Vivienne Cox recently gave her speech "The role of business in building a cleaner energy future" at the World Future Energy Summit in Abu Dhabi
20 January 2009
Today we are at a pivotal point in the evolution of the energy industry. And it’s an especially critical moment for the renewable and alternative sector.
We are obviously facing stormy weather economically. According to figures released last week by New Energy Finance, investment in clean technology only rose by around 5% last year, compared to over 50% in the previous three years.
And the wider energy industry is being affected by the sharp drop in oil prices as we enter a recession in many markets.
There are mixed views on how governments should respond. Should they cut spending? Or should they invest more to stimulate economies and help create jobs?
There is also some hesitation over climate change. As Rajendra Pachauri will no doubt remind us, there is now a wide consensus on the science.
It embraces thousands of scientists and scientific academies who are united in saying that global warming is real and there is very high confidence that humans are responsible.
Nonetheless there are still some vocal sceptics - and that has an impact.
A poll in the UK last year showed that 6 in 10 people thought that many experts still questioned the reality of climate change.
In the business world, for example, the thousand or so executives taking part in last year’s PriceWaterhouseCoopers’ Global CEO survey put climate change not number 1, 2 or 3, but number 10 on their list of concerns. So while there is a consensus that global warming must be addressed – it is a fragile one.
The lack of urgency contrasts with the findings of the IPCC which indicate that emissions need to be cut rapidly and peak in the next decade.
Some may wonder if the recession will curb emissions significantly. I don’t think we can count on that. The recession will have some effect on emissions, since lower growth means lower demand for electricity and lower output from transport and other industries. One way to gauge the potential falloff is to look at forecasts for carbon dioxide prices, which reflect industry’s need to acquire rights to emit CO2. New Carbon Finance have lowered their forecast for the 2012 European Trading Scheme price from around €50 to around €35 a tonne. But that is still approaching a doubling of last year’s price.
So we are at a decision point. Depending on how people react – from the people and organisations represented in this room to the millions of people around the world who make individual choices - we can either go backwards – or we can bring about a step change in the world’s ability to respond to its economic and environmental challenges.
If we are to take the positive route, then we need to restore the momentum of the clean technology sector. And, in my view, that requires an element of ‘push’ and an element of ‘pull’.
Businesses can provide the ‘push’ by continuing to invest and innovate, and policy-makers can provide the ‘pull’ by creating the right policy frameworks for investment to take place.
Most importantly, they can work together to create a compelling offer to the energy consumer which brings about real and fundamental change in our sector.
Let me say something about each aspect.
The business ’push’
Business investment in clean energy now covers a wide range of technologies and companies.
Some are specialists in solar, wind or biofuels. Others are large global companies which have entered the field because it represents good, sustainable business.
Today I think it is very important that major investors such as ourselves, GE, Rio Tinto – our partners here in Abu Dhabi – and Masdar of course – are continuing to invest in clean energy with confidence. We are showing from the industry side that the recession has not removed the need to move towards a lower-carbon economy.
However it has changed the conditions in which we operate. We’re moving from a world which was constrained by supply – with shortages of turbines and silicon - to one constrained by shortage of finance.
And even though base rates have been lowered by central banks, our analysis suggests that rates for debt financing still remain relatively high in many places, with some developers putting projects on hold while others press ahead.
For a European wind farm, the total cost of debt finance has declined since last October. However this decline has not been nearly as great as the fall in official interest rates, because the spread charged by banks on loans to wind farms has widened considerably. Also, debt is not just more expensive than official interest rates, but it is hard to get. Many small project developers will struggle to find banks to lend them money over the next few months.
In today’s context, we need to be very focused and disciplined in our investments. We are avoiding more uncertain areas and concentrating on the most commercially proven technologies. We’re focusing on good projects, good teams and moving down the experience and cost curves.
This sharpening of focus was already starting to happen before the downturn as particular technologies started to emerge as having the strongest fundamentals.
For example, wind energy is now competitive with new coal and new nuclear capacity, even before any environmental costs of fossil fuel and nuclear generation. That’s partly due to the progress made in turbine power.
We had a graphic demonstration of that last year when we re-powered a 23 year old wind farm at Edom Hills in California. Before the upgrade the farm generated 11MW using 139 turbines. We then increased the capacity to 20MW - and that was achieved by replacing the original equipment with just eight Clipper turbines.
Solar power is cost-competitive with fossil fuels at times of peak demand in certain markets – and more responsive policies such as time-of-day-pricing could make it even more attractive. Experience has shown that a doubling of scale of solar production leads to a 23% reduction in costs.
It is also being projected that the costs of crystalline silicon modules will drop from $4 per watt last year to $2.40 in 2009 .
This is the kind of progress that led McKinseys to forecast that in as little as three years unsubsidized solar power could cost end-customers no more than electricity generated by fossil fuels in markets such as California and Italy.
A similar trend is underway in biofuels. These come in many forms, some more sustainable than others. But the encouraging news is that several of the most sustainable options are also becoming much more attractive economically. Ethanol made from sugarcane in Brazil is already competitive, while generating up to 90% less emissions than conventional gasoline.
Ethanol made from miscanthus, switchgrass, bagasse and other non-edible, cellulosic feedstock is set to be a staple fuel tomorrow because of its benefits for the environment and energy security.
The costs of manufacturing cellulosic ethanol have come down from around $6 a gallon to under $3 in the last 10 years , thanks to advances in enzymes and conversion technologies. And given that cellulosic feedstock costs less than corn and other crops, we anticipate the costs coming down to around $1.50.
