Power to the people

The energy sector must adapt if we are to avert a climate catastrophe, but fossil fuels will be needed for some time yet, writes David Burrows

According to the International Energy Agency (IEA), climate pledges by governments to date – even if fully achieved – would fall well short of what is required to bring global energy-related carbon dioxide (CO2) emissions to net zero by 2050. It insists more needs to be done to give the world a chance of limiting the global temperature rise to 1.5°C.1

Nevertheless, it’s true that we are already seeing positives with regard to a transition to clean energy. According to Statista, the global renewable energy market is expected to reach $1.1 trillion by 2027. Yet fossil fuels are likely to be with us for some time, both because of our insatiable appetite for energy and the reliance of some countries on fossil fuel extraction.

According to the UN, while energy efficiency and renewables are often seen as the only way to meet climate goals, other technologies will be needed. Widespread use of carbon capture and storage (CCS), for example, could support hard to abate but essential industries such as cement and steel production through the energy transition. CCS is expected to result in a16% annual emission reduction by 2050.

Extraction nations

And such technologies could play an essential role given the reliance of some nations on fossil fuel extraction. According to the Financial Times, one-third of the global population currently lives in countries that are badly exposed to the energy transition – for example, Iraq receives more than

A tokamak fusion reactor, offering the prospect of abundant carbon-free power

34.8%

of UK power is generated by burning natural gas

23.7%

of UK power comes from wind energy

9.5%

of UK power is produced by solar energy

7%

of UK power is generated by biomass 90% of its revenues from crude oil. And consider the levels of production of countries such as Australia (coal) and Saudi Arabia (oil) – is there the political will to make changes at breakneck speed?

Activists and investors are urging the oil majors to deliver the solutions that will bring the world closer to its net-zero objective. Unsurprisingly, the seven largest integrated oil and gas companies – BP, Chevron, ExxonMobil, Royal Dutch Shell, TotalEnergies, ConocoPhillips, and ENI – have garnered most of the attention and criticism.

BP is seen as one of the green front-runners in the oil and gas industry. The company is on record stating its aim is to become a diversified business operating in renewable power, biofuels and green energy – but still without completely divesting its operations in the hydrocarbons industry.

But according to the IEA, the majors account for only 12% of oil and gas reserves, 15% of global production, and 10% of estimated emissions from industry operations. By comparison, national oil companies – which are fully or predominantly owned by governments – account for more than half of all global production and an even greater proportion of reserves, and most are not well positioned to adapt to the changing landscape.2

Energy transition

It would be disingenuous to say that progress has not been made towards the net-zero goal – but a lot is still potential rather than actual achievement. According to GridWatch, gas still accounts for 34.8% of UK power, with wind energy accounting for 23.7%, solar 9.5%, biomass 7% and just 1% from hydro.3

Wind power in the UK is a success story. Electricity generation from wind power increased by 715% between 2009 and 2020 and the UK has the largest offshore

Photos: By RS Wilcox

wind farm in the world, which is located off the coast of Yorkshire.4 The problem with the headline figure of 715% is that it represents growth from an ultra-low base.

Also, the fact that gas still accounts for over a third of power generation in the UK is another indication that we will likely need fossil fuels for some time yet. Recent supply chain issues with regard to oil and gas reinforce just how dependent the world still is on fossil fuel energy.

Clean power

That said, global renewable energy generation as a share of total generation continues to grow as renewable technologies become more cost-effective.5 Whether it is wind farms at Dogger Bank off the Yorkshire coast, the Rusomo Falls hydroelectric project in Tanzania or the vast Ivanpah Solar Power Facility in California, countries are developing clean energy ideas that better utilise their natural environment and climate.

There are plenty of new ideas to explore, such as fusion energy, which generates electricity by using heat from nuclear fusion reactions.

The benefit of fusion energy is the potential abundance of power, a carbon-free footprint and absence of highlevel radioactive waste. The drawback, according to the International Atomic Energy Agency (IAEA), is that controlling thermonuclear fusion for energy production is a complex and challenging undertaking.

Then consider car-to-grid technology – though the concept is still in its infancy – which works by drawing unused power from an electric car into the smart grid. Known as vehicle-grid integration, it could help the energy grid supply electricity during peak hours. There are other left-field ideas, such as using used ground coffee beans to generate power rather than being sent to landfill.6

If we are to transition our energy sector to net zero by 2050 then it is unlikely to be achieved by one solution or source alone but by several, including fossil fuels. Some ideas may not gain the same traction as others but with enhanced government incentives, and given the huge increase in environmental, social and governance (ESG) investing in recent years, financing the energy solutions of tomorrow might prove easier than once envisaged. n

Sources 1 Pathway to critical and formidable goal of net-zero emissions by 2050 is narrow but brings huge benefits, according to IEA special report – News – IEA 2 Sanlam – The rebranding of big oil Megatrends –

Going green – the rebranding of big oil June 2021 pdf 3 GB Fuel type power generation production as percentages (gridwatch.co.uk) 4 Wind energy in the UK – Office for National Statistics (ons.gov.uk) 5 Global installed wind energy capacity 2020 – Statista 6 Here’s 5 innovative ways your coffee grounds can be recycled – World Economic Forum (weforum.org)

HOW DO YOU INVEST IN THE THE ORDERLY TRANSITION TO NET ZERO?

Chris Greenland, Fund Manager at Sanlam, explains that while there is an urgency to meet targets, transition cannot be instant. “The low-carbon transition is a process that, if done sustainably will happen over a period of years (it’s why many businesses/governments have targets for 2030 or 2050). The good thing is we have many of the tools and tech today to take us towards a net-zero society.”

Greenland stresses that we’ve moved from a period where wind and solar were only viable with subsidies to a period where they are attractive investments without any support.

“It’s come about through tech advancements, efficiency gains and cost declines over the years and things continue to move in the right direction,” he explains. “Renewables are now cost competitive with fossil fuel energy sources, and in many parts of the world, the economic case stacks up for renewables.” Sanlam has been investing in renewables for several years and has seen a huge positive change. “We have been identifying a lot of interesting opportunities that are facilitators to net zero; businesses sitting before the operational assets that enable the transition,” Greenland says. He concludes: “We only invest in businesses that can generate our required returns – that is not a secondary thought. What we have found is that ESG transparency is improving, and the data is more readily available to us today than it was beforehand, which is ultimately a positive thing.”

Sanlam supports business models that advocate steps towards net zero as well as pure-play green energy.

“We only invest in businesses that can generate our required returns – that is not a secondary thought”