Energy sector executives, policymakers and advisers debated at an April 12 Columbia University summit in New York City ways to better deploy innovation to achieve net zero emissions and to relieve growing economic hurdles in scaling up renewable power projects.
Despite predictions that continued fossil fuel production will harm global efforts to reach net zero, experts at the school's Center on Global Energy Policy event, noted still strong European demand for non-Russian sources of liquefied natural gas, and new competitors for a growing US supply.
The outlook was offered as climate, energy and environment ministers of G7 nations meeting in Sapporo, Japan, agreed April 16 to pursue a common goal of net zero through "various pathways," they said in a 36-page statement released after the meeting, but also to ensure energy security through accelerated transition, investment in natural gas projects and countering geopolitical risks for critical minerals supply.
Nations at the G7 event included the U.S., Canada, UK, France, Germany, Italy and Japan, as well as the European Union—with India, Indonesia and UAE as guest attendees.
Members pledged to boost their total offshore wind capacity by 150 gigawatts by 2030 and solar capacity to more than 1 terawatt. But Japan also depends on fossil fuel imports for nearly all its energy needs and wants to keep LNG as a transition fuel for at least 10 to 15 years, according to Reuters.
"Initially people thought that climate action and action on energy security potentially were in conflict," said Jonathan Wilkinson, Canada minister of natural resources. "But discussions which we had and which are reflected in the communique are that they actually work together."
Acknowledging concerns over growing renewable sector deployment issues, the G7 also said it would focus on developing “secure, sustainable and resilient supply chains.”
At the Columbia U. event, Meghan O’Sullivan, a Harvard University international affairs expert, cited an expected uptick in LNG imports by China, “as its [COVID-impacted] economy opens up,” and Patrick Pouyanne, CEO of France-based Total Energies SE, noted "a gap of supply,” with no major boost expected in import and export infrastructure until at least 2026 after years of underinvestment.
Reiterating past statements, Energy Secretary Jennifer Granholm told conference attendees “that oil and gas wil be around for awhile,” although its acceleration will be “temporary,” she said, urging more full sector decarbonization and transition to cleaner energy sources. “We have to do both. It’s not a binary choice. But people still have to be convinced that the cost of clean is cheaper. We’re working on that.”
Vijay Vaitheeswaran, global energy and climate innovation editor for the Economist, said the Biden Administration is driving supply through the Inflation Reduction Act, with Europeans doing the same by reducing the “green premium” on cleaner sources. “iRA is the most significant policy ever taken on climate by any country, but it’s not enough, said Manish Bapna, CEO of the Natural Resources Defense Council. He said the law “gets us from 30% to 40% carbon reduction but far from 50% by 2030, or net zero by 2050. We need to think about how to actually deploy clean energy at a faster pace.”
Project Headwinds Growing
But others emphasized that worsening economic risks in developing and scaling up technologies are eroding those premiums. “This big green machine that we're talking about is looking like it could break down under a multitude of challenges, inflation and high interest rates, regulatory challenges, and permitting delays," said one summit session moderator.
Rising demand to install offshore wind infrastructure for zero-carbon power will require tripling the supply chain capacity from 7 GW now, said Mads Nipper, CEO of major global wind developer Orsted. Those hurdles—which could cause a slowdown in “necessary investments” in renewables and “a devastating loss of momentum” for the energy transition, he told analysts in early February—“have not changed a whole lot,” the executive said at the Columbia gathering.
Despite the renewable energy sector’s “phenomenal and much-needed growth potential,” the “adverse impacts …in just literally the last 12 months are very challenging,” Nipper said, emphasizing that “for many, the cost of capital—the fuel for renewable energy—has almost doubled.”
Siemens Energy CEO Christian Bruch told attendees the firm “wants to drive faster” in renewables development and in “very early stage hydrogen,” but he cited stronger “headwind effects than in more established technologies like gas,” in which the firm has a longer cost and risk management track record.
Through its Siemens-Gamesa unit, he said the firm has installed about 65% of global onshore and offshore turbines but reported a more than $1 billion income loss in its 2023 first quarter, with more possible red ink through year end. “We have an industry which is super interesting and fast growing, but has not found the economic, sustainable business model,” said Bruch. Current issues “will not be resolved by just making the cake bigger.”
For now, the firm expects to balance that financial risk with better returns in its gas and power sector support services units, which he said “are growing, and doing economically fine,” despite current headwinds. “We are fully committed to drive the energy transition, but we … still are working on finding a good business model.”
