10 things I learnt at Oxford Energy Day on ‘Growing Economies’

Last week I was at the annual Oxford Energy Day, which focused on Energy in Growing Economies. Here are ten things I learnt (any errors are mine!).

  1. ’Growing economies’: new name for ‘emerging economies’
  2. Bilions lack access to affordable energy, and that hurts their lives
  3. Decarbonised, Decentralised and Digitalised will make for Democratised energy systems – which we’re not ready for.
  4. Energy is not just electricity, and best to focus on final energy use, not primary production
  5. China assumes it will decouple economic growth from environmental impact
  6. India: a new emphasis on markets and clean energy
  7. Africa: big projects face challenges; distributed more viable; charcoal as quick win
  8. Energy access: from a development problem of basic services to an untapped market opportunity of commercial users
  9. Reaching the ‘under-serviced’ will be highly context specific, and that’s a two-way challenge.
  10. What to do: systemic view crafted for local action, aware of incumbency power.

 

1.’Growing economies’: new name for ‘emerging economies’

It quickly became clear that ‘growing economies’ meant Africa, Asia and Latin America. I remember when these were ‘Third World’, then developing, then emerging countries. Now they are the ‘growing economies’. Presumably, countries previously known as ‘developed’ or ‘industrialised’ are now ’not-growing’ – ‘stagnant’ or ‘post-growth’, perhaps. This gave me a wry smile.

 

2.Bilions lack access to affordable energy, and that hurts their lives

Sustainable Development Goal 7 says by 2030 we are collectively aiming to “ensure universal access to affordable, reliable and modern energy services”. Throughout the day, the round numbers were that some 1 billion people lack electricity and 3 billion clean cooking.

This matters for lots of reasons. Without affordable, reliable energy there is only so much activity people can get up to, and there fore only so much income they can generate or fun they can have. 3 billion with dirty cooking is billions of people breathing air pollution daily – adn, according to the WHO, 7 million premature deaths every year. Also, dirty cooking means many having to cut down forests for fuel.

 

3.Decarbonised, Decentralised and Digitalised will make for Democratised energy systems – which we’re not ready for

Rachel Kyte, CEO of Sustainable Energy for All (SEforALL), had a fantastic insight:

“If we’re going to have a set of energy systems which deliver energy services to everybody in a reliable, affordable, clean way, we’re talking about not just decarbonization but decentralization and digitalization – especially when we start to think about the 3 demand management that is going to be needed across multiple energy systems.

When you start to look at what a decarbonized, decentralized, digitalized set of energy systems look like that are capable of delivering the energy services that we need in the modern world, we actually are talking about democratization of our energy systems.

That can be extremely exciting. And for many of the institutions and regulators of our current energy system, this is something very different and very new.”

I’ve added the emphasis at the last sentence because it is vital. My experience in the UK is that incumbent energy companies 10 years ago simply could not believe that renewables would come down in price, and electricity would become more decentralised and democratised. it just bounced off their cognitive frames. And it looks like the same is true of policy makers and regulators (Exhibit A: Hinkley Point).

I also remember 10 years or so ago hearing one UK Minister say that the problem with energy efficiency is that it is so small. What that revealed was a comfort with relying on a small number of big, visible projects rather than trying to galvanise a large number of small changes. I can understand that reticence – but it just shows how decentralised, digitised and democratised will be very different from what regulators, policy-makers and incumbents are used to.

Their struggles to find the appropriate ‘system architecture’ are one important drag on sustainable energy access for all.

 

4.Energy is not just electricity, and best to focus on final energy use, not primary production

There is a renewables revolution happening, with prices for new build solar and wind in many parts of the world now better than grid parity (see Bloomberg New Energy Finance’s latest data).

One slightly wonkish point that follows is the importance of focussing on final energy use. Some provocative analysts keep putting the focus on energy production. But that’s mis-direction. What matters is the amount of energy we use, not the amount produced.A lot of energy produced in a coal power station is lost through inefficiencies and then in transmission. Solar and wind are often much closer to use, and so the losses are much less.

