Five ways we can transition faster, together
To conclude the tenth series of our DNV Talks Energy podcast, we look at the action that needs to be taken to accelerate the energy transition.
Having spoken to many of DNV’s customers throughout this thought-provoking series, here we speak with two of our colleagues. CEO of DNV - Energy Ditlev Engel, and Vice President Technology & Innovation, Lucy Craig, provide their insights based on the ‘five calls to action’ in DNV’s 2020 Conclusions report, part of the Transition Faster Together series.
We hear how DNV is very optimistic about technological development, but less so over the role of regulation – with the onus on industry to drive change. We also discuss carbon reduction targets, and Ditlev shares his view that the long-term ambitions of individual countries will only be met through highly specific year-on-year commitments.
MATHIAS STECK Hello and welcome to the tenth series of the DNV Talks Energy podcast. I am your host, Mathias Steck. In this series we take a fresh look at the role businesses play in lowering the world’s carbon emissions and how they can work with governments, policymakers and other key decision makers to transition faster to a clean energy future.
Having spoken to many of DNV’s customers throughout this great series, in this final episode we stay closer to home and speak with two of our colleagues. CEO of DNV – Energy, Ditlev Engel, and Vice President of Technology & Innovation, Lucy Craig, provide their insights based on the five calls to action in DNV’s 2020 conclusion report, part of the Transition Faster Together series.
We hear how DNV is very optimistic about technological development but less so over the role of regulation, with the onus on industry to drive change. We also discuss carbon reduction targets and Ditlev shares his view of the long-term ambitions of individual countries will only be met through highly specific year-on-year commitments. We hope you enjoy the episode.
It is great to be joined by two colleagues today, Ditlev Engel, CEO of DNV – Energy, and Lucy Craig, Vice President, Technology & Innovation, and, Ditlev and Lucy, we want to talk about the findings of the recently produced 2020 conclusion report as part of the Transition Faster Together series today. But before we do this, it would be great if you could introduce yourself and tell us how your work is helping to accelerate the energy transition.
LUCY CRAIG Well, I’ll start. DNV’s customers include renewable energy developers, financiers, utilities, manufacturers and also corporate renewable energy buyers and these players are all working to accelerate the energy transition, whether that’s through building or financing new wind and solar plants or wind turbines, or managing to expand transmission distribution networks or manage energy use and we provide advisory and certification services to all these customer groups. In my particular role, we are focussed on the application of digital technologies and how we can use those digital technologies to continuously improve and innovate our service portfolio to these customers.
DITLEV ENGEL Thank you, Mathias, and thank you for those comments, Lucy. Let me just add to that, that overall from DNV, the purpose of the company is to safeguard life, property and the environment and the way that we work with this in Business Area (BA) Energy is, apart from what Lucy said, is really to see how we can accelerate this transition to go much faster. Because so many things need to happen, and they need to happen fast and this is what we focus on every day.
We are 2,100 people in BA Energy focussing on this, helping and supporting governments, investors, consumers, everybody involved in the energy transition. And it’s a huge thing to tackle, but we are working diligently every single day across the globe.
DITLEV ENGEL Yes. As I said in my opening remarks, to tackle the energy transition requires a tremendous effort and it requires something that has never been done before. So, when we launched the Transition Faster campaign, it was to make it very clear for everybody how should we think about this when we think about the deployment of renewables, the deployment of grids, the deployment of energy efficiency, and how can we help that. And what we see many places in the world now is that people are developing long-term goals, that they want, for instance, to be carbon-neutral by 2040.
But our view is that we have to move from the long-term aspiration into much shorter targets, like, for instance, what are we going to do different in 2021, 2022, 2023 and so forth and so on. Just to try to illustrate this with an example, we know that due to the very sad circumstances around COVID-19, that we probably this year in the world will see a reduction of around 8% of the emission level which is, of course, very good news seen from a climate perspective.
