1 NS4960 Spring Term 2017 WEF: Game Changers in the Global Energy System

2 Overview I Global energy ecosystem is in midst of a transformation at scale and pace unforeseen in a century Buffeted by discontinuities in every direction Deep trends in the global economy including Industrialization in emerging markets Changing demographics Rising nationalism and Innovations affecting cost and efficiency Are overturning past assumptions about demand for energy and the supply of fuels and feedstocks

3 Framework I Technology disruptions have unlocked vast new sources of energy Renewables, Shale gas, and Tight oil While changing the contours of demand for that energy Advanced materials Electric vehicles Geopolitical developments changing production profiles across region at a rapid pace The arena is being redrawn by government policy and international agreements reflecting Changing pubic priorities and Increased pubic scrutiny

4 Framework II Energy ecosystem includes Energy CompaniesOil and gas, electric utilities, renewables developers, service companies, technology and equipment providers Large Energy Users Chemicals, advanced materials, metals and mining, automotive, manufacturing Financial Sector Commercial banks, private equity, institutional investors Policy makers Legislators, ministries of energy, environmental agencies financial regulators International organizations IEA, UN Framework Convention on Climate Change

5 Framework III With so many pieces of the system in flux, becomes unusually difficult to Anticipate what the future holds and To know what actions are required today to thrive in the years ahead In many cases responding to game changing trends will be critical to governments and society as a whole In many cases these new trends will require fundamental shifts in how Businesses are run, and Policies are made These changes will not always be easy or obvious

6 Methodology I Study methodologyProject began by identifying and understanding deep global trends of fundamental changes in Economics Society, Technology, and Politics That are shaping the energy ecosystem By anchoring to deep global trends the truly important and deep-seated implications of the energy system were crystalized

7 Methodology II Three game changing themes emerged as having the greatest potential to impact the energy system: Advanced energy acceleration Mobility revolution, and Energy system fragmentation

8 Methodology III

9 Advanced Energy Acceleration IEnergy system sits on verge of a profound expansion of technologies Already have Hydraulic fracturing and directional drilling in shale Advances in wind, solar storage and smart grid technologies changing power industry Future changes may be stimulated by increasing societal commitment to the environment. This has intensified low-carbon energy and technologies to meet that demand are becoming increasingly economical New technologies contributing to energy efficiency are decoupling energy consumption from economic growth and Unprecedented diversity of energy technologies may be poised for a breakthrough

10 Advanced Energy Acceleration IITo meet planned targets of reduced greenhouse gas emissions (Paris Agreement, COP21) Worldwide increases in power generation from renewable energy sources will exceed twice that from fossil fuels by 2030 This will expand the growing share of renewable to the power supply mix from 20% today to roughly one third by 2030 However some studies suggest meeting nationally determined contributions (NDCs) will not be enough to achieve the below 2 degrees C objective of 2030 By 2030 emissions will need to be about 30% lower than targets set by current NDCs Next weave of cost reductions and further technological breakthroughs could accelerate advancement and deployment of a wide spectrum of low carbon energy technologies in next 20 years

11 Advanced Energy Acceleration III

12 Advanced Energy Acceleration IVOther possibilities: Cost reductions in system design and construction could enable another step-change in the competitiveness of renewable energy generation To date much of the private sector cost reductions have occurred along the manufacturing supply chain Equipment costs account for one third of the rice for US residential solar systems Remaining two thirds are “soft costs” such a spermits, installation ad maintenance. Policy makers can play a role in reducing costs by streamlining the permitting process as in Germany

13 Advanced Energy Acceleration V

14 Advanced Energy Acceleration VIFurther electrification of infrastructure would accelerate shift to low carbon energy Enables a greater proportion of total energy demand to be met by electric power generation sources such as solar and wind Electricity demand is expected to growth at more than twice the rate of other final energy sources (e.g. liquid fuels) accounting for a quarter of global energy demand by 2050. Overwhelmingly this growth driven by building and industrial electrification in China and India

15 Advanced Energy Acceleration VII

16 Advanced Energy Acceleration VIIIAdvanced energy acceleration may transform energy diplomacy In today’s world, energy security derives from access to resources – physical control of reliable access to coal, crude oil or uranium and well as the supporting energy supply chain and infrastructure In tomorrow’s world energy security may instead come from access to technology. A country may no longer need to enter into expensive agreements with other countries to secure fuel imports if it can transform its indigenous natural resources into sufficient power. There will be a wider range of options to do so

17 Mobility Revolution I New technologies and business models are poised to dramatically change the face of mobility and at a faster pace than ever before Fueled by Falling battery costs Fuel economy and emissions regulations Growing commitments by car companies and Rising interest from consumers Global sales of electric vehicles (EVs) have risen quickly over the last five years Some studies predict EVs could become competitive with comparable internal combustion vehicles by mid 2020s on a total cost of ownership basis

18 Mobility Revolution IIIf EVs account for the majority of new cars sales by 2035, fluids demand could be reduced by 3 million barrels per day below forecast levels In addition sharing economy sprouting many new mobility services that have potential to profoundly change both private and public transit With growth of cities private car ownership could become less attractive and consumers may demand different mobility options altogether In parallel with continuing advances in mobility technologies, supporting policy efforts could accelerate the mobility revolution and its impact on energy demand

19 Mobility Revolution III

20 Mobility Revolution IVA number of cites are focused on shifting consumers away from single occupancy vehicles towards more sustainable modes of transport such as public transit, biking, and shared transportation Policy options include Making parking more expensive and Even outright rustications on car ownership as in China Larger cities in China have been restricting the number of license place granted

21 Mobility Revolution V

22 Mobility Revolution VI

23 Energy System Fragmentation IThe energy system is poised to shift from an era of concentrated power and ownership to one of Decentralization Fragmentation and Intensified competition For the past half century energy markets have been dominated by large players, whose scale has been a deep source of advantage In the future the driving force behind energy market outcomes could be an unpredictable interplay of a far greater variety of smaller more agile participants including Residential and industrial energy “prosumers” and Financial players competing across increasingly localized markets

24 Energy System Fragmentation IIEnergy system fragmentation characterized by two increasingly visible features of the energy system: Less ability to shape market outcomes and A shift in competitive advantage from scale to agility in an increasingly volatile market environment In oil and gas role of OPEC may be changing as member countries compete not only with international oil companies but also large group of decentralized producers making uncoordinated decisions about production In electric power utilities face disruptors in form of new and more varied generated sources that add complexity throughout the grid

25 Energy System Fragmentation IAn increasing number of individuals, businesses and cities may own energy assets such as solar power generation and storage and community microgrids Trend towards numerous smaller players partly due to technology – fracking, solar, storage. Trend towards more players underwritten by a proliferation of new sources of capital Traditionally majority of energy market capital came from either public markets or government support Over past five years private equity firms have raised more than $200 billion for energy focused investments Influx has made it possible for small and medium players to remain capitalized through tough market conditions and supports emergence of new business models by matching new ideas with capital

26 Energy System Fragmentation IEnergy system fragmentation could change how governments pursue energy security Today governments can be directive Since the 1970s OPEC has been able to shape oil prices due to the large share of supply under its control Several OPEC countries as Russia, China, Malaysia, Brazil and others have large oil companies that are either state owned or state backed and are often used as instruments of state policy Across Europe and Asia electricity is provided by large utilities closely alligned with governments

27 Energy System Fragmentation IIn a fragmented system however governments may have considerably less control over outcomes They mush learn how to be shapers using policy to nudge behaviors or empower national companies to compete in more open market and become comfortable using market mechanisms instead of government deals to secure energy supply