Tuesday 19 November 2013

Energy Storage: a review from Berlin.

I am glad to find myself in Berlin this week to attend the 8th International Conference on Renewable Energy Storage. This is the core European research and industry event on energy storage. There is a balance of excellent academic and industry speakers but at any instance anyone can notice that this event is dominated by German activity. The German academia and German industry are serious about energy storage... Storage for electricity grid stability, for industrial energy management, for households, for off-grid isolated consumers and on-grid consumers and most importantly storage for vehicles.

Norwich Business School is part of the event with 2 studies. A first one on the "Utility-scale energy storage for the regulation of wholesale electricity prices" and a second one on "The multiple role of energy storage in the industrial sector". The first study is a detailed examination of the arbitrage value of electricity storage for the Greek electricity market. The core theme of this work is currently developed through an institutional innovation framework for the UK electricity market by our NBS team.

The second study is the result of a collaboration with our colleagues in the Technological Education Institute of Piraeus in Greece and the Institute of Power electronics and Electrical Drives of RWTH Aachen. Nevertheless, this project would have never taken place without the contribution of our industrial partners Systems Sunlight SA in Greece and AEG in Germany. We looked into the potential revenue streams for the development of demand management and energy storage for energy intensive industries. For the first time commercialisation analytics were combined energy billing savings, participation in the spot market and a lookout for potential governmental subsidies that the value of storage is worth for.

In fact this second study has inspired our research group for further discussions for the development of a larger consortium that will enable us to apply at the forthcoming EU Horizon 2020 funding competition. Being at this conference is really the right place to explore the dynamics of possible collaborations. Simply put, most of the potential industry and academic partners we would wish for are already here. Clearly the contribution of NBS in an engineering intensive consortium is essential. Our partners do not expect us to develop technological R&D. They do however, expect us to develop innovative architectural and institutional business models that will enable mainstreaming of energy storage. They also expect us to inform policy making and inform governments about the financial and utility value of energy storage.  

Following from that last issue, our German colleagues and the panellists at the conference's sessions discuss quite extensively that funding for energy storage should not for much longer be directed to R&D but to market implementation. They are looking for direct subsidies similar to those that started-up the markets for wind energy and PV-panels. Perhaps the UK's subsidy for electric vehicles is already doing that?


Tuesday 15 October 2013

Carbon reporting became mandatory!

The UK Government has regulated for carbon (ore more precisely - carbon dioxide - CO2, methane -CH4, nitrous oxide - N2O), hydrofluorocarbons - HFCs, perfluorocarbons -PFCs and sulphur hexafluoride - SF6) reporting to become mandatory since the beginning of October 2013. The legislation was introduced as part of the Companies Act 2006 (Strategic and Directors Report) Regulations and requires companies to include in their Directors' report carbon disclosures for the financial years ending on or after 30 September 2013. The legislation affects all UK quoted companies which essentially includes all UK incorporated companies whose equity share capital is listed on the Main Market of the London Stock Exchange UK or in an EEA State, or admitted to trading on the New York Stock Exchange or Nasdaq. 

Relevant guidance has been published under the broader "Environmental Reporting Guidelines: Including mandatory greenhouse gas emissions reporting guidance" scheme. The current guidance allows a lot of freedom with regards to the format and layout that the reporting should take place. Therefore companies that are already using the Greenhouse Gas Protocol Corporate Standard  or even ISO 14064-1 will not be surprised by the requirements. However, it is expected that the reporting framework will be reviewed by 2015 and 2016 with the intent to enhance its scope. 

This development can be criticised widely; lack of mandatory and comparable reporting framework; lack of commitment or even strategic reference to reducing emissions rather than just merely reporting them and the list can go on.  But the fact is that this initiative puts the UK in the lead of climate change action in the world since this is the first and only scheme currently operational in the world. The consequences of this regulation will not be limited in the UK. Quite clearly the scheme involves companies with a strong presence in international stock exchanges and their reporting in one region (UK or even the EU or EEA) will not leave unaffected their activities in the rest of the world. 

Some may even argue that the majority of companies affected were already reporting their greenhouse gas emissions. But, Delloit's "UK Carbon Reporting Survey - Lip service or leadership?" shows that this is only partially true. Indeed a very large number of companies choose to report on their emissions but  only a fraction of them does so in a transparent, accurate and complete way. Very rarely companies provide details about their emissions calculation methodologies or have their reporting verified by external auditors.

