Energy World July / August 2021 - open access articles

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July / August 2021 – open access articles The following articles are taken from Energy World magazine’s July/August 2021 edition for promotional purposes.

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Electricity networks

GREEN GRIDS

The benefits of cross-border renewable energy trading in South Asia

Large-scale, cross-border ‘green grids’ have the potential to meet growing energy demand and improve energy access and energy security across South Asia. Simon Trace looks at the particular advantages and challenges of linking resources between India, Bangladesh, Bhutan and Nepal.

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lean, renewable energy resources are abundant across South Asia. There is solar power in the Thar desert and wind power in Tamil Nadu, for example.

Meanwhile, the Himalayan region has huge hydropower potential, especially in Nepal and Bhutan (80 GW and 26 GW, respectively).

From this, less than 3 GW is utilised due to low domestic demand in mountainous areas.

Harnessing these natural resources to meet growing energy demands, expand electricity access, improve the quality of services, and strengthen energy security is an increasingly attractive proposition.

There is a huge opportunity to optimise South Asia’s renewable energy resources by constructing large-scale, cross-border regional and international ‘green grids’ to enable renewable energy trading between countries. As a simplified illustration – when solar power plants located in the Thar desert of the Indian subcontinent stop generating electricity after sunset, the Indian grid could then draw

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The success of hydropower trade between India and Bhutan has helped to foster strong regional cooperation in many other matters Photo: iStock

power from the wind farms of China or hydroelectric plants in Nepal and Bhutan.

Long-distance, high-voltage direct current (HVDC) cross-border transmission lines (now a mature technology) can carry energy over long distances with little loss and make green grids technically feasible. Digitised power management systems can help to remotely manage the variety of inputs and outputs.

Linking resources together in this way offers better utilisation of regional generation capacity and potential, and can create a reliable supply of affordable, clean, secure energy across large areas.

Importantly, tapping into a wider pool of different renewable resources helps to address some of the variability of supply and grid stability issues associated with renewable energy. Weatherdependent renewable sources, especially wind and solar, are inherently intermittent and uncertain.

A high rate of renewable generation therefore places additional demands on the grid in terms of ensuring a constant, reliable supply. Connecting areas that are rich in renewable energy resources and that have high renewable energy generating capacity with areas of high demand helps to balance supply and demand.

The complementarity of solar and wind energy often eliminates or reduces the need for back-up

power generation, and trading the cheapest source of electricity at any particular time with the centres of greatest demand provides an economic case for interconnected grids.

India has already started to implement its ambitious Green Energy Corridors (GEC) programme, which entails domestic transmission lines that exclusively connect areas of high renewable energy generating capacity to areas of high demand. It envisages high-capacity connections to Bangladesh, Bhutan, Nepal, Myanmar and Sri Lanka. India has been making advancements in regional power trade more generally too, including its arrangements with Bangladesh, Bhutan and Nepal.

Regional power trade India, a power surplus country, has been trading about 18bn units (BU) with neighbouring countries through medium to long-term bilateral contracts – importing 8.7 BU from Bhutan and exporting 2.37 BU and 7 BU to Nepal and Bangladesh, respectively. There is currently no power trade agreement between India and Pakistan.

India-Bangladesh and IndiaNepal power trade has helped to eliminate power shortages in Bangladesh and Nepal respectively and, during the COVID-19 pandemic, interconnected grids between Bangladesh, Bhutan, Nepal and India (the BBIN countries) benefitted each other in terms of grid security. A recent EEG-funded

Electricity networks

Energy Insight demonstrated that all cross-border links continued to operate without any interruption or restriction, and all countries were able to achieve a load/generation balance.

India – with the largest power system – was able to increase resilience by importing more power, despite a decline in the country’s energy demand, and support the systems of Nepal and Bhutan. In the absence of links, the countries would have had to reduce/spill the generation at their plants, or they may have had to impose load restrictions in the absence of adequate generation in real time.

While regional power trade in South Asia has traditionally been limited to bilateral government-togovernment negotiations (which is a slow process), April 2021 marked a shift from bilateral agreements of power trading to market transition, and towards the creation of a robust, regional power grid.

