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Electrify the Infrastructure

Published: Januray 2021
Author: Moses Zaree

From fossil to clean energy

Moving away from cheap and accessible fossil energy to new innovative clean, and alternative energy will take time. Still, the time has become the most valuable commodity, so we need to accelerate the change.

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As the energy transition has become the pinnacle for sustainability, the emergence of compliance and a clear framework will become a growing topic in the coming years. Enterprises and projects aimed to solve various unsustainable issues have to consider a good ESG strategy for the long term. As the ESG models and ratings differ, more research must be done to standardize ESG ratings to become more reliable.

The correlation among big rating agencies regarding ESG ratings has shown a significant deviation by comparing Moodys' and Standard & Poors'. Businesses, consumers, governments, and investors' decisions based on ESG will need guidance while the momentum in the energy transition is strong.

 

The policymakers will seek to consolidate their energy security strategies as the energy portfolio will consist of domestic resources and sustainable energy capacity solutions as well as commodities and chemicals for the region's manufacturers and downstream industries.

Earth View at Night

"As the ESG models and ratings differ, more research must be done to standardize ESG ratings to become more reliable."

The complex world of energy

The global energy consumption basket needs some adjustments. The alternative and green energy sources compete with traditional and well-integrated fossil energy as the primary energy source. The motivation for the new technology must be clear and straightforward to push the world towards electrification. The focus should be on the price of such infrastructure investment, the cost of maintaining and managing the assets, risk, long-term benefits, and the time needed to invest to achieve a more excellent energy transition economy.

As the capital markets move fast to incorporate Environmental, Social, and Governance factors the need for policymakers to adapt and attract venture capital must be considered. However, the ESG ratings are confusing; for now, the rating institutes' models vary a lot, contributing to differentials in the rating. This incertitude around ESG ratings has yielded challenges for policymakers and investors trying to achieve the best environment for creating dividends in both capital returns and social, environmental, and cultural governance.

Applying ESG to the upstream and midstream industry is a bit of a challenge. Energy is not just about the cheap and available resources that are easy to use in an integrated energy system. It's a broad topic that also includes geoeconomics, security, environmental, social, legal, and bilateral relations between nations, which makes the complexity of applying ESG in this particular field. As trading partnership fades, so do the bilateral ties in security, military, intelligence, geopolitical alliances, and partners. This does impact the long-term narrative on how to shape and set the framework for such complex regulatory policies.

Global energy consumers
Global energy-consuming economies (Mtoe), data from 2020
 

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The twelve energy consumers
Twelve major energy-consuming economies (Mtoe), data from 2020
 

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Global

Breakdown global energy basket (2020) - Mtoe

13 508 Mtoe

Energy consumption

13-WORLD-energy-basket.png

Oil 30%

Gas 25%

Electricity 10%

Coal 26%

Biomass 10%

Heat 0%

Far from green and clean

Even if electricity represents ten percent of the global energy basket, more than one-third of global electricity comes from low-carbon, but much less of total energy does. To deal with a system dependent on accessible energy resources and price stability, the code to crack lies in where the energy source comes from and how economies could use that energy efficiently to optimize the energy performance for higher yield with less power.

The infrastructure for a more sustainable system relies on the core understanding of electronomics. The economic advantage and the losses must be educated to policymakers and industries as a whole, and we need more investments in the infrastructure of the new energy system to push the economies towards the direction of clean electrification of the system.

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Things will not change over one day

Based on current announcements and policy scenarios for 2040, the demand and consumption of natural gas will increase by ≈30%, and oil will also increase by ≈28%. Despite the growing requirements to reduce coal use in Western economies, Asian economies will balance the drop in the coal market as their frameworks and policies are not aligned with the West energy security and sustainability strategies. We believe that coal will stay approximately at the same level until 2040.

 

Solar, wind, and other renewables will experience the most substantial increase by ≈300% and above. The use of bioenergy will increase by ≈200% as the technology keeps improving and receives investments for further research and development in the field of optimizing current solutions. It is an exciting time for nuclear energy, with new technologies which comprise more intelligent, smaller, modular, and cost-efficient results in vastly different forms of small modular reactors (SMR).

 

SMRs and nuclear power will increase by ≈130%, and the improvement of the technology is in its early stage as the technology is about to be tested, and the data for researchers to improve will be massive. Hydropower keeps growing, with new intelligent technologies for higher security, efficiency, and maintenance, but also to manage marine diversity and free movement of species throughout the system. Hydropower is an excellent choice for a sustainable energy source, and we expect hydropower to increase by ≈140%.

An essential and more well-known part of electronomics will be transforming every vehicle on the road to become 100% clean of CO2 emissions. There will take time to lower our CO2 emissions, and fulfilling the Paris Agreement according to the timeframe set is currently not realistically achievable. We woke up a little bit too late, but scientists claim that we could manage to heal the damage throughout the time.

 

Climate change is a reality, and we will have lifelong cycles of volatile weather and extreme drought, which will also pave the way for more tensions among nations' borders and domestic uprisings. The rise of lower feedstocks and supply disruptions will push some countries towards protectionism by banning the export of some crucial food and agriculture products.

Fossil fuel CO2 emission by region
Annual emission from fossil fuel (billion tonnes), data from 2020
 

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Image by Gary Yost

"We believe the new term for the economics of making the great transition in a sustainable and economically durable form for businesses and governments should be named the formula of "electronomics."

