energy & climate goals 2020/2030 challenges of low-carbon€¦ · energy & climate goals...

Energy & climate goals

2020/2030

Ivica Krešić, Director, Financial advisory services

14.11.2014.

Challenges of low-carbon

economy

Oil & gas sector overview 3

• Market overview with price implications on

the development of renewable low-carbon

economy

Low carbon challenges 14

• Brief overview of reneables sector trends

and main challenges

Contents

2 © 2014 Deloitte Central Europe

Oil & gas sector

overview

Ivica Krešić

14.11.2014.

2030 supply and

demand expectations

3

Global liquids supply increases 26%

4

0

20

40

60

80

100

120

1990 1995 2000 2005 2010 2015 2020 2025 2030 2035

liquids supply

million barrels per day

Source: EIA, Annual Energy Outlook

Projections History 2010

OPEC

Other non-OECD

OECD Americas

OECD other

42%

20%

35%

3%

40%

19%

35%

6%


Source: BP plc, Statistical Review of World Energy 2009; DOE,

International Energy Outlook 2009

The global oil picture and the demand for oil


Source: Energy Information Administration

Global oil infrastructure — Potential risks

World’s key chokepoints for oil transportation


Source: BP Statistical Review of World, Energy, June 2013

Global oil infrastructure – Trade movements


8

$94

Crude Oil

$154

Gasoline

$404

Cola

$144

Bottled water

$676

Beer

THE PRICE OF CRUDE OIL AND GASOLINE COMPARED TO OTHER COMMON PRODUCTS

Relative Price of Oil significant to consumer incomes

$ 145

Milk

Sources:

• Milk, Gasoline prices: U.S. Bureau of Labor Statistics

• Crude Oil Prices: EIA

• Ethanol: Bloomberg

• Beer: Beerinstitute.com

• Bottled Water: Walmart.com, considered for Nestle as it has ~50% market share in 2012 (IBIS report)

• Cola:

http://www.humuch.com/prices/CocaCola-Single-Bottle-20oz500ml/United-States___USD__/40

http://www.howmuchisit.org/how-much-does-coke-drink-cost/s

$133

Ethanol


Bridging the cost disparity gap with fossil fuels

• Weak carbon price signals and weighty fossil fuel subsidies are the two biggest

obstacles to grid parity

• Carbon prices don’t reduce cost of renewables, they increase cost of fossil fuels

• Finland, The Netherlands, Sweden and Norway have

had carbon taxes in place since the 1990s

• Australia’s carbon tax has new builds in wind at

AUD$80/MWh compared to $143 for coal and $116 for gas

• Neither the US nor Canada have national initiatives, but

each has various mechanisms in states and provinces

• Google.org found that a $30/tonne carbon price combined

with optimistic breakthroughs in a range of renewable

technologies could, by 2030

– Increase US GDP by $182 billion

– Add 1.5 million new jobs

– Reduce GHGs by 22%

– Decrease household energy bills by $761/year



Global gas reserves / production ratio decreasing



Trade movements may imply more complex geopolitical

implications


U.S. gas vs. global crude oil prices

0

5

10

15

20

25

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

$ per MMBtu

Natural Gas - Henry HubSpot

Source: Energy Information Administration, U.S. DOE.


Enduring the “shale revolution”

• The IEA says a “golden age” of gas is upon us

• Continually improving technology and operational procedure has revealed

roughly 630 trillion cubic feet (Tcf) of gas in the US

• According to a US Energy Information Agency (EIA)

assessment of 32 countries, total recoverable global

reserves are estimated to be more than ten times that

amount

• Immediate concern: low prices artificially depress

electricity prices and lower returns while creating a

competitor in gas-fired generation

• This could also complicate the potential of gas to act as

a “bridge” to a low-carbon future

• Investors should build strategic flexibility into their plans to

more quickly and more effectively take advantage of emerging

opportunities


Low carbon

challenges

Ivica Krešić

14.11.2014.

Trends and

challenges

14

Weighing infrastructure investment

• Total global new investment in renewables rose 17% in 2011 to US$257 billion

• Including large hydropower, this was US$40 billion more than in fossil fuels

• But coal is cheap and still a threat

• Natural gas could prove most attractive in transportation

(a pillar of the Third Industrial Revolution)

• Biggest short-term infrastructure need is the smart grid

• At $13.9 billion, investment grew by seven per cent in

2012, and more is planned

• Progress is mostly in the control of regulators

– Europe currently stalling large-scale investments

– Negative business cases expected to achieve little

more than increases on distribution tariffs

• Existing utilities and other conventional energy producers

need balanced generation portfolios

– Spread risk

– Minimize pain of transition


Navigating the subsidy environment

• Small-distributed capacity investment is common for residential solar PV

projects less than 1 MW

– $72.8 billion in 2012

– Germany leads this category, followed by Italy and Japan

• Use of stock markets to finance renewable energy has

declined significantly

– High of $25 billion in 2007, down in 2012 to only $4.6 billion

• $1.7 billion (37%) in solar

• $1.3 billion (28%) in wind

– China and the US lead in this category

• At $5.6 billion in 2012, venture capital and private equity

attract the least amount of renewables investment

– As an indicator of innovation, it’s discouraging, having fallen 34% from 2011

and 52% from its 2008 peak of around $11.8 billion

– 78% occurs in the US


Coming to terms with “energy democratization”

• Mechanisms like feed-in tariffs have long enabled individuals to install small-

scale solar technology at their homes and businesses and sell excess power

back into the grid

– In Germany in 2011, half of the country’s 53,000 MW of installed renewable energy was

locally-owned

• For existing utilities, this trend poses a threat to existing,

centralized business models

• Utilities are still going to be the best sources of information

and knowledge on how to manage power

• Need to prepare for the transition to a market where

centralized power generation and distribution is less in

demand

• The desire of citizens to participate in the energy value and

supply chains is bound to be offset by their comparative lack of

knowledge and experience with energy systems

• In a more energy-interconnected world where that knowledge and experience

do in fact exist, the opportunities to build a business on them could well be

limitless 17 © 2014 Deloitte Central Europe

Technological maturity of renewables

Source: Enerdynamics Corporation

EGS Geothermal and Hydrokinetic renewables still in the R&D phase


Availability of resources and corresponding environmental

impacts


Although the most affluent, solar power is still relatively costly


Solar power levelized cost


Solar power represents the most costly from levelized perspective, which indicates

the need for further research


Levelized costs per renewable energy source


Hydro power remains the most cost efficient, although not always „green”


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