RICHARD MORNINGSTAR: Well, everybody, if we – I think we should – we should start the program. First of all, good afternoon to everybody and welcome to the Atlantic Council. I couldn’t be happier to see this incredible turnout for today’s program, which is a tribute to Undersecretary Steiner, and – but also to the importance of the issues that we’ll be – that we’ll be talking about today. And it’s a distinct honor for me to be able to introduce the undersecretary.
And the title of the event, I guess as you know, is Global Trends in Renewable Energy. And the undersecretary and also executive director of the U.N. environment program will be talking about the report that came out just yesterday and is attracting a huge amount of attention. I also want to thank Patricia Beneke, who’s the director and regional representative of the United Nations Environment Program’s regional office for North America, for helping to get this event set up. I’d also like to thank our senior fellow Heather Zichal, who unfortunately could not be here today.
Seeing a large turnout like we have today, and thinking of some of the other things that we’ve been able to do, I couldn’t be happier that our new Global Energy Center has gotten off to such a fast start. And I want to particularly emphasize that we at the Atlantic Council, and certainly at the Global Energy Center, are firmly committed to working on issues like sustainability, new technologies, climate change as it relates – as it relates to the energy sector. Sustainable solutions, such as renewable energy, are one of the three core pillars of the Global Energy Center’s work.
So, again, today Undersecretary Steiner will discuss the key findings of the U.N. Environmental Program’s Annual Global Trends in Renewable Energy Investment, which was released yesterday. I had a chance to at least look at the summary and some incredibly interesting things that – and, you know, basically confirming what we’ve been thinking here, that renewables are going to take hold a lot faster than – I think than anybody ever thought.
The undersecretary’s career has been distinguished. I – you know, I could go through dozens of things that you’ve done and honors that you’ve – that you’ve received. And – but I think the best thing to do is to, again, thank you for being here today and for the critical work that you do every day on environmental sustainability, on economic development, and for being willing to come here to talk to us.
So I will turn it over in a moment to the undersecretary. Then afterwards, we’ll have a conversation up here and then open it up to all of you for your questions. And, again, thank you very much for coming today. (Applause.)
ACHIM STEINER: Director Richard Morningstar, thank you, first of all, for the hospitality, the warm introduction and also, above all, that in your new center and in the context of the Atlantic Council you have agreed to host what is essentially a feel-good session.
Not very often in our public policy arena that we can speak about things that have an outlook for the future that is genuinely optimistic, rooted in some fascinated developments, and speaks to not only the question of energy in the narrow sense, but also to the broader questions of how are we going to cope with this challenge of international collaborative action in moving towards low-carbon economies? How are we going to link this to an agenda that allows countries to look to the future not with a sense of being on the losing end, but rather of having an opportunity that they can realize with appropriate policies, with the emergence of new technologies?
Let me begin by saying – and picking up on something that you said just now, which I was going to come later in my speech – but on the renewable energy front, virtually everybody has been wrong virtually all of the time when it came to scenarios and predictions. It was just in the year 2000 that the International Energy Agency projected 34 gigawatts of wind power globally by the year 2010. By that time, the actual level had exceeded 200 gigawatts. And if you’re interested in how predictions and, in a sense, the ability to interpret trends related to clean energy technology, renewable energies has played out, there is a wonderful brochure that we put together, called “The Clean Energy Voyage,” on the UNEP website which traces this debate about what would happen, what would be the likely scenarios at different points in time.
Basically, the energy scenarios of the last 20 to 30 years have gotten it wrong by a factor of 10 whenever it came to renewable energy technologies. So everything you hear today should also make you perhaps sense that we are on the verge of seeing not some niche market that is coming to maturity, but we’re seeing perhaps the most disruptive element of technology coinciding with a public policy challenge and an economic transformation challenge unprecedented in modern industrialized development history. And I say this not because of the sense that Nirvana is around the corner, but we are moving on these three fronts with extraordinary pace at the moment.
First of all, renewable energy technologies did not really arrive just 10 years ago. They’ve been in the drawers of scientists, engineers for well over 50 years. It is sometimes the coincidence of other enabling factors that suddenly make a technology move from the drawer into the mainstream of, for instance, an energy planning matrix. What we have also seen is that the issue of access to energy is one that not only in places like Africa, where out of the 1 billion African citizens today still 700 million people still don’t have access to modern electricity service – that’s over two-thirds, in some countries three-quarters of the population don’t have access to electricity. It is also an issue that has preoccupied Europe in terms of energy security, the United States. It has been part of geopolitics.
We have grown up in an age where energy, more often than not, is an issue in which competition defines the paradigm under which to look at energy, rather than cooperation, collaboration, and perhaps the prospect of being able to talk about energy security in a very different way just 20 to 30 years down the line. It may still seem absurd to envisage the second half of the 21st century as an age in which actually energy in terms of access to energy resources will no longer be a constraining factor. This is difficult to conceive as we stand here, and that is why I began my presentation just to open your minds a little bit by quoting the figures of how often energy planners, scenario builders have gotten it wrong in the past.
But let me turn for a moment to reality as we have assessed it for the last year. In the year 2014, we have reached roughly $271 billion in investments in renewable energy technology. And let me just preface this once at the beginning so that this also applies to the other figures – this excludes large-scale hydro. Microhydro we include in these figures, but otherwise it is wind, solar, geothermal and other renewable energy technologies. It’s a 17 percent increase year-on-year from 2013 to 2014. And even though the numbers in financial terms do not yet reach the year 2011, when we had a record figure of 279 billion (dollars), you will not be surprised that because of the decline in prices a $271 billion investment actually buys you a lot more installed capacity than in 2011.