In April, the Indian Energy Exchange (IEX), India’s largest power trading platform, announced commencement of the Cross Border Electricity Trade (CBET) on its platform. It followed the notification of CBET Regulations by the Central Electricity Regulatory Commission in 2019 and the notification of CBET Rules in March 2021 by the Central Electricity Authority. Nepal is the first country to start cross-border electricity trade in India’s day-ahead electricity market.

Integrated Research and Action for Development (IRADe), based in New Delhi, expects that in the future, the power trade between BBIN countries will increase to 40 BU by 2022 and 70 BU to 2027.

The challenge of international cooperation In all parts of Asia, governments are committed in principle to increasing grid interconnections, but there are some major issues to address. In particular, while a number of international bilateral electricity trade agreements are currently operational, the expansion of renewables at scale will require cooperation on a much larger scale – posing geopolitical challenges.

Indeed, participating in regional power trade is a political as well as a technical decision. The most debated and cited barrier to regional electricity cooperation is political will – which often comes down to differing views of energy security.

For example, while the wind may not be blowing in country X, at the same time, country Y could have an excess of wind generation, with surplus to export. In this scenario, a regionally connected grid should be

India has already started to implement its ambitious Green Energy Corridors programme, which entails domestic transmission lines that exclusively connect areas of high renewable energy generating capacity to areas of high demand

able to provide the same guaranteed level of power availability with less installed generating capacity than a series of independent grids, thus providing cheaper electricity.

However, country X may not have good relationships with country Y, or even if it does, things may change in the future. Volatile diplomatic relationships between countries can create risk, and smaller countries may be more wary of more dominant trading partners. Viewed from this perspective, questions can arise about the security of supply, which can impact political decision making.

Internally, some developing countries may also have concerns over the political advisability of being seen to sell electricity to other countries while their domestic populations still lack access to energy, even if that meant access could be extended more cheaply to all in the long term.

The South Asian region has attempted to initiate cooperation on the regional energy supply through the South Asian Association for Regional Cooperation. Similarly, the Bay of Bengal Initiative for MultiSectoral Technical and Economic Cooperation has initiated discussions on planning for grid interconnections around the Bay of Bengal. It has been suggested that the European electricity market could potentially serve as an example for regional grids in terms of intergovernmental cooperation.

Regional power trade does also offer political benefits. It is thought that it can help to strengthen mutual confidence and cooperation among countries – for instance, the success of hydropower trade between India and Bhutan has helped to foster strong regional cooperation in many other matters.

Harmonisation and finance Other challenges that need to be addressed include inadequate cross-border transmission capacities and domestic infrastructure issues, which will hinder large-scale electricity trade. Furthermore, the harmonisation of technical specifications (known as grid codes), operating procedures and standards, and legal and regulatory frameworks are key requirements for the safe and reliable operation of grids in cross-border power trade.

But these steps will involve different countries and will take time.

Another significant challenge can be mobilising affordable financing for projects of this scale, which will in some cases be perceived as a high-risk investment.

Installed capacity must also be

scaled up, though this will require substantial financial resources.

Information and research Although organisations like the Global Energy Interconnection Development and Cooperation Organization (GEIDCO) are trying to put more information into the public domain on the potential of intercontinental ultra high voltage interconnections, there is still unfortunately a lack of in-depth research evaluating the benefits and costs of regional power trade, and a serious lack of champion projects or examples of electricity cooperation.

More studies by reputed and neutral organisations could help to attract the attention of policymakers (and investors), and more frequent dialogues and knowledge exchanges between researchers, industry and policy experts are required to keep policymakers abreast of the latest techno-economic developments.

With this in mind, EEG has been supporting roundtable events that focus on ways to overcome barriers and increase opportunities for cross-border electricity interconnections and the trading of renewable energy. We are also funding a research project on the implications of the declining costs of solar, wind and storage technologies on regional power trade in South Asia – a particularly significant research gap. The project is being carried out by IRADe and the findings will be useful on a global scale.

From standalone models of Bhutan and Nepal, IRADe has already observed that trade will help these countries to utilise their hydro potential. For example, in a no-trade case, the installed capacity of Nepal will reach only 15 GW compared to a high-trade case, where it reaches 44 GW by 2045.

