Energy independence: Hope yet for fuel-importing nations

The coming two decades will witness the largest turnover in electricity generating technology the world has ever seen. And the strategic winners will be those who develop, deploy and export renewable technologies to a world that needs electric power, writes Christian Kjaer.

Wind energy had a record year in 2006. Global demand for wind power capacity grew by 32%, following an increase in the market of more than 40% in 2005. The value of wind turbines sold last year was €18 billion.

In Europe, for the seventh consecutive year, wind power was second only to gas in terms of new capacity. New wind power installations in 2006 amounted to 7588 MW, seriously challenging gas (approximately 8500 MW in 2006) as the preferred European choice in electricity generating capacity. A similar pattern is emerging in the US, where wind was second only to gas in terms of new installations in 2005, according to the US Energy Information Administration. The same is expected for 2006. Between 2001 and 2005, 30% of all new capacity installed in the EU was wind power. In that same period, 53% of all new installed electricity generating capacity in the EU was gas.

It is good news that gas and wind combined makes up more than 80% of new installations. These two technologies complement each other well, both technically and environmentally. Gas is flexible and can be ramped up and down faster than other conventional technologies (with the exception of large hydro). Gas is also the most environmentally benign of the conventional power sources. In that respect, Europe’s wind and gas expansion over the past seven years is positive.

Europe clearly needs gas, and will continue to rely on large shares of imports in the immediate future. In the medium term, gas is needed as an alternative to burning coal, if we are to meet our Kyoto obligation and future climate obligations. Thus, gas is an important bridging technology on the way to a Europe, and eventually a world, running on 100% renewable electricity in the long term.

For the majority of countries in the world that experience high and increasing energy imports, the coming years will be a balancing act between reducing import dependence, reducing exposure to fluctuating and unpredictable fuel import prices on one hand, while simultaneously working to curb emissions of greenhouse gases and other pollutants from electricity generation on the other. We have a 10-year window to avoid irreversible damage to the world as a result of man-made climate change. Deploying indigenous wind energy and building new gas plant while securing gas supplies is certainly not the worst response importing countries can make when trying to navigate through the increasingly challenging climate and energy situation.

As mentioned, the global market for wind turbines was worth some €18 billion in 2006. The amount comes very close to the increase in EU’s gas bill, every time the oil price increases by US$20. The European Commission has calculated that for every $20 increase in the oil price, the price of Europe’s gas imports rise by €15 billion annually, given the unfortunate link between gas and oil prices. For comparison, the value of wind turbines installed in Europe in 2007 was approximately €9 billion.

A tripling of oil prices from $20 to $60, as we have experienced in the past years, thus adds €30 billion annually to the gas import bill of Europe and constitutes a transfer of wealth from Europe to gas-exporting countries.

The real effect of the oil price increases has not been quite as dramatic, since the dollar depreciated against the euro over that period. However, the transfer of wealth will increase in the future as EU production of gas, currently meeting approximately 50% of demand, is expected to fall by 50% over the next 20 years. It would require dramatic decreases in the price of oil (and thereby gas) to limit the effect on the transfer of wealth from the many net importing countries to the few net exporting countries – and such a decrease is highly unlikely.

Europe is not an isolated case. Very few countries are net exporters of fuel, and even fewer will be in the future. Due to the concentration of the remaining reserves, most countries will be transferring an ever-increasing share of their wealth abroad if imports continue to grow and prices continue to rise. Gas importers have little influence on prices. OPEC (through oil price control), and any possible future gas cartel as proposed recently by President Putin, will in the end determine the size of the import bills.

Europe, as well as North America, Japan, India, China and many other importing countries will have to accept a transfer of wealth to fuel exporters in the medium term. But the impact on their economies and the global environment can be limited, both in the short, medium and long term through much-needed energy efficiency measures and the deployment of renewables.

Wind energy has supplied more than 30% of all electricity generating capacity in the EU in the past six years and that share will increase if decision-makers provide the right signals for the future direction. That effort can be replicated in other regions of the world. Importers of energy would reap the benefits of putting money to work in their own economies rather than bearing the economic burden of transferring increasing amounts of their citizens’ wealth abroad. The reduced demand for fuel would keep oil and gas prices lower and ease inflationary pressure on the economies.

The current energy supply structure can clearly not be maintained. The economic, social and environmental costs would be unacceptable to humanity. Over the coming two decades we will witness the largest turnover in electricity generating technology the world has ever seen. Existing plant needs to be retired, and in addition, new plant will have to be built to satisfy the increasing global demand for power – not least from India and China. We must use this as an opportunity to change our energy supply structure towards much larger shares of indigenous, renewable resources so we can develop our economies on the basis of known and predictable cost of electricity.

President Bush has already declared the United States’ oil dependency an ‘addiction’. It is an addiction his country shares with most other nations of the world, and the addiction is not limited to oil. None of these countries will ever become net exporters of fuel, but the smartest of them do have a chance to emerge as winners of the battle for the remaining resources.

The battle for energy in this century will not be won by following the strategy that proved to be the winning one in the 20th century, i.e. of either producing fuel or of controlling fuel supplies. It will be won by those regions of the world that have the foresight to act now to protect their economies and the global climate. It will be won by the regions that excel in developing, deploying and exporting renewable energy technologies to a world that can not afford to do without them.

 
 

Christian Kjaer is CEO of the European Wind Energy Association, EWEA.
website: www.ewea.org

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