Natural Gas Market Report
February 5, 2001
Report on climate-friendly energy quotes Probe International’s Policy Director, Gráinne Ryder [highlighted in bold toward the end of the article].
“The Stone Age did not end for lack of stones, and the Oil Age will not end for lack of oil.” Thus the vice chair of Royal/Dutch Shell captured the essence of the Shell Group’s strategic thrust into renewable energy. Jeroen van der Veer’s prophecy also illuminates current attempts by the G8 heads of government to catalzye the development and diffusion of climate-friendly technologies in the developing world.
The greening of Shell and BP
Natural gas and renewables could meet almost one-half of the fuel requirements for electric power generation in Organisation for Economic Co-operation and Development (OECD) countries by 2020, claims Sir Mark Moody-Stuart, chair of the Royal Dutch/Shell Group.
“As an energy business, our success will depend on selling the sorts of fuels that society demands. These fuels are gradually moving away from those containing a lot of carbon, such as coal, to those containing less carbon, such as natural gas. We expect this trend to continue as new fuels such as hydrogen and renewable energy get cheaper and easier to use.”
BP Amoco is also seeking to assemble a profitable renewables portfolio under the impact of greenhouse gas reduction and sustainability imperatives. BP aims to “play a leading role in meeting the world’s needs of oil, gas, solar power and petrochemicals without damaging the enviroment.”
The view from ONGA
Bernie Jones, president of the Ontario Natural Gas Association, told Natural Gas Market Report that “the natural gas industry’s contribution to sustainable economic growth can be found in several beneficial trends and developments, particularly the introduction of increasingly energy efficient and environmentally cleaner technologies. Some traditional natural gas marketers, now energy marketers, are developing green power programs, with renewable energy components, to offer consumers the choice of cleaner power than average, albeit at a high price.
“It is unlikely that natural gas will be as cheap in the future as it was during the past two decades. The marketplace will provide a powerful incentive for investment in even more efficient use of natural gas and in the research, development, demonstration and application of new and superior technologies. With the convergence of natural gas and electricity, opportunities will grow for bridging natural gas with renewable energy sources. ONGA members recently established a New Technologies Committee to explore emerging technologies and their implications.”
Shell has been experimenting with renewable energy technologies for 20 years. In 1997, Shell committed to investing US$500-million over five years to significantly increase the renewables side of its operations, with the objective of establishing commercially viable businesses. The Committee of Managing Directors created a core business unit called Shell Renewables as a vehicle for greening the oil and gas major into forestry, biomass, wind, solar and possibly geothermal power.
Sir Mark said that the establishment of Shell Renewables is “part of our strategic commitment to the development of sustainability.” This commitment was reinforced in 1999, when Shell Hydrogen was established to pursue and develop global business opportunities related to hydrogen and fuel cells, and Shell Renewables began investing in wind power. He pointed out that a key driver for developing renewable energy is the desire to reduce carbon dioxide emissions in energy production by gradually replacing fossil fuels such as coal, oil and natural gas. Renewable sources emit much less carbon dioxide than conventional fuels, per unit of energy produced. Many believe that in the longer term they could become a low cost source of sustainable energy.
Sir Mark said that success for Shell Renewables depends on finding enough commercially viable projects. “This can be difficult because of the comparatively high cost of harnessing renewable energy sources.”
A labelling system to certify energy generated from renewables could help to enhance the viability of renewable energy projects.
Shell Renewables is examining new technologies to increase the efficiency of conversion from sunlight to electricity. Shell Renewables expects the cost of producing photovoltaic panels could drop by 6-8% annually over the next 20 years. This could mean that in 2010, the cost of solar electricity could fall to one-third of today’s levels.
Shell Renewables is concentrating on developing three areas of the market: grid connection; supplying solar generated electricity into a national grid; rural electrification; bringing renewable energy to remote and dispersed communities; and autonomous installations like offshore platforms requiring power but not connected to a public grid.
In February 1999, South African President Nelson Mandela officially launched Africa’s largest solar energy project, a joint venture of Shell Renewables and the South African national utility company Eskom. The unique joint venture is seen as a blueprint for solar power in many rural areas around the world.
When completed, the project will bring solar electricity to 50,000 homes in rural areas of the, Eastern Cape. To date, the joint venture has established 6,000 Power House solar home systems, bringing electricity to an estimated 30,000 citizens in the area.
