by Larry Smith
Thirty years ago a mechanical failure at a
nuclear power plant in Pennsylvania released radioactive gases into the
atmosphere, forcing the evacuation of 140,000 people from the
surrounding area. It was a significant turning point in the development
of nuclear power.
As Canadian commentator Jeff Rubin recently
pointed out, “The real legacy of Three Mile Island wasn’t what happened
back in 1979, but rather what happened - or more precisely didn’t happen
- over the course of the next 30 years in the US."
He was
referring to the fact that the near-meltdown of the Three Mile Island
reactor changed public acceptance of nuclear power plants, and none has
been built in the US since. Could the catastrophic explosion at the BP
drilling rig in the Gulf of Mexico have the same effect on the oil
industry today?
Well, in Rubin's words: "The scene of hurricane-force winds raining oil on New Orleans and the rest of America’s Gulf Coast will no doubt make for an apocalyptic image of the end of the age of oil...Unfortunately, our dependence on the stuff will survive this catastrophe."
Now, a major new report from insurance giant Lloyd's and British think tank Chatham House, spells out just how the end game for oil is likely to play out. It argues that our over-reliance on fossil fuels is driving companies to take unnecessary environmental risks, and calls for a rapid shift towards low carbon energy sources.
The meticulously researched Lloyd's report says the world has entered "a period of deep uncertainty in how we will source energy for power, heat and mobility, and how much we will have to pay for it." The key factors are constraints on ‘easy to access’ oil; the urgency of reducing carbon emissions; and a sharp rise in energy demand, particularly from China.
This means that business and political leaders will have to deal with energy supplies that are increasingly less reliable and more expensive, leading Richard Ward, Lloyd's chief executive, to urge governments to identify "a clear path towards sustainable energy which businesses can follow."Business as usual forecasts suggest a 40 per cent increase in global energy demand by 2030, requiring an investment of some $26 trillion. And while we should be directing that investment to the technologies with the best future, the most cost-effective short-term approach is to cut fossil fuel consumption as much as possible.
Lloyd's says an oil supply crunch as early as 2013 is likely, due to a combination of insufficient investment in production over the last two decades and surging demand from Asia following the global recession. This could create a price spike in excess of $200 per barrel, with profound consequences for the way business operates.
In 2008 oil prices peaked at $140 per barrel, and most of us can recall the impacts of that price shock. Consumer behaviour began to change dramatically, and a new price spike can be expected to prompt drastic national measures to cut oil dependency.
This forecast is backed up by the US National Intelligence Council, which says the next decade or so will see unprecedented pressure on world resources, making an energy transition inevitable. "The only questions are when and how abruptly or smoothly such a transition occurs. (This) is an event that historically has only happened once a century at most, with momentous consequences.”
Here are the main indicators of the looming energy transition as outlined in the Lloyd's report:
• Global demand is putting pressure on fossil fuel markets and increasing price volatility
• Past investment trends coupled with resurging demand suggest an imminent oil supply crunch
• Policies to reduce carbon emissions are inevitable and will affect the viability of current operations
• Renewable energy is attracting unprecedented investment and is now part of the mainstream energy mix in some countries
• Existing energy infrastructure will be vulnerable to extreme weather events caused by climate change
Lloyd's says that rising energy costs "are best tackled in the short term by changes in practices or via the use of technology to reduce energy consumption. The wider use of renewable energy and even self generation, bring added price and supply security benefits, and governments have an important role in delivering policies that create the necessary investment conditions."
Without stronger policies, it is unclear whether there are sufficient drivers for large-scale renewable investment and deployment, the Lloyd's report says. "Only strong policy incentives will promote renewable energy activity under existing market conditions...Where there is political will, investments are taking place."
By 2008, for example, Europe was generating nearly a quarter of all new electricity from renewable sources. And last year the EU required all new buildings to comply with tough energy-performance standards. Even stricter requirements were made for public sector buildings, requiring ‘nearly zero’ energy standards by the end of 2018. This has set a clear agenda for the construction industry.
So where do we stand on these issues in the Bahamas? Well, we are more vulnerable than most because all of the fossil fuel we use to drive our economy has to be imported at great cost. And Bahamians in general must be highly motivated to effect behavioural changes - in both the public and private sectors.
The government has been pushing two big initiatives. An expert committee was appointed by the Environment Ministry to formulate a national energy policy, which was published in 2008. And the Bahamas Electricity Corporation began investigating alternative fuel sources, which led to an invitation to private investors to produce renewable energy for purchase by BEC.
