Why Asia will drive transformation of Australia's energy and transport systems
The International Monetary Fund projects that GDP growth in South Asia and the Asia-Pacific region will outstrip all other regions globally, and underpin global growth, in the period to 2022 (IMF World Economic Outlook 2018).
Physics and arithmetic dictate that if Paris/COP21 targets are to be achieved, across developing Asia the historic connection between GDP growth and fossil fuel consumption will have to be broken as this growth is delivered.
And if that is correct, it reduces Asia’s energy choices down to three – nuclear, fossil fuel with carbon capture, and renewable.
Across much of the ASEAN region, conditions are ill-suited to very large-scale renewable energy production - comparatively poor solar and wind resources, scarcity of land (and competing uses including food production, urbanization and population growth), and monsoonal conditions that are likely to intensify as a consequence of global warming, are all factors.
Carbon capture and nuclear waste storage are, arguably, not realistic options at large scale.
Assuming CCS technology can achieve commercial viability, much of the ASEAN region is seismically active, unsuitable for carbon storage on the huge scale required.
Recent evidence from the nuclear industry in established markets such as the UK, Europe and Scandinavia, and current global tensions concerning potential resurgence of global nuclear proliferation risks (including in North Asia and the Middle East), suggests plans to implement wide-spread nuclear power generation capacity across the Asia-Pacific region would encounter significant obstacles.
Neither nuclear or CCS options should be entirely ruled out, but for present purposes it is probably reasonable to consider them - on economic and geopolitical grounds - likely to be minor players at best in the low-carbon energy solution mix needed throughout the Asia-Pacific region.
It follows that industry and policy-makers must inevitably consider what might be possible with renewables.
Can Asia-Pacific regional growth and energy security really be built on a renewable energy platform?
One of the democratizing aspects of the renewable energy revolution is that it increases the options available for nations with respect to energy supply and energy security. Although nations within the tropical belt in the Region may not enjoy solar and wind resources of the quality of those found in other regions, all have some (and in some specific sub-regions, considerable) solar and wind, as well as – in some cases - geothermal and hydro resources.
An energy security strategy built around renewable energy would enable all countries in the Region to optimize their energy self-sufficiency, by building out their solar, wind and other renewable generation to the extent that is economic, having regard to resource efficiency and land use competition (particularly for food production).
At the same time, physics, economics and demographics are such that many nations in the Asia-Pacific - particularly those developed economies with greatest energy intensity such as Japan, South Korea and Taiwan - cannot meet their own energy requirements entirely from indigenous renewable sources.
Singapore, given land scarcity, is an example that helps to illustrate the generalization. Singapore’s SMART joint venture with MIT has developed analysis showing that adoption of fully-autonomous vehicle (AV) systems in the city-State would result in a reduction by 2/3rds in the number of vehicles in Singapore – from 900,000 to 300,000 – each AV travelling around 150,000kms per year.
AVs will be electrified (battery-electric and hydrogen fuel cell electric). If the energy for these 300,000 AVs is to be zero-carbon (and assuming no nuclear or CCS is possible in Singapore), can Singapore itself provide sufficient renewable energy?
The total energy required to operate those 300,000 AVs would be of the order of 7,695 GwH per year (based on European data suggesting an average of 171 watt/hours per km) – new consumption equivalent to 15.5% of Singapore’s total consumption in 2017.
To supply just this new transport system energy from Singaporean solar (1,629 kwh pa peak, or around 14% capacity factor) would require land area of 12.5 square kms, 17.4% of Singapore’s land mass. To supply Singapore’s entire electricity need (48.6TWh pa), plus the new power needed for the 300,000 fleet of AVs, would require a land area 130% the size of Singapore.
Across the Region, individual nations’ indigenous renewable energy resources vary, but the over-arching reality is the same. The countries of the Region cannot produce enough renewable energy to supply their own needs; it will be necessary to supplement domestic resources with imported renewable energy.
LNG's stellar growth illustrates what is likely to happen with 'liquid renewable energy' - renewable hydrogen
It is easily overlooked that in the 1960s and 1970s, there was no international LNG industry. Natural gas was transported by pipeline, not ship; international trade was limited to regions connected by pipeline.
Commercialisation of liquefaction technology in the 1970s transformed the global gas industry, expanding and merging offtake markets, by enabling ship-borne trade in gas.
While oil remains by far the largest primary energy source in the major Asian economies, reliance on gas for power generation has skyrocketed in recent years. Singapore now relies on gas for 95% of its power, while Japan’s gas consumption was around 24% of total energy in 2016, and South Korea’s 14%.
The point to be taken here is that the Asia Pacific region’s reliance on gas developed extraordinarily quickly, over about 40 years once liquefaction of gas became commercial.
