EU energy consensus - trending in the right direction

I was invited last Monday to a seminar organised by the French government as part of the presidency of the EU on the theme of energy security. A lot of heavy hitters speaking: former IEA boss Mandil chaired the whole process, current IEA boss Tanaka spoke, as did the CEOs of E.ON, Total or Dow Europe, various high level EU Commission members and EU ministers. Here are some notes of what I found interesting in the first part of the conference (I missed the second half, but part of it was a summary of the first part for ministers, and the other part was ministerial speeches).

No media was authorised at the meeting, so this is an exclusive summary, which the organisers in the French ministry of industry have kindly allowed me to post.

Tanaka spoke first, to provide a summary of the WEO: he called it "shocking but interesting" (his exact words) which I found notable (and a hint maybe of the internal conflicts that the IEA faced on the topic). He flagged the "serious investment issue" the world faces, as well as the risk of a serious supply crunch when demand comes back after the current crisis. He strongly supported the idea of a stimulus package focused on sustainable energy, calling a "Green New Deal" an excellent thing.

One insightful point he made is that with respect to security of supply, non-OECD countries matter more and more, and thus focusing only on ourselves (the rich countries) is not good enough. After mentioning the increased reliance on imports, and mentioning the importance of fighting climate change, he concluded by saying the the "era of cheap oil is over", and that we have to get used to expensive energy.

The Ruhrgas/E.On CEO said he welcomed the new focus on security of supply, and went on to talk about the importance of the new pipelines from Russia (Nordstream and Southstream). He underlined that Russia needs security of demand just like we need security of supply to make investments. He emphasised his company's massive investment in renewables, noted his support for nuclear, as well as the need to keep on using fossil fuels (he qualified coal by pushing CCS).

De Margerie, the Total CEO, had some hard-hitting words, saying that he was tired of the mindless alarmism he sees too much of, which is not focused on the real problems. So he blasted Nabucco once more (a pipeline without gas), told people to stop worrying about Ukraine, about terrorism in general - although he said that Somalia was a very real issue, or about the energy weapon - on the other hand, Hormuz was a real issue for him. He said that beyond the lack of investment, he was worried in the medium term about the increasing scarcity of resources, about low prices making exporting countries just as difficult to deal with (because of internal problems) as high prices, and about a need for importers to talk to exporting countries and to actually listen to what they have to say ("even the Russians and the Saudi have legitimate preoccupations sometimes. . ."). He noted that it might be smart to remember that some exporters are also large consumers and thus do not behave in the same way (and he suggested that helping them use less energy might be a smart thing to do).

Two heads of TSOs (transmision system operators), that of France and Poland, talked about the need to strengthen the networks, and noted that the main obstacle was social (the absolute hostility of local populations to high voltage lines). The head of Dalkia (a utility focused on heat and industrial energy sevices, part of Veolia, the French group), noted how hard it would be to reach the EU's objectives, giving concrete examples from his business, under today's rules and regulations. He saw biomass as the main large scale route to reduce fossil fuel use, with housing efficiency having a large potential, but not at today's prices. The head of Dow chemicals just protested against rules that would make his production uncompetitive and push him out of Europe. A professor talked about Russia more specifically, in a generally non-confrontational way, noting that our attempts to reduce demand or to diversify sources are seen as a threat by Russia, which might be tempted to diversify its clients, that Ukraine is mostly a non-issue, but that the problem of whether Russia has enough gas to provide more to Europe will be a problem starting as soon as 2012 (old fields maturing, domestic demand growing, and new fields not yet online).

Mandil, summing up the first half of the day noted 5 points (which he was going to pass on to ministers in the afternoon session, which I missed):

1. Keynes is back, and a Green New Deal focused on the electricity grid seems like a good thing to everybody.
2. Energy efficiency is the first priority for all, followed by renewables, nukes, CCS, cogen and R&D.
3. The regulatory framework is not good enough yet for objectives to be met, and must be improved.
4. Nobody has asked for the European Commission to do less on the issue, quite the opposite: coordination is a key buzzword.
5. Let's not cry wolf too much - the real issue is medium term investment.

