Energy
is big business. The electricity industry is one
of the highest investment sectors in the world.
A quarter of the world’s development aid goes
into building energy systems and every nation’s
energy system imposes significant costs on government
and ratepayers directly and indirectly. Since 1970,
world commercial energy consumption has grown at
an average annual rate of 2.5 per cent. Interest
in how we meet our energy needs is increasing for
many reasons. All economies are becoming increasingly
reliant on energy and we are reminded of this on
days of extreme temperature when energy utilities
around the world are stretched close to capacity.
As we described in Section 1, if nations had made
good energy efficient buildings, homes and heating
and cooling equipment a greater priority, the taxpayer
would be much better off. This is because the entire
system is presently designed to meet these peaks
and then carries a redundancy during the predominant
non-peak periods. Peak energy demand is often subsidized
due to limitations of metering and political sensitivities:
for example a recent study undertaken in Sydney,
Australia, estimated the real cost of supplying
summer peak electricity demand at more than AU$3.80/kilowatt-hour,
compared with a price of 12 cents. Greater energy
efficiency would have avoided the need to build
extra supply capacity and overall reduced costs
to taxpayers.
Current interest in alternatives to oil is influenced
by the fact that nations are increasingly dependent
on oil from politically unstable regions of the
globe. Protecting these oil interests is becoming
increasingly expensive. Many believe we are coming
to the end of the oil age. In The Economist,[1]
Sheikh Zaki Yamani, a Saudi Arabian who served as
his country’s oil minister three decades ago
stated: ‘the Stone Age did not end for lack
of stone, and the oil age will end long before the
world runs out of oil.’ The Economist goes
on to write: ‘he made this prediction because
he believes that something has fundamentally changed
since the first oil shock. Finally technological
advances offer a way for economies, especially those
in the developed world to diversify their supplies
of energy and reduce their demand for petroleum,
thus loosening the grip of oil and the countries
that produce it. Hydrogen fuel cells, very high
efficiency equipment and other ways of storing and
distributing energy are no longer a distant dream
but a foreseeable reality … and with the right
policies it can be made both possible and economically
advantageous.’
Rocky Mountain Institute, who have undertaken a
great deal of work in this area writes: ‘The
chairs of eight major oil and car companies have
said the world is entering the oil endgame and the
start of the Hydrogen Era. Royal Dutch/Shell’s
planning scenarios in 2001 envisaged a radical,
China-led leapfrog to hydrogen (already underway):
hydrogen would fuel a fourth of the vehicle fleet
in the industrialized countries by 2025, when world
oil use, stagnant meanwhile, would start to fall.
President Bush’s 2003 State of the Union message
emphasized the commitment he’d announced a
year earlier to develop hydrogen-fuel-cell cars.’[2]
Vulnerabilities
in the energy system
Another area of interest and driver for change comes
from the fact that modern OECD
(Organisation for Economic Co-operation and Development)
energy systems have vulnerable systems architecture.
The modern grid is complex, sometimes beyond full
understanding, requiring complex control and synchronism
requirements that often only a few engineers truly
understand in its entirety. If we had our time over
again and were given the opportunity to re-design
our energy systems from scratch, it is clear that
we would not design them this way. Given the opportunity,
we would design our energy systems to be much safer,
more robust and resilient. Complicating factors
include the fact that our current energy system
and its dependence on oil and nuclear energy means
that we have hazardous fuels, often in or near cities.
If the electricity grid fails, then other systems
such as gas grids, which depend on electricity,
will also fail. The system is constantly weakened
by the retirement of key staff who helped build
these vast modern grids. But the most topical area
where our highly centralized energy systems are
vulnerable is sabotage.
A small group of people changed the world forever
on 11 September 2001. The present highly centralized
energy (power stations with usually only a few transmission
lines, oil pipelines) and water supplies (large
dams with usually only a couple of pipelines to
major cities) present targets that are highly vulnerable
to attack. These centralized energy and water systems
are often located far from the end user, requiring
long transmission lines or pipelines for water.
The length of these transmission lines and pipelines
make it prohibitively expensive to police them.
Forty years ago the US Defense Electric Power Administration
warned: ‘main transmission lines are extremely
difficult to protect against sabotage as they are
widespread over each state and traverse remote,
rugged and unsettled areas for thousands of miles.’[3]
Concerned about these issues in the wake of the
OPEC oil crisis of the early 1970s, the Pentagon
commissioned a major study to assess the vulnerabilities
and weaknesses of the US energy system. The final
report – authored by Amory Lovins and Hunter
Lovins, released on 13 November 1981 by the Federal
Emergency Management Agency, and subsequently published
as the book Brittle Power[4]
– showed that ‘the energy system of
the US was vulnerable to terrorist threats, blackouts,
technology breakdowns and disrepair, natural disasters
and energy shortages’. It demonstrated that
domestic energy infra-structure is often fatally
vulnerable to disruption (by accident or malice)
and it showed that ‘A resilient energy system
is feasible, costs less, works better, is slowly
happening in the market, but is inhibited by current
US energy policy’.
Alexandra de Blas, ABC award-winning journalist
in Australia, interviewed Jeremy Leggett, Chief
Executive of Solar Century London shortly after
11 September 2001 and asked ‘is the war against
terrorism and heightened awareness of national security,
actually having a noticeable impact on thinking
about renewable energy?’ Leggett replied,
‘Yes, since the horrific events of September
11th, we’ve been called up by a number of
people interested in the new world we live in where
evidently terrorists can conceive of flying civilian
laden jet airliners into nuclear power plants, or
quite easily blowing up oil and gas pipelines that
come from the frontier areas where these fossil
fuels are going to have to come from. One of the
inquiries has come from the armed services in the
UK, interested in how quickly we could move to a
world that was powered by renewable micro power,
and where there are no nuclear power plants and
no need for imports of oil and gas.’ Countries
like Israel that have smaller scale distributed
energy supplies, such as solar hot water on roofs
of 100,000s of houses, have invested in a wise technology
that has delivered a decentralized robust system.
