The Energy Transition Depends on These Three Trends

By Yasushi Fukuizumi
Decarbonization through renewables like offshore wind must accelerate

In the early days of the Coronavirus pandemic, it seemed as though climate change had been pushed aside as the world’s biggest concern. But as the world went into lockdown, it soon became clear that the outbreak had given us a significant break to make the energy transition happen more quickly than we would ever have thought possible.

Over the first quarter of 2020, as a result of dramatically reduced transportation, aviation, and general economic activity, energy demand declined by nearly four and emissions by five percent.

We may never have achieved this drop under ‘normal’ circumstances. And there is a risk that, if we don’t act wisely, these numbers could easily rebound to pre-pandemic levels.

According to the International Energy Agency (IEA), there is only a small window of opportunity to prevent this from happening: we need to set our course for the future before the end of 2020.

For the energy sector, this will mean accelerating a series of trends that are already underway: namely decarbonization, decentralization, and digitalization.

The steel industry is one of the sectors finding it hard to decarbonize

The current trend toward remote working and operations in business will likely continue to grow, not least as a way of managing the risk of future disruptions. Consequently, energy consumption can be expected to fall, supported by sustained energy conservation measures.

Alongside this, electrification and renewable energy will keep expanding. Investments in fossil fuel are already declining. This is partially in response to climate change, but also a reaction to ever-smaller returns, as evidenced by the continued drop in the oil price.

However, electrification faces two key challenges.

The first is the intermittency of renewable energy. One approach here is the development of large-scale storage, with one of the world’s biggest schemes, Advanced Clean Energy Storage, underway in Utah in the United States. It explores different types of storage for excess renewable energy, including powering the process of electrolysis to produce hydrogen.

Hydrogen is also widely seen as a solution to the second challenge: easing the path of sectors for which it is hard to electrify or reduce CO2 emissions, such as heavy transport, aviation, and industries such as steel and cement production.

A wide range of government policy schemes is underway to support their move to hydrogen. For example, the European Commission (EC) has just announced its hydrogen strategy to develop what is currently a niche market to scale.

Successful decarbonization rests on lowering emissions whererever and however we can. For emerging and developing markets, for example, LNG will also play an important role as an interim step toward full decarbonization.

Since 2000, developing economies’ electricity demand has nearly tripled, due to industrialization, the growing middle-classes, and increased access to electricity.

In the short to medium term, the use of LNG as a cleaner-burning fossil fuel will allow these markets to expand economically and at pace – until renewables and hydrogen reaches maturity in these markets.

From monopoly to democratic energy management

A key element in accelerating the energy transition is decentralization. This is a shift away from the traditional utility business model, in which monopolist power companies distribute their energy from large power plants to the end-user.

What replaces it is a distributed energy network with a democratic business model in which energy consumers manage their own energy portfolio. Such a set-up could include renewables, homes and factories, batteries, and fuel cells, to name a few.

In the centralized model, more power is generated and distributed when demand peaks. In a decentralized system, demand response is used to manage distribution and grid stability. The number of energy consumers, equipment, and demand patterns that must be orchestrated is enormous.

Several countries and energy companies have been experimenting with new market mechanisms to manage these challenges in a way that provides incentives for users − for example, Cornwall Local Energy Market or Vermont Green.

Digitalization empowers energy consumers

Critical to the success of such schemes is digital transformation, which has received a further boost in the wake of the pandemic.

A high degree of sophisticated automation and analytics is needed to manage a system powered by an increasing variety of energy sources.

Supporting technologies such as predictive AI, machine learning, IoT, and blockchain are critical to analyzing demand and adjusting how much power is drawn from where across the distributed grid.

Essential to orchestrating the individual parts of these networks are technologies such as virtual power plants, home energy management (e.g. Hive, Google Nest), cloud computing solutions like Mitsubishi Heavy Industries (MHI) Group’s Energy Cloud, and ‘digital twins’ like Tomoni, which create a virtual replica of a power plant or grid.

Many of these technologies still need to scale and undergo more standardization before new distributed networks can truly settle down.

Getting It Right

To avert a “carbon throwback”, advancing these three trends at speed must be an immediate priority for energy companies, regulators, and policy-makers as we emerge from the COVID-19 downturn. MHI Group companies are actively developing and supplying their customers with a variety of solutions across each of these trends.

However, successfully advancing decarbonization, decentralization and digitalization so that society moves forward as one on these issues – whether we are ‘retro-fitting’ old infrastructure or designing energy systems from scratch – requires balancing environmental, economic and social priorities. Adopting econometric approaches like MHI’s QoEn Index for Energy Infrastructure can help cities around the world achieve this delicate balance.

In this way, governments and city planners can ensure that we get future energy infrastructure ‘just right’ – both for our economic needs and for the environment.

Yasushi Fukuizumi is Vice President, Energy Systems, Mitsubishi Heavy Industries