Infrastructure Archives

Balanced transition II

At Blunomy, I lead our renewable fuel practice. Sometimes it feels like a forgotten sibling of renewable electricity. Electrification is often the first port of call for decarbonisation, never mind that it is just passing the buck to centralised generation. And then there’s the renewable energy procurement through the certification instrument where there is usually no need for matching the time of generation with the time of use – mostly just reconciliation of the gross amount of energy injected into the grid and what was withdrawn for the user on the same month, sometimes even just for the year.

Yet when it comes to renewable fuels, we hold it up to a higher standard. It needs to be mass balanced and the physical commodity will need enter the tank of the owner claiming the use of the renewable fuel. Book-and-claim makes sense to reduce logistical cost and overall compliance cost but it is deemed not as legit or at least not giving enough confidence.

And then there are all sorts of requirements for the production of green hydrogen, including trying to match the time of hydrogen production with that of the green electricity injection into the grid. You get my drift.

Renewable fuel needs to get started sooner rather than later to move our world away from the trajectory that is going beyond 2-degree Celsius warming scenario. And more often than not, in order to grow something mainstream and to achieve the cost reductions that are necessary for broad adoption, we need to get started at small scale. This means expensive fuel, and we sometimes think with this scarcity, we ought to reserve it for use-cases for which there are no alternative decarbonisation. That is probably not always true because at this stage when the fossil alternatives are still broadly available, it is all about willingness-to-pay and channeling the resources to pay for it.

Elon Musk have been incredibly successful at using the capital markets for this end – to be able to fund the scaling up needed to get the cost down. He also successfully identify plausible markets and use-case to pitch into where the capital he raises won’t seem like it is hanging high and dry – that there are people with money willing to pay for the high-end EVs that Tesla churns, or the satellite-launching services that SpaceX could bring about.

The capital market quite frankly hasn’t been all that kind to the energy or climate transition. I think part of the reason is that there’s often this altruistic motive behind the bulk of the pioneering capital there – not the greed-driven ones. And since the transition has such a reputation of not being the favourite of those sharks, it would seem like there was hardly much money to be made there.

And then there is regulations not really wanting to take the fall for raising cost of living when it tries to push the economy towards lower carbon intensity. All of these serves to drive a very unbalanced transition that is skewed towards technologies and approaches to transition where someone else somehow pays for the transition. Take renewable electricity for example; majority of it is intermittent and so the costs is more on the grid infrastructure – which is typically socialised in many jurisdictions. It’s easier to sell green electricity cheap (solar LCOE!) and then load the costs on the grid investments and let the end-users foot the bill by force in order to remain on the networks.

There isn’t really sufficient system level thinking that is operating at the moment across the world when tackling this issue of the transition. There’s a lot of obsession with asking ‘what is the right answer’ to displace/replace fossil when the question should be more about considering what would be an energy system we want to build, and what are the attributes worth building towards.

Balanced transition

My work in the energy transition over the past decade or so have been about fossil fuel diversification but also about renewables diversification. As the system gets more and more electrified, the point of failures shifts from the end-nodes of the energy consumption system (eg. engines, electrical points, etc.) to the transmission and distribution systems, as well as the point of generation.

This is why energy mix features strongly as something that requires government to plan and determine. Singapore’s power generation fleet is ~95% natural gas and hence there is huge risk in being exposed to international gas supply. So we are technically using a mix of long-term contracts and short-term ones, as well as a mix of piped natural gas and liquefied natural gas.

But that is all fossil. What about renewable power? We have been relying on solar power off the rooftops, the mobile plants on empty plots, and the floating solar on reservoirs and that is great. And then we’re thinking of importing renewables from neighbouring countries, which involves long subsea cables at high voltages to transmit the power to Singapore. In order to use the asset well, it is best that the power transmitted is firm and not renewables so you don’t have to oversize the transmission capacity. So you put batteries for those wind and solar power; and then you also try to import hydroelectricity.

But what happens during the dry season (low water levels and hence low hydro), when there are forest fires and haze that block out the sun’s rays and reduce solar yield?