Nothing can be improved if it's not measured. The Government has made a first step in the right direction and it looks like more developments will follow. 






Monday 12 August 2013

Capacity market and strike prices


Earlier this summer the UK Government issued a press release about the new energy infrastructure investment and reforms vital to “keeping the lights on and emissions and bills down”. In more detail, the Government expects to unlock £110 bn of investment and secure 250,000 jobs until 2020; it expects to achieve this with two main policies. The first is the Strike Prices for renewable technologies, which aims to reduce exposure of renewable generators to volatile energy prices. The second is the introduction of a capacity market, which the Government hopes will incentivise a new generation of gas plants that will be needed to support the increased role of intermittent sources.

These policies supplement the Electricity Market Reform which introduced the Contracts for Difference (CfDs) and is part of the more comprehensive Energy Bill. The strike prices for renewable energy recommended by the Government will shield investors from volatile wholesale electricity prices and in this way encourage investment. The strike price for offshore wind is £155/MWh for 2014/15 declining gradually to £135/MWh in 2018/19 while the respective figures for onshore wind are £100/MWh and £95/MWh. Solar PV projects are set to receive £125/MWh declining to £110/MWh for the same period. There are strike prices for most types of renewable sources apart from tidal range, which, according to the Government, will be further considered by DECC.

A certain degree of number-crunching is required to compare the CfDs with the existing RO and FiTs, but the Government claims that the support given by CfDs is in line with that offered by the existing schemes. The main advantage now is protection against wholesale price volatility. Price volatility and uncertainty over climate change and renewable energy targets have been blamed for deterring investment worth billions of pounds in the UK. This is not a UK specific issue, but is reported across the EU, where slow economic recovery has made governments hesitant to commit to new targets. It can therefore be assumed that if the financial support offered by the UK Government removes uncertainty in addition to being similar to existing schemes, the results will be positive.

The predicted increase in renewable energy in the UK's electricity fuel mix has forced the Government to introduce a capacity market, whereby certain generators are paid for the essential service of stand-by operation. The increased role of intermittent generation makes this auxiliary service particularly valuable for the system operator, and the introduction of the capacity market acknowledges that. Quite disappointingly, Davey was fast to name gas-fired power plants as the main benefactors of the capacity market. Plants that could use renewable energy to offer capacity services have not been mentioned and they will be examined on a case by case basis by DECC. Unfortunately, that means that there is no news for medium/large-scale hydro and tidal range plants. Their dual role of renewable energy generation and storage has been overlooked in favour of gas (and the Government's ambitions for a shale gas sector boom in the UK).



Sunday 30 June 2013

Shale gas for the UK?

It's already been a few years since shale gas started making headlines in mainstream media. Despite some first doubts now it is clear to everyone that shale gas is a "game changer" for the US energy supply. Increased gas supply meant that prices plummeted and for the first time the link between oil and gas price was broken. Gas is a very flexible resource as it can be used for power generation with very efficient combined cycle gas turbines, for industrial processes, for domestic heating and cooking or even for transport. When burnt it is cleaner than any other mainstream fossil fuel; therefore the benefits of lower gas prices can be felt across every sector of the economy. Low energy prices make the US an attractive place for energy intensive industries, some of which have already started relocating. 

It all sounds rosy about shale gas but leaving open space for the industry to operate freely (see lack of regulation) meant that shale gas operations caused numerous light tremors and in some cases were accused for water contamination. Drilling for shale gas makes use of hydraulic fracturing which is the source of all the aforementioned problems.

What about shale gas in the UK then? Do we have enough resources here? Can we drill for them in ways that will control and limit the environmental impact? Should we just let shale gas where it is because more gas will only keep us hooked to fossil fuels for longer? Recent reports show that although the UK is not among the top shale gas countries outside of the US, the indigenous reserves are not negligible. Even more recently the British Geological Survey estimated the total reserves to be at 40 trillon cubic metres (tcm).

I'll straight-forward say that if we can control and limit the industry's environmental impact then there is no good reason for not drilling. Why?