Related to project permit challenges, Orsted's Nipper said “It takes much longer to permit a plot of seabed than it does to actually build a complex piece of infrastructure—which is just not acceptable in this high interest rate environment.” With previously agreed on power supply prices, and rising capital and equipment costs, “in some cases those projects ... might risk being delayed, or worst case not built.”
He told attendees “that is a structural challenge which hits offshore even harder than other technologies. it's a huge paradox, because … I don't think anybody more than [those] in this room want renewables to accelerate.” Nipper said shifted economics prompted the firm not to participate last year in an auction round in Taiwan, a key firm market. “After exhausting all efforts, we cannot make the projects investable at this stage,” Per Mejnert Kristensen, Orsted Asia-Pacific chief, said last September.
Nipper called for stronger cooperation among supply chain firms, developers and governments … to seek a new approach “where we don't … stand in the way of ourselves. That is something we have to do.”
What are the Fixes?
Arun Majumdae, dean of the Stanford U. Doerr School of Sustainability, argued that innovation is needed to bring down costs, as are sensible regulatory measures such as performance standards.
But it is different, and more difficult, in the energy sector than in others, said Ann Mettler, vice president of research firm Europe Breakthrough Energy and former European Commission director general. “Demand doesn’t automatically rise, so there is a big role for government,” she said, noting that upfront costs are massive and companies cannot be left to bear them all.
She argues that it is critical to keep government officials informed “on innovation to bring them along” and unless incentives are structured for companies to make money, “it’s hard to see how demand will grow.” Mettler lamented that sector innovation has not been able to score achievements akin to pandemic vaccines developed by drug companies, especially considering the crisis presented by global warming.
Participants also debated the potential of hydrogen in decarbonization. Tech investor Bill Gates calls it the Swiss Army Knife of decarbonization, Mettler said. She noted a company in Israel that is splitting water and a company in Spain that is transporting hydrogen in natural gas pipelines. “These companies are undercapitalized,” she said.
But other speakers were skeptical. Emmanual Lagarrigue, climate investment chief at KKR Infrastructure, said “No golden age of hydrogen is coming. It’s big hype and it is the consequence for thinking in supply terms.” One consequence of supporting it with incentives, he said, is that hydrogen could be burned just to receive the subsidy. “A supply push will result in mistakes,” Lagarrigue said. Fred Krupp, Environmental Defense Fund president, contended that hydrogen is indirectly a greenhouse gas. "We now have the chance to get it right,” he said.
Mettler also noted that global transmission grids must be digitized to collect data needed for regulators to make smart decisions, as has been done in Italy. Granholm noted the need to double the size of U.S. transmission, with up to 2,000 GW eyed through new or reconfigured infrastructure. She noted directed DOE efforts to site transmission on public land and in designated U.S. corridors, and to develop a system to link new offshore wind.
“There will be quite a few unicorns in this business,” said Larry Fink, chairman and CEO of equity firm BlackRock Inc., a growing sector investor, referring to unexpected technology developments. “In all of these massive projects, the cost of capital is very, very fundamental, and it is not good for the sector as a whole that rates are where they are,” he said, and could rise higher. While Fink sees some rate moderation, he predicts they likely won’t dip below 4% anytime soon.
Related to permitting, Granholm said President Joe Biden “is obsessed with getting reform done and we hope Congress also will achieve it.” She called for shorter project reviews for clean energy and critical mining projects, but “respect for the goals of NEPA. We can do that.”
Rep. John Curtis, a Utah Republican who chairs the 81-member House Conservative Climate Caucus, said permitting difficulty is the “single iargest impediment” to reaching net zero goals and gaining full value from iRA funds. He claimed that project permit policy gaps are wider among Democrats than between parties. NRDC’s Bapna says policymakers first need to clearly define and agree on key permitting barriers.
Granholm also urged more fossil fuel sector investment and collaboration, citing potential for ramped up geothermal energy development and use of fracking technology for its extraction.
Noting recent global market tension related to IRA incentives, Laurence Tubiana, CEO of the European Climate Foundation, said there are “trade consequences to all policies we are designing,” but she called for conflict limits and "good conversations" on new rules.
“This is a historical moment for the U.S. and EU,” Tubiana said. "We will define the market of the future and harmonize it to the maximum.”