I managed to grab him at the end of the session (we've bumped into one another at several energy conferences, so he knows me), and suggest that he add the coming resource shortages in the medium term that were hinted at by several speakers (de Margerie, the guy on Russia, and Tanaka) - he told me once again that he did not believe it to be the case, and that it had not be said (it's just an investment shortage) so he would not talk about it.

Overall, a pretty interesting morning, with much less ideology than I have seen at earlier European energy conferences.

Thanks for providing a summary. Did anyone mention geothermal power?

* 1 km³ of rock (cooling 20°C)
=15'000 GWh thermal
= 1'275'000 tons of oil
= more than 10 MWe base load at >200°C for 20 years

* Available resource
= 125'000 km² in W.Europe with >200°C at ~5000 m depth (Shell study)

* 12'500 km² (x 1 km thickness) of prime resource
= 900 TWh/year
= European nuclear energy output (1995)

One way or another, Keynesian economics would make a comeback. If the multinationals were to grow enough and essentially subsume everything in their path, we couldn't tell the difference between a corporation and a country. To them, Keynesian stimuli could just as easily been invoked by taking off from their reserve and stock-holders to promote growth. Now that many of these corporations have financial problems, the nations are themselves becoming competitive and taking the role of a capitalist system. Is Aramco really distinct from S.A.? What does Keynes mean there or in the case of OPEC? Keynesian stimuli is the rule anytime enough people in a society want to keep their lifestyle status quo. It's why people routinely say company when they mean country, and vice versa. In the limit, there is no difference and Keynes always applies. It's all a big incestuous circle with no beginning or end. Would economists ever want to admit this?

One way or another, Keynesian economics would make a comeback.

A terrifying prospect. The theory is to save during the boom and spend(stimulate) during the bust to even out the business cycle; the practice is to spend during the boom and go even deeper into debt during the bust(see the Ponzi scheme the US has been running since 1996; nearly all the growth has in fact been debt masquerading as GDP growth).

It would be good if the US under Obama took over Europe's default status as the climate leader. The EU seems to cling to wrong ideas and ignore good ones. For example I thought the UK was supposed be installing one offshore wind turbine a week. That's going to take some catching up to keep their word. France has cheap electricity and low per capita emissions but other EU countries seem to have their blinkers on and won't acknowledge it. Germany spends a huge amount on solar feed-in tariffs when the country doesn't really suit solar. Coal is making a comeback in several EU countries. They persist with CDM offsets which some believe are largely illusory. Poland and Czech Republic won't play ball with auctioned carbon permits.

Over to you Obama to show how it's done.

China is the new climate leader. Once-child policy having reduced billions of tons of carbon and also leading in wind and some sectors of solar, and having a massive nuclear power plan. China has also reforested huge areas of land. What is even more impressive is that China is still a poor country, yet they are actively taking big steps to save the climate. Yes, it is true that coal is still very important, and China's coal production in the future will probably emit more CO2 than the all of EU's total CO2 emissions, but it is still important to give China huge credit for all the steps it has taken.

"China is the new climate leader."


2004 "China is the dominant player. The country is on track to add 562 coal-fired plants - nearly half the world total of plants expected to come online in the next eight years. India could add 213such plants; the US, 72."

2007 "where demand for power is growing rapidly, such as India and China, coal is booming. Energy lore has it that in China a new coal-burning plant is fired up every week. What is certain is that China has become a net importer of coal for the first time this year. India's imports have been growing steadily for the past 20 years."

2007 "The total capacity of Chinese fossil-fired power plants in operation or under construction as displayed in the new McIlvaine Chinese Utility Plans database is 699 700 MW. By 2011 China will have more coal-fired capacity than the US and Europe."

I guess they really are the new climate leader in CO2, particulate matter, and soot in general.

China may be trying very hard to be a climate leader, but the sad fact is that's impossible with very high growth rates in an industrial based (ie relatively energy intensive) economy. No government, not even the hard government that China has, can manage that kind of growth with respect to stabilizing GhG emissions. Much less reducing it on an absolute level.

Poland and Czech Republic won't play ball with auctioned carbon permits.

Check the average take home pay in these countries to understand why they "won't play ball", or that of their pensioners. The energy rates are nearly market rates!!!!

France wants all to play ball because she has this part of the equation benefiting her (plenty of carbon credits to sell). I would love to see (well I already know what the reaction would be based on US behavior) how France or Germany would react to such a "game plan" if their energy infrastructure mirrored that of Poland.