It pays to check what statistic someone is using. If it is energy production, then they are biasing their result to fossil fuel, and I think you can legitimately question either the quality of their analysis or their motives.

More substantively, the amazing progress on renewable electricity can dazzle attention away from other energy needs, namely heat (from cooking to building temperature) and transport. Electricity is just what comes out of the plug, so shifting to renewables is not very sensitive to consumer behaviour. But both heat and transport are more people sensitive – the habits and expectations of the end-user are more affected by the alternatives. of course, one important substitute is to electrify more heat and transport. but that puts more strain on renewable generation and smart grids.

 

5.China assumes it will decouple economic growth from environmental impact

We had what can only be called a staggering presentation from Professor Jiang Kejun of the Chinese Energy Research Institute, National Development and Reform Commission.

  •  In the first 6 months of 2017, China added 24.5GW of solar PV. Or approximately a quarter of the UK’s total electricity capacity (coal and nuclear and gas and so on). In six months.
  • There are 260m electric bikes in China. 1.2m shared bikes in Beijing alone.
  • They have modelled their economy to 2050, with GDP tripling while steel, cement, glass and other material product returns to 2010 levels.

The implications of the presentation were beyond huge. First, truly this is delivering on being an Ecological Civilisation, one of the goals in the 2012 Five Year Plan. It is worth noting that no country in history has grown the scale of its economic activity while vastly reducing its environmental impact – absolute decoupling, in the jargon.

The implication (not spoken about on the day) is that China achieve this by continuing its pivot from an export-orientated manufacturing economy to a consumption-orientated service economy. If true, that begs some questions. What replaces China as the workshop of the world? A cluster of countries or distributed 3D printing?

Plus, what happens to finance flows? In the Shifts and the Shocks, Martin Wolf shows that Chinese people saved money, which was then loaned to us in the West, and we used that debt to buy goods, often made in China (note: yes, this one line simplification is too simple). So, what’s going to happen to financing when Chinese people are buyers, not savers?

 

6.India: a new emphasis on markets and clean energy

The presentation on India from the Anil Kumar Jain of Ministry of Environment, Forest and Climate Change was different in tone: from monolithically mega-huge, to variegated-ly enormous. He painted an energy system in transition, with a new impetus on energy markets to solve problems – like having some 250m people without electricity – moving away from past efforts to use Five Year Plans and subsidies.

Even so India has policy goals for markets to achieve. One is universal coverage: 100% electrification by 2018. Another is to drive energy efficient, which could ‘shave’  17% – 25% off energy demand in 2030. There is the desire to be all new cars to electric by 2030. Finally, for renewable energy to grow, with no new thermal coal plants planned for the next ten years.

 

7.Africa: big projects face challenges; distributed more viable; charcoal as quick win.

Africa has a large population like China and India, but over a larger area, with less urbanisation and with lower income per person. These factors explain why power consumption per person is much lower than elsewhere. A grid would be more expensive to build, and people don’t have the incomes to pay for it to happen.

Mike Mason showed us where potential enormous hydro projects could go and be connected across the continent. But his view was even if those were built they would not be enough to provide accessible energy for the growing population.

If we frame Africa’s problem as ‘distributed energy for distributed use’ then a small number of big power generations with a grid doesn’t look like a solution.

The current solution for many in Africa is burning wood. It gives you the power you need without expensive infrastructure, or even cash – you just go and collect it yourself. But there are multiple downsides: air pollution, deforestation and climate change.

His quick win – with a focus on energy end-use and that not all energy is electricity – was doubling the conversion of wood to charcoal, to improve efficiency (and so reduce downsides).

More generally, even though Africa is urbanising quickly, the way forward lies with local biogas, local solar, and other local production for local use, perhaps in microgrids that gradually get connected together in a ‘federated’ approach.

 

8.Energy access: from a development problem of basic services to an untapped market opportunity of commercial users

Behind a lot of the detail was a question of the dominant way people have considered the question of how to ensure billions have affordable, clean energy.

