at most less than 10% of commercial global energy (likely to be around 800-900EJ by mid-century), and potentially much less if land availability and difficulties with lifecycle emissions prove intractable.

It thus seems likely that biomass energy will be relatively scarce, and so potentially of high value.  This in turn suggests it is likely to be mainly used in applications where other low carbon alternatives are unavailable.  These are not likely to be the same everywhere, but they are likely often to include transport applications, especially aviation and likely heavy trucking, and perhaps to meet seasonal heat demand in northern latitudes.  For example, according to Shell’s scenarios aviation (passengers + freight) is expected to account for perhaps 20-25EJ by 2050, and biomass could likely make a useful contribution to decarbonisation in this sector.

None of this implies that biomass is unimportant, or has no role to play.  It does imply that policies focussing on deploying other renewable energy sources at large scale, including production of low carbon electricity for transport, will be essential to meeting decarbonisation targets.  And the optimum use of biomass will require careful monitoring and management.

Adam Whitmore  – 11th April 2016

 

[i] Slade et.al., Global Bioenergy Resources, Nature Climate Change February 2014

[ii] Data on final consumption and electricity production from Shell and IEA data.  35% efficiency for biomass in electricity is assumed, which is likely to be somewhat optimistic, especially if CCS is employed.

[iii] https://en.wikipedia.org/wiki/Vegetarianism_by_country

[iv] BP Statistical Review of World Energy

[v] http://www.shell.com/energy-and-innovation/the-energy-future/shell-scenarios.html  These totals include biofuels, gasified biomass and biomass waste solids, and traditional biomass.

[vi] Smith et. al., Biophysical and economic limits to negative CO2 emissions, Nature Climate Change, January 2016.  The paper estimates land requirement for 170 EJ of 380-700 Mha, around 10% of total agricultural land area in 2000 of 4960Mha.

Grains of rice, Japanese swords and solar panels

Even Greenpeace has underestimated the growth of renewables.  In particular, solar has been growing exponentially, and may continue to be so for a while, though likely at a slower percentage rate.

Greenpeace did much better than many at projecting the growth of renewable energy sources in the 2000s.  Their projections were very close to outturn for wind – the 1999 projections were a little below outturn, the 2002 projections a little above.  However even Greenpeace underestimated the growth of solar.  The projections were nevertheless startlingly better than those of the IEA, who have, as I’ve previously noted, consistently underestimated the growth of renewables by a huge margin.  Growth of solar has been exponential, as has that of wind (at least until recently).  Greenpeace appears to have done well by following the logic of exponential growth.

Greenpeace’s projections for wind growth in the 2000s were close to outturn, but they underestimated the growth of solar …

Capture

Exponential growth is so powerful that it can confound intuition about how large numbers can become.  The counterintuitive power of exponential growth is illustrated by the process of making a traditional Japanese steel sword.  The supreme combination of strength and flexibility of such a weapon is said to derive from the way an exponential process layers the metal.  As the metal is beaten out and folded repeatedly to forge the sword the number of layers in the metal doubles up each time.  Following this simple process 15 times creates 215 layers, well over 30,000.  This would be impossible in any other way with traditional methods, and the number of layers created would be hard to comprehend without doing the formal calculation.  This property of producing very large numbers from simple repeated doublings may have contributed to previous projections for renewables seeming implausible, because they were so much greater than the then installed base.  This may have contributed to even Greenpeace being a little cautious in its projections for solar.

Nevertheless exponential growth inevitably runs into limits as some stage.  This is captured by the classic fable of grains of rice on a chessboard, where one grain is put on the first square, two on the second, four on the third, eight on the fourth and so on, doubling with each square.  Half way through the chessboard the pile of grains, though very large, is manageable – around 50 tonnes for the 32nd square.  However amounts then quickly begin to go beyond all reasonable physical constraints.  The pile on the final square would contain 263 grains of rice, which is about 230 billion tonnes.  This is about 300 times annual global production, and enough to cover not just a square of the chessboard but the entire land surface of the earth (to a depth of about a millimetre or two).

Extrapolating growth rates for solar PV from the period 2000 to 2013, when cumulative installed capacity doubled every two years, runs into similar limits.  At this growth rate the entire surface of the earth would be covered with solar panels before 2050.  This would provide far more energy than human civilisation would need, if there were room for any people, which there would not be because of all the solar panels.   So are there constraints that imply that renewables are now in second half of the chessboard – or, if you prefer a more conventional model, the linear part of an s-curve for technology adoption?