The Power House system comprises a solar panel, a charge-controlled battery, and a security and metering unit, and was custom built for this market. Its two main unique design features are fee-for-service and security.
In the fee-for-service concept, customers pay for electricity on a monthly basis. They buy a magnetic strip card at a local outlet every month to activate the unit. Further, a security device prevents the unit from operating if the solar panel is removed and reinstalled elsewhere. (For Eskom comments on this project, see below “Progress in rural South Africa.”)
Shell is also undertaking rural solar projects in Bolivia (10,000 homes in the Santa Cruz area), India, Sri Lanka, and the Philippines.
Maryland based BP Solarex, a BP Amoco subsidiary, holds 20 per cent of the world market leader for solar panels. The firm has manufacturing plants in several countries and a workforce of 1,300. Through BP Solarex, BP Amoco is one of the world’s leading solar energy firms, as measured by photovoltaic panel production and delivery of complete installations.
Over the last 20 years, significant developments in wind energy have brought improved efficiency and performance to the technology. In this period, more than 10,000 MW of wind power capacity has been installed. Many of these units have been sited in small-scale clusters, mainly on land. The industry is now moving toward the installation of wind turbines in new and challenging environments, including offshore.
Shell Renewables is part of a consortium that recently opened the UK’s first offshore wind project with two turbines generating 4 MW a kilometer off the Northumberland coast. Shell Renewables is pursuing other wind generation opportunities, mainly in Europe.
Shell Renewables hopes to gain a competitive advantage in wind energy from Shell Groups skills in the design,implementation and operation of complex engineering projects.
Jan Rowley, public affairs manager at Shell Canada Limited in Calgary, told Natural Gas Market Report that Shell companies are starting to buy wind power as customers to gain experience in the power purchase process. For example, Alberta-based Canadian Hydro Developers, Inc. recently agreed to sell electricity to Shell Canada generated by three of its new wind turbines in southwestern Alberta. Financial details of the agreement were not disclosed. The turbines are an expansion of the existing 18.9 MW Cowley Ridge wind plant near Pincher Creek. When completed in 1994, Cowley Ridge was Canada’s largest wind energy project.
Rowley said that Shell Canada is looking for renewable investments that can be built into profit centres, and that the first acquisition may be an incubator company.
G8 Renewable Energy Task Force
Along with Corrado Clini of Italy, host country for the G8 Genoa Summit in July 2001, Sir Mark co-chairs the ad hoc G8 Renewable Energy Task Force and conducts much of its day-to-day business. BP Amoco is represented on the Task Force by executive vice-president David Allen.
At the G8 summit in 0kinawa in July 2OOO, the heads established the Task Force to identify the main barriers to the penetration of renewable energy in developing countries, in order to help mitigate the global problems of climate change and air pollution.
The Task Force is charged with recommending sound and practical actions which G8 governments can take to help remove these barriers, including the encouragement and facilitation of investment in the development and use of renewable energy. The co-chairs aim to submit the report of the Task Force to the G8 heads in late March, for consideration in Genoa.
The Task Force is holding four meetings: Rome (September, 2000), the Shell Building in The Hague (November 2000), Paris (January 2001) and Tokyo (March 2001). These meetings are considered private, and their agendas have not been published thus far.
(Task Force members such as Ottawa-based Brian Emmett, Vice-President, Policy Branch, Canadian International Development Agency (CIDA), a unit of Canada’s Department of Foreign Affairs and International Trade, have declined to comment on any aspect of the Task Force. Emmett told Natural Gas Market Report that as a public servant he is “constrained from engaging in public discussion on CIDA’s approach to the removal of barriers to the penetration of renewable energy in developing countries.”)
Sir Mark said: “If the use of renewables is to expand rapidly, they must be made commercial so that investment is attracted. I am delighted that G8 governments and business can get together to see how this can be enabled most effectively. This has to be about renewables as an energy business rather than just a pious hope.”
Solar power developer Brian Kybett, director of the Energy Research Unit at the University of Regina in Saskatchewan added: “subsidies should and could pay for the necessary R&D, and also perhaps for the initial planning of renewable energy projects in developing countries, but the installation and kilowatt-hours have to be paid for commercially.” Kybett’s unit has installed approximately 70 solar power units Ghana villages, out of a nationwide total of several hundred.