As we are deep within another season of transboundary haze pollution problem, we notice that the energy transition plans may require greater understanding of risks. If the entire region’s energy that we’re relying upon is mainly solar-based, a severe haze event could reduce power yield and result in supply inadequacy. This is regardless of how much battery power you have in the system because the firming is more to smooth out the volatility and system fluctuations across a day, not to deal with capacity factor or yield reductions.

And this brings me to the argument that we need to make the energy transition with a kind of diversification that we do when we had fossil sources in our energy mix as well. We need to be able to secure different, uncorrelated forms of supply and energy vectors in order to maintain supply resilience and stability, even if that may mean a blow to the price/cost impacts. Take it as an insurance premium of sorts. We are buffering ourselves from having to scramble for just what everyone needs when the crisis happens.

Often, this means importing green fuels. That could be biomethane produced from anaerobic digestion of waste water or other wet organic waste streams. It could also mean biodiesel, renewable diesel, or other biofuels produced from organic residues and waste fats and oils from regional markets. This would help us diversify our sources of energy not just geographically but also the pathways that we are relying on so that we are not at the mercy of an energy crisis whenever there is forest fires.

At the same time, developing demand for biomass residue and putting pressure on valorising biomass waste can change incentives for the plantations and forestry industry. If aggregating the waste, processing it can provide a slight return better than break-even, it might make sense for them to do so rather than burning the waste in the forests or fields. The balanced transition requires more systems thinking.

Biomethane reducing energy fragility

I spent the last three years of my life almost evangelising about biomethane and more broadly, biofuels. Perhaps that is not the right word given that I am a Christian but basically I was trying to get people more aware about biomethane because of the benefits it could bring to the energy transition. It was something that was overlooked during the course of the hydrogen hype, and there had been very aggressive lobbying and campaigning against biomethane for some political and emotional reasons.

In the backdrop of the wars that are taking place in the Middle East now, the potential impacts on energy systems and markets, I want to revisit the whole biomethane story, sharing the good, and explaining some of the concerns away, while also identifying the concerns that remain, which won’t be dealt with by biomethane.

The Good

Biomethane is produced from anaerobic digestion (AD) of organic matter. It is a natural process though it can be rushed and optimised through temperature and humidity control as well as careful management of the substrate (whatever organic feedstock) put together under those conditions.

Left alone, these organic stuff would have produced carbon dioxide and methane anyways. The carbon dioxide is biogenic so it doesn’t add to global warming potential, but the methane does (and it’s 28 times more potent). So by capturing this methane, we are already reducing emissions of greenhouse gas (GHG).

But what’s even better comes when this captured methane is actually used to displace fossil fuel. And it does so in two ways. Remember I mention it the AD process produces carbon dioxide and methane? The carbon dioxide can be used in industries for making dry ice, for cleaning purposes, and even used as feedstock for some specialty chemicals. Traditionally, these carbon dioxide are from fossil sources, so getting it from biogenic sources reduces final emissions. At the same time, when biomethane is displacing the fossil methane, we further reduce final emissions when we combust it for energy or consume it for other processes.

That is quite a bit of GHG emission reduction isn’t it?

The Better

It doesn’t just stop there. The biogenic carbon dioxide can be used to produce other e-fuels including e-methane that will help increase the methane yield of the feedstock. The other chemical process pathways like gasification, methanation and all will play a role in enabling this. This provides a suitable commercial pathway for green hydrogen to help contribute to energy transition at this stage without having to refit the demand-side equipment. It helps kickstart the market without the transport logistics and infrastructure in place yet.

There’s more. AD produces a liquid slurry that is called digestate as a residue in the reactors. These are remaining organic matter that has been mainly stripped of the carbon content, but other nutrient content remains, making it suitable for use as a fertiliser. Traditionally, fertiliser is made using synthetic ingredients, including ammonium salts, featuring natural gas as a feedstock to the chemical process. By using AD digestate to make up for part of the fertiliser, we are reducing the use of fossil fertiliser and once again reducing final emissions.

