The Energy Transition – Challenges and Opportunities
The transition presents enormous opportunities for nations, for industry, for those who deploy capital, for scientists, engineers, entrepreneurs, visionaries
By Anil Madan
The McKinsey Global Institute has just released a report titled: The hard stuff: Navigating the physical realities of the energy transition. It is a lengthy document providing an overview of the challenges that the world faces in transitioning to clean energy. Embedded within the report, one can see that the transition presents enormous opportunities for nations, for industry, for those who deploy capital, for scientists, engineers, entrepreneurs, visionaries, and indeed, for all to contribute to the change.
The Energy Transition is going to happen whether the fossil fuel industry likes it or not. This is not the same as saying that the world will rapidly eliminate the use of fossil fuels or indeed, that in the foreseeable future, it can. In short, the energy transition may not successfully happen. And this is also not to say that the fossil fuel industry’s giants will not participate in elements of the transition. One example is the leadership roles that ExxonMobil and Chevron show in the carbon capture space.
“The scale of the EV challenge is enormous. Global public charging infrastructure would have to grow by 24% per year for the next six years to bring the total number of charging stations to 16 million, up from about 2.8 million charging points in 2022. And consider that if the number of EVs sold rises, so must the number of factories making batteries rise. Manufacturing capacity would need to grow tenfold by 2030…” Pic – HDOT
Here, I present a look at some of the highlights of the McKinsey report. A striking initial assessment they make is that as we begin the energy transition, only about 10 percent of the low-emissions technologies that are required to achieve emissions goals for 2050 have been deployed. The combination of the production and consumption of energy accounts for more than 85% of global CO2 emissions. Creating a low-emissions energy system would require deploying millions of new assets and, at the same time, face the challenge of meeting ever-increasing energy demand and the need to deliver energy to those who do not now have access. My observation is that, as with most delivery systems, this aspect will run head-on into the challenges and costs of delivery to the last mile.
Inventing and facilitating new technologies
The physical challenges that McKinsey sees range from inventing and facilitating new technologies, to creating supply chains that do not now exist and building the infrastructure to support them.
If we are to reduce CO2 emissions by half (and more reduction will be needed), the variability of renewable source energy will have to be fixed. Since transportation is a large contributor to emissions, transitioning to electric trucks means addressing range and payload challenges. Industrial processes and production are largely dependent on traditional fuels for generating heat. Here, alternative fuels and perhaps even replacement of feedstocks for manufacturing industrial materials will have to be found. Deploying hydrogen as a potential energy source remains a challenge but a promising one, and carbon capture will be important. And what of aviation and shipping? They have unique challenges of their own.
The challenges we face are demanding because we simply do not have viable low-emissions fuels that can match the yield that high-emissions fuels provide. In many cases, the shift to low-emissions energy delivery means changing entire production systems.
The existing energy delivery system effectively serves the world even if inefficiently so. It is a massive and complex system that supports the livelihood of billions of people. The economies of many states depend on it. Some of the world’s largest businesses depend on it. For all its flaws, the system performs at a high level. One of those major flaws is that about two-thirds of energy is currently wasted.
McKinsey’s report does not state this, but for now the easiest and perhaps default method of meeting the world’s increasing thirst for more power and the need to provide access to power to the billions who do not now have it, is to add more fossil fuel production capacity. Perhaps this is why we see that China continues to add coal-fired power plants and neither China nor India will commit to dramatic emissions reductions before 2060 and 2070. The economic empowerment of their populations is a priority well ahead of curbing global emissions.
Although not a practical solution, it appears that political considerations may lead nations to attempt to construct a low-emissions energy system in parallel with the extant structure and find a way to flip a switch from the old to the new. This is easier said than done both from practical and logistical considerations, and from a financial perspective.
McKinsey rightly observes that deploying wind and solar technologies that seem promising, is first and foremost a physical transformation and that this is a truth that often gets lost in the abstraction of net-zero scenarios.
The report identifies seven key domains of energy that require significant revamping and reconfiguration. The first domain is power, where the primary challenge is not only to drastically reduce emissions but also to scale up low-emission energy generation to meet the demands of its three largest customer bases: mobility (transportation), industry, and buildings. The other three domains include raw materials, such as critical rare earth minerals; hydrogen and other alternative energy sources; and carbon reduction.
The EV challenge
The transition is gaining momentum even in its early life. About 90% of all battery electric vehicles (EVs) sales and almost 60% of wind and solar power capacity was added in the past five years. On the other hand, low-emissions hydrogen-based power generation, carbon capture, and low-emissions manufacture of industrial materials is at less than 1 percent of required 2050 deployment levels. There is a long road to travel, but one can see that opportunities wait for those who can exploit the developing markets. And do not lose sight of the fact that these dramatic numbers relate only to about 10% of the change that is needed.