Renewable energy can now be stored as hydrogen gas, and liquefied – as ammonia, liquid H2, Methocyclohexane (MCH), or even methanol - for bulk international transportation. Technology, and techno-economics, have now enabled international supply chains for liquid renewable energy.
Now that renewable energy can also be liquefied, through the period 2020-2050 a replication of gas’s rate of growth by liquefied renewable energy is very feasible. The next phase of Asian energy transformation – adopting zero-carbon energy systems - can be built on renewable energy, imported at very large industrial scale, just as LNG is today.
In some instances – Northern Australia to Indonesia and East Timor may be examples – HVDC interconnection may yet be feasible to link consumer and supply markets for renewable energy. Bulk liquefaction of renewables will supplement direct electrical inks.
But liquefaction means supply need not be constrained to reqions connected by electricity networks. Liquefaction enables distributed renewable energy distribution, storage and consumption.
Led by Japan, Korea and Singapore, major policies and programs are being implemented across the Asia-Pacific Region to de-carbonise, to reduce reliance on nuclear energy, and to reduce reliance on imported oil.
Japan's Hydrogen plans get very real
Japan in particular has led research and development efforts in relation to ‘Energy Carriers’, the explicit goal of which is to establish industrial scale supply chains for carbon-free energy import into Japan – ship-borne, bulk, industrial scale, and zero-carbon.
Following the Great Tohoku earthquake and Fukushima nuclear accident in March 2011 Japan’s long-standing hydrogen aspirations took on a new level of importance and priority. With nuclear generation forecast to recover eventually to a maximum of 21-22% of electricity supply, down from pre-Fukushima levels of 33%, pre-Fukushima plans to increase nuclear to 50%+ were off the table. Nuclear is no longer the sole answer to energy security or de-carbonisation for Japan. A new way forward for Japan’s energy system had to be found, and hydrogen is seen as a major part of the solution.
Japan’s ‘Hydrogen Society’ plans have as their ultimate target the creation of a hydrogen-based economy; conversion of the Japanese economy – power supply, industrial production and transportation – to carbon-free, hydrogen-based systems.
Led by the Cabinet-level Cross-Ministerial Strategic Innovation Program for Energy Carriers (SIP) – one of 11 major national strategic initiatives, involving a multi-billion Yen government-industry program of research, development and demonstration – Japan has since 2012 dramatically accelerated Hydrogen Society planning.
In 2017, Japan committed to redoubling these efforts. PM Shinzo Abe directed his Cabinet to accelerate planning for the ‘Hydrogen Society’, and to produce by the end of 2017 a new ‘Hydrogen Strategic Plan’, formally adopted on 26 December 2017 by the Ministerial Council on Renewable Energy, Hydrogen and Related Issues. Through ‘…achieving a carbon-free society under the strategy, Japan will present hydrogen to the rest of the world as a new energy choice and will lead global efforts for establishing a carbon-free society …’.
Korea similarly has identified the ‘Hydrogen Economy’ as a central part of its economic and energy plans, and as a result of more than 15 years’ intensive investment has emerged as a leader in hydrogen fuel-cell technology in the transport sector.
Australia's new, zero-carbon energy role in the Asia-Pacific
What can Australia take from these energy market dynamics among our northern neighbours – Australia’s major strategic and trading partners?
Australia’s 2nd and 3rd largest trading partners, along with the developing economies of Asia – the engine of global growth - are rapidly moving towards energy and transport systems based on carbon-free energy.
Nuclear and CCS are not the answers (except, perhaps, to a limited extent), and geography and demographics mean countries in the Region cannot physically produce enough domestic renewable energy.
The answer seems obvious; the economies to Australia’s immediate north, supporting a population approaching 700 million in ASEAN alone – and over 2.2 billion including Japan, Korea and India - need to import a lot of renewable energy.
Australia’s LNG export industry is the most obvious and recent precursor.
Liquid renewable energy is poised to replicate LNG's meteoric growth
In the 40 years since liquefaction of gas became economically viable, Australia’s economy and energy sector have been transformed by LNG export.
We are now at the same stage with renewable energy. Renewables can be gasified, as hydrogen, then liquefied for bulk export.
If Australia plays its cards right, this means Australia’s immense solar and wind resources, the vast bulk of which will never be needed for Australia’s domestic economy, can be commercialized and exported via renewable hydrogen supply chains to where they are most needed, in Asia.
Shipborne trade in renewable energy - stored as hydrogen and liquefied for bulk transportation - means that solar and wind resources currently stranded in Australia without any prospect of an adequate domestic market, will find a massive potential market with our northern neighbours.
As with our gas markets, Australia’s domestic electricity sector will become linked with Asia. The resulting scale, and its implications for Australia, are immense.
Australia’s National Electricity Market (NEM), at about 54GW installed capacity, is dwarfed by the cumulative electricity demand in Asian markets. Japan alone has 228GW installed capacity.
