Should Energy Security Go Green?

March 2017 Andreas de Vries, Salman Ghouri
 

Debate over the past few decades on the subject of energy security policy has invariably had a bias toward fossil fuels, the energy source on which most of the world still depends. But recent advances in renewable energy technologies, and particularly sharp reductions in costs, raise the prospect of a greater role in energy security planning for green energy technologies.

Fossil fuels have been the lifeline of the global economy for over 150 years. In fact, they have become a way of life, the raw material for thousands of products and accounting for over 86% in the global energy mix. But fossil fuel resources are unevenly distributed around the world -- 72% of global coal reserves are located in just five countries, the US, Russia, China, India and Australia. Similarly, five countries hold 61% of global oil reserves -- Saudi Arabia, Venezuela, Iran, Iraq and Canada. A further five -- Iran, Russia, Qatar, Turkmenistan and the US -- account for 64% of global natural gas reserves. This explains why the quest to access fossil fuels has been of key strategic importance for policymakers ever since the Industrial Revolution -- while every economy is fossil fuel dependent, most countries are further dependent on fossil fuel imports.

It was not entirely surprising, therefore, that among US President Donald Trump's very first policy announcements was his energy policy. The America First Energy Plan, officially announced on Jan. 20, 2017, focuses on maximizing the use of American fossil fuel resources in order to achieve energy independence, i.e. to meet domestic energy demand through domestic energy production at cost-competitive prices. The question is, however, whether this fossil fuel focus remains the right strategic choice for 21st century energy security policy.

Innovation in the US oil and gas industry makes it reasonable to assume that the availability of American oil and gas will increase, at prices even more cost-competitive than they are today. It is not certain, however, that US production will be able to grow to the levels needed to meet national demand. Just removing America's dependence on crude oil from Opec countries would require an increase in domestic production of around 3 million barrels per day, or 25% of current total US oil production. Most other countries are not as blessed with abundant fossil fuel resources as America is, however. For them, continuing a fossil fuel-focused energy policy will almost certainly mean continuing, and possibly even worsening, their dependence on foreign fossil fuel, leaving them exposed to shocks due to natural disasters and willful intent.

A fossil fuel-based energy ecosystem has further important strategic implications. Since the major sources of fossil fuels are concentrated in specific regions of the globe, there is an inherent weakness in such a system. Fossil fuel production and transportation, and to a lesser but still significant extent, processing, are highly centralized. This makes fossil fuel-based systems vulnerable to disruption, even in countries rich in such resources.

The environmental issues associated with the production and utilization of fossil fuels have the potential to destabilize countries environmentally, and consequently economically and politically. Rapid environmental changes can put pressure on the supply chain of water, food and other living essentials, for which reason the UN is urging member nations to see climate change as a security issue. "We clearly see the effects of climate change -- not just in record high temperatures year after year, but in the global conflict landscape as well," Patricia Espinosa, the UN's top climate change official, said during a speech at the recent Munich Security Conference. Strategically, therefore, there is a strong case to be made for energy policy to look beyond fossil fuels.

Unlike fossil fuels, renewable energy resources are not concentrated or limited within certain national boundaries. Renewable energy can be harvested wherever there is sunshine or wind or waves. This abundance of renewable energy means it has the potential to address the issue of security of supply comprehensively, removing any international dependencies.

A renewables-based energy ecosystem also tends to be much more distributed, making it inherently more robust and reliable. In a renewables-based system, centralized generation and associated transport takes a much smaller share in the mix than in a fossil fuel-based system. Using solar and wind, electricity can in many cases be generated locally, where it is needed. In a renewables-based system, these localized electricity generation stations can be coupled together to form microgrids, while microgrids can be coupled together into the macrogrid. In a renewables-based system, the ability to balance out differences in regional electricity supply and demand can thus be maintained, while the ability to "de-couple" in order to prevent local issues, such as a severed power line, from affecting the macrogrid is added.

For this reason, the US military is highly interested in renewable energy. "Islanding" -- the act of making a military installation capable of operating as intended even during blackouts -- has long been part of standard military procedure, but a reliance on diesel fuel generators has historically made this challenging to manage. A renewables-based energy ecosystem at the installation level -- a so-called microgrid, which couples local solar and wind power generation with electricity storage -- is much simpler, and cheaper, to operate, and thus better suited to ensuring a sufficient and reliable electricity supply under all circumstances.

The Cost Factor

Historically, the high cost of renewable energy made its strategic benefits essentially impossible to capture and exploit. Over recent years, however, these costs have fallen substantially, due to various technological advances. According to investment bank Lazard, the cost of renewable energy has decreased dramatically since 2009, in the case of utility-scale solar by 85% and in the case of wind by 66%. Consequently, in certain environments, renewable energy is already cheaper than electricity from conventional coal or gas plants.

The remaining key obstacle to a transformational shift toward a renewables-based energy security system is storage, as in this system timing differences in the generation and usage of electricity will need to be balanced out. Again according to Lazard, energy storage technologies have become increasingly attractive over recent years, and are expected to continue becoming more attractive during the coming years, but costs are not yet at the level that makes them competitive compared to fossil fuel-based electricity solutions.

Capturing the strategic benefits of renewable energy therefore remains a challenge in three ways. Firstly, energy storage technologies need to improve in order for a renewable energy security system to become a viable alternative for its fossil fuels-based counterpart. This means 21st century energy security policy should drive forward research and development in the area of battery technology.

Secondly, established renewables-based electricity generation capacity remains well below what is needed to meet electricity demand. In order to address this challenge, 21st century energy security policy should facilitate continued investment in such capacity. This does not necessarily mean providing subsidies -- first and foremost, it means addressing the regulatory hurdles to renewable energy investment and innovation that have resulted from some 150 years of lawmaking based around fossil fuel systems.

Thirdly, a transition from fossil fuel-based to renewables-based energy security will come with unique integration challenges that will need to be managed. Similarly, under a renewables-based system, the integration of localized generation into microgrids, and of microgrids into the macrogrid, will require management. Both types of integration need to be facilitated by development of new and improved grid management systems, meaning that contemporary energy security policy should also drive forward research and development in this particular area.

These recommendations do not mean to say that 21st century energy security policy drops any reference to fossil fuels altogether. This would be foolish, as at present the global economy remains dependent on fossil fuels. Rather, they are a call for a balanced energy security policy, which integrates into the basics of traditional energy security policy these three renewable energy-focused elements.

In the absence of such integration, nations will be destined to remain dependent -- under a fossil fuel-based energy ecosystem, dependent on foreign fossil fuels, and under a renewables-based model, on foreign energy-critical technology.

Andreas de Vries is a strategy consultant with more than 15 years experience in advising company executives and government officials on oil and gas strategy. Dr. Salman Ghouri is an oil and gas adviser with expertise in global and regional long-term forecasting, macroeconomic analysis and market assessments.

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