So for the first time in history we surpassed 100 gigawatts in installed renewable energy capacity worldwide in the year 2014. That is more than two generations in terms of human livelihoods of a nuclear industry having established generating capacity with nuclear technology, for example, in the U.S. You can have many other parameters, but again I want to draw your attention just to the speed and scale compared to some other technologies that have taken sometimes two, three, five decades to even reach a certain significant share and market share.
What is equally significant is that close to 50 percent of that investment last year happened in so-called developing and emerging economies. So the notion that renewable energy technology would need another 10, 20 years to mature where it becomes an economically interesting option for developing economies is being turned on its head. Indeed, with close to half of that infrastructure having been established in developing countries, we are also seeing not only the leadership of China – which out of the total of 271 billion (dollars) invested 83 billion (dollars), I think – yes, 83 billion (dollars) of that total just in the year 2014 in new generating infrastructure in its country.
But the growth is not only in China. Brazil was 7.6 billion (dollars), India, 7.4 billion (dollars), South Africa 5.5 billion (dollars). And many countries, such as Mexico, Chile, Indonesia, Kenya, Turkey invested a billion-plus (dollars) just last year in new generating capacity. Indeed, other countries such as Jordan, Uruguay, Panama, the Philippines, Myanmar are just at the beginning, but also have already surpassed the half-a-billion dollar investment level. So what we see is, first of all, renewable energies are becoming accessible and a rational investment option for developing economies, emerging economies. And even within that group, across a very broad spectrum.
Indeed, for a country such as Nigeria with all its oil resources, 80 percent of Nigerians to this day do not have yet access to electricity. And it was Nigeria’s energy minister who has pleaded for the international community to work with Nigeria to look at renewable energies and off-grid technology as the most rational and efficient way of reaching these 80 percent in the coming years. And this is not just a matter of not using the revenue from oil for that purpose. It is also a matter of being able to leapfrog technologies, to be able to reach people in distant rural areas and rural economies with off-grid technology that would take either enormous investments in terms of a grid development for the infrastructure side, but also in terms of the supply costs.
What is also remarkable about this number of $271 billion is that in its ability to make energy an issue that is no longer a matter of constraint, but actually becomes an opportunity. And the examples abound. And I could give you many from Nicaragua, that is actually moving towards close to 70 percent of its electricity supply being generated by renewables, to countries such as Spain, Portugal, Denmark having exceeded 40 percent of their electricity supply already now with renewable energy sources being the main stem of – significant share of their electricity and power supplies – economies such as Germany, that will probably surpass the 30 percent mark in the next year or two in terms of renewables. Now, these are developed, industrialized nations where the notion that renewables could begin to make a significant contribution was considered to be either economically or from an energy stability and grid management perspective something impossible. Yet, it is happening before our very eyes.
The report has also unearthed fascinating data about what is happening with the costs. A country such as South Africa, which introduced a green energy policy in the year 2011, has since then conducted three auctions, and is as we speak in the process of conducting a fourth auction, in which it is inviting investors to bid for power generating contracts and licenses. What is fascinating is that South Africa, once it had introduced the green energy policy, a green feed-in tariff, the legislative regulatory framework to allow this to proceed, found itself generating or mobilizing investments of $14 billion U.S. – billion U.S. dollars in just three auctions. What is fascinating in that number is that 80 percent of that investment actually had its origins in the domestic financial and capital markets and industry.
So even from the perspective of financing, what we are observing at the moment with renewable energies is that a whole new domain of financial resources is being unlocked that so far would not have been available. In these three first auctions, what South Africa also found is that markets actually become so quickly accustomed to the ability to turn these technologies into functional, operational infrastructure and investments that the price for solar and wind declined between something like 58 to 60 percent per kilowatt hour. Indeed, it seems that in the current auction that is happening now, a country such as South Africa will have bids for wind power-generated electricity that are on par with the cost for a kilowatt hour generated through coal-fired power stations.
This, in a country that 10 years ago would have argued that it has absolute energy needs of a developing economy, it has the cheapest coal-generated electricity in the world and, yes, unfortunately, some of the dirtiest coal, it would not be its obligation to move out of that. Today South Africa is at the forefront of a renewable energy revolution and the latest figures suggest that South Africa intends to install 33,000 megawatts of renewable energy electricity over the next 10 to 15 years. The numbers are boggling – mind-boggling because even if you then travel a little bit further east, Prime Minister Modi in India has recently announced his commitment that just the next four to five years India will install 100,000 megawatts of solar PV-generating infrastructure. This is unprecedented. It even overtakes China in terms of the ambition, in terms of time and scale of investment.
What I think all of this points to is that we are witnessing something quite extraordinary – extraordinary in the sense of, first of all, the confluence of a public policy imperative of enabling low-carbon technologies to become part of the mainstream of our power generating systems. Secondly, the confluence of a(n) access-to-energy agenda – it doesn’t matter what kind of energy. We just need energy for our people, as I spoke to in terms of Africa’s data. And thirdly, the emergence of a set of technologies that are fundamentally disruptive to an energy economy as we have known it for the last 100 years.
Just a few weeks ago in the west of the United States, a 750 megawatt solar PV plant was opened. What was striking in the reporting about this plant was that actually the investors themselves said, well, we might build another one or two on this scale, but probably the future ones will build are likely to be smaller because one of the fascinating things about renewable energy technologies is that their economies of scale do not arise at the level of the plant of the infrastructure, but rather at the scale of production.
