Category Archives: Infrastructure

Ordering the transition

There is some kind of rational order to the energy transition. It depends on the maturity of the system, the current technologies deployed, the infrastructure in place, and also our views on the technologies ahead. This order will not occur naturally, nor will the economics of it follow naturally. Instead, it is an approach that requires coordination across the energy system, regulatory framework, and the markets to ensure that order proceeds as it should. There is no single right answer, which means there can be some variation but by and large, there are clearly right directions to move forward on.

It is critical to sharply focus on the objective of decarbonisation and organise other matters around it first. Presently, most of the global discussions, and the market narratives are clouded by issues around cost concerns, job losses, stranded assets and lots of doom and gloom around those. Worrying about them is putting the cart before the horse because we need to properly envision a future before we decide whether the sacrifices are worth and how to deal with those secondary problems derived from them. After all, you don’t choose your destination based on the public transport time table.

If for example we want to look at the decarbonisation of power systems, there is first the displacement of fossil generation with wind and solar. So wind and solar must first be installed into the system and ‘traditional renewable power’ such as hydropower and even bioenergy boosted. As battery technologies are not rolling out as quickly, hydropower and even biogas plants can and should help with some of the smoothing of supply. Yet if they are not sufficient, batteries must be put into the system to enhance the reliability and reduce intermittency so that renewable power is able to displace fossil generation.

And only then, would the power system be able to start supporting electrification of other industries as a route to decarbonise. There is no point thinking that electrification is a route to decarbonisation if the power system itself is loaded with coal and gas plants, and increased demand is continually used to justify the continued fossil presence. And then only when the power system is properly decarbonised should we start considering and pushing for green hydrogen. Otherwise, having our renewable electricity capacities all caught up in green hydrogen production is definitely not a great idea for the industries looking at electrification to decarbonise – you’re pushing up the electricity cost on both sides, and then you end up complaining that green hydrogen is not cost-competitive.

If we believe that we want to pursue a route of hydrogen production that is based on highly efficient electrolysers then we may only be able to do so when batteries are really cheap. This is because highly efficient electrolysers can only have their costs justified through high utilisation. Yet renewable electricity is expensive when they are scarce which is probably the case for a system full of solar at night, so if you want to keep the electrolysers going 24/7, you need batteries to keep pushing electrons through them. Highly efficient electrolysers, combined with lots of batteries for maintaining high utilisation is a great formula for extremely expensive green hydrogen. Cheap but inefficient electrolysers might actually end up doing the work of pushing down cost of hydrogen earlier (see some ideas here).

Now all that only helps with the production cost of green hydrogen; there are other issues and cost barriers which needs to be overcome. More on them in my next post. But what I’m trying to show here is that there is a rational, orderly way to approach the problem of decarbonising our systems. And the way to consider it is not to load up the emissions problem with all of the other considerations upfront. Rather, we organise ourselves better by thinking first about the best route to decarbonise based on carbon intensity, then we identify the costs, figure out the trade-offs and see what is worth sacrificing.

Transition fuels III

I’ve written about hydrogen (here, here and here) before and I would like to write more about it. Hydrogen is fascinating. It is a sole proton with an electron around it. Well, that’s the element, but it typically doesn’t exist in that form. Instead, it exists primarily as 2 protons bound together by a covalent bond supported by the existence of the 2 electrons sharing their electron orbitals within the covalent bond cloud.

Many people today believe that hydrogen is one of the fuels that the world will eventually transition to in the net zero world. This is one of the main reasons people are excited about hydrogen projects and hydrogen production (‘this is the future’). Much of that is grounded on the elusive quest to find some monolithic solution for the carbon conundrum. Not that the world will universally converge upon a single solution but that all solutions that are ultimately low carbon will stem from hydrogen or find its linkages to it somewhat.

But is hydrogen the future? Sure, hydrogen cars are really quick and easy to refuel. And indeed, a lot of industrial heating process currently running on natural gas can be supported by combusting hydrogen. And even better, hydrogen combustion merely produces steam, a byproduct that can be used for other purposes. There’s something beautiful about the non-toxicity and purity of the byproduct, the elegance of the molecule and perhaps the fact hydrogen is used in different processes in petrochemical industry. Hydrogen will be part of the future, but will it be ‘the future’? I think a lot more other supporting elements needs to come in place. An orderly energy transition is about proper sequencing and targeted shifts rather than trying to leapfrog or take potshots.

Over the past decades of stability, we’ve allowed the whole idea of economic growth and making money to take centerstage in the lives of the most productive people in the world. With the climate challenge, it is getting important to channel that resource and capability towards the energy transition. I’ll write more on my vision for an orderly transition from here. And if we all can align on the mission, we can start evaluating and piecing together various different routes and work through breaking the barriers and blockers. More on that soon.