As energy security and food security become a more relevant topic, we begin to see how biomethane wonderfully contributes to both the energy and food ecosystems. While we all wonder when the holdup at the Straits of Hormuz is going to end, we can start investing in the right areas that will help create the biomethane ecosystem, which can enhance our energy security and resilience, rather than squandering further resources trying to backstop our fragility.

The feedstock concerns

One of the most common issues around biomethane or biofuels in general is the challenge of having enough feedstocks. At Blunomy, I’ve conducted many feedstock studies and mapped feedstocks. The truth is that we probably won’t be able to meet all the gas demand through the biomethane that we can produce from existing feedstocks. But neither should we.

Just as we should not be relying on a single gas field or a single strait to transport all our gas. Biomethane feedstocks are naturally diversified from various sources, and policies could encourage more organic waste or residue to be properly managed upstream to produce more biomethane.

Moreover, we have not even begun exploring the possibility of growing novel crop feedstocks on marginal land that can be dedicated to energy. These crops serve to rehabilitate the soil, the land ecosystems while contributing to energy. The concern about feedstock limitations should not even feature at this moment when we have not even exploited a tiny fraction of it.

Perpetuating oil & gas interest?

Another political and emotive concern raised is that biomethane will allow the energy industry to maintain oil & gas infrastructure, further entrenching our capture by these companies. We should not perpetuate gas infrastructure and entrench ourselves in the fossil ecosystem.

More often than not, the infrastructure is regulated, and we simply need to have the right policy and governance in place to push them to serve the interests of the energy transition rather than the status quo. In many countries that have started introducing blending mandates for biomethane in the gas networks and pipelines, the largest gas consumers and even fuel suppliers have become the biggest customers for biomethane!

The methane slip concerns

So the feedstock limitation or concern around energy industry interests, isn’t something to fuss over. What we can and ought to fuss over, is the fugitive emissions, and methane leakages from continuing to use of methane for energy in the existing infrastructure. Biomethane is still methane, so while combusting it produces biogenic carbon dioxide, which we consider non-additive GHG, the release of biomethane into the atmosphere itself is still a GHG emission.

This continues to be a challenge and certainly contributes to rising GHG emissions. What we cannot always agree on is whether pushing to end the use of methane entirely is worthwhile.

There is greater consciousness of methane leakages precisely because monitoring has improved, sensing equipment is now more broadly available, and I believe the technology to upkeep the infrastructure has also improved. This is an issue to be resolved through better infrastructure, better management and better systems to ensure accountability, compliance and monitoring.

Biomethane will not resolve the issue of methane leakages, but I am not sure if this problem should be stopping us from exploring biomethane as a solution to all the other above issues that I raised. Natural gas continues to be broadly use, and the huge amount of gas infrastructure already invested into could rightly be used to serve the transition if we are willing to build this biomethane ecosystem.

I hope you’re convinced biomethane is something worth working hard to make manifest in the future we are all working for. It’s worth wondering, when we pay for energy, what are we actually buying? And whether cheap energy comes at the cost of fragility, environmental harm, lower end-use efficiency, and reduced resilience. Are we exhausting our resources, and the environment for what really matters to us?

Update (26 March, 11:18am): Initially the post mentioned methane is 12 times more potent than CO2 in global warming potential but that has been corrected to 28 times.

Energy companies of the future

When I started more than 10 years ago in the infrastructure sector focusing on environmental solutions, I saw a lot of new energy startups. A lot of them were facing difficulty on the capital front because all the wealth of the energy sector is tied up in Oil & Gas or the traditional utilities. The startups needed to access regulated infrastructure, regulated markets as well as capital in order to scale but it was difficult. The incumbents were gate-keeping.

So I came to this conclusion that nurturing startups in the energy space wasn’t so much about forming the next unicorn or tech-giant equivalents. It was about strengthening the incumbents; and that these startups are ultimately finding a match in terms of strategic investors in the incumbents in order to exit or to find their innovations adopted through the value chain.

Even for the commercial & industrial, behind-the-meter type solutions, I had in mind that the traditional incumbents would still win out because of their brands and stability.