Looking at solar in particular, as I’ve previously commented, it needs a lot of land, but this is unlikely to be a fundamental constraint.  Some have previously suggested a limit as technologies reach scale, defined as about 1% of world energy supply, after which growth becomes more linear.  However solar manufacture and installation are highly scalable, so there are fewer obstacles to rapid growth than with traditional energy technologies.

Costs are rapidly falling, so that solar is becoming competitive without subsidy, both compared to other low carbon technologies and, increasingly, with high carbon technologies, especially if the cost of emissions is taken into account.  There is no obvious limit to how low the costs of solar cells can go that is likely to bind in the foreseeable future, although the ancillaries may show slower cost falls.  The costs of lithium ion batteries are also falling rapidly, having approximately halved in the last five years and continuing to fall at a similar rate.  As a result daily storage is becoming much more economic, reducing the problem of the peakiness of solar output and easing its integration into the grid, although seasonal storage remains a daunting challenge.

Solar still accounts for only around 1% of world electricity generation so globally there are plenty of opportunities globally in new electricity demand and from scheduled retirement of existing generating plant.  The vexed issues around grid charges, electricity market structures and role of incumbents may slow growth for a while, at least in some jurisdictions, but seem unlikely to form a fundamental barrier globally as long as costs continue to fall.

In short there seem few barriers to solar continuing to grow exponentially for a while, although likely at a slower percentage rate than in the past – each doubling is likely to take longer than two years given the current scale of the industry.  Solar can still continue moving quite a long way up the chessboard before it hits its limits.  How large the industry will become will need to await a future post, but provisionally there does not seem any reason why solar PV should not become a 300-600 GW p.a. or more industry.

Policy has played an important role in the development of solar to date mainly by providing financial incentives.  It will continue to play an important role, but this will be increasingly around removing barriers rather than providing a financial stimulus.

Of course I cannot know if this fairly optimistic view is right.  But it does at least to avoid some issues that might bias projections downwards.  First, it recognises the potential validity of counter-intuitive results.  In a sector such as energy which usually changes quite slowly the numbers resulting from exponential growth can seem implausible.  This can lead to rejection of perfectly sound forecasts, as the intuition of experienced professionals, which is based on long experience of incremental change, works against them.  Second it avoids assuming that all energy technologies have similar characteristics.  Finally, it takes into account a wide range of possibilities and views and considers the drivers towards them, helping to avoid the cognitive glitch of overconfidence in narrow limits to future outcomes.

The rate of growth of renewables is intrinsically uncertain.  But the biases in forecasts are often more towards underestimation than overestimation.  If you’ve been in the energy industries a while it’s quite likely that your intuition is working against you in some ways.  Don’t be afraid to make a projection that doesn’t feel quite right if that’s where the logic takes you.

Adam Whitmore – 25th November 2014

Notes

In the calculations of the results from exponential growth I have, for simplicity, assumed very rough and ready rounded values of 40,000 grains of rice = 1litre = 1 kg.  I’ve assumed 10m2/kW (including ancillaries) for the area of solar panels. The land surface of the earth is 1.5 x108 km2.  Solar capacity doubled around every 2 years from 2000 to 2013, growing from 1.25GW in 2000 to 140 GW in 2013 (source:  BP statistical review), reaching a land area of around 1400km2.  217 times its current area takes it past the land surface of the earth, so it would take to 2047 (34 years from 2013) with doubling of installed capacity every 2 years to reach this point.  The source of the story about sword-making is from the 1970s TV documentary The Ascent of Man and accompanying book.

For data on Greenpeace’s historical projections see:

http://www.greenpeace.org/international/Global/international/publications/climate/2012/Energy%20Revolution%202012/ER2012.pdf See pages 69 and 71

 

Tranmission links to enable wind power

The availability of long distance transmission systems can help smooth out variations in availability of wind power, but helps solar less.  Policy needs to enable long-distance links to allow continuing increases in wind generation.

One of the challenges of moving to an electricity system running with a large proportion of wind and solar is that electricity output from these sources is variable, because the wind does not always blow and the sun does not always shine at any particular location.  With small proportions of these sources on the system this is not much of a problem.  However as a system becomes more dependent on these variable renewables, production is potentially curtailed in periods of high output, while there is a shortage of power at other times.  I’ll refer in this post to wind and solar photovoltaic (PV) power, which is by far the predominant form of solar electricity.  The issues with concentrated solar thermal power are different because there is some potential for storage in the power plant.