Transition fuels II

Bioenergy, in the form of biogas or liquid biofuels finds themselves in the nexus of many things. And as it turns out, nexus of unrelated fields tends to languish in obscurity for far too long because no one in powerful places is willing to take hold of it and champion it.

And no bioenergy isn’t the kind of thing that is shown in The Matrix. One Uber driver who picked me up on the way to a bioenergy conference in Queensland thought that was what I was referring to.

Typically, bioenergy takes some kind of organic material and makes uses of various processes (synthetic or biological) to convert them into hydrocarbons that are chemically identical to fossil fuels. As it turns out, the way in which the earth cooks up all the historical organic matter into fossil fuels is not the only way in which organic matter can be converted into fuels. There are natural processes that can return these organic matter to precursors, which can allow us to derive the hydrocarbons we could use as fuels. These products are what we call biofuels and collectively, the use of organic matter within the contemporary carbon cycle (or short carbon cycle) to produce energy is known as bioenergy.

As much as these fuel and products are chemically identical to fossil fuels and can utilise all of the oil & gas infrastructure we have built over the past century, their production is so radically different from fossil fuel processes that the oil & gas companies seem to struggle with them. Or at least they find it hard to wean themselves off traditional production and capture new demands using bioenergy. On the other hand, the smaller, emerging players who wants to start bioenergy businesses find themselves shut out of the larger infrastructure base that is used to distribute these fuels because they are firmly locked within the fossil fuel ecosystem. And fossil fuel is just way more competitive if it’s about economics. Regulation does not see a clear path for bioenergy to take hold because they perceive it as a fringe activity, and the fossil lobby could easily quashes those thoughts from emerging. Across the world, bioenergy only took hold because regulation stepped in with blending mandates or direct subsidies to encourage the integration of bioenergy into the existing fossil energy system.

So while there are huge advantages in bringing in bioenergy because it helps prevent those oil & gas infrastructure assets from being stranded, they find themselves in the crosshairs of those parties whom they could help partly because they are in the ‘green camp’. On the other hand, the green camp doesn’t want to adopt and champion the bioenergy cause as much as wind and solar because bioenergy could potentially cement the position of the big oil. In markets where regulations require blending, oil & gas players have gotten involved in the bioenergy value chain, probably reluctantly and not without grumbling. They just try to meet the basic standards while taking all the political credit for having made the change.

There is also another group that bioenergy serves, which ends up becoming their enemies as well. They are the agrifood processing facilities or other food value chain players generating lots of organic waste. In countries where disposal of these organic wastes is well-regulated, anaerobic digestion plants are used for waste treatment. The biogas produced were seen more as a waste gas to be flared than an energy source to be harnessed. To harness these energy, more investments have to be made on the part of these distributed networks of players who might not have the capital readily available. They may not have the decarbonization ambitions either. There are also concerns that once we start harnessing energy from these, there will be more demand for organic waste and even agricultural residues which were traditionally used as substitutes for organic fertilisers. At the end of the day, getting the agrifood value chain involved in bioenergy seemed to be more like a distraction from their core business without contributing significantly to their business. In fact, there is increasing opposition to bioenergy that is driven by the view that it would pit energy against food production, which would be detrimental to a more fundamental need of mankind.

Hence, even though I would argue bioenergy is the most important energy source to support the transition, while playing a significant role in the net-zero world, there’s still so much wanting in this space. There is still no clear space that is adopting and championing this enough to mainstream it.

We will really need to change the narrative on bioenergy. More on this soon.

Transition fuels

When Blunomy first started out as Enea Consulting in 2007, the world was not that different. We were burning lots of fossil fuels, except a lot more coal and oil. There was also less renewables then. Solar panels were incredibly expensive and people thought wind turbines were so clunky (and expensive for the amount of power it generates) it was not possible for the world to have more wind turbines than combustion turbines.

The period of 2000s saw the mainstreaming of liquefied natural gas (LNG) and gas was broadly touted as the transition fuel as the world cross from coal towards renewables. Emissions from combustion of gas was less than half that of power generation with coal, and gas power plants could fire up faster than coal power plants. Energy transition then was about fuel switching and the metric was more around carbon intensity per unit energy. Unfortunately, there was no regulations to push for shifts in this metric and so when the economics doesn’t line up, it simply was ignored. Coal power continued propagating in the world especially in the developing countries. Even in developed countries, coal plants were continuing to operate or even refurbished to extend their lifespans. Singapore’s Tembusu Multi-utilities complex which burns a mix of coal and other fuels, was commissioned as recent as 2013.