Is it primarily a development problem? One which will be addressed by aid, plus government capacity building? And one that aims at getting households on to the first tier, for instance lighting through solar lights?

Or is energy access primarily a challenge of tapping the market opportunity? One which is large enough to attract private investment and business innovation, if only that opportunity can be ‘de-risked’? And one which is aiming at giving sufficient power for more commercial uses, as part of industrialisation and economic growth?

The sense from people was of missing a trick by talking and acting as if energy access for all could be addressed through aid and government action. That is necessary, no doubt. But to mobilise the financing necessary, to reach the billions of people, company investment and innovation is needed. So, people spoke of using markets – framed by governments – to deliver the SDG by delivering power that has the potential for more industrial uses, which then drives the incomes people need to for their household energy.

 

9.Reaching the ‘under-serviced’ will be highly context specific, and that’s a two-way challenge.

There is risk of a conference covering all of the ‘growing economies’, and of global goals like SDG7. You think at the global level (‘how can we reach the billions of under-serviced?’) and forget that those billions are made up of many, many local contexts. And what will work in each context will be subtly – or even profoundly – different.

There is no single silver bullet, whether technology or energy system. On clean cooking, the situation is different for rural locations compared to urban ones – and so the way to bring clean cooking to the remaining 3 billion will be made of many, many different strategies.

This a challenge to the global architecture working on SDG7, from global facilitators Sustainable Energy for All through the World Bank to NGO’s like Ashden. How can they leverage their global reach when each local situation is different? How can they make sense off all this variety without their heads exploding?

One answer would be to say: don’t have  a global architecture. Just get let each location do its own thing. But that ignores the nature of global connections, and that progress in one place will be slower without insights from elsewhere.

How can they bring in the financial capital, technical expertise and technologies from across the world in ways that match with the specific local needs? For instance, financial players want their investments to be ‘de-risked’. Investments that are familiar,with a track record, are the easiest to calculate the risk for (and remove a ‘we just don’t know’ risk premium). But if each investment is different, then how can there be a track record over time and across locations? This is why it can be difficult to tap financial markets for the billions needed.

For me, this was an expression of an overarching question in the sustainability space: how to combine intimacy with scale? How can we act with respect for and insight into this specific context, while reach a speed and scale that matches the challenges we face

 

10.What to do: systemic view crafted for local action, aware of incumbency power.

The implication of all the above is the need to have a systemic view that contains the varieties of contexts around the world – rather than washes them away with bold brushstrokes. The implications to have change design methods which are about crafting what to do in a local situation from experiences and insights that are drawn from around the world.

One example of a method was Results-Based Financing, which seeks to address barriers to scaling by offering context-specific incentives to suppliers within low carbon energy sub-sectors, providing elevated returns on participating within these markets for a fixed period. In a nutshell: you get paid for delivering the agreed outcome, which is negotiated at a local level.

As to where to focus those change design methods, here is a very incomplete selection:

  • energy productivity. The more value we get from each unit of energy, the less we will need to produce.
  • de-risking investment. Making it easier for financial players to invest with confidence on their returns.
  • household-level virtuous cycles. Increasing household incomes make for a more attractive market opportunity. increasing the energy access for businesses and the power available for productive uses in the home helps drive that positive feedback.
  • incumbency risk. Across the world energy companies are provide critical inputs to the rest of the economy, as well as their own employment and profits. Incumbents build up ways to protect themselves-as-they-are, and be slow to adopt new technologies as well as prevent new entrants.

My concluding thought on systemic action was the about how to combine being pragmatic with vaulting ambition. The SDGs can seem like a utopian heaven to attain, and that we need to design systems from scratch and impose them. There are many reasons why that won’t work, not least the power of incumbents and the risks of jumping to untested models.

So, there is a need to work with the grain of what is possible now, in the direction of the high ambitions.

What path forward to sustainable energy access for all is possible, given the configuration of social forces now?

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