NO DEAL, would be the answer.

Change needs to come, but these countries are not wealthy enough to be buying carbon credits just to satisfy EU money making schemes.

How about telling Poland to scrap that useless idea of building stadium for European Football Championships in 2012 and instead put the money into upgrading power plants or building wind power farms. This might do more good.

In 2008, UK started construction of about 650 turbines, 300 of which have been completed. Another 1500 were approved in 2007-2008 but construction has not begun. There appear to be about 2,000 turbines in planning stage since 2007 that have not been approved to this date. If about one third of these are off-shore that's a lot more than one a week.

Neil did you catch this amazing local news story?
The brown coal (lignite) powered aluminium smelter at Portland Victoria will probably get free carbon permits under the 2010 trading scheme since they are special in some way. The wind turbine manufacturer in the same town will probably close down since our new 'green' government can't get its renewable energy policy sorted out. Both Europe and Australia have botched climate policy so far.

Yes I watched it yesterday. Lots of speculation about "soft targets" and who is going to get free permits when actually no decisions have been announced. Any reduction from 1990 levels is going to be large because we are 8% above that level now. With luck, aluminium smelting industry in Australia will close because of drop in demand.

It would be tragic if we loose any wind manufacturing capacity because of the time it's taking the government to get renewable assistance programs in place. At least the industry has the targets and dates. SA has already reached the 2020 target.
One positive development has been that the solar PV program seems to be working in spite of a cap at $100,000 family income.

Is SA's achievement nameplate or average output? During the March heatwave my relatives went to take the sea air next to one wind farm (Wattle Pt) which was becalmed therefore not driving aircons.

I think Adelaide had 2000 people install solar PV because of the 46c /kwh feed-in tariff, not the means tested rebate. When they get 200,000 homes on PV that will be progress.

Boof, European carbon targets do take into account the existing situation, you know. Those with lower incomes are allowed a lot of leeway to grow; those with low emissions can't be expected to lower them as massively as those with high ones, but should at least make an effort, and so forth.

Coal is cheap only if you ignore the indirect (non-monetary) costs, of course.

As to UK offshore wind, see the other answer above, but note that the UK has been building about 100-200 MW of offshore wind per year for the past 3-4 years, which does come out to at least 1 turbine per week, and the prospects for growth are very real. The construction contracts for Greater Gabbard (500 MW) Thanet (300 MW) and a few others have been signed recently.

I think Denmark globally was the first country ever to develop modern windmills which were intended to yield a substantial part of our energy production. After approx. 40 years of intelligent scientific work and massiv subventions ( DKK or approx. 10 billion USD) our 5.000 windmills only produce 2,6 % of our gross energy consumption (2006). And futhermore, because the windmills function according to the will of the wind we only use 50 % of the electricity produced by the windmills. We often have to sell the energy at very, very low prices or simply give it away to those who may want it. Please, forget that the wind in any sensible way can be a solution of anything that has with energy to do. It can however nurish some romantic dreams.

our 5.000 windmills only produce 2.6 % of our gross energy consumption (2006)

Denmark produced 25,800 TJ of wind power and consumed 121,857 TJ of electricity in 2007, which is almost 20% of gross electrical energy consumption [1]

Total renewable energy production is 130,200 TJ and total energy consumption is 668,846 TJ, which is almost 20% of gross energy consumption (same reference as above).

The “tightness” of the Danish grid is needed to trade power between its Nordic neighbors in the north and Germany in the south. Norway, Sweden, and Finland hold more than 120 GWh of pumped hydroelectric capacity that they send through Denmark into Germany and the rest of Europe, so that roughly three times the amount of energy needed in Denmark is passing through its wires on most days. The traded volume of power is truly massive: more than 250 TWh in 2006 (Figure 5). Huge flows of power go from the Nordic countries through Denmark during the day to meet peak demand below in Europe, where spot prices are higher, and then reverse direction during the night as the pumped hydro facilities are recharged. Early in the morning, from midnight to around 1:00 a.m., spot prices for power in Germany and Denmark are often $18.07 per MWh while they are from $36.16 to $42.55 per MWh in Sweden, Finland, and Norway (with an average system price of $37.07 per MWh). From noon to 1:00 p.m., in contrast, they are $127.10 per MWh in Denmark and Germany and only $41.20 to $45.33 per MWh in the Nordic countries (with an average system price of $45.02 per MWh). Thus, Denmark's neighbors supply significant amounts of regulating power helping balance wind energy at low cost.[2]

Yes, Denmark sells excess energy to Norwegian hydropower (used as mass energy storage of excess wind power when wind conditions are high), and Denmark buys back when wind power conditions are low, also reaping income from transferring power from Norway/Sweden to Germany and other destinations. To use a figure 2.6% is misleading, unless you provide the rest of the discussion.