Similarly, for Bhutan, under a no-trade case and a high-trade case, the installed capacity reaches 5 GW and 16 GW, respectively.

Cross-border grids and electricity trading can support the transition to clean, renewable energy, helping to address climate change, electricity access challenges and energy security issues. There is widespread agreement that regional power trade presents great opportunities – but there is an acute need for research, evidence and discussions to build further consensus and cooperation, and to advance ideas and proposals. l Simon Trace is programme director of the Energy and Economic Growth (EEG) research programme, funded by the UK’s Foreign, Commonwealth & Development Office (FCDO), https://energyeconomicgrowth.org/ Energy World | July/August 2021 17

Carbon pricing

GLOBAL CLIMATE TARGETS

The carbon pricing puzzle updated Nationally Determined Contributions (NDCs) under the Paris Agreement in February this year found that implementation of current commitments would only lead to a 0.5% reduction in global emissions by 2030 compared to 2010 levels. This figure is far short of the 45% reductions needed to limit global temperature increase to 1.5°C by mid-century, according to the United Nations Framework Convention on Climate Change (UNFCCC).

Pieces of this critical yet convoluted conversation are finally slotting together as global momentum to decarbonise intensifies.

But there is still a long way to go, Michelle Meineke writes.

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silver bullet it is not, but carbon pricing is a vital tool to support complementary efforts in the race to reach the Paris Agreement targets by mid-century.

The needle is certainly shifting.

Nearly 50% of the world’s largest 500 companies by market value already have an internal carbon price or intend to adopt one in the coming two years, according to the World Bank.

Currently, the 64 carbon pricing initiatives selected by the World Bank as implemented or scheduled for implementation cover just 21.5% of global greenhouse gas (GHG) emissions – 6% higher than in 2020. It is meaningful progress, albeit belated. A chunk of this percentage growth is due to the May launch of China’s emissions trading scheme (ETS), already the world’s largest, plus a wave of net

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zero targets from nations and corporates announced since late 2019.

Some of the most recent pledges include the world’s two biggest economies – the US and China by 2050 and 2060, respectively.

‘Pre-net zero targets, some companies thought someone else could do the heavy lifting. Now everyone must contribute as there is nowhere to hide, which links to putting a price on carbon. This certainly is not the only way to solve climate change, but we probably will not reach environmental targets without it,’ says Joseph Dutton, Managing Consultant of Climate Policy and Carbon Pricing at consultancy South Pole. Missing the targets is already a very real risk – and some would argue it’s an inevitability.

Analysis of the 48 new and

Fear versus progress Pricing carbon is far from a new conversation. Two nations, Poland and Finland, operated carbon taxes as long as 31 years ago. But many blueprints have long gathered dust.

This in part due to the complexity of the challenge, as well as the lacklustre appetite for climate mitigation among those fearful that spurring low carbon growth would risk stranded assets – and indeed it does.

According to Lex estimates, around $900bn, or one-third of the current value of big oil and gas companies, would evaporate if governments more aggressively attempted to restrict the rise in temperatures to 1.5°C above pre-industrial levels for the rest of this century. Such fears are only intensifying after big oil lost a landmark case in late May when a court in the Hague ordered Royal Dutch Shell to cut its global carbon emissions by 45% by the end of 2030 compared with 2019 levels.

‘You only need a third of a $100/tonne carbon price to make every coal plant in the world unviable, and to put most gas power plants out of action. The US has half a trillion dollars invested in 500 GW of gas power plants and they are still building $20bn a year of gas plants, so it is not going to be an easy journey,’ explains Tim Buckley, the Director of Energy Finance Studies for Australasia at the Institute for Energy Economics and Financial Analysis (IEEFA).

Gaining speed The value of carbon pricing today hints at its future potential. Pricing instruments generated $53bn in revenue worldwide in 2020, climbing by 18% year-on-year, according to the World Bank. The significant market growth over

Carbon pricing

the last year is especially telling.

During the global financial crisis of 2007–2008, environmental momentum waned, yet it has soared amid COVID-19 and a period described by the International Monetary Fund (IMF) as the worst economic strain in nearly 100 years.