With UK's conventional gas extraction being pretty low while US LNG is ready for shipments there is no doubt that the UK gas intensive industry will sooner or later start importing. Centrica already signed a 20+10 years contract for gas deliveries starting in 2018. That's shale gas converted to LNG. Although I have no proper estimations it is fair to assume that the embedded emissions of imported LNG from shale gas is higher than indigenous LNG. I wonder how the embedded emissions comparison looks like for imported LNG from conventional Qatar's sources and indigenous shale.

Will a success story for shale gas lock-in the UK in a high carbon (gas) future? There is no need to go very far to realise that this is not necessarily the case. The US, with huge coal reserves and production made a fast shift as soon as a new and better resource (shale gas) became available. In the same way, the UK will shift away from shale gas as soon as other, better resources (wind? wave? nuclear?) become available.    

The government should be wise enough to regulate the environmental impact of the industry, arrange for community compensations and do not favour the gas industry against the low carbon energy industries.


Saturday 11 May 2013

Will the lights go out in the UK?


Quite recently Ofgem's outgoing CEO Mr Buchanan, warned us about electricity shortages and rising energy prices. For the limited attention span of busy media and public that may have come as a surprise. But it wasn't really one. Mr Buchanan, was in fact following up from Ofgem's earlier press release on the same issue. Ofgem reported that the electricity margin could fall from 14% in 2012 to the dangerously low 4% in 2015/16. But how did we arrive here?

In brief, the dirtiest UK coal-fired power plants are shutting down as a result of the Large Combustion Plant Directive (2001/80/EC). No, the EU is not to blame. The Directive was rightly agreed to control the very harmful SO2 and NOX emissions. Notice, it was agreed in 2001 and by the way it succeeded similar Directives of 1994 and 1988.There was plenty of time to prepare. Scottish Power's Cockenzie (1200MW), E.On's Kingsnorth (1940MW) and RWE's Didcot A (2000MW) are taken off the grid. That's a significant capacity loss but there are several other coal-fired power plants remaining in operation in the UK. Tighter environmental regulations will probably take them out of the market by or before reaching their lifespan. New coal-fired plants in the UK will have to be fitted with CCS systems which do not exist yet. Germany seems to have different views on that matter planning to open about 12GW of coal-fired capacity by 2020.

Germany has to do that to substitute the 23% capacity loss their will suffer after shutting down all their nuclear power plants by 2022. Which brings me to the next problem of the UK's power sector. That of underinvestment in nuclear power. In fact, there's no investment at all. After all nuclear players deserted the UK's "new nuclear scene" we're left with EDF demanding guaranteed prices for life. The Government tries to offer that in a politically correct way and in the meanwhile pushes back to 2030 (instead of 2025) its plan for 16GW of new reactors. EDF is probably less in a hurry than the Government should be. While any new capacity is being delayed the Government will have to choose between switching the lights out or extending the already extended lifespan of the existing nuclear fleet. Did I mention that nearly all of the UK's operating nuclear fleet belongs to EDF?

This stranglehold was identified in 2009 in a DECC's report "The UK Low Carbon Transition Path". The Analytical Annex, found low levels of capacity margin and significant expected energy unserved by 2025. It seems that in 2013, things only look worse.

Let me then return to the initial question. Will the lights go out? As someone who believes that power-cuts are entirely unacceptable at these times and part of the world I'll say that it won't happen. It is not my faith in existing policies that is responsible for this optimism. I just tend to believe that since the capacity exists (even if retired) it will be used for generation. We may also need to import as much electricity as possible from the continent. We may finally need to use more open cycle gas turbines than we planned.

Quite shamefully, we'll also have to bare the environmental and financial costs for these choices. The government promised to act over the looming energy gap but they don't seem to have a clear plan, let alone a plan B...


PS: Even though it certainly reads like it, I'm not frustrated only with the Coalition government. It doesn't look to me that the previous Governments treated this matter with the sense of urgency it deserves either.

Thursday 28 March 2013

Is your company a challenger or a leader?

With so many companies already stepping up efforts to adopt sustainable practices it is not a surprise that some are doing better than others. But, how is sustainable practice adoption really measured? How do we actually know how well (or how bad) their performance is? Up to a large extend sustainability corporate performance is all about reputation. Even those tangible benefits that companies expect to achieve by engaging in sustainable practice are in fact just a matter of managing their reputation. This doesn't necessarily mean that companies only talk the talk but rather that they talk the talk at least as much as they walk it.