The Danish "Energistyrelse" (Official Energy Department) gives us the correct figures of the windmills here:

The fact that Denmark only uses about 50 % of the current produced by windmills is proved here:

The Danish "Energistyrelse" (Official Energy Department) gives us the correct figures of the windmills here:

That's the first link I provided above. Do you have any issues with the numbers I provided? If so, do you understand why the 2.6% figure you quoted is misleading?

The fact that Denmark only uses about 50 % of the current produced by windmills is proved here:

I'm afraid I don't speak Danish, so can't read that site. It appears to be a pro-nuclear website that has a subscription.

I would not be surprised if Denmark directly used 50% of their wind power and indirectly used the rest when buying back from hydro plants in other parts of Scandinavia. Wind and hydro go well together, as excess wind can be 'stored' via offsetting or actual increase in the hydro reservoir, and then used when demand is higher than the current wind supply. Even excess nuclear power in the region is stored during the night in hydro for resell during the day.

After approx. 40 years of intelligent scientific work and massiv subventions (approx. 10 billion USD)

For comparison, in 2007 alone Denmark spent US$0.6B on coal and US$5B on oil. Compared to that, US$10B over 40 years - US$0.25B/yr - is fairly minor. (EIA figures)

Moreover, Denmark's coal consumption has fallen by 40% in the last 10 years, due overwhelmingly to its thermal-generated electricity production falling 30% (-12GWh/yr) as a result of production from wind (+10GWh/yr).

In those 10 years, wind has allowed Denmark to consume roughly 30M fewer tons of coal, or about US$1.5B less in fuel costs (assuming avg. price of US$50/ton).

$10B is a big number, but so are the numbers on the other side of the argument.

our 5.000 windmills only produce 2,6 % of our gross energy consumption (2006).

Denmark consumes about 0.85 quads of energy. Wind produces about 10GWh/yr in the country, or 0.035 quads. 0.035 / 0.85 = 4.2%.

However, that 4.2% is misleading, as 3 btu of coal can only produce 1 btu of electricity, so 1 wind btu = 3 thermal btu. Taking that into account, wind is responsible for about 12% of Denmark's energy supply.

I think Denmark globally was the first country ever to develop modern windmills which were intended to yield a substantial part of our energy production. After approx. 40 years of intelligent scientific work and massiv subventions ( DKK or approx. 10 billion USD) our 5.000 windmills only produce 2,6 % of our gross energy consumption (2006). And futhermore, because the windmills function according to the will of the wind we only use 50 % of the electricity produced by the windmills. We often have to sell the energy at very, very low prices or simply give it away to those who may want it. Please, forget that the wind in any sensible way can be a solution of anything that has with energy to do. It can however nurish some romantic dreams.

Moderator, the post above is a duplicate comment.

Yes. The mark of a propagandist.

Don't know why people keep using Denmark as a general anti-wind argument example. Denmark has serious negative factors for competitive wind power such as:
- absence of efficient markets (thick top-down regulations and a heavy bureacratic electric system)
- the experimental (ie costly) character of many windfarms
- mediocre wind resource

Yet wind is still proving more and more to be useful in reducing fossil fuel consumption in electricity generation at very reasonable levelised cost. This is not to say nuclear power is a bad idea, just that wind is a good idea also. In the absence of a carbon price, it rightfully deserves some subsidies.

No media was authorised at the meeting,...

Hm, and how did you get there, Jerome? Don't they consider bloggers as media? Or did you pretend to manage the sound equipment ;-)?

I was invited under my official energy sector investment banker hat. I asked the organisers whether I could blog it, as I had definitely not been invited in my blogging capacity. Eventually, I showed them a draft of the above, and they told me to go ahead, so either nothing too controversial was said, or the transcript was innocuous enough...