So, producing a million photovoltaic panels or a billion makes a great deal of difference in terms of unit costs. Whether you have a million assembled together in one place or a million distributed over a number of private roofs really makes not that much difference to the economies of scale, which is essentially turning 100 years of energy infrastructure logic on its head, because ever more consolidated, concentrated energy-generating enterprises, whether public or private or parastatal, always relied on the notion that you had to have centralized power generating infrastructure because that’s where the economies of scale would arise.
So one of the first things that is far-reaching in terms of what we’re observing right now in the global energy technology market is a paradigm being turned on its head. In future, you are able to build a million or a hundred million kilowatt hour infrastructure, either in lots of distributed generating locations or indeed in one. What this means is that he notion that you need a central infrastructure is no longer an imperative. Secondly, you can being to build up power-generating capacity and infrastructure in a decentralized mode from the rural areas with many grids, moving into regionally connected grids and finally to a smart-grid technology, into power corridors, into regional approaches, whether for, you know, a particular part of the country for a series of nations – Southern African Power Pool is one example.
This is something that, obviously for the economics of energy, is extremely disruptive. And what you can see right now in a country such as Germany, where power production was essentially an oligopoly of four to five major corporations who, for reasons one can always question what were they, refused to recognize a changing paradigm in the way that German society would wish to produce its energy in the future, resulted in them significantly underestimating both the pace and scale of change that would come.
The five big energy-generating companies in German, that are also European countries, literally as a result of Germany’s decision to put in place to so-called Energiewende, the big energy transition, coupled with a phase out of nuclear energy, in some cases teetering on the verge of bankruptcy, not because they are not able to reinvent themselves but they literally underestimated the speed at which they would have to rethink their corporate business strategy. This is, in a sense, one of the reasons why renewable energy for so long was viewed as a marginal technology option, because the legacy economy, if you want, built around the models of energy generation that I described were doing very well in that status quo.
But as we know from the history of technology, and no more obviously so in a country such as the United States, the power of a technology that is ripe will come. And whatever the regulatory or monopoly or other interests may be, you cannot stop it. And I think this is what is part of what is happening around us right now. But that’s the one big economic variable that is literally, I think, going to change the way our energy matrix will look, both in its infrastructure but also in its corporate and organizational form over the next 20 to 30 years.
The other part is this issue of, you know, is it really competitive? Well, the first thing is that, yes, when you take renewable energy technologies you’re not buying a kilowatt hour out of a socket. You’re actually buying the infrastructure to generate that power for the next 15, 20, 30 years. So the upfront investment remains one of the financial challenges. But here, quite frankly, whether it is in Wall Street or in Dubai or in South Africa, I think many people underestimate that, you know, our financial system is perfectly capable of transacting 20 to 30 years financing packages.
In fact, our own headquarters in Nairobi, Kenya, which houses together with our sister agency, UN-Habitat, 1,200 people, is today powered by a photovoltaic installation on the root. We generate 750,000 kilowatt hours per year. That’s enough for 1,200 people to function with all the electronic equipment that we have. And it only takes us eight to nine years to actually pay off the capital costs. And that was three years ago. Probably a year or two even less if I were to buy it today. And after that, we will be earning the cost what we would normally pay for buying the electricity, which is roughly $180,000 a year for a building with so many people. We will be earning it. We will be making a net income. And this kind of economics is likely to become even more attractive as we see the unit costs for renewables coming down.
But perhaps the most scary, but also in a sense most enticing notion, is that if you take the outlooks now for fossil future – fossil fuels and for renewables in terms of their future perspective, then a very simple – almost unbelievably simple rule will take hold. The more fossil fuels we use, the more the price will go up, because it is a resource that in one form or another will become a constraint for our energy future, especially if you add another 3 billion people to the global equation with increasing consumption patterns and therefore also a higher energy consumption footprint.
The more renewables we use, the cheaper they become, which is back to the economies of scale of producing those technologies. So the underlying logic in terms of the economics of our energy future is equally disruptive. It is actually scary, because if you are an investor, if you are a government that has for 100 years, 150 years been premising its view of how it will assure energy security, then some of the most fundamental variables in that approach are no longer valid. And this is part of the reason why we are living not only in an age where renewables are booming, but it is also a phenomenon that is disruptive and at a time when – we live also in an age of energy uncertainty.
Some have said that, you know, with a $50 a barrel price of oil, this boom is unlikely to last. I think that is a complete misreading. In fact, these numbers are happening against a backdrop of a collapsing oil price. And they’re actually showing the opposite trend. And that has in some respects a very simple explanation that, for electricity generation, it’s not so much oil that’s at the heart of our current electricity-generating infrastructure. So therefore this notion that cheaper the price of oil, the more they’re going to somehow fire up our electricity-generating infrastructure with oil, doesn’t really work that way.
But what is interesting is that because of the things I have described just now to you, energy planners, but also businesses, are indeed beginning to look at the economics of renewable energy from a very different vantage point. And the short term fluctuations of the price of oil – a barrel price of oil are really not any more having the same destabilizing effect that they would have had, even 10 years ago. The numbers, in a sense, prove it. And you might argue, well, let’s see what happens in 2015. I would venture to say that we will see actually even an increase on the 2014 investments in 2015.
I’ll mention a few numbers to you – South Africa, India, China. The amount of gigawatts that are going to be added to the grid this year alone in the developing world is actually going to surpass that of the developed world. And therefore, the total numbers will not shift as a result of the price of oil. And that has a great deal to do with the fact that for many countries – (audio break) – so the link to our conference of the parties in December in Paris.