Brandologic teamed with CRD analytics to map the sustainability performance and the stakeholder perception of 100 prominent world companies. The evaluation classifies companies in one of four categories Challengers, Leaders, Laggards and Promoters in what they call Sustainability IQ Matrix. 
Leaders are those companies that perform well in ESG (Environmental, Social and Governance) and are perceived to do so by their stakeholders. Challengers are companies that even though they perform well, they do not manage to get enough credit for their performance. In contrast, Promoters are those companies that get more stakeholder credit than what they deserve and finally Laggards are companies that do not take a keen interest in ESG.

Apart from the difficult to read graph pasted above, there are industry specific graphs that do well in providing you with a clearer picture. Not surprisingly, I've taken a keen interest on the one focusing on the energy (oil and gas) sector. There I've noticed that Exxonmobil, Shell, BP and Chevron are actually doing bad in managing their reputation even though they're not that bad in their sustainability practice. Obviously,
Deepwater Horizon accident must have something to do with refreshing the oil and gas sector's bad name (and unfortunately it's not the only one...).

There's also a category for industrial companies and transportation in a rather inconvenient joint presentation. I'd rather focus on the airlines here and let you know that they all perform badly. However, some manage to convince their stakeholders and their credentials. American Airlines and Lufthansa seem to get more credit than they deserve even though they do not perform significantly better than British Airways and even Japan Airlines (which actually performs the worst of all). As far as transport is concerned you'd probably prefer to use UPS than FedEx based on their ESG performance. Mind that even though UPS performs a lot better than FedEx they receive less credit. Something for the UPS management to pick up urgently!

In the detailed methodology section of the sustainability leadership report  I've noticed that Environmental, Social and Governance performance are not weighted equally. Instead, the main weight (50%) is on social responsibility with the rest (50%) shared between Environmental and Governance. Makes me wonder how the results would look like with equal weights or even more if Environmental was on the 50% scale.   

Saturday 9 March 2013

(Why I do not like) nuclear fusion...


For anyone interested in energy matters at an international scale, ignoring the occasional noise about nuclear fusion is not easy. Lately there's been even more of it as Nature reports that South Korea in collaboration with the US Department of Energy's Princeton Plasma Physics Laboratory. I could even risk saying that there seems to be a subtle race between the projects in Korea and ITER, the France based international fusion facility.

For ITER the EU is joined by India, Japan, Russia, China, South Korea and the US. Financing is roughly shared at 45% for the EU and 9% for each one of the other partners; the bill has already reached 15bn for a project which now looks like it will be completed in the late 2020s. There's plenty of time until then for plans to be reviewed again and costs to hike again. This is not criticism against ITER or nuclear fusion. Uncertainty is in the very nature of experimentation and that's exactly what ITER is; a large scale, very expensive experiment.

The title of this post makes it sound as if I really have something against nuclear fusion, when in fact I don't. I have nothing against it. There's nothing negative about a technology that promises to meet our ever-growing energy demand without serious environmental impact. However, I do not think that nuclear fusion will make any serious contribution to the world's energy needs until 2050 that is often linked as a milestone date for it.

Setting unrealistically ambitious targets for 2050 distracts public opinion, decisions and funding from real solutions. There are people (quite often even my students) who believe that there's no need to invest in renewable energy or nuclear fission (or anything at all for that matter) because nuclear fusion is just around the corner and will solve all of our energy problems. Could this belief be playing a role in public opposition against wind energy, I wonder? Could it be diverting funds from nuclear energy investment?

My intention is not to blame nuclear fusion for all that is wrong in the energy sector. I cannot escape to see though that it is misleadingly used as a panacea and that as such it may be making investment in real solutions a lot more sluggish. This is very dangerous in a period when under-investment is one of them main problems of the electricity sector in most developed countries. Public opinion as well is led to believe (very conveniently) that we can avoid wind turbines, nuclear power stations or even conventional thermal power stations simply because there are other means in which we can meet our energy needs.

Monday 4 February 2013

Sustainability reporting becomes mainstream

Just before the end of 2012 news about "Environmental reporting more than doubles" made headlines. There has only been little (if any) discussion about this issue which deserves more attention. To begin with, the data on which the news is based reflects on much wider sustainability and responsibility trends, rather than just "environmental reporting"; the latter is part of the agenda for responsible business.