Beyond electricity supply, renewable hydrogen will also fuel transport and industrial processes across the region, vastly increasing the market scale for Australian solar and wind.
The NEM, viewed in this context, is actually a minor market for Australian renewables.
Linkage with Asia will mean that economies of scale within the NEM will no longer constrain renewable development in Australia. The market for those huge resources will swell exponentially - broadened and deepened by Asian electrification, denuclearization, and decarbonisation.
Following the rapid cost reduction trajectory demonstrated by solar PV and wind power generation technologies, energy storage technologies are now rapidly falling in cost and fundamentally changing electricity and transport markets in the process.
Energy storage enables more renewable energy deployment; more renewable generation will accelerate the scope for energy storage at every-increasing scale - a mutually supportive cycle that will more and more rapidly undermine the economics of fossil fueled electricity, transport and industrial production.
In the energy sector, production and deployment of battery storage at scale is rapidly increasing the confidence of investors, system operators and regulators, laying the foundation for rapid expansion of storage capacity as an essential feature of electricity system design. An outcome of this is the need for rethink ‘System Reserve Capacity’ needs, the economics of gas-fired peaking power supply, and the economics of ancillary services. The South Australian Tesla ‘Big Battery’ is a prominent example.
Recognition is dawning, that the historic model of instantaneous production and consumption of electricity has been replaced. In the new energy model, production occurs when resources (solar, wind) are available, and energy is stored for dispatch as required.
Sooner or later – most likely sooner - renewable energy and storage will become the new ‘baseload’. Storage will become ubiquitous – because solar and wind with storage are already, or will shortly become, the most cost-effective forms of dispatchable power supply.
This also points to fundamental changes to Australia's - current high-risk - liquid fuels 'strategy'
Not yet widely appreciated is the extent to which the change towards an energy storage-based electricity system will also change Australia’s transport sector:
When low-cost, domestically produced renewable energy is stored for use as needed, it will make little sense for Australia to maintain transport and freight systems based on imported liquid fuels. Transport and freight systems will logically draw on the same stores of low-cost renewable energy produced for the electricity sector
The internal combustion engine will rapidly give way to electric (battery-electric and hydrogen-electric), accelerating the change from imported liquid fuels to domestically produced renewable 'fuels'. New business models will be enabled by electrification, digitization, and availability of low-cost, carbon-free energy on demand.
This makes all the more sense when one considers Australia’s aging, limited, domestic oil refining capacity, incapable of producing high-purity fuels mandated in other developed economies. Australia's diesel imports increased over 200% in the 5 years to 2016.
The costs and risks for Australia of persisting with liquid hydrocarbon fuels imports – especially diesel - is increasing.
Electricity and transport energy markets converge - unlocking massive new pools of 'green' investment capital
As this trend towards very large renewable energy development becomes more and more evident, two huge pools of capital investment – for power generation and transport respectively - will converge.
The power and transport sectors - more or less separate since coal-fired power on the one hand and oil-powered transport on the other became the global norms – will become one.
Battery electric vehicles and domestic and commercial battery storage systems are the obvious early example of this convergence.
Following the early glitz of Tesla, recent announcements by automotive sector leaders including Ford, Jaguar, Volkswagen, General Motors and German manufacturers of increased investment in electrified vehicle platforms using battery-electric, hybrid and hydrogen fuel-cell electric drive trainssignal that the pace of convergence is accelerating.
As investment scale grows, so will interest of long-term investors in the infrastructure and business models that emerge.
Green bonds, multi-lateral development funds, sovereign wealth funds, pension and superannuation funds, university endowment funds - increasingly seeking long-yield, infrastructure-style investments in renewable energy; insulated from carbon price risks, oil price risk, and from the strategic/geo-political and volatility risks associated with oil – will continue to move capital to infrastructure and business models built around zero-carbon energy and storage.
In summary ...
The stage is set for a fundamental transformation of Australia’s power, transport and industrial energy systems, drawn (however reluctantly) along by the tidal changes occurring in Asia, enabled by technology for large-scale storage and international shipping of renewable energy in liquid hydrogen form.
Renewable hydrogen demand in Asia – met by liquefied Australian solar and wind resources developed for industrial scale export – will facilitate this transformation.
Lest the question go unanswered – ‘What about coal?’ - coal will survive to the extent markets and investors determine it should. Away from the political and ideological noise of the climate change debate, it is economics and technology that continue to steer progress.
Let technology, economics and markets do their work.
Asia will drive Australia’s next energy export industry, and the transformation of Australia’s energy systems.
54.4GW installed capacity as at December 2017. https://www.aemo.com.au/Electricity/National-Electricity-Market-NEM
In the 5 years to 2016, Australia’s diesel imports increased 203%. Australian Petroleum Statistics, September 2016
See for example ‘Ford plans $11 billion investment, 40 electrified vehicles by 2022’, Reuters 15 January 2018