Turns out that these became areas where they tend to beat a strategic retreat. Because it was too difficult. The big guys had a couple of things they wanted to sell; and they sure could provide some service in order to sell those electrons or molecules. They would even invest in some hardware on your site such as a metering system, or some tanks and nozzles, etc.

But once things got complex, where they have to manage some operations (even virtual ones), and liability at the customers’ sites, it became too difficult. They also think it’s too small, so they left it to whom they believe would be the small guys.

Now it took a long time but these were still difficult projects for the small guys! The EPC players, system integrators, tech solution providers had to come together, get into the complexities of energy service contracting and setting up new operation protocol to get projects up. Slowly they came up; sometimes with investments from the cashflow of these contracting firms, sometimes from family offices and rich borrowers. Financial innovation sort of quickly caught up to support this.

The resulting model, as it turns out, is more of a fund structure where capital is raised in a vehicle that will deploy capital into those energy-as-a-service projects. There is basically an increasing specialisation in the capital-heavy versus labour/technical-heavy segments of the industry. The market is still struggling to understand whether these C&I type energy assets (be it a new chiller/cooler, some kind of tech-enabled energy management systems, or just a set of solar panels with battery energy storage system) is considered infrastructure. Nevertheless, they see it as riskier than traditional state-granted concession type of infrastructure, but still safer than privatw equity where the money is put into operating companies without committed long-term revenues.

Now, I want to address the segment of the market that is also dealing in utility scale renewable power. The end of market moves and financial innovations seem to also point towards a fund structure. Whether it is Equis Energy (now Vena) or even Brookfield Infrastructure that started off in more traditional infrastructure, a whole lot of large scale renewable projects are eventually funded and operated by funds.

I would have imagined that funds would be taking over the more traditional parts of the sectors but instead, what we are really seeing is that funds have become the vehicle for transiting into a new energy system of the world. Is this just an interim solution or do we expect funds to become the energy companies of the future?

Airlines & SAF

It’s been a while since I’ve written and since coming back from a SAF conference last week, the challenges faced by the entire ecosystem continues to weigh on my mind. The most obvious challenge in the fact that producers (energy companies or feedstock suppliers venturing into SAF production) and users (airlines) diverge sharply on their views of what is a price that the market can exist and perpetuate at.

To me, this is a symptom of underlying issues including the fact that SAF mandates are crudely determined with a volumetric blend, and that more often than not, the mandates could just force all airports to try and adopt SAF as opposed to starting with some key nodes and rolling out to the minor airports. Or the mandates could just be fulfilled by airlines at the level of their fleets. Or in the case of domestic carriers and flights, all of the flights for that year of reporting. This allows airlines to meet the mandates flexibly. And the market can then optimise for the logistics of delivery as well.

Another issue with the volumetric blending mandates is that typically there’s a threshold of emissions reduction that the fuel must meet to be considered SAF, and the users will purchase just the cheapest one available. That means that producers are not incentivised to produce any fuel better than the mandated threshold. This throws up questions: whether you could blend a bit of A1 Jet fuel into a SAF with much lower carbon intensity than the threshold and then call it ‘neat SAF’? Tricky. And controversial.

At the end of the day, what are regulators and the economy trying to achieve? Decarbonisation. Is aviation important enough for policymakers to focus their attention? Yes and no. Yes because it is hard-to-abate and if no regulations are in place, they will just keep going and spew more carbon into the air. But no because ultimately, aviation emissions are only 2.5% of the global emissions. The proportion will surely grow as the rest of the economy decarbonises; so most of the approach now essentially is to throttle that aviation emissions growth.

Will throttling aviation emissions growth destroy aviation demand? Surely without a doubt. Should we do that only in places where there’s substitutes which are low-carbon (such as trains and electric transportation)? Perhaps. For individual government and agencies making decisions, ultimately, aviation is really not a huge area compared to most other carbon-emitting industries. There’s perception that aviation will have higher willingness-to-pay but I don’t think that should necessarily be the excuse to push the emissions reduction on them.

Again, those are just my opinions and musings for the week.

