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Scale-up investments and innovation key to energy transition – interview with IEA’s László Varró

With the COVID-19 crisis translating into an economic and energy shock, the International Energy Agency (IEA) hosted the first-ever Clean Energy Transition Summit, where 40 Ministers from countries representing more than 80 per cent of the world economy discussed how to achieve a definitive peak in global carbon dioxide emissions and build momentum for a sustainable and resilient recovery.

CEENERGYNEWS spoke with László Varró, Chief Economist of the International Energy Agency, about the challenges and opportunities of the energy transition and the renewable future of our continent.

“We addressed the COVID-19 crisis in three phases,” he begins. “First assessing what was happening, analysing the impact on the energy sector: oil, gas and coal use all declined and the electricity system had to work to supply a transforming demand. While the service sector and industrial consumption declined, families confined to their homes consumed more. The second stage focused on the medium-term impact on energy security and investment. Third, first among major international stakeholders, the IEA emphasised the importance of putting the clean energy and the transition at the heart of economic recovery.”

In fact, he reminds that although the IEA was born as an intergovernmental organisation with energy security at its core mission, over the years this mission has broadened from the original interpretation linked to the geopolitics and the Middle East (especially oil).

“Today oil is not out of fashion and it is still the largest primary energy source, but over the years, and especially since Executive Director Dr Fatih Birol began his mandate, the scope and the ambition of the IEA have been expanding covering also energy efficiency, renewables and climate change and perhaps most importantly opening its doors to key emerging economies,” underlines Mr Varró.

In this regard, the IEA’s Clean Energy Transitions Summit was a very successful event, a culmination of work lasted months. Mr Varró said to be very impressed by the political momentum that the Summit managed to generate.

“We had participants from Europe, China, the US, India, Japan,” he says. “Different governments with different policies. For example, when it comes to the use of nuclear power there is no consensus and some countries are in favour some others are not. Still, among those that participated at the Summit, there was a broad consensus on the importance of clean energy and resilience. With people working from home, buying goods online, a reliable electricity supply is important.”

A very broad recognition went also to increase investments in clean energy sources and the importance of innovation. But the energy transition comes with opportunities as well as challenges, and the Coronavirus pandemic is clearly both.

“We need a significant scale-up of investments especially regarding energy efficiency in buildings, a more efficient transport system and renewables,” Mr Varró explains. “All of this requires a strong industrial value chain, employing local people and both small and larger companies.”

“Governments are now implementing economic stabilisation and by focusing on clean energy they could achieve two effects: on one hand giving jobs, especially in the construction sector that was badly hit the pandemic, as well the manufacturing ones for clean energy equipment. Also, if governments rise to the occasion, and I see positive signs, the sustainable recovery plan would not only help the economy but also it would fight climate change, reducing CO2 emissions.”

The future surely belongs to renewables, especially solar and wind. Yet, in some countries, government and shareholders have to deal with people’s consent, that can influence final decisions.

“Any energy source requires social acceptance,” agrees Mr Varró. “It is very strongly dependent on the historical development of society.”

For example, he recalls how Fukushima is 10,000 kilometres both from Germany and the United Kingdom. Germany decided to phase out nuclear power after Fukushima while the UK continues to be in favour. Therefore, it is an interesting question why this accident impacted differently two countries that were at the same distance.

“We accept decisions made by the Member States and work together to help their chosen strategy,” he says. “Hydrogen can be dangerous but so can gasoline, hydropower dams, coal mines. All risks have to be properly managed through safety regulations and investments. Risks are true for every energy source, including RES.”

For example, hydrogen is already used in large scale included in Central and Eastern Europe. But today it is primarily produced from natural gas and it emits CO2, so it is not clean at all.

“To produce clean hydrogen either we should capture, store or use the CO2 that is emitted today, or by water electrolysis,” Mr Varró highlights. “In the first stage, hydrogen will primarily be used by professional operators, petrochemicals plants, for example, steel plants or in the transportation with heavy trucks.”

Speaking of renewables, the two technologies pulling ahead are wind and solar. The other one technology absorbing large investments is hydropower for which the further development potential in Europe is limited.

“Further innovations are desirable for higher efficiency solar panels and cheaper wind turbines,” Mr Varró says.

“Still, the key innovation tool is no longer the hardware, but it is improving the ability of the power system to integrate variable renewable production.”

This can be either through new investments like with batteries and other storage, or could it be digitalisation, regulatory reforms and creating new business models to unlock flexibility from the demand side.

“Last, but not least, wind power and solar power are power-generating technologies,” Mr Varró notices. “However, electricity represents 20 per cent of the energy consumption, while 80 per cent comes from burning oil, gas and coal directly.”

“Therefore, another critical investment and innovation should target electrification of the economy such as electric cars and increase the use of renewable electricity in applications that are dominated by fossil fuels today.”

In particular, CEE is a diverse region. According to Mr Varró, Hungary has a pretty good solar potential. The wind potential (also offshore) is brilliant both in Poland and Romania. Western Ukraine, Romania, Bosnia and the Balkans are good for hydropower, especially considering that in western Europe there is no real hydropower potential left. Nuclear power has still political support which he believes to be good as nuclear still plays an important role.

CEE is only a part of Europe, which has set some very ambitious goals, especially after the European Commission unveiled the Green Deal. But if only Europe manages to reduce CO2 emissions, then it won’t be a success.

“However, Europe is not alone,” says Mr Varró. “In the past couple of years, the country that achieved the highest reduction of CO2 emissions is the United States, primarily due to three factors: the replacement of coal in electricity generation, the growth of solar and wind power and the improvement of energy efficiency. The US has a very attractive tax regime supporting RES and they made important regulatory reforms. They are also leaders when it comes to new technologies like carbon capture. The US made important progress over the past couple of years. Is it a happy ending already? Not yet, there is still work to be done.”

Also, India in the last couple of years has witnessed a historical success in supporting green energy, especially solar and it progressed with the electrification of the country, which also had very important social benefits. In particular the EU, in order to strengthen its bilateral relations in the areas of resource efficiency and circular economy, adopted a joint declaration together with Indian Prime Minister Narendra Modi to establish an India-EU Resource Efficiency and Circular Economy Partnership.

Mr Varró mentions also China, which is still using a lot of coal but is investing in RES (wind, solar, hydro) and nuclear more than the US and the EU combined.

“The stereotype that the EU is green and other countries are not is very simplistic,” he points out.

That’s also why an event like the IEA’s Clean Energy Transition Summit becomes crucial.

“This is a major macroeconomic opportunity and the governments have to step in and support the economic activity,” Mr Varró concludes. “The immediate priority is, of course, the financial stabilisation, helping companies and the banks. But beyond this immediate stabilisation, the energy sector can play an important role, creating up to 9 million new green jobs.”

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