All these meant that as energy demand increased, the mainstreaming of gas especially through LNG was only serving incremental demand and not exactly displacing coal. Today, it gets lumped as ‘bad’ with coal and there are calls for it to be eliminated from the system. In many sense, people are considering gas no longer as a transition fuel but to be leapfrogged somewhat. The leapfrogging makes sense from a carbon intensity point of view. But by most counts, gas is a superior technology even to renewable power generation as gas power can still serve as baseload and is dispatchable unlike wind and solar which do not respond to the beck and call of power demand. Batteries help to overcome this but as long as the economics of renewables-plus-batteries is not superior to coal or gas, it will be a tough sell.

The reason for expansion of LNG was because of the superiority of gas in terms of technology, the way it matches our energy use, and the falling costs in the early 2000s. Projecting the way forward, this is unlikely to be true anymore as exploration in certain jurisdiction have slowed or ceased, existing gas fields are no longer as productive, and material costs have risen to counter the competitiveness. There is also a question of the new generation of engineers bothering to enter into this space if they perceive it as declining.

This is where bioenergy comes in and becomes positioned so awkwardly that it finds itself a little stuck. More on this soon.

Structuring incentives for waste

As we try to navigate the climate transition, we are working within a framework of incentives and economic structure where incentives are sometimes mis-aligned to driving climate-positive behaviours. Not just climate but sustainability overall. Waste management represents one of the more problematic area. In many situations, the cost of waste management is pretty much socialised with the cost spread out across a large number of people while the economic benefits accrued by only some. Take electronic waste without proper framework in place for disposal and attribution of responsibility to producers, the society bears the overall cost of managing these difficult waste while the benefits are borne only by the users (especially those who are replacing devices extremely often, and the producers who are selling electronic products.

By incorporating producer responsibility, the cost of disposal and waste management should preferably be priced upfront to customers so that they are paying for the lifecycle cost.

The same should be done for various product packaging. After all, the producers are typically the ones responsible for handling the packaging in the first place so it won’t be too bad for them to take on the responsibility. They can then put the cost into the price tag of the users, who would then be the ones paying for those goods that require the particular packaging. The thing about packaging materials and electronic waste is that they have value as recycled materials anyways – which means that if the ‘disposal’ logistics cost can be at least in part offset through the value recovered from aggregation of these materials, it is a win-win.

What about food waste? Food waste should not be the responsibility of the producers since it is the consumers who determine the level of waste based on how much they purchase and eventually consume. Likewise, those in-between the value chain from farm to table would also be responsible for some of the food waste through their utilisation of the ingredients. The way to make them responsible for the disposal cost is to allow only specific channels of disposing food waste and pricing it properly. The cost of disposing food waste will necessarily be the logistics involved, and then offset against whatever residual value the food waste can generate. What kind of residual value is there? After all, food waste cannot be used to remanufactured food (unlike cardboard whose fibre can be used for recycled paper, or e-waste where the extracted metals can be turned back into materials to produce new products).

Food waste can be turned into energy through anaerobic digestion. And the process will generate methane that can be used as a fuel. The fuel potentially displaces fossil fuel and emits biogenic carbon dioxide in the short carbon cycle. Of course, there are plenty of other biofuels that can also be produced from food waste. If we start putting a value on the food waste, does it mean more of such waste would be produced? It is quite unlikely since the value will probably represent some kind of residual value from the primary use of the food. Yet we find CEO of multi-national company Lufthansa thinking otherwise.

The challenge we have today is that the incentives around recovery of residual value from waste. We will need to redesign how we are able to extract residual value, offset against the disposal costs. We will also need to ensure disposal costs are properly priced and applied to the right parties responsible for the waste generation. We need to set up incentives such that waste is properly sorted and pushed into various streams. The cost of mixed-stream convenience needs to be costed to reflect the cost of sorting.

There’s a lot of work ahead. We need people to get on to them.

Electrification Tussle II

This post continues from yesterday’s blog post.

There will be players who cannot electrify their processes, and they will need solutions. Most of them would be using natural gas running through the pipelines. And for them to decarbonize, they would need either a renewable form of natural gas, which is probably the most acceptable solution for them technically. For some of them, burning green hydrogen could potentially work as well, assuming they overcome the issues around the lower energy content of the hydrogen. Let’s consider again the drive to electrify. Using green hydrogen for these industries is equivalent to electrification because green hydrogen production is driven by renewable wind or solar power production. The notion is ultimately to shift the energy demand of these hard-to-abate industries back to the electricity grid, except through green hydrogen. Except, of course, the green hydrogen route is a very inefficient use of electricity because of poor conversion by electrolyzers and then coupled with the fact that more energy might be used to transport or store the hydrogen.

