Additional contribution to the energy section of the GSS Orientation Paper

Regarding the energy section of the GSS Orientation Paper the following topics seem to be important to me. Some thoughts might already be incorporated in the latest version just posted by David, but I post them anyways:

1) Global energy trade flows and the economy

In 2011, annual revenues of the three largest energy corporations such as Royal Dutch Shell, Exxon and Chevron were in the range of US$ 470bn, US$ 433bn, US$ 236bn respectively (Global Energy company rankings: http://top250.platts.com/Top250Rankings/2012/Region/Industry). Seeing that this is as large as the GDP of Portugal (US$ 237bn), Argentina (US$ 446bn), Norway (US$ 485bn) in the same year, one can assume that energy trade flows have a significant impact on the global economy as a whole.

GSS can engage in mapping and understanding the global flows of energy: including fuels/raw materials used as energy source, as well as trade flows of generated electricity. Resulting from this information, we can ask how the energy sector influences the global economy?

How would a shift in trade flows or price shocks influence the economic activities in the network of countries and corporations involved, e.g.:

  • How does the shale gas boom in the US influence global trade (quantities and prices) of oil, gas and coal. Does it shift electricity generation practices globally?
  • How vulnerable is the “real” economy? How do oil/gas/coal price shocks influence the industry and therefore the entire economy globally?
  • Can a shock in the energy sector cause a global crisis to a similar extend as the financial sector?

More advances tools and models are needed to assess global scenarios of this kind.

 

2) Energy & electricity modeling

In the area of energy modeling especially when assessing electricity costs, there is a need to go above and beyond single technology considerations, where usually LCOE (leveled cost of electricity) or capex (capital expenditure) of several technologies are compared to each other.

Instead, energy costs need to be analyzed from a system cost perspective, including more than one electricity generation technology (not a single technology vs. another) and including system costs such as energy storage, transportation as well as demand side management (next to generation costs).

If for example a generation or storage technology is expensive from a capex and LCOE perspective, but highly relevant from a system perspective and will only run several hours per year, it will not increase the overall system costs significantly but will add value to the system.

Parameters that become important then are technological lifetime, load and capacity factor, flexibility, storage capacity, as well as cost sensitivity with respect to changes in variable costs such as fuel costs and CO2 costs.

Even if an electricity system is optimized in terms of total system costs, the following question remains: Does the system need to be organized in a centralized fashion?

GSS can develop tools to assess differences in efficiency and costs of a decentralized energy system versus a centrally organized energy system.

Linking energy system considerations to climate change and sustainability research is equally important. Here GSS can shed more light on questions such as:

  • multiple equilibria:

The question of multiple equilibria is relevant for the energy system as well. The current energy system (in any country) is not without alternatives, therefore the question is which alternative systems (equilibria) are possible and how can a transformation to such an equilibrium take place.

If the aim of an energy system is to provide supply security at minimal cost for society (system costs plus externalities), there are several possible equilibria, however with different levels of externalities. Assessing and choosing for a possible energy systems should include considerations in climate and environmental policy as well.

  • Externalities:

The amount of externalities, such as CO2 emissions throughout the entire value chain, environmental degradation, contamination, food security, loss of biodiversity, long-term risks of fuel extraction and waste disposal need to be assessed more carefully and taken into account.

  • risk assessment:

There are short-term risks (emerging during the operation time of the plant) and long-term risks (risks that go beyond the operation time of the plant). The assessment of these risks seem to differ very strongly between countries and are heavily influenced by political goals and political decision making. Private companies internalize the benefits of using energy technologies with high long-term risk, but often the long-term risks are transferred to the nations and therefore society. The involved risks are only shifted in space and time but not reduced or eliminated. Lobbying power of energy corporations certainly plays an important role here.

Energy corporations are not wiling to take the long-term risks due to the short-termism of todays financial and investment cycles. The challenge is to find governance mechanisms that make corporations take over a larger part of these risks collectively (disaster fund /resource extraction fund or similar) and therefore take over more responsibility for long-term consequences of their operations.

However, there are no unified measures used to assess these kinds of long-term risks. The challenge is to establish a more objective and more holistic risk assessment at a global scale, which will put a price tag (a range of potential costs) to specific technologies and practices.

 

3) Market design and policy interventions at a global scale

Information about energy market design and policies implemented in the energy sector is highly dispersed and partially not transparent:

  • First, how is the energy market organized/set-up in countries worldwide: Which markets are liberalized, which are centralized, what are the resulting wholesale and retail prices, how transparent are the costs for the consumer? How can we obtain more transparency in OTC transactions?
  • Second, which countries have implemented which policies (e.g feed-in-tariffs, quota systems, etc.) with which effects?

A more systematic monitoring and information sharing system is needed to increase learning at a global scale.

 

4) Innovation and technological development

From a sustainability perspective, technological development in the energy sector need to take into account the negative environmental and social impact throughout the value chain. Different solutions need to be assessed in a more holistic way. Questions arising from that are:

  • What do learning curves for different technologies depend on? How can they be accelerated? Which role does energy policy and industrial policy play?
  • How can we make sure that new energy technologies focus on sustainability and become value–adding for the environment and society?
  • What is the role and the responsibility of engineers in this respect? (Analog to the question on the responsibility of bankers and traders in the financial sector)

 

5) Connections between the different layers and networks

Decisions have influences (often unintended) on other sectors (cross-sector) and other countries (cross-country) and vice versa:

  • Interconnections between the transport sector, industry, energy sector, housing/building sector, the financial sector and so forth become increasingly important. E.g. How can the financial system support and hinder technological development? How does energy policies influence climate policies?
  • Decisions about the market organization of the energy market in one country have an influence on neighboring countries and trade partners. Countries should be more aware of and take into account the influence their decisions have on other countries (especially in the EU context) and coordinate policies in this respect.

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