The world is now confronted with something it has never had to do before: decarbonizes a global economy in less than 50 years, to the point where somewhere in the second half of this century we will have to reach a point where we actually can say our economies have a zero net emissions footprint, which means no more emissions, and that which we can capture and sequester either through the ecological infrastructure on the planet or through the as-yet illusive carbon capture technologies that are being tested and experimented with.
People may still doubt that this is going to be a reality but, you know, as the executive director of UNEP, I have now spent 10 years in the frontlines of this debate about the signs of climate change and what people believe to be true or not. My fundamental conviction is that human beings are fairly rational people. We have in our history looked at the facts, we take the knowledge that’s available to us, that which science can provide, that which common sense gives to us, and we then make judgments. We assess risks.
And I think it quite clear that if it wasn’t for the politics and the economics that surrounds the debate about climate change, the science is so clear. And even if one day somebody will turn around and say, well, they weren’t quite right on this and quite right on that, as of now with what we know and with what we’re able to do differently by virtue of knowing what we otherwise would fact, it is quite clear that the world is not going to move towards a carbon-intensified path.
And very reassuring, just a few days ago the IEA published the latest statistics which show that for the first time carbon emissions had not increased from year-on-year balances in a so-called normal economic year, where financial disruption would not explain a decline or a shrinking of economies and therefore a reduction in carbon dioxide emissions. Significantly because of China’s action, but also significantly because of another building block that I would simply mention here, but not go into today: energy efficiency, resource efficiency.
It is still extraordinary how willing we are to accept an energy appliances and lighting infrastructure in our world that is highly inefficient. And indeed – (audio break) – invested in energy efficiency measures, particularly in industrialized countries, in the last 20 years, we would be consuming 25 percent more energy today than if we had not taken those steps.
So the combination of energy efficiency, renewables and the emergence of further technological innovations around smart-grid technology really do present a moment in time where we can look at the year 2050 and being to conceive of a world in which, at least as far as our electricity generating capacity is concerned, we will have shifted into an age of renewables being the foundational or the spinal cord of our energy systems, with implications for global security, for energy security, for access to energy, for also overcoming the inequality in terms of access to resources in globally very competitive market that speak also to what the United Nations this year has called the year of sustainable development.
I don’t know how many of you are following the discussions in terms of developing a new set of sustainable development goals, a conversation among 7 billion people that the United Nations moderate and facilitates, that takes us to a new level of trying to understand why in the year 2015 talking about sustainable development literally involves every nation – developed, developing, emerging, rich, poor, small, large – because we live in an age of planetary boundaries. And for those of you who are perhaps familiar with this concept, you will appreciate why, from the vantage point of an executive director of the United Nations, this is a critical concept.
We live in an age where our collective footprint in terms of extraction but also in terms of emissions has literally begun to change the way our atmosphere functions, our biosphere functions and our oceans function. It is quite an extraordinary prospect to conceive of a generation or an age in human history where we are, by virtue of what we can do, our ingenuity, our numbers, our hunger, our greed – we are transforming this planet. It’s why Professor Paul Crutzen coined this term of living in the age of the Anthropocene, meaning an age in which literally in geological terms we are transforming this planet.
The story of renewable energy technology – and that is why I said at the beginning this is a good-feel – or, a feel-good story – tell us that the age of the Anthropocene is not only the notion of doom and gloom where people are essentially the custodians of destruction and degradation. Indeed it is perhaps the age in which technology, intelligence, wisdom and the ability to work collectively together on something as fundamental as energy may in fact enable us to talk about an age in which we overcome some of the very costly practices of the last 200 years of so-called modern development.
So I hope with these statistical and perhaps slightly more scenario-oriented outlook I have been able to both convey to you what is exciting about this report – and if you have not yet got it, I think there are copies of the executive summary here, but on www.unep.org you will find this report that we produce since a number of years, together with Bloomberg New Energy Finance and the Frankfurt School UNEP Collaborating Centre. And from this narrative, hopefully take some encouragement that what lies ahead of us in this year 2015, when we talk about sustainable development about climate change, about disaster risk reduction, we are not talking about abstract things.
These are the fundamental elements of what will either make our world move into a more constructive mode of living together on this planet or, indeed, continue what has too often been a pathway where national interest in terms of access to energy or indeed other aspects of our economic life have set us apart from our neighbors, and therefore led to a world in which conflict and war and destruction could very easily also be part of the narrative of the Anthropocene. Thank you for your interest today and thank you very much to the Atlantic Council. (Applause.)
MR. MORNINGSTAR: Well, thank you very much, Undersecretary-General Steiner, for such a thorough and wonderful presentation.
Let me ask a question or two to get the – to get the conversation going. I was particularly fascinated by your discussion of infrastructure. We’ve been thinking a lot here – beginning to think, anyway, a lot here about where are utilities going to be 20, 30 years from now? How are they going to deal with this transition?
Let me give you this scenario. Let’s say that one day you get a phone call from a major utility, either in the United States or in Germany, and they – and you’re – and the person the other side says: Well, Mr. Steiner, you know all this stuff about renewables and new technologies and where the future is going. Come and be our CEO. And in a moment of temporary insanity, you say, OK, and you do that, much to the chagrin of the U.N. and many others.