The findings are attributed to research made by the Governance & Accountability Institute, (G&A Institute) which also serves as the data partner for the Global Reporting Initiative (GRI) in the US,UK and Ireland.

In detail, only 19% of the S&P 500 companies reported in in 2011 while in 2012 the reporting companies were 53%. Similarly, in 2011, only 20% of the Fortune 500 companies produced reports in contrast to 57% for 2012. It is therefore fairly obvious that sustainability reporting is being adopted by large corporations rather rapidly. It also becomes clear that for the first time companies that report are the majority.

So, does reporting provide reputational benefits for companies? 
G&A Institute's results show that although there is a positive association, the answer is not that simple. 58% of the companies included in the Newsweek's Green rankings are reporting; however, another 42% are not. The Corporate Responsibility magazine's list of the 100 best Corporate Citizens includes 47 companies that are not reporting. It's only the Ethisphere's list of the World's most Ethical Companies where 76% of those included are reporting. 

Apart from the direct reputational benefits for companies, they can be included in indices with a focus on sustainability and responsible citizenship. Most exchanges operate a number of such indices; the World Federation of Exchanges (WFE) reports that there are at least 75 such indices in the main exchanges internationally. So, are the reporting companies more likely to be included in the high profile indices for sustainable and responsible business? 

On this issue reporting seems to be a strong determinant. Out of the companies listed in Dow Jones Sustainability Index (DJSI) North America, 85% produce reports the vast majority of which (91%) are based on the GRI standard. The DJSI World is dominated by companies that report by 98%. Finally, the results are pretty similar with the NASDAQ OMX CRD Global Sustainability 100 where 97% report their sustainability performance.  

The benefits from reporting are generally intangible, since they do not translate directly into profits. However, it is important to see that the effort that companies put in developing that aspect of their communications is acknowledged. Any vagueness should be not be attributed to the market not picking up the signals but to the lack of a single definition or methodology for responsible and sustainable business reporting.

Companies may choose to  discuss their environmental and social impact in qualitative terms or disclosure quantified details about their resource management and emissions. Standards like the ones provided by GRI or the Carbon Disclosure Project (CDP) allow corporates and organisations to produce in depth reports. Selecting between a rough qualitative or a detailed quantitative approach defines the degree of commitment and the expected public acknowledgement that companies should expect.

Friday 18 January 2013

Carbon Capture and Storage: too hopeful?

Since I first heard about carbon capture and sequestration or storage (CCS) back in 2004 I felt like there was something inherently wrong about it. Perhaps it was this picture of someone cleaning the floor by swiping the dirt under the carpet that made me think this was simply not the way forward. In the meanwhile CCS  remained present in the climate change plans of many countries which count on it to reduce their emissions.

But if it is a bad idea then why should anyone care? This is not the right place to blame the coal lobby for promoting "clean coal" in order to lock the world in coal-fired electricity generation technologies. In fact not just the coal lobby but the world needs CCS.

The explanation requires us to take a step back in the energy supply chain. CCS at least initially means coal. Without an intention to praise coal's role it is hard to ignore that it supplies more the 41% of the world's electricity (IEA). The development of renewable energy has been rapid over the last decade but coal remains the single most important fuel for electricity generation. Proven, safe and cheap; but heavily polluting. In spite of efficiency improvements the world will only need more electricity in the near future as a result of transport, industry and household electrification. It is unavoidable that a major stake of this electricity will have to be generated in coal-fired power stations because a worldwide fuel mix change will take decades.

Coal is the most polluting, commonly used fuel but at the same time it is the cheapest and easiest to find. It is also the fuel for which we know our reserves will last the longest. Science tells us that the worldwide emissions of greenhouse gases need to be reduced if we want to avoid extreme climate change. If we cannot avoid coal, maybe we can at least avoid the consequences of burning it? The world needs hope.  