French bureaucrats approving an English language transcript.

Perhaps things are changing :-)

Best Hopes for Working with the speed & efficiency of French bureaucrats,


Thanks for an excellent article, which seems to show that some progress is being made even if not as speedily as we would like.

I would be interested in hearing some discussion on the effects of lower growth on renewables and nuclear build.

The most notable aspect of these is that the capital cost is upfront, and traditional accounting heavily discounts future income and costs.
This has the effect that although the build in France of nuclear may not have been 'economic' in the strict sense of the word in the 70's and 80's due to the low cost of fossil fuel competition, the current fleet provides some of the lowest cost power in Europe as most of the costs are amortised.

In a world where the central assumption is for 2-3% growth, both 'free' future energy production and decommissioning costs are heavily discounted.

When interest rates go up, as for instance at present with high LIBOR rates, then the economics of either renewables or nuclear become much more difficult.

At some stage the bad debts and investments which led to the high LIBOR rates should have worked their way through the system, so interest rates should fall.

The world is likely to look very different though, with a central assumption of zero or negative growth, at least in the West.

The potential for very low interest rates would therefore seem to be present, which would favour both renewables and nuclear power, nuclear more so due to the long lead times.

However, falling materials costs help renewables more than nuclear, as they are more materials intensive.

Decommissioning costs would also be far less discounted on a nuclear build.

I'd be interested in thoughts on how this may play out.

In a low or negative growth world, will it be easier and cheaper to build nuclear and renewables, or more difficult than at present?

In a low or negative growth world, will it be easier and cheaper to build nuclear and renewables, or more difficult than at present?

Good question. My first thought has to do with discount rates. Presumably a no growth scenario would mean that discount rates would fall to nothing and the costs of waste disposal would have to be factored in at present day values. Those costs would still be put off in time by a couple of generations and easy to fudge, eg someone could define the waste as 'fuel' or apply some other sort of technological - not financial - discount that would assume "progress". I can't get a clear picture, except that in a no-growth environment, it would be far more difficult to consume any resource. Can someone help think this through?

cfm in Gray, ME

I haven't clarified my thoughts either, but I am noodling that in an environment where, say, the economy was contracting 2% a year, then expenditure now is easier, so that, say, one might be able to invest in nuclear or renewables at nil percent interest, but the effective interest rate would be 2% as the value of the output might remain constant if energy was short whereas everything else fell in price.

A lot would depend on whether it was an environment with straight deflation, or whether it was masked by an inflationary monetary environment.

Natural gas could have a bigger competitive advantage than either nuclear or wind/solar et al. in a near term zero growth world. Proven technology. Low investment cost, low materials and energy input (so capital will remain structurally low). Of course then we'd be at the mercy of volatile natural gas costs...

However, it doesnt look like the current hegemonic financial systems would work at all under prolonged zero (or even negative) growth.

For wind power, some of the cancellations of projects were due to increases in the price of steel and the shortage of wind turbines( long delivery times uncertain prices). While capital has to be depreciated at 8-15% to NPV, prices have also been rising for electricity and the value of completed wind farms has been rising.

Perhaps their is a sweet spot where GDP growth is 1-2%, but energy growth flat and inflation is near zero because GDP growth is due to productivity improvements. Under these conditions depreciation of capital to NPV would be low but energy prices would not increase, but may decrease due to improved technology.

Many at TOD seem to be able to accept a future world with drastic deflation(due to economic depression) or hyperinflation( due to shortage of resources), but not a low, stable inflation. Looking back over the last 100 years, most OECD countries have had short periods of deflation, short periods of medium inflation(10-20%) but mainly low inflation and moderate GDP growth. Most people think this is going to continue because they are prepared to keep savings as cash in banks( not as gold bars), they are prepared to take on large loans for houses rather than rent( confirming their faith that deflation will not persist), people still have considerable wealth in shares, and in real-estate, and the proportion of the population working is almost at record levels.

Has their been a better time to be living in last 1,000 years than now? in 2008, even for pensioners?