But what we need to be mindful of, in order to deliver on the Paris Agreement, is that we need to do this also in 21, 22, 23 and so forth, i.e. nearly 8% every single year. And this year we have stopped flying a lot and doing other things that caused the emissions. So, the Transition Faster campaign is trying to shed light on how can you transition much faster without a COVID-19 situation, because this will require a complete new thinking and requires technology at its absolute best working together across industries, and this is what the Transition Faster campaign is all about.
MATHIAS STECK So, Ditlev, coming back to this point you just made, that tangible progress we see year on year is more important than maybe long-term commitments, we do see good examples in the industry. For example, Engie, they shut down their Hazelwood coal-fired power plant in 2017 in Victoria, Australia.
They developed a rehabilitation programme for the community, and they committed to invest in 2 Gigawatts of renewables in a timespan of ten years. What is you take on the responsibility of energy companies actually making things happen and how can DNV support them?
DITLEV ENGEL So, I think they are both those who generate and distribute the energy, which of course are the ones we work very closely with for many, many years in the energy sector. But we also have to remember those who actually consume the energy, that is major corporations, obviously being the biggest user of energy and how they are now changing their approach.
They are also becoming carbon neutral, looking into green PPAs and how they can further their own carbon emissions as individual companies. We see a lot of companies joining those efforts, which is very, very encouraging and we support them as much as we possibly can on this journey. But I think we all need to make sure that we understand what is it that each and one of us in each company need to do different because every company’s action does matter, and that is the kind of thinking we need to get to.
Let me also just add to that, that one thing is that we set those aspirations but how do we calculate them, how do we report them. And I think this is going to be one of the very big topics going into 2021/2022, is how can you actually demonstrate that what you do is being measured, is being reported and that we really have a very tangible way of doing this, because this will mean that we can all look across the sectors and really start to look at where we need to make the most efforts together and get everybody engaged.
LUCY CRAIG Well, first of all, technology is already developing very rapidly. If you take a look at wind, I started working in the wind industry 30 years ago, when wind turbines were rated at 300 kilowatts and had a rotor diameter of 30 metres. Offshore wind farms were a very distant dream and many people in the industry thought that they would never be cost-competitive with other forms of generation.
Now, state of the art offshore wind turbines are rated at 12 megawatts and have a 220-metre rotor. So, that’s an increase in rate of power of 40 times in the past three decades, and now they produce power more economically than coal. And we expect costs to continue decreasing, and this continued cost reduction is driving the acceleration of the transition. For example, the renewables industry took more than 20 years to install the first 17 gigawatts of offshore wind and now it’s expected that more than 140 gigawatts will be installed over the next decade.
There are two factors driving this cost reduction. One is the economies of scale through volume production, and the other is this rapid development in technology. In the area of offshore wind, an important technology development that will still have an impact over the coming decades is floating wind, which we now see moving from pilot projects to commercial reality. And that’s going to open up vast new areas of the oceans for development of offshore wind.
We’ll see several new floating wind plants around Europe over the coming few years and by 2050 DNV is estimating around 250 gigawatts to be installed around the globe. That’s wind. But solar is developing even faster than wind in terms of cost reduction. Again, a combination of technology development and volume production have brought down costs at such a dramatic pace that an installed solar plant now is less than 20% of the cost of installing a plant ten years ago.
So, technology development is already helping to accelerate the rate of transition but what we need to have even more rapid deployment is continued investment in R&D and this sector has already demonstrated that it can apply a good return on investment, and looking to the future, we expect the need to continue investing in floating wind, as I mentioned, but also new technologies such as hydrogen, which show promise as a future enabler for decarbonizing hard to evade sectors.
But apart from technology there’s also the role of policy and regulations. There need to be the right supporting policies. And another aspect we need to look at is the supply chain, particularly in new markets. Ensuring an adequate supply chain is critical for the buildout of offshore wind projects in new markets.