The report suggests that there are 25 physical challenges that must be addressed for the energy transition to succeed.
Aside from the challenges in the power sector mentioned, each of the domains presents its own challenges. The mobility domain, for example, includes the challenge of increasing EV sales to 1 billion in short order. This, in turn, requires building out a battery charging structure that is robust and reliable. It may require the development of smaller batteries that are easily swappable so that drivers are not stuck waiting for a charge to be completed. Charging a battery EV takes 25-50 times longer than filling up an internal combustion vehicle with gasoline or diesel. Yet, McKinsey estimates that the current range performance of EVs meets the needs of almost 70% of households. This has huge promise for reducing pollution in cities around the world.
On the other hand, one must recognize that the energy used to mine minerals for EV batteries, and the energy used to manufacture the batteries, electric motors, chassis and body elements, and the software that controls them, for the most part comes from fossil fuels. Therefore, the brunt of the pollution is merely being shifted to victims in areas where the mines and factories are located.
If electric trucks are to become a reality, the problem of range and payload present seemingly insurmountable obstacles. McKinsey suggests that one solution is to reconfigure the routing and travel distances to optimize electric vehicle deployment. For industry, the challenge is to transition to low-emissions furnaces for steel production, synthesizing low-emissions ammonia, and finding a way to deal with the permanence of plastic waste that keeps piling up.
The scale of the EV challenge is enormous. Global public charging infrastructure would have to grow by 24% per year for the next six years to bring the total number of charging stations to 16 million, up from about 2.8 million charging points in 2022. And consider that if the number of EVs sold rises, so must the number of factories making batteries rise. Manufacturing capacity would need to grow tenfold by 2030.
The challenges for the energy transition
When it comes to buildings, whether residential or commercial, more reliable and efficient means of heating and cooling must be deployed. This will mean creating more efficient heat pumps.
Hydrogen remains the most promising abundant fuel source. But technologies to harness this power source are still in their infancy. And once the technology is reliable and deployable, assuming optimistically that we succeed in developing a viable hydrogen power system, an entire infrastructure to deliver it will have to be created and scaled. This is a daunting and expensive undertaking.
Carbon and energy reduction revolve around expanding energy efficiency, capturing point-source carbon, and perhaps even capturing atmospheric carbon. What we do not know is whether these capture methods can be done at scale and, if so, will they make a difference?
McKinsey has divided the challenges for the energy transition into three levels. Those I have discussed so far, fit into the first two levels.
Level three challenges are formidable. Reducing about 50% of CO2 from energy production systems involves addressing these higher-level challenges. Some will require new technologies, some new ways of thinking.
Right now, the technology to decarbonize trucking simply does not exist because batteries are not robust enough to allow transportation of heavy payloads over long distances.
In industry, the primary contributors to emissions are the production of steel, cement, plastics, and ammonia. In transportation, trucking, aviation and shipping account for about half of current emissions in their sector.
Surmounting the challenge of variability in power production from renewable sources will require new battery storage and release/delivery on demand technologies. One significant issue is the availability of suitable land for such power generation systems and the cost of acquiring the land for that purpose.
Nuclear power remains both promising and daunting. Despite new technologies, new nuclear plants will require sophisticated management of complex engineering, supply chain issues, and dealing with siting and safety issues, not to mention political and public relations skills. Not to be forgotten are the enormous costs of constructing and operating nuclear plants and then managing the waste they generate.
Opportunities await in aviation and shipping where low-emissions alternatives do not exist today at a practical useful level. Similarly, while the manufacture of cement involves intense energy use, there are no scalable technologies in existence to cut emissions in a serious way.
Plastics remain a challenge for humanity. They are produced from fossil fuels feedstocks. It is not clear if these feedstocks can be replaced, or if low-emissions energy sources for production can be deployed. Opportunities await those who find solutions to degrade and recycle plastics.
The report addresses the problems of heating and cooling buildings and the need to invent new types of heat pumps that work efficiently, with low-emissions fuels and in extreme temperatures.
One obvious consequence of the drive to electrify transportation and heating, is to recognize that these efforts will increase demand for energy.
Ultimately, our ability to meet these challenges will be to find new sources for generating power, or new ways of using fossil fuels while curbing carbon release or capturing the released carbon and hoping that is the solution. In addition, nations around the world will have to find the capital and expertise to deploy new technologies and infrastructure to manage the energy transition. And, of course, that depends on whether we can indeed invent the new modalities that the world needs to effect the transition.
Cheerz…
Bwana
Mauritius Times ePaper Friday 23 August 2024
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