But for now – and perhaps permanently – the complexity of a global price on carbon means that plans are largely off the table.

Aligning complex and cross-border supply chains, protection against geopolitics, differing jurisdictional contexts and variations between developed and developing nations are just some of the considerations.

On the latter alone, the average footprint of someone in the richest 1% of the world’s population could be 175 times greater than that of someone in the poorest 10%, says Oxfam.

‘Carbon prices have the potential to do a lot more, but I do not think we will see a global price in the next ten years. Jurisdictions are more focused on local solutions right now,’ says Marissa Santikarn, a Climate Change Specialist at the World Bank and Co-Author of the 2021 State and Trends of Carbon Pricing report.

The UK launched its ETS in May in support of the nation’s 2050 net zero goal, with prices of €50/tonne at one point exceeding that of the much more mature EU ETS. The distinct similarities between the ETS in the UK and EU is what Dutton describes as a ‘backhanded compliment’ to the EU – especially amid the political quagmire surrounding Brexit. It is also widely recognised that the UK would benefit from linking its ETS to the EU’s, as Switzerland does.

The EU ETS has also had an eventful year, hitting an all-time

Analysis of the 48 new and updated Nationally Determined Contributions under the Paris Agreement in February this year found that implementation of current commitments would only lead to a 0.5% reduction in global emissions by 2030

high of €50/tonne in early May. This price could double in the medium-term as caps tighten in support of the bloc’s Green Deal.

The Netherlands’ Industry Carbon Tax Act also entered into force this year, as did Luxembourg’s carbon tax, with both starting around €30/tonne. Plus, carbon prices are increasing in countries like Canada and Ireland, while New Zealand’s Climate Change Act also sets out changes to its ETS. Looking ahead, Ukraine is eyeing a 2025 launch for its ETS, the US Transportation and Climate Initiative with 13 states has drafted an ETS, while Indonesia’s trial ETS for 75% of its power generation sector is scheduled to close for review in August. Meanwhile, Colombia is planning its ETS pilot programme by 2024, Turkey has finalised the draft for a pilot ETS and Russia is developing a regional system.

It is worth remembering that carbon prices – and associated indices, charters and agreements – are in flux, especially as the energy market transitions. While 64 carbon pricing initiatives is laudable – versus just two in 1990 – markets still need to mature and strengthen.

Currently, only 3.76% of emissions covered by a carbon price are above $40/tCO2e, which is the bottom range ($40–$80/ tCO2e) of the 2020 prices that are recommended to comply with the Paris Agreement.

‘We are stuck in a position where we need a carbon price that makes a difference, but we also need something to help companies – and that is where something like the cross-border carbon mechanism comes in,’ says Dutton.

CBAM gamechanger?

The EU is in the process of establishing a carbon border

adjustment mechanism (CBAM), in the context of the bloc’s Green Deal – a potential gamechanger in terms of effectively increasing accountability.

The CBAM would place a carbon price on imports of certain goods from outside the EU, as a way to reduce the risk of ‘carbon leakage’.

There are potential trouble spots, including concern that the mechanism could lead to unfair pressure on least developed countries (LDCs). But a final design of the mechanism is still being defined, with it likely to be operational by late-2022 – a very short 18 months away.

Whether other nations, especially big emitters, can fit in with the EU’s plan – historically a global climate pioneer – remains to be seen. For one, eyes are on the how the US, the world’s second largest emitter, will accelerate its efforts under President Biden.

‘The US is still divided on carbon taxes per se. The CBAM – as it is not a carbon price – may be more politically acceptable as it is imposed on imports, rather than the domestic economy. In turn, this may eventually give way to a carbon price,’ says Buckley.

Whispers that the US, Japan and China may join up with the EU for the CBAM are growing. ‘If it is going to happen, I would say there is a good chance it will be going into COP26 this November,’ Buckley adds. ‘Biden likes to build layers of momentum. Such a move would build on the G7 heads of states meeting in June, where I expect Biden, the UK and Europe to put pressure on other countries to step up. It is certainly one to watch.’ l

China’s leap The world’s largest emitter’s new carbon market is another spoke in the wheel of its push for net zero by 2060. But most importantly, it speaks volumes about how appetite for climate mitigation has accelerated worldwide and how climate policy is an increasingly powerful geopolitical tool.