And the question, to delve maybe a little bit deeper, you all of a sudden find yourself sitting this position where you have all of these assets that are part of a rate base that is generating – you know, generating revenues that are at least creating for now some profits and you’re, you know, being badgered by shareholders and so forth – and board of directors. What would you tell your new board of directors that you were going to do, with regarding – you know, in your position of CEO, your strategy and the steps that you think this utility would need to take in order to survive in this era of new technology?
MR. STEINER: It’s a very good question, because I think part of the stop and start experience with renewables over the last 10 years – if you start drilling down to individual countries – is a very volatile public policy and regulatory framework. In fact, you’re just living through this in the United States again. Particularly at a state of innovation and diffusion of new technologies, predicable – (audio break) – are essential. And we have seen, partly because of the financial crisis, a significant amount of instability – let’s put it in those terms.
So the first priority I think for any CEO of a company is to be able to put together a business strategy that can anticipate, one, the likely volatility and to hedge for it, and not in the sense of a hedge fund now but to be able to cope, if you want, with that volatility. Secondly, I think it is critical that a public consumer appreciation of that technology underpins whatever business case you make, because the reason why a country like Denmark for the last 20 years has decided to go to renewables was not the economics. It was the anticipation that the economics would get to a point where it is in terms of simple cost-benefit assessments – rational. It was a social-political expression of we want to be on the right side of a so-called future energy economy.
The decision by a conservative government in Germany to phase out nuclear energy after Fukushima was not a cost-benefit decision. It was a political decision where Chancellor Merkel essentially read the sentiment in the German population, such that this was the moment where a decision like this would not only be so much about the phase out of nuclear energy but rather about accelerating the transition to a new energy future. And I think as a CEO, and as anybody who, you know, either as an entrepreneur or as an investor, is looking at that new energy economy, you need to be able to deal with that public sentiment because it is your most likely reinforcement and acceleration that will come.
Finally, I think you need to look at financing models. It is critical and part of UNEP’s latest work, called the Inquire into Sustainable Financial Systems, is examining how central banks and financial regulatory authorities that, you know, in our traditional Anglo-Saxon mode of financial policy, if you want, or monetary policy are focused almost exclusively on stability. But in many developing economies, actually central banks are a significant part of a developmental economy.
And therefore, can you, for instance, expand green finance as we have seen in Bangladesh, where the Central Bank of Bangladesh issued a 5 percent minimum threshold for green financing to all commercial banks. In India, this has a long tradition for certain priorities. In China, we have seen a dialogue between the Central Bank, the government and the financial sector to significantly scale up financing for so-called green investments. So trying to also influence the financial context in which you run your company is part of managing the risks and the volatility.
Now, here a lot has happened. I mean, just last year, perhaps unbeknownst to many of us, this lingering dream of green bonds that were going to emerge in the financial markets and haven’t really to a grand scale so far – they were roughly 11, 12 billion (dollars), I think, in 2013 – suddenly shot up to over 40 billion (dollars) last year because finally the financial markets, capital markets are also beginning to see that this is an economy in which you can make money and the risks, profiles are much lower than anticipated. South African example that I gave, in just three years how people have recalibrated the risk profile in order to invest in it.
So three perhaps not conclusive answers, because part of anticipating the future is something you can never completely predict. But I think the numbers here point to something that is no longer in the R&D domain nor in the pilot stage; it is mainstream. I don’t know whether I mentioned this figure, but last year 49 percent of all – of all – new electricity-generating infrastructure worldwide was renewable. That means half, essentially, of everything we added to the global grid was renewable – inconceivable a decade ago.
MR. MORNINGSTAR: All right. Well, thank you. You’re – you know, you’re mentioning Germany. I just can’t resist the temptation to ask you one question about Germany, and then turn it over to the audience.
I happened in one of my prior jobs when I was in the government – happened to be in Berlin about a week after the political decision was made to shut down all the nuclear plants by a certain time – 2015, I guess – that’s this year. In any event, and as many of you may remember, that decision also came after a local election in Baden in which the Green Party all of a sudden got 26 percent of the vote, which was maybe some indication as to why that political decision was made.
Having said that, you know, I met with people in the chancellor’s office who said, yeah, you know, this is – basically making your argument – this is important. We can – you know, we’re going to get it done. It’s going to really push renewables and so on. And then I’d go to the Ministry of Economy, and the officials, oh, it’s good that they made that political decision, but we have no idea how this is going to – you know, how this is going to happen.
And how do you see the results of that? Yeah, there’s more renewables, but there’s also a lot more coal being used. Is this sort of – do you see this as, well, OK, maybe there have been some, you know, short-term – some short-term detriment, but it is pushing the long-term gains, or, you know, whatever? How do you assess what Germany has done?
MR. STEINER: Well, I think, first of all, in terms of the success of expanding the use of renewables, the German pathway – which, by the way, evolved over three different administrations – has been remarkably successful. And for an industrialized economy, the fourth-largest exporting economy and therefore very susceptible to competitiveness sand price considerations, to this year surpassed probably the 30 percent mark of its electricity being generated by renewables has surprised everyone.
Part of that exponential increase is also what caused then the Energiewende some of the challenge that you will hear about, namely with the guaranteed prices that were issued at the time with the feed-in tariffs. Nobody anticipated the enormity of the response. And therefore, suddenly what you saw was an absolute number in terms of governments and the utilities having to pay for this tariff, increasing far beyond expectations while at the same time the costs per unit going down quickly.
So one lesson out of this is we always underestimate how quickly markets evolve. Don’t lock in public policy longer than you need to, and therefore the necessity for Germany to adjust the tariff. Now, you can’t cancel existing contracts. So Germany chose another tool, which was to cap the amount of extra capacity that could be added in the current and future years, simply to reduce the exposure of, let’s say, a subsidized tariff that was there.