Bearing the cost of transition

Some interesting announcements and updates were coming out of Ecosperity last week. Most of them oriented around financing of the transition. This is an important topic considering that a lot of our existing economic system is locked into high carbon intensity systems because of financial incentives. Being able to change the incentives can help adoption of more emission-reduction measures.

Transition credits

Launched in 2023, a coalition of players were studying the use and deployment of transition credits. Verra also started working on a proper methodology to account for the carbon emission reductions from transition; and they launched it last week. Since the initial MAS announcement, the Acen Coal-fired power plant in the Philippines have become a candidate for a project that will issue transition credits in exchange for shortening the project’s tenure. And Mitsubishi also announced joining the team of firms taking a stake in the consortium that will generate the transition credits. The idea is that the consortium could then sell off the transition credits to players in Singapore who can then offset the carbon taxes; and there is hope to do the same for Japan.

I believe there is interest for these players to also participate in developing more renewable energy projects in the Philippines to help make up for the shortfall of power generation. After all, the article linked above quoted Rockerfeller Foundation that the shortfall will require “1,000MW of solar, 250MW of wind, and 1,000MW of battery energy storage”. Not sure if it comes as a surprise to all, but because of resource availability, solar and wind farms are not ‘always-on’. They only generate a fraction of their nameplate capacities most of the time, which means a lot more capacities must be built to produce the same amount of gross energy. Energy storage is needed to help time-shift the energy to when required.

WEF-GenZero aviation initiative

Launched as ‘Green Fuel Forward’ – it is a capacity-building initiative that is aimed at drawing in airlines, refiners, logistics companies, banks and others. I think the idea of building up capacity to deal with the entire SAF ecosystem is useful. Aviation decarbonisation over the next few decades disproportionately depends on SAF. It is good that the global aviation industry have more or less settled on this particular decarbonisation pathway and is developing various tools to be able to adopt it.

More than just using a different fuel, it involves getting customers to share in the higher cost of the fuel. How to do so is the issue; and all the airlines are afraid of the ticket pricing affecting their competitive position. Different approaches to distributing the emission reduction costs have been mooted: (1) some like the idea of a corporate decarbonisation programme where partners are gathered together and somehow agree to some formula to share the cost of the low-carbon fuel premium; (2) others think we could convert the emission reductions into some kind of credits to be sold to freighters or passengers who are on board those flights. Those methods involve using airlines as the market-maker for emissions reduction.

The customers of airlines especially the corporate players will need to determine their strategy when it comes to flight carbon emission abatement, as well as the budget they can allot to it. For now, corporate probably have some kind of trip budget – they might have to scale it down based on the SAF prices they are expecting. The airlines themselves will have to develop their own strategy of allocating the cost of SAF to passengers or corporate customers. And of course they can then issue or bundle the SAF-credits (SAF-C) accordingly.

As stated in the ST article on this initiative, each SAF-C means a reduction of 2.5-2.8 tonnes of carbon emissions. Assuming that each SAF-C is priced exactly equals to the premium that airlines pay for SAF above their conventional jet fuel, you’re looking at about US$1000-1,600 for each SAF-C. Now in comparison, a typical carbon credit (representing 1 tonne of carbon dioxide abatement) out in the market is selling at around US$3-4; or if it’s CORSIA-eligible, maybe US$20? So corporates are going to have quite some difficulty working out what is worth paying for SAF-C if you were supposing there was going to be some kind of market and price-discovery for those credits. Does it mean the airlines will have to pass on the rest of the cost shortfall to other customers? Then why do only the SAF-C buyers get to claim the reductions?

A lot of capacity-building will be needed and a proper vision for the workings of the ecosystem worked out.

Singapore government’s clean energy fund

There was yet another announcement about US$500m fund that Singapore government is going to deploy for green projects in the region, as part of the new ‘office’ that MAS is going to set up (named FAST-P). That’s actually going to be really interesting though the news was very scarce on details. I suppose they just wanted to announce some parameters they have decided during Ecosperity week while many other things are still being worked on.