DITLEV ENGEL I think first and foremost is to build on what Lucy said. We see phenomenal development on the technology side and, as we have said in the Energy Transition Outlook, that we are technology optimistic and, I would say, regulatory pessimistic and what we mean by that is that technology can do so much more than we are aware of and therefore we also try, in the ETO, to say what is the future cost of technology? Not what it costs today, but what will it cost in five years? In ten years? And how should we think about this integrating into our planning already now?
I think this is the key for the new business models. We have to accept that we have to do things very differently. If we had installed the offshore wind turbine that Lucy spoke about in the same way today as we did back then, we would not at all get to the same number of deployed gigawatts that we are doing now. So, we need to innovate the business models in the technical aspect of how to scale it much faster, but we also need to recognize that the regulatory models and how we think about paying for the energy needs to be rethinked, and here I think the business models are going to be absolutely critical.
And I often hear discussions about imagine if we had this, if we had, that but that’s not really the issue. The issue is to get things happening right now, and therefore use what we have. And I think also it’s important to say to build more scalable issues also means that we need to have more scale projects. Because innovation also comes from the fact that you keep working with it.
The progress we are seeing in solar and wind, and grid etc., is also because we keep learning as we work with them. So, it’s also very important to get more scale, to take more chances in terms of trying out new things and also have government support for really being more technology ambitious, of trying new things out because otherwise we will not innovate fast enough. So, we need to work on a number of different areas and those business models are then going to support that, and therefore we also need to think about what the future cost is going forward. In particular, I think we all know big discussions around the carbon pricing and what that could mean for further accelerating the energy transition.
LUCY CRAIG Certainly the integration of renewables in the electricity network is a real challenge and that network integration covers a range of issues, from building the transmission infrastructure, which is needed, to bring offshore wind power to load centres, to the management of a much more complex grid where, for example, we have solar power embedded in distribution networks. And also commercial, industrial and residential users become generators. We need to ensure the balance of supply and demand at all times and that will need much greater flexibility also on the demand side.
Antonello Cammisecra from Enel described the need to invest at least as much in transmission and distribution as we do in renewable generation, and that is also demonstrated in DNV's Energy Transition Outlook. But even that significant investment in infrastructure is not sufficient. We also have to look at how the markets operate because electricity market rules were defined to enable the efficient dispatching of large fossil-fuelled power stations. And so correctly balancing power generation and demand will require new ways of grid operation.
But technology, again, is showing how these changes can be implemented. If we start by looking at the transmission infrastructure, DNV was leading the promotion project which was funded by the European Union over the past four years. And that involved 34 players in the offshore wind sector, and investigated how to enable a meshed high voltage DC network, which in short enables more flexible connections between offshore wind power plants and load centres across different countries and that project demonstrated potential solutions, both at the technical and regulatory level.
And in DNV we are working on the topic of managing the complexity of next generation grid operations, the future of scale assistance for transmission system operators. Digitalization plays an important role here. Managing this complexity will only be possible if we digitalize those systems.
LUCY CRAIG That’s a very good point. It’s something which is highlighted by many companies across the energy sector. Last year we conducted a survey, which we reported in Digitalization of the Future of Energy, interviews with 2000 managers across the energy sector, including many of our customers, and they identified that investing in digital skills and technology is a high priority for them in the short term. Over 71% are already investing in digital skills training.
But apart from the hard digital skills, the industry also needs to adopt more digital mindset and 41% said that the lack of a digital mindset is a barrier. And that digital mindset means a greater flexibility to the way in which problems are approached as well as the digital technology skills. And over 30% said that creativity skills were needed in the workforce. So, we need a more agile, diverse and technologically and digitally adept workforce to adjust and keep up with many changes in the sector.
LUCY CRAIG So, there’ve been lots of studies about the economic potential for energy efficiency and those show that both households and businesses could reduce their energy consumption by between 20% and 30% just by implementing energy efficiency measures which are already available and have a payback on that investment in less than five years. And that in itself would have an enormous impact on reducing carbon dioxide emissions. However, despite the favourable economics, the pace of improvement in energy efficiency appears actually to be slowing down, and over that same period that we’ve seen a slowdown in energy efficiency, we’ve seen increases in the energy efficiency of everyday items such as lighting and passenger cars and cooling systems.