Having said all this, I think as you will have heard, you know, the great transitions, the great transformations in our societies do not happen because accountants do the balance sheet for the next 12 months. So let us look, you know, without knowing what the future will be like, 10 years down the line. If you take an economy such as the United Kingdom, it did not invest until recently in renewables. It did not invest significantly in the energy efficiency. It had oil and gas. Those are running out.
The United Kingdom is now worried about how to keep the lights on, is being forced into investing in nuclear technology, (tariffs ?) that, you know, many would have had disbelief written all over their face if they had heard this, about a commitment for renewables. But the U.K. is struggling to ensure that 10 years from now it will not have blackout periods in its economy.
Take an economy such as Denmark or Spain or Portugal. Yes, they have paid, particularly in the financial crisis cycle, significantly for expanding this infrastructure. But they’ve generated hundreds of thousands of jobs. They have an electricity grid that when tomorrow – and tomorrow will come, whether in a year or three none of us know – the price of oil per barrel will go up maybe to 80 (dollars), to 100 (dollars) or maybe even to $150 a barrel. And then you will suddenly see economies with a more resilient, more energy independent – particularly in the electricity sector – infrastructure being in a much, let’s say, more comfortable place.
So the time horizon plays a significant role. Public policy is learning to deal with a technology that it, for a lot time, underestimated in terms of how quickly it would evolve. And I think these two variables are currently, you know, a bit like a pinball machine. Governments are sort of finding themselves jostled from one end to the other. Let us watch what happens in the economies – the major economies of the world. They are the ones in quantitative terms that will determine what happens in the electricity infrastructure markets. And I think – the two biggest, we always talk about in, you know, a negative prefix sense in the global climate debates, China and India, are now emerging as the world’s largest investors in renewables. It’s got to tell you something.
MR. MORNINGSTAR: OK. Why don’t we open it up for the audience? We have microphones. And if you have a question, please stand and also identify yourself. We have a question right down – right down in front, I see, here.
Q: I’m Bob Hershey. I’m a consultant.
How is the internet being used in getting the word out on this and getting local efforts together and funding things?
MR. STEINER: Interesting question. I’m not sure I can answer that very competently. I mean, I think the driver of renewable energy is, in the current phase, still largely a product of public policy. Countries either take a decision that this is a direction in which they wish to move the economy and therefore there is a regulatory and market-influencing set of decisions. But what we see in some of the more mature renewable energy markets is a very interesting reversal of what happens in terms of financial flows.
Again, taking a country such as Germany or Denmark, what you actually see is, because of the power regulatory legislation, local authorities have an autonomy over deciding how they wish to purchase their power, including the ability to generate their own power. What renewables have introduced into Germany’s energy market is essentially local authority. The city of Freiberg or the city of Hamburg, et cetera, are making decisions about how they will manage the purchasing of their power and, indeed, many of them are now looking at constructing their own decentralized power-generating capacity, at least for a proportion.
So I think it’s not yet – the internet is not yet crowd financing, but it is coming closer to that. And it has something to do with perhaps an aspect we have to learn from something the U.S. 30 years ago pioneered, the deregulation of air travel – or the market for air travel. The energy markets are some of the most regulated and legislated markets in the world. I think we will see a significant amount of deregulation.
And the question is, can we do it also in a way that is socially acceptable happening over the coming decade? Because one of the arguments is that renewable energy, because of the penalty it imposes on consumers, with the feed-in tariff, is discriminatory to poorer citizens and households. And what tools do you have to maybe correct for that?
But I think the direction is definitely going to open up, including simply through private investment, which may well in future involve not just large venture capital financiers but indeed citizens. You know, the green finance market – green funds that you can now purchase and invest your funds in – pension funds are growing exponentially.
MR. MORNINGSTAR: Thank you. OK, there’s a question back in the back right there, and then I’ll come over to this side.
Q: Varun Sivaram. I’m a fellow at the Council on Foreign Relations.
You mentioned a couple ways that renewable energy’s increasing deployment increases its own momentum. For example, there is increasing manufacturing economies of scale, there is financial credibility as more of these solar panels are deployed. But what’s amassing the economies of scale and the financial credibility is a pretty conventional technology – silicon. I wonder what your outlook is for more advanced technologies that now face a very large barrier to entry as conventional technologies are scaled up?
MR. STEINER: Can you give an example of a particular one you are thinking of?
Q: Sure, perovskites.
MR. STEINER: You know, I would not in any wish to pretend that I can either understand or predict where some of either technological advances will come from or where most likely their dependence on, for example, natural resources would be on. We can talk – the analogy here being rare earth, for instance.
You may recall that just five, six years ago we arrived at a point where the supply available in global markets for rare earth had literally reached a point where factories were having to stop productions because they could not access supplies. Things have changed significantly since then, but I mean there is an example literally of a jumbo jet being flown with – loaded with rare earth to factories in Europe because the next day they would have shut down.
It’s an illustration of, in a sense, the emergence of a whole new set of resources, materials, production processes that have defined our technological, particularly IT-based industrial revolution, if you want. Where that next frontier is, I have no clue. Otherwise, I would not be sitting probably here. I would be sitting somewhere in California and perhaps running a fund.
What I can predict, however, with some confidence is that public policy will be more enabling in the years to come for these new technologies to go from essentially the R&D to the production economy. And herein lies also I think one key argument that I have not dwelt much on today, but that is actually integral to the renewable energy economy, which is its net-positive impact on jobs.