In the 21st century we now have the enabling technologies
to allow us to decentralize our energy and water
sectors: that is, to make a higher percentage of
them more resilient and less vulnerable to sabotage,
accidental stoppage and other impacts on the system.
Making
electrical resources the right size
There is a historic shift occurring in the energy
sector towards encouraging energy efficiency and
smaller scale distributed renewable energy networks,
with complementary changes to regulatory frameworks;
because it is profitable.
Source: RMI analysis from EIA (2000)
Figure 17.1 Maximum and average
sizes of new generation units (fossil-fuelled steam
utilities, 5-year rolling average) by year of entry
into service
Globally,
wind power generation capacity is growing at a faster
rate than nuclear power ever did. Wind power is
now cost competitive with coal in areas of high
average wind speed. Hence, there is an opportunity
for communities, business, energy utilities and
government to work together to find a new way forward
where everyone wins and
achieves greater profits. Such an opportunity, highlighted
by Hunter Lovins on her recent tour to Australia,
has been realized in Sacramento, California where
the residents voted to shut down a 1000 MW nuclear
power plant resulting in the power company losing
roughly half of its capacity overnight. Traditionally,
an energy utility would have simply invested in
new supply and built a new coal fired power station.
Instead the utility first invested in efficiency
to help their customers use less energy but retain
the same quality of life. They then invested in
a wide range of alternative forms of small renewable
distributed energy systems to learn how best to
use the emerging technology. The result is that
over ten years they have increased regional income
by US$130 million. Had the plant kept running, energy
prices (rates) were estimated to have increased
by 80 per cent; instead, these investments have
kept rates at the same level for a decade. A number
of firms in Sacramento had stated that if rates
increased that much they would have to leave the
state. Hence, by keeping rates constant they were
able to retain over 2000 jobs that would otherwise
have left the state. In addition, since renewable
energy and efficiency improvement are more labour
intensive and less capital intensive, the strategy
created 880 new jobs. Finally, the programme eliminated
the utility’s debt.
This is an example of a broader historic shift in
the scale of electricity supply currently underway
from ‘big is always better’ to the ‘right
size for the job’. This is the subject of
the recently published, Small is Profitable:
The Hidden Economic Benefits of Making Electrical
Resources the Right Size[5]
voted one of the three ‘books of the year’
for 2002 by The Economist magazine. In
Small is Profitable, Amory Lovins et al
describe this historic shift as follows, ‘as
one industry team stated in 1992, ‘From the
beginning of [the twentieth] century until the early
1970s demand grew, plants grew, and the vertically
integrated utilities’ costs declined. Looking
back on the 1990s, it is now obvious that a reversal
[in this trend] has actually occurred. In 1976 the
concept of largely “distributed” or
decentralized electricity production was heretical,
in the 1990s, it became important, by 2000, it was
the subject of cover stories in such leading publications
as the Wall Street Journal, The Economist,
and the New York Times, and by 2002, it
was emerging as the winner in the marketplace.’
The change is exactly the sort of ‘inflection
point’ described by Andrew Grove of Intel
in his book, Only the Paranoid Survive: How
to Exploit the Crisis Points That Challenge Every
Company and Career.[6]
Just as the critical mass of enabling technologies
in IT has led to a remarkable shift in how we communicate
over the last 30 years, examples such as the experience
in Sacramento are showing that over the next 30
years we could see another similar wave of innovation
in how societies meet their energy needs. Small
is Profitable shows that there is now a critical
mass of enabling innovations making integrated approaches
to sustainable development in the energy sector
economically viable. Small is Profitable
shows that advances in energy efficiency improvement,
demand management, renewable energy, co-generation,
fuel cells, and new fuels like hydrogen are not
simply a list of interesting options but ‘a
web of innovations that all reinforce each other.’
It states, ‘These developments form not simply
a list of separate items, rather their effect is
thus both individually important and collectively
profound.’ Small is Profitable describes
207 ways in which the size of ‘electrical
sources’ (devices that make, save or store
electricity) affects their economic value. It finds
that properly considering the economic benefits
of ‘distributed’ (decentralized) electricity
sources typically raises their value by a large
factor, often approximately tenfold, by improving
system planning, utility construction and operation
(especially of the grid), service quality, and by
avoiding societal costs. Other drivers for distributed
energy include changes to market incentives that
require that energy utilities are systematically
required to purchase renewable energy.
What Lovins et al are arguing is that we stand on
the cusp of a wave of innovation in the energy sector.
However, the book does more than that. In showing
how utilities and firms in the energy sector can
earn significant revenue through energy efficiency
improvement, greater use of distributed energy systems
and wise regulatory changes, it also shows how any
nation over time can achieve deep cuts in greenhouse
emissions. Small is Profitable, as the
title suggests, is about how to improve the profits
of energy companies and the well-being of nations
overall. In doing so, however, it also shows how
deep cuts to greenhouse gas emissions can be profitably
achieved over the next 30–50 years. Hence,
it is a key work in helping us to solve the human
induced global warming problem and reduce the vulnerability
of our energy systems in multiple ways.