Progress in rural South Africa
Renewable Energy Task Force member Reuel Khoza chairs Eskom, South Africa’s national electricity utility, which has amassed considerable experience in the design, development, financing and implementation of renewable energy projects.
Khoza told Natural Gas Market Report that Eskom has learned eight main lessons in providing renewable energy technology (RET) for electricity generation in schools, clinics, and standalone units in rural areas where the extension of the grid is cost prohibitive. He listed these as follows.
(1) The community must be involved in RET from the start, because new technology is often publicly viewed with suspicion.
(2) With diverse modes of service delivery, the burden of risk falls differently on various participants, and government policy must address this issue.
(3) In the fee-for-service delivery mode used by the Eskom/Shell Joint Venture, some consumers were confused when ask to pay for services they may not use in the same month. To minimize such dissatisfaction, equipment rentals should be strongly promoted as a substitute to payment for energy consumption.
(4) The individual solar units provided to householders meet only their lighting and entertainment needs. Eskom established a pilot project to combine in one package RET with liquid petroleum gas technology to replace woodfuel and paraffin. In their present cost structure, RET may not gain the expected foothold in the energy market in developing countries as expected, because of the cost to service all customers’ energy needs. Energization, where multiple energies are offered in combination as a least-cost, most efficient energy solution can promote marketplace acceptance of RET.
(5) The RET provider must maintain close contact with the schools, clinics and households to offer guidance, advice and quick service in the event of technical failure. This necessitates a strong RET supplier presence in the community, supported by reliable means of conununication.
(6) The theft of photovoltaic panels can be a major obstacle to RET sustainability. Shell Renewables has anti-theft technology, but this increases the RET cost and complexity.
(7) RET carry certain environmental costs over project lifetimes, which planners must understand when comparing their benefits to those of non-renewable options.
(8) Successful RET programs are designed from a “customer needs” perspective, and not from technology supply imperatives.
Progressive energy policy for Africa
Khoza said that progressive energy policies cannot in themselves promote economic development, but can help create a framework for innovative programs to deliver resource efficiency and environmental protection benefits.
“In Africa, lack of access to modern forms of energy is one of the main constraints on economic development. Progressive energy policies need to overcome these obstacles within countries and regions. Economic growth in one developing country can stimulate neighbouring economies as well.
“Africa has much to offer the world, including vast mineral and energy resources, eco-based tourism, and fertile tracts of land for agriculture. Any First World focus on unleashing this potential through investments in the countries of Africa must be matched by full accountability for the responsible management of the continent’s resources.”
Task Force should condemn subsidies
Toronto-based Probe International analyzes Canadian government and corporate investment in large hydroelectric dams, nuclear power stations and other energy megaprojects. Probe International is a prime mover in Canadian and world campaigns to stop the Three Gorges megaproject in China.
Probe’s policy director Gráinne Ryder told Natural Gas Market Report that “we are quite skeptical about the G8 Renewable Energy Task Force. Most governments support conventional central station power plants, and some, including Canada, also promote nuclear energy. They fear huge stranded costs if they open their system to competition from private interests in renewables and high-efficiency natural gas fired combined cycle and cogeneration plants and other appropriate technology.
“Probe International and other safe energy groups have told governments for years that one of the biggest obstacles to the spread of renewables and other advanced energy technologies is state monopolies and subsidies for large hydro dams, nuclear power stations, and coal-fired generating plants. Yet governments are still pushing these old style developments onto the developing world as market forces and public opposition are driving them out of business in the G8 countries.
“From my first hand experience in Southeast Asia and elsewhere on the continent, it is clear that Asian governments don’t yet see renewables as anything more than supplemental suppliers to central energy monopolies. As such, renewables are not yet allowed to compete for customers.
“In Canada, CIDA and the Export Development Corporation are still subsidizing the expansion of large scale hydro dams and nuclear power in China and elsewhere in the developing world, because it helps keep Canadian companies in business overseas when their market is shrinking at home and they can’t attract private capital.
“The Task Force should call for an end to subsidies for conventional central station and nuclear power plants. It should also recommend the introduction of competition in electricity markets. May the cleanest, lowest cost, highest quality service providers win!”
Ryder concluded that “Shell’s commitment to sustainable energy must extend to clean up the environmental degradation its oil extraction operations have left behind in Nigeria’s Ogoni region and elsewhere.”
Categories: Probe International in the News
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