But often it’s financing which is the barrier. But on the upside, we see many opportunities which are provided by investment programmes. For example, in the US there is the Property tax Assessed Clean Energy programme or PACE which helps property owners finance energy efficiency measures. We see the rise of green banks, where their focus is to finance investments in projects that will reduce energy use and address climate change. We also see the increase in green bonds and financing. And apart from all these private financing measures, as we see more governments looking to invest substantially in COVID-19 stimulus packages, this is a great opportunity for governments to direct this funding to programmes that will benefit energy efficiency incentives.
DITLEV ENGEL So, I think that there are some very encouraging signs and something that we need to build further on. Let me start by saying that I think here in 2020 we see that 90% of the total addition to power capacity is going to come from renewables which is very strong, very much driven by China and the US first and foremost, but we also see very exciting plans in Europe and in India. So, I think there’s a lot of aspirations out there and the biggest impact and these are, of course, some of the biggest emitters in the world that need to, let’s say, decarbonize the fastest, as they also are the ones who are emitting the most.
So, that will be very meaningful to see those actions continue and, of course, the policies that are going to be behind this are very much needed, but so is the tracking that it actually happens. So, having participated in many of these discussions over the years, I think it would be very exciting if people, when they are now going to the next COP, which was supposed to take place in November but is now postponed for 12 months because of COVID-19, when everybody is going to present their nationally determined contributions, that people will not tell us where they will be in 2040 but that they will tell us where they will be in 2022, 2023, 2024.
Because you need that kind of granularity to really see that you are making the progress required and it is not just about energy regulation, it is also about a lot of other regulation that needs to fall into place. How long does it take to get permitting in place for an onshore wind farm, or offshore wind farm, for that matter, get the grid deployed, as we just talked about before?
All these other things also need to happen and they also need to happen fast. And people tend to forget to follow the whole way through in the value chain that needs to be in place in order for it to go with the speed required. So, I think that’s going to be key – yearly clear targets and plans and actions that are actually happening in each of the countries. That will be the thing to track.
DITLEV ENGEL I think we have seen the new green deal in Europe has a lot of very exciting potential in the frame.
Now we need to make sure that it’s getting deployed. I’ve also seen now, with the incoming President in North America, Joe Biden, in his climate plans are very clear aspirations for what should happen in the coming period, not just for the US to join the Paris Agreement but also for further accelerating what has already happened in the US, and it’s important to remember that many things have happened in many of the states in the US where it’s being deployed more on a state level and how that should continue going forward. So, many of these actions are the ones that really ensure that we get there, and that is what we need to track now on a much more granular basis.
LUCY CRAIG Yes, collaboration between companies will become increasingly important to enable a faster energy transition. You’ve mentioned some good examples. DNV is working closely with Microsoft in the development of our digital platform, Veracity, which is already being used by companies across the globe for accessing and sharing data and providing analytics.
And then our strategic partnership with WattTime, we are taking the data they provide to apply our analytics and help, end-users and utilities understand how the time of use of energy impacts the reduction in greenhouse gases. By choosing to use electricity when it’s applied predominantly by renewables and switching off appliances when electricity is coming from other sources, such as coal. This is a much more effective way of reducing carbon emissions than simply reducing electricity demand.
But we’re also working actively with other companies on a number of joint industry projects, for example, in defining the requirements for wind projects which are installed in areas subjected to cyclones and earthquakes. And then in the fast developing area of floating photovoltaics where we’re working with over 20 industry partners to define the recommended practice on topics such as site conditions, energy production assessments, and anchorage and mooring.
And then, going back to offshore wind, we have a joint industry project on cable reliability and the approach to lifetime monitoring to be able to better anticipate faults. On all of these topics we are leading consortia with between 20 and 40 industry partners who are also working on these important topics. And then, if we’re looking at floating offshore wind, internally in DNV that’s been a great opportunity for us to work across our different business areas in maritime, oil and gas, and energy which all cover the topic of floating offshore.