What I’m trying to point to here, is not that green hydrogen isn’t a viable solution – because in due course, with technological improvements, it definitely can and should be used. But in light of the electrification challenges I highlighted in part 1 (yesterday’s post), green hydrogen does not help alleviate the problem. It tends to complicate it and put even more stress on the electricity system when trying to green the grid. The mix of policy stances involving the heavy promotion of green hydrogen, the attempts to accelerate the reduction in gas use domestically, and setting aggressive renewable energy targets (really more like renewable electricity targets) for the grid emissions factor are all putting a lot of pressure on the electricity system while trying to keep electricity cost pressures under control.

Already mentioned in the earlier blog post is that natural gas resources can serve as part of the transition story. Now, there are concerns and worries about an addiction to fossil gas. After all, the economy might actually be addicted to it because it is a very lucrative export for Australia and so even as the country tries to reduce domestic use, it is unlikely to give it up as an export. And the fear is that the addiction would make it harder to decarbonise. This is why the other area for the government to direct its resources and develop policies that channel efforts in the right direction would be to promote biomethane production and displacement of fossil natural gas through the use of biomethane.

It is almost a no-brainer. Yet, there were concerns about the costs of biomethane while the more costly green hydrogen is being subsidised in all directions. There were further concerns about the limits of the resource potential of biomethane when the grid resources for green hydrogen production are even more scarce and expensive.

In providing my opinions, I have not given any figures but assumed that readers can find and discover for themselves the relative costs, and other challenges associated with how the overall policy mix and energy transition conversation is creating needless bottlenecks and distorting the orderliness of the energy transition. I suggest that we direct our efforts as an industry, economy, society and country in a more sensible, coherent, and directed manner to navigate the energy transition. The technically sensible approach is available and on the table, let’s set that as a destination first, and then slowly navigate the political minefield to get to it. This would likely produce better results than to be muddling through the technical solutions while trying to satisfy various political constituents and be none the wiser as to which destination we’re trying to get to.

Just an additional note to say that these entries are purely my personal opinions and do not reflect any views of my employers or any organisations I happen to be affiliated with.

Electrification tussle

The more I observe the energy transition in Australia, the more I realise that its attempts at balancing many different principles and ideas are at odds with achieving an orderly transition. Too often, we cast the energy transition as a technical or economics problem but more often, it’s a policy and political science problem. At the heart of the debate, is the age-old welfare economics issue around winners and losers. And with lobbying, power plays, risk of job losses, and a mix of various different studies, academic and commercial contributing to various perspectives, it can be incredibly confusing for policymakers.

Having worked on the side of government and alongside policy makers when I first started my career in Singapore, I thought that the volume of noise that exists in Australia around the energy transition is startling. I recalled that there were a lot more ‘no-brainer’ type of policy directions and being in the government was a lot more about trying to steer a large, heavy ship towards the destination that we can more or less agree on. In Australia, it almost feels like the policymakers are simultaneously being pulled in a hundred different directions at the same time and trying to achieve it all.

If, at this point, we are seeing that the policy direction is towards electrification, then the actual effort will have to be looking at what can green the grid and focus on that. So there’s been funding towards more solar and wind, as well as batteries to help balance the load in the system. The next big challenge is grid stability and network capacity. This will require extremely large investments and infrastructure build-up that will take time. This means we cannot electrify everyone at the same time, and this phase-in of various functions being electrified will have to be determined and planned carefully. The risk of not working this out is high – the greatest being continually being held hostage by the coal-fired power capacities and unable to shut them down to green the grid because power demand is climbing faster than we can build the grid and renewable capacities.

Gas is a transition fuel for precisely this reason; and it can play its role in the transition in two ways. First, it continues to supply energy to industries that need heat, delaying their need to electrify and hence keeping power demand at bay. Second, it can provide peaking power and supplement or displace coal-fired power in baseload, playing a critical role in taking the most carbon-intensive power source off the grid. Yet this brilliant idea keeps getting drowned out by the fear that once the gas industry is entrenched, it won’t go away. The economic lifespan of combined cycle gas-fired power plants or open cycle ones is about 25 years though their operational life can be extended. This means that they can be introduced immediately and fired up to replace coal-fired power plants and the tail end of their economic life can be more for peaking uses to stabilize the variable renewable energy, deferring investment in batteries that have significant lifecycle carbon emissions themselves.