We know there will be 3 pillars: (1) accelerating the energy transition away from fossil fuels to clean energy, (2) ramping up green investments, and (3) decarbonising emissions-intensive sectors like cement and steel production. I suppose the first pillar might relate to the transition credits mentioned earlier. The FAST-P office will probably be spending more efforts for (2) because that will be a lot more complex and require someone to drive or coordinate across different parties. It is not clear how (3) can be done when those sectors are likely the beneficiaries themselves either through energy efficiency investments or fuel/electricity substitution.

Having been involved in the set-up of Infrastructure Asia some 7 years ago, I am fully aware of how much effort behind the scenes just to get the resources together, not to mention the actual work of setting up the office. The work to be done by the office is really to identify the activities where it is worthwhile helping to reduce the riskiness of other financiers or funder. The metric would probably be more impact driven though for the sake of Singapore’s economy, it would be necessary to require anchoring some activities out of Singapore.

I think it’s really great to see how the various entities within the Singapore government or related organs (and I’m almost definitely stretching that by implying platforms like Genzero, which is part of Temasek, and some of those Singapore firms dealing in transition credits) are trying to tackle the issue of the transition, not just for Singapore but for the region.

Singapore energy transition II

Going beyond the energy system, there’s another important element to consider for Singapore as we are faced with a world in transition for the energy system. Singapore successfully built itself out to be a sort of energy hub even without domestic energy resources itself. In 2023, Singapore imported 145 Mtoe (million tonnes of oil equivalent) and exported 76 Mtoe. We basically re-exported more than what we consumed as a country for the entire year; and this is because we are largely importing petroleum products to be refined and then exported as more differentiated products. As an economy, Singapore earns the ‘cracking spreads’ from the refinery and drive the economy with that. Technically, it is the oil & gas companies running the refineries that earn that spread.

But more things happen after that, too. Because the refineries are left with a lot of heavy oils at the bottom of the barrel, we have lots of maritime fuels to spare, which coincides nicely with our large transhipment port facilities, together with our highly efficient port system that ensures a strong throughput. These advantages combine to allow Singapore to be the largest bunkering hub in the world. Bunkering refers to the refuelling of maritime fuel for the vessels calling at the port of Singapore. Storage terminals and other facilities will contribute to that.

With that scale, comes along a lot of other opportunities and economic activities that helps drive the economy. Vessels will call at the port to move the cargoes, which means that vessel services are required at the port. All sorts of cargo audit, verification services would be required. Engineering for vessel repair and overhaul could be added to the port city.

If we go back up stream to the refinery process, there are a lot of corresponding supply chain, derivative products that can all be based in Singapore, including some of the petrochemical production, wastewater treatment, waste oil recovery, centralised utilities services for the chemical plants. And it is not limited to manufacturing of course. There would have to be engineering firms, system integration firms, companies stocking up components for all of these plants including valves, flanges, and so on.

So while we can go on and on about the energy transition, when politicians and government think about their economies, there has to be some kind of rational and gradual shift rather than sudden evaporation of all of these activities. I don’t think we have clear solutions yet. For the past decade or so, government had left corporates to plan their own transitions, hoping to create friendly policies which will ‘help’ these corporates along their transition plan.

Now the issue is that the corporates tend to make big ambitious commitments when times are good only to realise they cannot be delivered as the resources they have is insufficient. Better yet, many of them set targets based on assumptions that simply does not hold in a low-carbon economy. So there is mostly empty talk, with no sticks or carrots to keep them in line. This is not just about discipline of executives and managers, but the ability of shareholders and other stakeholders to bear the costs of the changes necessary.

And then in 2020, Covid-19 struck and the government went full steam ahead with interventions, ushering an exceptional era where more expectations are piled on them to intervene directly and set regulations to push the world towards net zero. We all had hoped so through rounds and rounds of COP; but they really only started waking up a bit more during Covid-19. Yet the pandemic left us all weaker, with less resources to cope with the sustainability issues. When the funding and stimulus from the pandemic dries up, it seemed that a lot of plans for net zero had to take more of a backseat.

In Singapore we tried to ramp things up a bit more with the carbon taxes – despite how relaxed it actually is, there were still groans and moans – serious enough for the government to consider some kind of ‘rebates’. It seems to me that pricing carbon wasn’t really enough – just as setting up more tariffs was not going to cause manufacturing to magically re-shore back to America. There’s still a lot of coordination, capacity-building to do.