Of course, biofuels need to be more than cost competitive with gasoline to close the energy content gap - but this cost trajectory and the long term outlook for crude oil suggest they are very well placed.
Carbon capture and storage is fundamental to create a bridge from the hydrocarbon present to the low-carbon future.
We can’t go on using hydrocarbons for power and heat – particularly using coal for power - without it.
It has not yet been deployed at scale in a power station or major industrial plant but studies such as those done by the EU have suggested that it should be competitive after 2020 when the costs of avoiding emissions through CCS will be at least equal to the cost of acquiring emission rights in trading systems.
However the early demonstration plants will be relatively costly and need to be supported by public-private partnerships.
The Government here, and Masdar, have shown themselves willing to forge that kind of partnership and we are privileged to be working with them on plans for a 400MW hydrogen power plant fed by gas that will capture some 1.7MT of CO2 each year.
The policy ‘pull’
That example takes me onto the role of policy-makers – and how they can provide a ‘pull’ for low carbon energy to complement the ‘push’ of business investment.
It has been encouraging to see many governments insist that tackling climate change remains key for them, despite the recession.
Barack Obama has identified it as a priority. The EU is sticking to its targets. The UK has even increased its target for cutting emissions.
The fundamental framework for stimulating low-carbon energy is putting a price on carbon. A price needs to be factored into everything that involves creating emissions – driving a car, switching on a light, cooking a meal. This is now happening in Europe through the ETS, in the US through the Chicago Climate Exchange. A full scale system is now a policy goal in the US as well as in Australia and New Zealand.
Ultimately our vision must be that of a global trading system as envisaged by Lord Stern.
However, trading alone is insufficient to bring the newest technologies to competitiveness in the time available and this is why governments have introduced transitional incentives such as mandates and credits.
However, the recession has changed things for governments too.
The interests of the economy and the environment are converging and many people are supporting increased public spending on productive areas such as infrastructure, ICT - and of course clean energy.
Many now saying that the recession and climate change can both be addressed through public investment which also revitalises economies and creates jobs – adding to the current total of around two million in the renewable energy industries.
The argument has been advanced by Lord Stern as well as by Ban Ki-Moon and many others.
Barack Obama has said: “There is no better potential driver that pervades all aspects of our economy than a new energy economy.”
And in the UK, Gordon Brown has echoed that, saying that rather than the recession making the environment a lower priority, “the environment is part of the solution”.
This is a recognition that we cannot solve climate change in a vacuum. We also need to speak to other, more immediate, concerns if we are make progress in low-carbon energy.
Some have compared what is required to the New Deal in the US during the 1930s. And indeed Roosevelt’s programme also had a strong environmental flavour. He set aside more land for national parks and nature reserves than all of his predecessors combined. His Civilian Conservation Corps was an early example of creating ‘green jobs’.
But the jobs created need to be sustainable – not temporary, light-weight ones. And this depends on the low-carbon energy industry becoming even more competitive. And of course this can happen – both as a result of governments creating a meaningful carbon price and industry investing to bring down costs and develop new innovations.
Building a Compelling Offer in Clean Energy
All that said, we know that governments and business cannot do this alone. The individual consumer has a key role too – making choices about energy supply as well as influencing which government gets elected.
However, we can’t rely upon the environmental goodwill of a relatively small number of consumers who are minded to pay a premium for sustainable energy. The urgency for change dictates otherwise.
We must start from the market end and determine how a compelling offer can be made to many more consumers, with an attractive product at an attractive price. As businesses, we need to summon up all our powers of innovation to provide competitive offerings, while the challenge for policy-makers is to win a popular mandate for green policies.
We have done this before in the energy sector. For example, when huge resources of natural gas had lain ‘commercially’ stranded for years in reservoirs off Trinidad & Tobago, we unlocked them by introducing different types of technologies and supply agreements that enabled us to bring that gas to market in the US.
Similarly if we look at solar power today, we see that in some markets, such as California and Germany, policy-makers have created enough pull to stimulate businesses to reinvent supply chains to drive down costs and appeal to customers.
In our case that includes more efficient manufacturing in mega-scale plants, advanced technology such as our Mono2 process, high-profile marketing to consumers in stores such as Home Depot and compelling products such as our EnergyTileTM which integrates solar energy into the roofs of new homes. And meanwhile R&D programmes such as the Solar America Initiative are bringing business and government together to pursue further breakthroughs.
This is the mindset we need to adopt to get the cleantech sector moving at pace again and then accelerating faster than before. The key is creating a supply chain built backwards from the market and focused on the needs of the ordinary consumer, rather than the convenience of the supplier or policy-maker.
So while we face a storm, it is in many ways a perfect storm. The recession may provide the spur for investment that is needed at the same time as business focuses its activity on the most promising forms of future energy.
A new US president is in place, committed to acting on climate change.
The stage is set for global negotiations which will culminate in the Copenhagen climate summit in December.
As businesses, we will continue to push low-carbon energy through our investments – and we know that governments are increasingly willing to provide the policies that pull the new technologies forward.
So I look forward to a year of partnership and progress – a landmark year in the world’s efforts to create sustainability in its economy, its environment and its sources of energy. Thank you.
miércoles, 21 de enero de 2009
BP y la contribución de las empresas a la sostenibilidad energética
Me ha parecido interesante este discurso de Vivienne Cox (no he encontrado el link):