Collaborate to innovate
Decarbonisation is driving change in the energy world’s status quo. Christoph Frei, Secretary General of the World Energy Council, speaks about the future of markets
You have been at WEC for a number of years now. What are your proudest achievements?
The fact that the country scenarios are world class is something I'm very proud of. Our visibility, the engagement with our constituents globally is very good. We have the Trilemma process which ranks 150 countries and initiates policy dialogue between them, we have done work that provides thought leadership, gets great feedback every year, and gets global leaders talking.
We have more than 20 regional events which we're very proud of. At the Congress we have for the first time a number of presidents showing up.
Energy is at the heart of so many important discussions and for the first time the World Energy Council is ideally placed to be at the centre of those discussions.
Where does the Energy Trilemma (energy security, social equity and environmental concerns) figure in the WEC's thinking?
If you had to come up with a clear definition of what is energy sustainability then it would be very difficult but if you look at the global paradigm, the worldwide Trilemma is the best possible sustainability model we can provide. It's the key defining element for who we are and what we mean by sustainability.
What do you see as the most pressing challenges confronting the global energy sector?
Over the past 45 years we've seen higher growth in energy demand than we will over the next 45 years, mainly because of a slowing of population growth. There's also a higher decoupling of energy from GDP. Energy demand is going to peak in the late 2020s and there will be a profound transformation. The key driving force will be decarbonisation. If you look at how much we have in proven reserves globally this equates to about 2800 gigatonnes of carbon dioxide emissions. The carbon budget we have (to maintain global temperature rises to within two degrees Celsius) is 1,000 gigatonnes. Over the past 45 years we've seen a GDP decarbonisation of 1% per year.
If we want to achieve the two degree Celsius limit, that decoupling has to accelerate to 6% per year.
What we did yesterday isn't going to work when it comes to business models, especially on the electricity side. We have in the past spoken about the marginal cost of electricity being so high it wouldn't allow us to recoup capital costs and now we have increasing digitalisation of the electricity sector. On the transport side we have increasing use of natural gas.
By 2060 oil will still be the majority transport fuel but those other parts will grow. There's this shifting business model and shifting market contexts.
How important is joint, coordinated action in tackling the biggest issues in world energy?
Despite us saying so much of the innovation is local, the climate issue for example can only be solved globally. The whole question about stranded resources will lead to a shifting energy equilibrium which will need to be solved on a global level.
This global and regional equilibrium and the effects on energy and climate policy will be crucial. This shift in global and regional equilibrium and policy reality will be crucial. If you look at the trade agenda for delivering the most efficient technologies that can only be addressed at a global level. So most of the critical issues via technology and innovation have to be delivered at a global level.
What should businesses be thinking about as the world migrates from a carbon economy to one where renewables and nuclear is a much more decisive part of the energy mix?
A dramatic way of summarising it is to say that by 2060 electricity is going to be the new oil. Today oil is the biggest source of primary energy, by 2060 the biggest single contribution to energy will be from electricity. That means that businesses need to grow.
Coal is a not going to grow. Our scenarios portrays coal decreasing and gas growing. Despite the carbon reality gas is the one fossil fuel which is set to grow. Electricity is going to grow very dramatically and for businesses to be part of the growth story they have to look at things like gas and that's something we're interested in doing.
With a shifting energy mix, how should companies adapt their business models - what will change in the way centralised energy systems operate?
There are so many things happening but lots take time as well. Today we have 80% of our energy needs met by fossil fuels and we will have somewhere between 50-65% of our energy needs will still be met by fossil fuels used by 2060. Let's be very clear on this; it's not going to happen overnight. That said, it's all about growth and how you get closer to what we want to achieve in the long-term.
The business models obviously in the new world are more localised, they are more distributed, more decentralised, they're closer to the customer and they look at the commoditisation of technology. They look at engaging the consumer and obviously they are much more carbon neutral. Everyone is looking to how we can get a step closer to what we want in this context.
What is the role of technical innovation in the energy industry? Is the sector doing enough to incentivise innovation, or could more be done?
If you want to solve the carbon issue and make sure people have greater energy security that is what innovation is for. A lot of innovation is needed. With the current level of innovation today we will not end up in a two degree Celsius rise world. From a climate perspective we need more innovation. Before and after Paris the perception of the importance of innovation was paramount. It's really grown on the global agenda. CCS - if you want to believe in a 2 degree Celsius world then acknowledging this current slowness of innovation means we're not going to get there. We need more innovation with electric storage for renewables. Storage prices have come down but we need to see much more focus.
What about the social dimension. Do you consider the provision of affordable energy to the world's population as important as ensuring that energy is carbon neutral?
Today with 1.1bn people without access to energy we have to deliver progress in combating that. Although this is one area where I'd say we seen the biggest progress today compared to five years ago. Five years ago 86% of that 1.1bn people were are in rural areas.
Today we have business models which can deliver innovative solutions to those rural areas. And that is a result of combining innovation from, for example mobile phone technology with solar power. We've seen a combination of innovation on financing technology and business models which just wasn't there five years ago.
Within this shifting picture, how important is natural gas - as the hallowed "bridge fuel"?
Natural gas has so many qualities in terms of carbon dioxide emissions. It can help decarbonisation on the transport side and it can help substitute coal in electricity but it's much more than that.
Gas infrastructure is probably the most comprehensive energy storage solution we have systematically available across the whole energy spectrum.
Not to make the best use of that going forward would be a massive waste. Those are the reasons why gas plays such a key role in our scenarios.
What is your aim for the Congress in Istanbul?
We are going through a grand scenario which requires positive leadership. We can look at what it takes on the climate side and what it means to manage the shifting equilibrium with the stranded resources question and what it takes to increase efficiency by 2050.
All these things won't happen without leadership and what we call a new energy contact and project planning. This congress in particular is saying there is a transformation and we need leadership to make that transformation. It's not going to happen by itself.