So let’s work together, and let’s devote some resources to consultants like my kind to help build that capacity and create that capability to moe into the next phase.

Singapore energy transition

As a strategy consultant devoted to the energy and climate transition, I spend a lot of time thinking about what is the pathway to transit our economy, and economic activities. A lot of the confusion and disorderliness arises out of poor understanding, misinformation and also uncertainties surrounding technology curves. Another reason is that we desperately want to get things right before we can make the move – this is a disease resulting from having too much information and failing to be strategic. Sometimes that is too late.

We have pretty much breached the threshold of 1.5 degree Celsius warming. That means we will have to decarbonise our economy while simultaneously deal with the consequences of climate changes within those temperature thresholds. We could fall into various positive feedback cycles that bodes ill for our climate systems. For example, we could be looking to manage the increased temperatures we experience by introducing more cooling, creating more comfortable indoor spaces that ends up throwing up more heat into the external environment, and also emitting more carbon dioxide in the process. I suspect it is already happening in Singapore.

I think an orderly and balanced transition isn’t about looking for the ultimate fuel or energy vector as our panacea. Even for Singapore, I dare say despite the National Hydrogen Strategy, it is very unlikely that we will be able to replicate our 95% natural gas strategy for our electricity system with something low-carbon. Unless it is biomethane but even then, there are doubts about the adequacy of supply. This means we will need to adopt different strategies.

I think for an energy system like Singapore, electrification may not always be a solution because adding more demand for green electricity to the grid would just make it harder to green our grid unless we manage to pull off an ASEAN power grid system where we can bring green power from anywhere in ASEAN and consume it in Singapore. Otherwise, if we assume a standalone grid system in Singapore that have projects offshore with dedicated connections to Singapore grid, it is better to focus on greening the existing electricity demand first, before looking at stepping up on electrification efforts (especially those where natural gas is currently being consumed).

The last thing we want to do is to electrify all our road transportation, only to have to import green hydrogen to be used to generate electricity to charge our electric vehicles. If that actually happens, then won’t it make more sense to put the green hydrogen directly into hydrogen-fueled vehicles instead? We want to minimise these inefficiencies and unnecessary round-trips. I think we need to consider first the anticipated electricity demand and the size of the system we will need over the next 2-3 decades, and make sure we are able to strike enough deals and do enough projects to meet that first.

Then separately, on the fuel systems side, the authorities will benefit from developing a clearer view of what our industries need. The industries are also transforming and trying to meet decarbonisation obligations, not just from the carbon tax introduced in Singapore but also pressure from other markets. By aggregating these needs and then looking at common infrastructure or aggregated deals that we can explore, we create more synergies and stickiness for the industries housed in Singapore. Whether it is renewable diesel, sustainable aviation fuel or biofuels for the maritime industry, these various fuels can be looked into more holistically for the demand pockets within Singapore to tackle them together.

We need to use the same attitude we have used for industry promotion and attraction to look at our energy system. Perhaps for the next leg of growth, the Energy Markets Authority will need to be parked under the Economic Development Board? Or at least they will have to be more coordinated and act almost as one agency in charting the needs and course ahead.

Primary energy fallacy

I think more people need to understand this concept that was attributed to Michael Liebriech, a thought-leader in the energy transition. Sam Hamels just wrote a pretty short explainer of its implications on Linkedin, which I encourage you all to read.

The assumptions are simple and does not address some of the other obstacles along the way but it is important that we should not be overwhelmed by the gross energy requirements in primary energy terms when we recognise that a lot of primary energy in the form of fuel are lost in the process of converting them into energy.