Difficulties with balancing supply and demand typically begin to become more severe as each type of variable renewable power, for example wind, begins to supply more than (very roughly) around 15% of annual electricity.  In practice the extent of the challenge of integration depends on a range of factors.  One influence is the amount of inflexible generating capacity such as nuclear on the system.  Another influence is the correlation between variable supply and demand.  For example, there is some seasonal correlation between electricity demand and wind output in Europe (in winter demand is higher and it’s windier), and there is some daily correlation between electricity demand and solar PV output in Australia (the demand peak is in the daytime).  Nevertheless, in any case there will be challenges in reliably meeting demand while accommodating very large amounts of variable supply.

To address this problem variable supply can be moved to different times, using storage, and to different places via transmission capacityDemand management can help, especially for a demand peaks, and some thermal back-up capacity is likely to be needed anyway in most cases.

The extent to which transmission links can help system balancing depends on the extent to which generation in different places is correlated.  If distant power sources tend to produce power at different times then transmission can greatly help smooth out variations in production, because when output is low in one location electricity can be moved there from another.  But if distant sources tend to produce power at the same time the advantages of long distance transmission will be reduced, because if output is low in one place there will be little electricity in the other place to move to fill the gap.  This is especially so if patterns of demand are also similar in the different places

Typically, correlations of output across regions for solar PV are much higher than for wind, especially as distances increase (see chart).  This is because solar output tends to depend strongly on time of day and season, which is quite similar even across an area as large as Western Europe, whereas wind varies with weather systems, which are less strongly related over distance of the order of 1000 miles or so.  Looking at the correlations between hourly output in different countries in Western Europe shows that the correlation between solar output in Germany and France is 88%, much greater than for wind at 44%.  Moving further away, the correlation between output in Germany and Spain is close to zero for wind, but still as high as 84% for solar.  The match of solar output is is actually greater than these figures imply due to the large number of times when solar output is zero for both countries.

Correlations of hourly output between different Western European countries are much greater for solar than for wind …

Correlations chart

These factors mean that increasing interconnection will tend to enable higher proportions of wind more than it will enable higher proportions of solar.  (This is assuming transmission is for load balancing.  Interconnection to transport power from sunnier to less sunny regions may well be valuable.  Also, this conclusion would change if intercontinental of transmission of large amounts of power were possible, but this remains a distant prospect.)

Incidentally, the correlation between solar and wind output is negative (when it’s windy it tends to be less sunny and vice versa), so having some of each on the system tends to increase the combined total that can be accommodated, compared with a system only having either one or the other.

A recent study of the USA by the National Oceanic and Atmospheric Administration (NOAA) confirmed very large benefits from High Voltage Direct Current (HVDC) long distance transmission for systems with large amounts of variable renewables.   The study used very detailed weather and load data, and data on existing power plants.  It concluded that with optimistic projections of wind and solar costs it is possible to reduce CO2 emissions by 82% with somewhat lower electricity costs, provided sufficient transmission capacity is in place.  The study emphasised the importance of the transmission network encompassing a large geographical area, such as the 48 contiguous US states, due to the large geographical scales over which weather is variable.

However, interconnectors are not always quick, cheap or easy to build.  They often link or cross different jurisdictions – US States, Chinese provinces or European countries – and will often link different types of electricity trading arrangement.  This can impose substantial barriers around permitting, and also around operation.  Policy can help the growth of wind by reducing these barriers and recognising the growing role of internconnection, although the precise policy measures necessary will be quite locally specific.  Enabling increased transmission is likely to be an important step in enabling the continuing growth of wind power in particular, and is likely to become increasingly urgent as growth continues.

Adam Whitmore – 16th September 2014

References

Thanks to Mathieu Ecoifier for providing the correlation coefficients between wind and solar in Europe.  Correlation coefficients are a rough and ready indicator of independence.  Actual effects on system operation will depend on many factors.

For analysis of the inverse correlation of wind and solar see for example Correlations Between Large-Scale Solar and Wind Power in a Future Scenario for Sweden, Joakim Widén, IEEE Transactions on Sustainable Energy, Vol. 2, No. 2, April 2011

The US study mentioned is Alexander MacDonald et. al., NOAA Earth System Research Laboratory, Low Cost and Low Carbon Energy Systems Feasible with Large Geographical Size (2014) – Presentation at Imperial College London 27th May 2014