DITLEV ENGEL I think let me start by quoting the Director of the IEA, Fatih Birol, who very recently said that renewables have shown extreme resilience to the COVID-19 situation and will continue to do so in the future. However, the biggest threat is actually uncertainty on regulation, which has nothing to do with COVID-19 and I have to say in March this year, when COVID-19 really hit, we were very concerned about the outlook for our business, the industry, and we took a lot of measures due to that.
But I have to say here now, as we are getting to the end of November, that fortunately our customers continued to focus on it, and so did we. We found new ways of doing things in a digital sense, we found ways to get things installed, work together in different ways. So, I think we managed to work around the COVID-19 situation and continue the pace. So, I think that is something we have definitely learnt from and we will also build on in the future.
But I think the regulatory uncertainty is probably the biggest threat and, just to give the two insights to this in our daily lives. One of our key accounts, Iberdrola, had a market capital day the other day and mentioned that in the next five years they are going to invest €75 billion in building out their activities, which, of course, is a very big amount and showing how much money is at the table now. So, we see the interest in investing more, scaling more, is very much there from businesses, not just in the energy sector but also financial investors and others who want to get engaged.
So, we really see money chasing projects and making the projects available is very much dependent upon the regulation. So, we can scale it fast, we can produce the technology fast, we can deploy it fast. The question that we cannot, in business control is in which frame the governments are putting it in and that’s really where we need to work. So, that’s why, when I said in the beginning we are technology optimistic but regulatory pessimistic, and therefore what we are going to focus on is how can we help governments make the right plans to build faster, to expand faster and what are the hindrances today?
Because it doesn’t create any value that we sit and say to each other you should do differently. But then you need to say you should do differently and this is how we suggest you do it differently. That will be much more proactive, and I think also much more value contributing going forward.
LUCY CRAIG Well, I would say we have to put climate first at the very top of the political and business agenda and keep it top of mind to ensure urgent action. The coronavirus has demonstrated how quickly we can adapt when faced with a crisis. For example, suddenly stopping air travel, working from home. And it’s shown how collectively we can make an impact and very fast.
The climate issue is often seen as such a difficult and complex problem and something which will hit us sometime in the future, but action is repeatedly postponed. So, we need to be constantly reminded that this is an emergency on a larger scale than corona and we need to act now and at all levels as individuals, companies and governments.
DITLEV ENGEL And let me just add two things to what Lucy just said. First, we talked here today a lot about what we need to scale up, but we also need to be very mindful of what we need to scale down in order to get to our ambitions in Paris. So, both are very important to focus on in tackling the energy transition.
And to your question, Mathias, I think the best way I can express this is again to quote the former Secretary General from the UN, Ban Ki Moon. Last year I participated in the UN General Assembly in New York, and at a dinner he gave a speech and he said the following, that he a few months earlier had met with the Pope in Rome, and they discussed the challenge ahead, and the Pope had said to Ban Ki Moon that he has considered what is really at stake here and he said, in the Catholic Church we can actually forgive for what people do, and the Pope said, I have come to the conclusion this is not a luxury that climate has.
So, it is upon us to make sure this happens. We are the ones who have to make it happen, and I can guarantee all the listeners that at DNV we do whatever we can to transition faster, and I would even dare to say much faster than what we have seen in the past through technology contribution, working across sectors, working with customers and regulators, because we are as determined, I think, as anyone to make sure that this really will happen at the scale needed.
LUCY CRAIG Thank you.
DITLEV ENGEL Thank you, Mathias.
MATHIAS STECK Thanks for joining us for this concluding episode of series ten of DNV Talks Energy. It was a fitting way to end a series where we have heard from some of the leading figures that are shaping the energy transition and discuss some of the ways we can all work together to help us transition faster. We hope you enjoyed the series and look forward to welcoming you back next year.
To hear more podcasts in the series, please visit dnv.com/talksenergy.