The earlier we cut coal, the better; by allowing gas-fired power generation, we also defer the need to scale up our network capacity quickly when the electrification drive advances. These actions can mutually reinforce each other and allow battery, wind, and solar capacities to enter the system gradually alongside network upgrades. We observe how energy cost on consumers have increased while trying to green the grid (levellised cost of electricity from solar and wind is not a strong measure given that they are not produced when needed); trying to force the electrification is not going to make things better. Coupled with the strong anti-gas sentiments would only mean costs will keep going up.

Part II of this article continues tomorrow.

Transition economics

What happens in economics when technological innovation happens? There’s a bit of dilemma between technological progress and economics because technology needs to progress to a stage when it upend the economics of an established technology – yet the incumbent is often enjoying scale economies as well as other effects such as network economies that can make it incredibly difficult for the new comer even if it is superior to existing technology at the scale that the incumbent operates.

In the Innovators’ Dilemma, that was being described and the strategy as well as the market approach is always for the new technology to chip away at the market of the incumbent technology by being appealing enough to a small group in the market to help it grow its scale and challenge the incumbent on more fronts gradually. Can the new technologies that we are trying to cross over towards make their way through this path in order to break the dominance of the incumbent technologies?

They probably won’t be able to move fast enough. And that is probably the justification for government to intervene and encourage developments. Yet governments do not want to be seen as favouring particular technologies. There is also a concern about creating inefficiencies in the market by distorting prices or forcing the taxpayers to shoulder the wrong costs.

Yet in reality, for the world to create a better future, there’s no real ways around it. The modern world was not built by shielding taxpayers from the wrong technological investments nor from carefully betting on the right technologies to take off. The complex problems around climate issues today are not so different from the public infrastructure challenges that people faced in the time before government had the kind of powers they have today. They are more complex, and we probably need more talented people working on them, both in the private sector as well as in government. In fact more so in government than ever.

The challenge remains the cost-benefit paradigms and all the free-market type principles to government and what intervention should be like. Without more mission-oriented policy-making principles and a system that is properly leveraging talents and passion, it will be difficult for governments around the world to assume the kind of role and leadership it needs to lead the transition.

Profitable transition

What does it mean if companies declare that they are committed to the energy transition including committing resources towards it, and massive investments, only to make a U-turn when oil & gas turns out to be way more profitable? It tells you that it had always been about the money it makes rather than the transition. Never mind that the fossil fuels continue to drive up carbon emissions and hurting the climate. In fact, maybe climate change would drive up demand for energy – especially in terms of heating or cooling, or requiring more activities in the economy to deal with and mitigate the impacts.

Can the work of accelerating the energy transition be left to the markets? Can profits really motivate companies to support the transition and reduce carbon emissions? Does the market demand understand, appreciate and would be willing to drive and pay for the transition? I don’t think so. Absent regulation, it is unlikely for the markets to drive the emergence of the solution. It is as if we want seat belt manufacturers to drive the messaging around safety and benefits of having seat belts rather than legislate it as a requirement in cars. Or just waiting around for cars to adopt them as the standard feature in a car.

We probably don’t have enough time for all that to make an impact on mitigating climate change. Regulations will be required. To put a price for carbon on the market, to push technologies and options in the market that will reduce emissions. We must also evolve and steer the regulation as our understanding of the technologies and impact on environment advances. We don’t have to get everything right on the first try but we do need to be trying.

Hoarding resources

New York Times just ran an opinion piece about Big Oil and whether the rhetoric about these big international oil companies actually push for the energy transition or not, their contribution to the development was probably not that significant anyways. There is minimal capital redeployment from oil & gas towards renewable energy. The truth is that capital coming into renewable energy is largely from other sources and areas.

The big oil players were in any case just trying to defend their turf when they invest into renewable energy; and in other instances, it was probably just more of a PR exercise. The recent big retreats from the rhetoric around energy transition can only serve to create more climate anxiety amongst the younger ones, and discourage us further about our ability to get the climate transition right. There’s really limited plan B options for us as the human race on earth facing climate change so everyone needs to work together regardless what the big oil is trying to do.

The biggest challenge for the world with the big oil not doing much to withdraw from the fossil fuel business is not about the market, the demand from the energy users but perhaps more about the people who are continuing to work within the big oil’s supply chains and operations. If we are serious about the transition, we need to give oil rig workers something new to work on that can help with the climate transition; we need to get the refinery process engineers to work for some other sort of plants. In general, we need a coordinated effort to transform our economies by making it a mission to do so.

When the world sent people to the moon decades ago, we were creating new industries using taxpayers’ dollars. We were using military spending to drive advancements that would usher in a new era. We could do the same with energy transition. It will take a lot of political will and convincing people but there is enough resources to redirect ourselves from the global warming path that we are on.