And here, you know, let me point for a moment to something that perhaps for some of you in this room here is uncomfortable, but I think it is worth talking about. And it is the contradiction between the global trade regime and the global climate regime. You know, under the global climate regime, the world calls upon countries such as China to essentially decarbonize its global footprint and to be a player in the global marketplace that will reduce carbon emissions.
When China embarked on its massive expansion of photovoltaic and wind energy infrastructure production, it suddenly made the bottom of the price in the global market fall out. And we are literally in four years seeing 50, 60 percent reduction in per unit prices of photovoltaic panels. You know, difficult as it may seem, one has to recognize that that has a lot to do with China. Now, whether China used taxpayers’ money to subside it or not, I cannot judge. The simple fact is that under the World Trade Organization, China is being taken to court, so to speak because it is essentially doing something that our trade rules would not permit.
What is interesting here is that while on the one hand helping the whole world, including Europe, for that matter, which would not have been able to make these investments – I don’t know what the share of Chinese photovoltaic panels in the U.S. is – but in the global market context, also relevant for the U.S., we would not have the ability to invest in photovoltaic technology now without China having arrived in the global marketplace.
But in Europe it was interesting, because the notion of we are losing jobs was also more a lobbying cry or rallying cry by a solar industry that was being taken by surprise and was not prepared for the shakeout that is, you know, normal in many rapidly evolving technologies. And what was not said is that actually one out of five jobs in Europe was manufacturing photovoltaic panels. The other four had to do with maintenance, supplies, service, financing, et cetera.
So what actually was the net impact, perhaps we will know this 10 years down the line, of this blocking of Chinese – and in future also other countries that manufacture at that rate – access to European markets is that there will actually be a net job loss, or at least an opportunity cost in jobs forgone because the ratio of net impact in terms of the jobs market of photovoltaics, of wind are significantly higher than traditional, concentrated power-generating infrastructure.
Which again is another argument why I think we have seen this success story go so quickly, because in all our societies whether, you know, in North America, in Europe, in Africa, Asia, unemployment, underemployment is a highly destabilizing factor in our economies and our societies. So anything that can generate jobs at the moment has a premium. And I think this is where renewables, again if you factor that in, take on an additional attraction, even in the short term.
MR. MORNINGSTAR: On this side. OK, right there.
Q: Reid Detchon with the United Nations Foundation.
Hearing your much more positive vision for the future reminds me that when you mix the climate change debate and the clean energy discussion that you move from an area where people typically feel hopeless and helpless to one that’s much more empowering and optimistic. And I was really struck by your comment that it’s possible in the second half of this century that access to energy resources may no longer be a constraint.
I wonder if you’d like to elaborate a little bit about that more positive vision. Energy’s always been at the heart of development. And that’s been seen as inhibited both by the potential for emissions and the cost of these enormous plants. But then, as you said, with more democratization and decentralization of energy production you might have a very different scenario. Could you pick that up?
MR. STEINER: Without venturing into the realm of science fiction, but just looking at the progression now, we in the year 2014 are producing with renewable energy technologies close to 10 percent of every kilowatt hour of electricity generated on the power. This is the most significant shift of any source of energy ever in the history of modern energy systems. That’s why I use the analogy also of nuclear power stations. I mean, if you just look at the equivalent of what nuclear energy generates in the U.S. after 60 years of R&D, development, et cetera, and you take renewables, you can at least assume that that share will grow significantly.
The reason why I think we may well in the second half of the century be looking at a future global economy in which energy is less a differentiating factor but rather an enabling factor is that based on the technologies we already know today are available to us, there is literally a limitless supply of energy out there. Some of you may know this statistic, on a few hundred square kilometers of the Sahara more solar energy hits the ground every day than the entire world uses up collectively in an equivalent sense.
So being able to harness photovoltaic, solar power, being able to harness wind energy, geothermal and soon probably other forms of energy, such as wave energy, second, third generation bioenergy, opens up a prospect where the supply or the source of energy is no longer an issue. And if you are in Texas or, you know, in California, unless the sun stops shining, that’s a given. And it’s an endless supply in terms of the relative amount that we would need to harness.
What will determine the pace of this happening is the evolution of technology because at the moment, you know, panels are operating at an efficiency of nine, 10 – I mean, some of the best technology is 20 percent of being able to translate that solar energy into electricity. Imagine we go to 50 percent. Then even somewhere in Canada or further up north, Alaska, at least for parts of the year, photovoltaic technology becomes perfectly usable.
Combine that with wind power and geothermal and you are beginning to talk about a world in which electricity generation – we always have to be careful. I think one of the challenges for us will be other sectors of the economy – mobility and transport, which is one of the principle Achilles heels of the global energy or oil market, fossil fuel market today. Will we be able to change our global transport fleet into an electric-powered fleet?
Well, if you were to talk to the big vehicle manufacturers five years ago, they would have said not in our lifetime. Maybe, you know, 2100. Just look at their corporate literature at the moment. Go to their website and read for a moment what they’re saying and those that are already, you know, investing in the electric or hybrid technology. The rhetoric has changed phenomenally in just the last three years. And that’s a good indicator of one key sector.
So assume for a moment that your aluminum plants and your steel plants may struggle initially to be serviced by a renewable power infrastructure. But if you actually look at their total consumption in the energy grid, it’s not that significant. They’re just very concentrated, large users. So this is the kind of, you know, panoply against which you have to chart out a renewable energy future.