The major energy-consuming economies

Coal and oil is still very affordable energy resource for most economies. Depending on geographic location and natural resources, each major-consuming economy has its energy security strategy, and some needs to secure those assets through bilateral and strategic relations. None of the economies are in denial as it comes down to climate change, its long-term impact on the economy, and the social issues that come with it.

 

Even while the current leadership in Brazil has given us a clear message of governments in denial, their populist idea is that there is climate change. Still, the short-term sacrifices are more devastating than the long-term issues that will arise. The Brazilian leadership seems to be in denial, but it's more of a political game or populism. The transatlantic economies could open up for dialogue with an economy such as Brazil to educate and advise them through the formula of electronomics. A path toward new sustainable industries will create new jobs and could lure the non-complying economies to comply with ESG.

The transatlantic economies need to show the way. The Paris Agreement is not enough. It's foremost not just about moving towards sustainability; the ingredients of such engagement from the transatlantic economies with critical partners outside their geographic sphere have to do with geopolitics and energy security. We could soon experience a more divided world between nations claiming that they have the right to a certain level of CO2 emission and those who want to reduce emissions by applying to the Paris Agreement. From the long-term security and geopolitical dimensions perspective, the transatlantic economies need to engage with critical partners before their policies align with the major economies and military powers that don't share the same path as the transatlantic economies.

No.1: China

Breakdown China energy basket (2020) - Mtoe

3 381 Mtoe

Energy consumption

Oil 20%

Gas 8%

Electricity 8%

Coal 59%

Biomass 3%

Heat 1%

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No.2:The U.S.

Breakdown the U.S. energy basket (2020) - Mtoe

2 046 Mtoe

Energy consumption

Oil 35%

Gas 35%

Electricity 14%

Coal 11%

Biomass 5%

Heat 0%

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No.3: India

Breakdown India energy basket (2020) - Mtoe

908 Mtoe

Energy consumption

Oil 35%

Gas 35%

Electricity 14%

Coal 11%

Biomass 5%

Heat 0%

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No.4:Russia

Breakdown Russia energy basket (2020) - Mtoe

731 Mtoe

Energy consumption

Oil 20%

Gas 54%

Electricity 10%

Coal 15%

Biomass 1%

Heat 0%

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No.5: Japan

Breakdown Japan energy basket (2020) - Mtoe

386 Mtoe

Energy consumption

Oil 37%

Gas 23%

Electricity 8%

Coal 27%

Biomass 4%

Heat 0%

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No.6:Brazil

Breakdown Brazil energy basket (2020) - Mtoe

286 Mtoe

Energy consumption

Oil 35%

Gas 10%

Electricity 16%

Coal 5%

Biomass 34%

Heat 0%

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No.7: South Korea

Breakdown South Korea energy basket (2020) - Mtoe

283 Mtoe

Energy consumption

Oil 36%

Gas 17%

Electricity 16%

Coal 24%

Biomass 7%

Heat 0%

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No.8:Canada

Breakdown Canada energy basket (2020) - Mtoe

281 Mtoe

Energy consumption

Oil 34%

Gas 36%

Electricity 21%

Coal 5%

Biomass 5%

Heat 0%

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No.9: Germany

Breakdown Germany energy basket (2020) - Mtoe

275 Mtoe

Energy consumption

Oil 34%

Gas 27%

Electricity 12%

Coal 16%

Biomass 11%

Heat 0%

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No.10:Iran

Breakdown Iran energy basket (2020) - Mtoe

268 Mtoe

Energy consumption

Oil 28%

Gas 70%

Electricity 1%

Coal 1%

Biomass 0%

Heat 0%

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No.11: Indonesia

Breakdown Indonesia energy basket (2020) - Mtoe

225 Mtoe

Energy consumption

Oil 32%

Gas 15%

Electricity 12%

Coal 28%

Biomass 13%

Heat 0%

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No.12:France

Breakdown France energy basket (2020) - Mtoe

217 Mtoe

Energy consumption

Oil 28%

Gas 16%

Electricity 45%

Coal 3%

Biomass 8%

Heat 0%

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Politicians

"We could soon experience a more divided world between nations claiming that they have the right to a certain level of CO2 emission and those who want to reduce emissions by applying to the Paris Agreement."

Global electricity consumption and stockmarkets (1974-2019)

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The need of cost efficiency per produced kW

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We are at the beginning of a more dynamic debate on energy security and sustainability. The core issue for policymakers is to prevent future price shocks and exposure to foreign fossil fuel suppliers' which brings us to volatile policies. The focus, for now, should be to lower the volatility to secure the energy transition and to win the confidence of investors and consumers.

 

Transatlantic energy security will focus on alternative energy sources. The best-proven projects have been wind power, hydropower, and solar power. With improvement in the emerging research and development in small modular reactors, we could see the scale of domestic energy production increase substantially.

The economy and framework formulas for electronomics must be shaped and nurtured throughout the whole system, from a top to a down approach. The transatlantic economies must show the lead by signaling that by applying the new formula of electronomics, there will be great prosperity and set the ground for a sustainable system for each economy, generating a domestic ecosystem with a high yield. The transatlantic economies must show the lead to pressure and attract other key partners to join the great transition.

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Author

Mr. Zaree is an economist with extensive knowledge and experience in the energy market and the sector as a whole. He has dedicated his career life to understanding the complexity of the commodity and energy market. A deep understanding of energy security, geo- and macroeconomics. Great insight and knowledge of technologies and the financial markets in connection to the field of his expertise.

Email the author: moses.zaree@zareepartners.com

Author: Moses Zaree

Published: January 2021

Sources: International Energy Agency, World Bank, Bloomberg

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