I don't know about 'difficulty in accepting a low inflation scenario'.
I just have great difficulty making the numbers come out that way.
Leaving energy issues aside, we have an enormous bubble which is popping.
That involves huge amounts of capital which is now useless as it is invested in unproductive assets, and vast numbers of people whose jobs don't exist.
For instance, in the UK 25% of the working population is in the building trade or financial services, and they won't be building many houses for a while and repackaging debt by slicing and dicing it has run it's course.

On top of that, we have a massive unwinding of the debt position.

It will take a miracle to neatly balance all that out to 1-2%inflation, and I can't think of any instances at all when such huge imbalances have corrected without massive negative consequences, with deflation, hyperinflation or both.

To that mix add on that historically it has taken at least 40 years to transition to a new energy resource, and that oil and gas are both getting harder to find and more costly, at least in production if not in what the customer has to pay, and I can find no grounds for such an optimistic analysis as you present.

I am far from a doomer, but I am certainly a 'things are really grimmer'.

You refer to the present living standards of pensioners.
It is precisely because I can see no way that those standards can be maintained that concern arises.
At the moment in the UK the Government initiative to better insulate houses for the poor is hamstrung, because strangely the poor do not have the several hundred or thousands of pounds needed for their contribution.
This kind of thing will get more common.

with respect to security of supply, non-OECD countries matter more and more, and thus focusing only on ourselves (the rich countries) is not good enough.

How about a coherent viable plan to replace entirely 83% of all European, MidEast and North African consumption of all energy including transportation, plus local de-salination provided water to European standards per capita for all N African and MidEast populations?

Clean Power from Deserts - The DESERTEC Concept for Energy, Water and Climate Security - Club of Rome -

"In comparison to mankind’s energy flux density of about 0.03 Wm-2 the sun’s offers at the surface is by a factor of more than 5000 higher. [Edit: to clarify, that amounts to a solar flux average of 150 Wm-2] Hence, the motto of the 21st century could become: Learn to harvest one five-thousandth of the sun’s offer! All other renewable energy sources are comparably small parts of the sun’s offer. For example the kinetic energy contained in the ceaseless winds amounts to a global mean energy flux density of about 3 Wm-2, often concentrated on the sea or along coastlines. Next comes the energy flux of the sun stored in biomass; on global mean only 0.1 Wm-2 are available reaching peak values of about 1.0 Wm-2 if humid climates support strong plant growth on fertilized soils. Equivalent in the global mean with 0.1 Wm-2 is the geothermal energy flux from the Earth’s interior, sustained mainly by radioactive decay. All other renewable energy sources are much smaller, including hydropower, but can be important regionally in mountainous areas or tidal channels. However, the energy supply system of mankind cannot be build on them."

Professor Dr. Hartmut Grassl Former Director of the Max Planck Institute for Meteorology, Hamburg, Germany Former Director of the World Climate Research Programme, World Meteorological Organization, UNO

This group places solar thermal + long distance HVDC as the rational solution as well. Price estimates slightly higher than NREL Sargent & Lundy consultant estimates (I think, though who knows what Euro conversion rate should be used) at 14 euro cents / kwh at 500 MW total installed (present) to 4 euro cents / kwh at 400,000 MW installed. They propose to replace most fossil and nuclear energy in Europe, Mid East and North Africa, plus suplement water supplied where required with desalination, by 2050 with little or no cost above BAU.

On price, viability, water planning. It withstands every inspection. Solar thermal is viable NOW and we should be getting VERY busy NOW.

Any large scale project along these lines should also incorporate high speed rail and fibre optic cables to kick start modern infrastrucutre expansion in these areas.

IMHO, what's missing in the 5 points is a price on GhG emissions and pollutants. It would help those other 5 points a lot.

Forget carbon trading, another volatile market is exactly what we don't need in the times ahead. Start with a small carbon tax in 2010. Increases a little every month, guaranteed up to, say 2020. Revenue gets recycled back into the economy via reduction in payroll taxes ('tax and dividend'). Guarantees a favorable investment climate and level playing field for low carbon energy and energy efficiency. Promotes efficient use and conservation of fossil resources, while not increasing the total tax burden on the economy. The same can be done for heavy metal emissions, soot, etc. etc. These markets are only slowly coming off the ground, and often only very limited.

I think this is more important than any grand plan for a green economy I've read so far. Without an explicit price on pollution and GhGs the market is too distorted to make the right choices.