And I think by virtue of technology and smart-grid technology and the fact that there is an endless supply of energy on these three or four fronts that I have just quickly alluded to, I think it is conceivable to think of a second half of this century where – you know, it may not be 100 percent. But I was just before I walked in looking at the latest scenarios that are there.
I mean, even the IEA now says that a moderate scenario for the share of the renewables in 2050 is 57 to 71 percent. This is the IEA, not exactly a kind of renewables radical. The higher scenarios, from Greenpeace and Ecofys – and Ecofys – very serious consultancy firm – project a 94 to 100 percent share for renewables in electricity by 2050. So, yes, I think we should start thinking about it, because it’s not outside the realm of the possible anymore.
MR. MORNINGSTAR: We have time for one more question. The young woman there.
Q: Rachel Fakhry, currently interning at the U.N. Environment Program here in D.C.
And I was wondering, because you touched upon this a little bit before but I think it’s more interesting to delve deeper because it’s going to deal with the short-term impacts of this growth with renewables – sorry. So it’s the problem with equity. A lot of people have voiced concerns about how, since a lot of consumers are going to be dropping from the grid now because either they’re going to be purchasing their power from solar companies and wind companies or generating their own electricity. And that would compel the utilities to impose higher rates on other consumers to recoup their investments. And I’m wondering, how can public policy correct for that? Thank you.
MR. STEINER: It’s an interesting question. I think the underlying principle that if you look at, you know, the history of energy markets, energy production is that the more decentralized, the more, I think, Rich, you used the term democratic or democratized, the more likely the consumer will be better off. So I think, you know, monopolistic, oligopolistic structures and sectors in our economy have never served the majority of consumers well.
So in the short term, the question is – and I think this is also not a matter of, you know, condemning companies and entrepreneurs. I mean, many of our investors in the energy sector have done what governments and markets essentially asked of them in the last 30 years – investing in coal-fire power plants, investing in the kind of infrastructure that was to be the backbone of our economies. So it’s not as if it is a malintent.
And I think this where dealing with a legacy economy from a slightly different perspective – how do we also enable companies that have invested heavily, but because of a changed context must now rethink? What is the role of the public sector to facilitate that transition and does it always have to be disruption in the sense of a chaotic transformation or can we help the energy infrastructure to evolve. And what is the role of the public sector to enable that to happen?
But specifically on, you know, will poorer people be priced out of the market or will people exiting the grid, so to speak, make it more expensive for others, I think we have well-tested fiscal policy tools that are at our disposal, whether you have for, you know, a certain level of income per household and below that an energy credit, for instance, or a tax relief. I mean, there are many public policy measures that allow that to happen.
And I think that was also the debate in Europe when the argument was made, you know, electricity is getting to expensive for poor households. Well, then give those poor households a tax credit rather than abandoning the whole transition towards a renewable energy pathway. And this also holds true for, you know, the argument of subsidies. As many of you know, currently we are still paying worldwide people around $700 billion a year in cash to use fossil fuels rather than something else.
That’s what fossil fuel subsidies are. And here in the United States, you know the debate a couple of years ago when it came to the kind of tax credits in the oil and gas exploration sector at the point of exploration where the net payment of that sector in that context was actually negative in terms of tax because of the rebates and the tax credits that were being given. So if you want consumers to switch, you also have to tackle this uncomfortable subject of subsidies.
And very often, particularly around the world – and UNEP, the IMF, the World Bank, we have been working on this for a number of years – what we actually discovered is that the so-called subsidies given for cheap energy in the name of the poor in large part accrue to the middle and upper classes because they are the ones who actually use the vast majority of that power or electricity of fossil fuels, and that the poor are only actually benefiting with a very small amount, even though for them energy was cheaper.
So are there better fiscal policy instruments to reach the poor, rather than subsidizing a comfortable energy consumption for the better off? And I think herein lie many lessons of how we can fine tune this without becoming over legislative or over directive in terms of an energy system.
Can I just say one last thing?
MR. MORNINGSTAR: Sure.
MR. STEINER: Because one reason why I’m so grateful that we were able to have this session here at the Atlantic Council today, Richard, is that one of the things that I, as a United Nations official, often wish I could do a better job, and my colleagues also, is to give you also here in Washington, for those of you who deal with domestic but also international issues, an appreciation of that role that a system such as the United Nations plays in this context.
You know, we often have the cynical and the skeptical media. And let’s be honest, most public policy leadership in the world at the moment isn’t exactly the greatest story of success. But something like this renewable energy story here has no single father or mother, but it has a number of critical players in it.
And one of them is actually the United Nations system, including the very leader of the system, Ban Ki-moon, because for eight years now he has been going around the world talking to government leaders, to industry leaders, trying to make them understand what is – the necessity of acting. And then trying to, through a Sustainable Energy for All initiative, also demonstrate that, you know, if we work together and we accept that some people, first, will need access to energy, but others already can reduce their energy footprint through greater energy efficiency.
And the emergence of renewable energy means that we can also take that technology across the world. Then we are talking about a unifying logic of managing our collective energy future. And that is part of what we do every day. It may not register on your Richter scale here, but it is actually part of the story. I say part of the story of a world of 7 billion people now, literally on the verge of jumping into a renewable energy future. And I hope that sometimes in your work you take a moment and take a second look because the headlines don’t always tell you the full story, which I don’t need to tell you in this city. Thank you very much.
MR. MORNINGSTAR: Well, thank you very much, Achim. Thank you. (Applause.) That was a wonderful presentation. And, again, thank you for being with us today.
MR. STEINER: Thank you, Richard. Thank you.