So, what's happening with CCS applications? The UK first launched a competition for CCS commercialisation in 2007. After EON withdrew plans for CCS at Kingsnorth power station it was time for Longannet to be cancelled in 2011. Was this a set-back for CCS in the UK? Yes it was, but the UK Government did not give up. A new initiative offering £1bn was set up and in late 2012 four projects were short-listed. Three of them applied for EU funding under the NER300 scheme but none was successful. In fact the Commission did not fund any CCS project at all citing as the main reason that member-states did not agree to cover funding gaps. The second round for EU funding is expected in 2013-2014 but the pot is only about €300m.

Like everybody else I'd like to think that CCS will work and allow us to use fossil fuels (not just coal) without having to suffer dangerous climate change or abruptly change lifestyle due to severe energy shortage1. However, it does not look to me like CCS development is progressing fast enough. In the meanwhile the world moves on with CCS-ready power stations. This often means as little as having some spare land next to the power station where the CCS systems could be installed when the technology becomes commercially attractive. CCS is not yet demonstrated to be technologically viable and this will not happen until the 2020s. Commercial attractiveness is a completely different stage though and one that may or may not be reached.



1There is no doubt that the world would face a severe energy shortage if we were to rely only on carbon neutral energy today.  

Sunday 6 January 2013

Ethical markets defy recession

Since the beginning of the financial crisis it has been assumed that the environmental and responsible business agenda would be pushed backwards. In fact, recession and the threat of it, were used in a number of occasions to justify lack of ambition in policy interventions. However, it seems that households, many of which are finding it hard to pay the bills, are moving to the right direction.

While the British economy was balancing between zero and negative growth, business in ethical goods markets was increasing. The results are consistent in a wide range of products and services. According to figures reported by Co-operative, ethical consumption was worth £47.2bn in 2011, a significant growth from £35.5bn in 2008 and £18bn in 2001. Specifically the market for ethically sourced groceries was worth £7.5bn, a growth of about 350% since 2000. Sales of domestic consumer goods promoting efficient use of energy grew by nearly 450% at the same time while over £1bn was spent in 2011 on "green cars".

The sustainable and ethical segment of groceries grew by 7.8% on the year to 2011. Ethically sourced fish and Fairtrade products championed this trend as sales were increased by 31.5% and 24.1% respectively. Apparently, when asked, 9 out of 10 consumers recognised the Fairtrade logo. In groceries, between 2010 and 2011 growth was strong in free-range poultry and eggs by more than 5%. However, the sales of organic products, while generally presenting a growth of 250% in the decade, followed a slight downwards trend between 2010-2011.

Co-operative's research also found that between 2000-2012 there was an increasing trend among people who reported getting engaged in acts broadly aligned with the ethical agenda at least once annually. Some examples include people who bought certain products primarily for ethical reasons (42% up from 27%), actively campaigned on environmental and social issues (24% up from 15%), felt guilty about unethical purchase (31% up from 17%), actively sought information about a company's reputation (33% up from 24%). However, the number of those who bought a product or service based on a company's reputation was slightly decreased (50% down from 51%). Also, the number of people who recommended a company on the basis of its reputation was reduced from 52% to 41%.

While there is no doubt that ethical business is growing it is now more than ever the combined efforts of retailers, governmental policy and consumer behaviour driving that growth. Take for example micro-generation (that is mainly domestic electricity generation) which grew by a staggering 286.3% in the year to 2011. This probably includes the boost in rooftop photovoltaic panels, for which the government used to provide generous subsidies. Moreover, the growth in green cars is influenced by the road tax scheme that provides tax breaks for low emission cars. Surely, the availability of affordable green vehicles helped as well. Similarly with groceries, all major retailers take pride in promoting sustainable and ethical goods. In conclusion, with the contribution of all stakeholders the performance of ethical markets remains strong.



This entry was re-posted at the blog of Norwich Business School at UEA.

Friday 4 January 2013

First post

Like everything else this blog had to start from somewhere. Following my resolution for 2013 here I am starting the Energy and Sustainable Business blog. I know that the title may seem as lacking focus to some of you. This is partly true as I did not want this blog to very specialised solely in Energy or Sustainable Business but rather in both.

At regular intervals, every fortnight I will post short entries about the energy and sustainable business news that grasped my attention. In this process everybody is welcome to comment.


Dr Konstantinos Chalvatzis
Lecturer in Business and Climate Change
Norwich Business School
University of East Anglia
Webpage: http://business.uea.ac.uk/dr-konstantinos-chalvatzis