China’s plans all have something in common: volume. The country has established a carbon market with more than 7,000 emitting entities monitoring, reporting and verifying their carbon emissions, collecting eight years of data (2013–2020). The current, first phase only covers the power generation sector – which equates to 40% of the total emissions for the world’s biggest energy supplier and consumer. By December, the data used to analyse the effectiveness of the first compliance cycle should be ready, says the Environmental Defence Fund (EDF).

‘In general, the carbon price is relatively low at the start of trading, as the covered entities cannot anticipate correctly whether they are in a short or long position,’ shares Jianyu Zhang, the Founder, Chief Representative and Vice President of EDF’s China

Program, in response to early estimates that China’s scheme will only be priced at $6/tonne.

‘According to the experience of pilot carbon markets, the carbon price normally increases significantly before the compliance deadline, as covered entities purchase allowances for compliance to avoid fines. China’s cost of carbon emissions reduction being relatively low does not mean that the national carbon market is not effective,’ adds Zhang.

Much of the ETS is based on the experiences of the nation’s pilot carbon markets. For example, China’s province of Hubei reported 9% GDP growth in 2014–2016 with 27mn tonnes of CO2 emission reductions, equal to an annual 3.75% reduction.

‘It is heartening that China’s ETS is live, considering that plans to start the scheme began in 2017 and there has been a year of disruption with COVID-19. The system is in its early stages, so we will have to see what changes the government makes to ramp up coverage and fill in any blanks,’ says the World Bank’s Santikarn.

Energy World | July/August 2021 29

Cybersecurity

Hackers target energy assets for maximum disruption Cyberattacks on critical energy infrastructure – from pipelines to electricity distribution systems – are becoming more frequent. A culture of transparency and cyber resilience are the sector’s best defence, writes Jennifer Johnson.

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aftermath of the Colonial Pipeline attack, the US Department of Homeland Security (DHS) mandated that pipeline operators report cybersecurity incidents within 12 hours. Pipeline owners and operators must also designate a cybersecurity coordinator who is available to consult with the relevant government departments 24 hours a day. The directive will apply to around 100 companies considered to have the most critical pipelines in the United States.

align actors are now capable of shutting down the entire US power grid, according to the country’s Energy Secretary, Jennifer Granholm.

Speaking to CNN’s State of the Union news programme in June, she stressed that the public and private sectors must work together to neutralise cyber-threats to the country’s critical infrastructure.

Granholm made the comments in the wake of a highly disruptive cyberattack on the Colonial Pipeline, which stretches from Texas to New York and transports nearly half of all gasoline and jet fuel consumed on the East Coast. It is believed the attack was carried out by a Russian crime group known as DarkSide, though the Kremlin has denied any involvement.

Growing threat While the Colonial Pipeline incident is perhaps the most high-profile piece of energy infrastructure ever targeted by hackers, it is far from the first.

The sector has been well aware of these kinds of threats for years, though many would argue that not enough has been done to shore up key assets. The first known attack on a power grid took place in December 2015 in Ukraine, where hackers remotely accessed computer systems to switch off substations. As a result, 225,000 people lost power for several hours.

Several weeks later, the US cyber intelligence firm iSight Partners attributed the attack to a Russian hacking group known as Sandworm. It was reported at the time that the group was operating in alignment with the Russian state, if not working for them directly. In the aftermath of the hack, Ukraine’s grid operator dispatched staff to control breakers directly. But as grids become more digitalised, this kind of manual intervention may become more difficult.

The World Economic Forum’s Global Risk Report 2020 said that cyberattacks are among the top 10 34 Energy World | July/August 2021

In a ransomware attack, hackers will trick unsuspecting staff into opening an email and clicking on a link or attachment. Computer servers are then infected with malware that encrypts their data.

global risks in terms of likelihood and impact. For the electricity sector in particular, these threats are significant and intensifying.

However, it remains tricky to properly evaluate the risks and knock-on effects of cyberattacks in the energy sector, in part because there’s so little available data about them.

In a report into cyber resilience released earlier this year, the International Energy Agency (IEA) wrote that ‘many incidents may not be reported at all – even to regulators or other authorities’.