Unfortunately, BEC has serious financial and operational difficulties, and abruptly cancelled its two-year renewable energy tendering process recently with nothing to show for it. Meanwhile, the Environment Ministry is still building a framework to implement the national energy policy, with help from the Inter-American Development Bank.
"A policy can only take concrete form on the basis of hard facts," BEST Commission chairman Philip Weech told me recently. "These did not exist on renewable energy potential across the country, despite claims to the contrary. The IDB was extremely helpful in facilitating our work to fill this gap."
Two major projects are currently underway by IDB-funded consultants. Information from hotel, residential and public building energy audits is being used to develop a national energy efficiency plan, which will address building code and import tariff changes. This plan will be completed by September, but some initial recommendations were included in the 2010-11 budget.
A detailed study on the potential for renewable energy will determine which technologies are feasible on a utility or distributed scale in the Bahamas. Researchers are collecting and analysing relevant data from all the main inhabited islands, and the Environment Ministry has held talks with private investors on waste-to-energy proposals for New Providence.
The IDB consultants have also been reviewing BECs operational and financial issues. This led to the engagement of a team from the Canadian power company, Emera, who were given 120 days to produce a turnaround plan for the corporation. Their proposals should be ready by the end of July.
In tandem with this, the IDB consultants are reviewing our regulatory regime to develop renewable energy incentives and electricity grid feed-in guidelines. This review should also be finished in July and the next step would be to draft legislation to fundamentally reform the energy sector, although no timeframe for this has been set.
At the same time, demonstration projects are being financed by the IDB and the UN's Global Environment Facility to the tune of $1.5 million. A residential pilot project will procure and install compact fluorescent lightbulbs, solar water heaters and solar power panels to determine the technical, operational and logistical challenges of widescale implementation.
According to Glen Laville, the newly appointed general manager of the Water & Sewerage Corporation who is also the Environment Ministry's overall project manager, procurement contracts have been issued for over 150,000 CFLs, 130 water heaters and 30 panel installs. Installations should be completed before the end of the year, after which their performance will be evaluated over a six-month period.
"All the studies will be widely communicated," said Phil Weech. "The demonstration activities will give us hard numbers on renewable energy applications in our local environment. Quite simply, we started in an information wasteland, and tried to fill it as fast as we could. This was done having to draw on external resources and technical assistance. I must admit, however, that we have received little public reaction despite the importance of this effort."
As for the renewable energy tendering process, BEC chairman Michael Moss acknowledged that "in retrospect it was a mistake for BEC to be leading that process. We don't have the expertise and none of the bids were robust enough according to the consultants, although we could have negotiated with the top two. Independent power producers depend on interconnection agreements - and who is going to administer that here?
Moss said the country is some distance away from utility scale renewable energy: "Conservation is the only real green energy at the moment and BEC will be pushing that angle strongly. We will also encourage small-scale distributed power generation. The proposed changes to the regulatory regime will be available this year, but I don't know about enactment."
In the meantime, BEC is investing heavily in new conventional generating plant to meet the country's growing energy needs - $30 million on Bimini, $30 million on Eleuthera, $105 million on Abaco, and $10 million on a variety of improvements to other islands, including New Providence. Such energy infrastructure has a decades-long lifespan.
This is despite the fact that, given the global commitment to radically reduce emissions and the finite nature of conventional fossil fuel sources, a rapid movement towards a highly efficient non-fossil energy future would seem to be the logical investment choice.
If these changes come too little too late on a worldwide scale, rebalancing of supply and demand will have to be achieved through massive shortages, which would translate to extreme economic hardship, according to a 2005 report by the US Energy Department.
Lloyd's says energy planners and financiers need to take into account the global transition towards greater sustainability. And policies to incentivise the deployment of progressively cleaner energy technologies may mean the need to retire some energy infrastructures prematurely.
Meanwhile, there are opportunities for low-carbon business innovation that most Bahamians have yet to consider. In addition to clean energy, these include the electrification of transportation, and green construction. The conclusion from all this is that energy security is now inseparable from the transition to a low-carbon economy and businesses should prepare for this new reality.
"Security of supply and emissions reduction objectives should be addressed equally, as prioritising one over the other will increase the risk of stranded investments or requirements for expensive retro-fitting," Lloyd's says. "Investing in a secure, low-carbon energy future may have higher upfront costs, but will deliver lower cost energy in the future."
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