There are other obstacles along the way however, when considering that the most viable and economic renewable electricity sources are typically wind and solar, with substantial hydropower in the mix for certain geographies. These include:

Transmission and distribution infrastructure:
- Hydropower tends to be farther away from demand centers so the distance of transmission makes the infrastructure expensive
- Wind and solar tends to be intermittent which means that a lot more needs to be transmitted during the times they are produced while the infrastructure remains underutilized when they are not available
- Overall capacity will need to be increased compared to the fossil energy regime
Energy storage infrastructure:
- While hydropower dams could benefit from becoming pumped storage, other renewables such as wind and solar will require significant energy storage in the grid in order to reduce the need to overbuild (because of the point above)
- Energy storage will also help provide the ancillary services for the electricity system as fossil plants retreat from the system (eg. reserve markets, frequency and voltage supports) while it becomes more volatile due to intermittent renewable electricity.
- A lot more investment into stationary energy storage will be required. At least before the more lofty vehicle-to-grid concepts kick into place.
End-use system/equipment changes
- To reap the benefits of the improved efficiency of an electricity based energy system, there will be a need to electrify more which means end-use equipment will need to be changed – assuming we’re trying to change a whole fleet of equipment with no regard to remaining lifespan, we are not properly using up our invested assets.
- Typically, fuel-driven systems have longer lifespans than those driven by electricity – that may have to do with the fact that fuel-driven systems are more mechanical and have less delicate circuitry systems. Of course, that varies with specific use-case and appliance but what this means is that you might still face more frequent replacement, and the environmental cost of that might need to be carefully considered.
- In some cases, the change in end-use equipment requires further infrastructure support. The most important example is electric vehicles, which need the support of a robust charging network – that must be supported by improved distribution networks in the grid.
- Besides the grid, institutional improvements that properly allocate costs and reflect them to customers are necessary as well. Sometimes, it may make the transition harder as well. For example, the peak demand pricing of electricity markets drove a bakery in Queensland Australia to change their electric ovens to gas fired ones because they absolutely have to bake their breads in the early hours of the morning.

Now the reason I’m listing all these other obstacles is to challenge us to think through the solutions needed having convinced ourselves that we actually can work on getting enough supply into the system. There is still a lot of work to do to ensure this supply actually matches the real demand. Looking at gross energy terms is simply not enough, as evident from the primary energy fallacy itself.

SAF sustainability and pricing

This year, the EU mandated 2% Sustainable Aviation Fuel (SAF) blending in all airports feeding into aeroplanes. The definitions of SAF for EU is clear, mostly based on a whitelist of feedstocks that are proven to be ‘sustainable’ and achieves a high level of carbon emissions reduction on a lifecycle basis (70% or more compared to A1 Jet Fuels). Unlike CORSIA, which puts the onus on airlines to reduce their emissions from jet fuels, RefuelEU regulations put the responsibility on fuel suppliers that supply to the airports. These suppliers will need to quote their prices to airlines accounting for these regulations, and while airlines don’t have to deal with the hassle of making sure the blend is correct to meet compliance requirements, they will need to bear the increased costs.

Now, there are also similar SAF regulations in the US under Renewable Fuel Standards, but their requirements for feedstocks and lifecycle carbon emissions reductions are different. Just to caveat first that I’m way less familiar with the US standards and requirement but based off some work from my colleagues, I understand they are less stringent, defining SAF to require 50% reduction in lifecycle carbon emissions compared to conventional jet fuels. This allows feedstocks such as corn ethanol, or other dedicated energy crop-based feedstocks (including canola, other oilseed crops) to be used for their SAF.

And if you refer back to the ICAO standards set under CORSIA, they only require that there’s 10% reduction in carbon emissions. It is still unclear to me what would constitute ‘SAF’ to the countries in Asia Pacific that are all introducing some SAF volumetric blending mandate.

One of the key challenges with just defining a standard threshold for carbon reduction and then setting a volumetric SAF target is that you don’t incentivise SAF producers to reduce their lifecycle carbon emissions. It becomes a race to the bottom for the airlines or fuel suppliers to buy the cheapest SAF that meets the threshold for compliance. If instead, we set a carbon emission reduction target and require the blend to achieve that target, then we can benefit from a greater diversity of SAF feedstocks and pathways that meets the economics on the basis of a unit carbon abatement cost. After all, the carbon emission reduction is the piece of value we care about for SAF at the moment, won’t it be better to price that?