While regulators in many countries ask companies to come forward following a cyberattack, there is an obvious incentive for not doing so. Namely, that disclosing a hack could hurt a company’s credibility and possibly its share price. As the number of high-profile cybercrimes grows, regulators will no doubt levy more serious reporting obligations on private companies. In the

Who is behind cybercrime?

According to FireEye, a Californiabased cybersecurity firm, the energy industry faces threats from two types of malicious actor: advanced persistent threat (APT) groups and so-called ‘hacktivists’.

The former attempt to steal information for the purpose of assisting a sponsoring government with national and economic security issues. In a sector-specific threat intelligence report, FireEye stated that data thefts will likely be centred on information related to natural resource exploration and energy deals.

Hacktivists, on the other hand, are more likely to target companies to attract attention to a cause or make a political statement. This appears to have been the motivation behind a string of cyberattacks that took place in Saudi Arabia in early 2017. In January, computer systems went down at two major petrochemical firms, Tasnee and the Sadara Chemical Company, a joint venture between Saudi Aramco and Dow Chemical.

The New York Times reported that within minutes of the Tasnee attack, hackers wiped the company’s computers and installed an image of a child who had perished in the Syrian civil war.

Cybersecurity researchers believed the people behind the incident wanted to inflict lasting harm on the petrochemical companies and send a political message. However, the majority of attacks on the energy sector appear

Cybersecurity

to have been carried out by APT groups, or simply cyber-criminal gangs motivated by the prospect of earning money. The Colonial Pipeline incident is an example of one such ‘ransomware’ attack. The pipeline’s operator authorised a ransom payment of $4.4mn in cryptocurrency to the hackers after the attack.

For hackers looking to extract a quick ransom, energy companies make an attractive target, as they provide critical services that operators will be keen to resume as fast as possible. It only took a few hours for the Colonial Pipeline bosses to pay a ransom in hard-totrace digital currency to the hackers that targeted their firm.

In a typical ransomware attack, hackers will often trick unsuspecting staff members into opening an email and clicking on a link or attachment. Computer servers are then infected with malware that encrypts their data (transforming it into unintelligible code or symbols) and locks the computer systems. To obtain a ‘decryption’ key and recover the information, victims must pay the hackers a ransom.

Critical vulnerabilities In its Cyber Resilience report, the IEA states that cybersecurity ‘needs

to be integrated into the culture of the organisation…rather than being considered as a separate, technical issue’. The agency maintains that cyber resilience is a combination of ‘preventive and corrective measures building on lessons learned after a cyberattack’ – which makes transparent reporting a critical part of preventing future attacks. It’s also important that staff members are made fully aware of what cyber threats look like, so they don’t unwittingly put their employers at risk.

It is believed that a ‘spearphishing’ attack, in which individuals are sent malicious but believable scam messages, brought down another US pipeline last year. The facility in question was not named, though the Department of Homeland Security did issue a briefing following the incident.

Once the perpetrators gained access to the IT systems at the affected natural gas compression facility, it unleashed ransomware that led the company to ‘lose sight’ of some of its digital systems. As a result, it had to shut down its pipeline network for two days. The DHS said the attack was more severe than it might have been because the company had not been

For hackers looking to extract a quick ransom, energy companies make an attractive target as they provide critical services that operators will be keen to resume as fast as possible

adequately prepared for it.

As more ‘smart’ technologies are integrated into energy networks, the number of sensors and connections also grows, giving hackers greater access to key infrastructure and services. In the past two years, the security firm Darktrace says there has been an increase in cyberattacks directed at a variety of critical industries, including electricity distribution.

The cross-border nature of hacking means that no company or organisation is truly safe from these kinds of threats. For instance, India’s largest nuclear power station was targeted in 2019, possibly by North Korean hackers attempting cyber espionage.

Bringing down a critical energy asset is hugely disruptive, and the connectedness of the modern energy system means that there are more opportunities to gain access to infrastructure than ever before. Before the internet age, shutting down a pipeline meant physically obstructing the flow of oil. Now breaking and entering a site is as easy as sending a fraudulent email from thousands of miles away. l