Power under pressure: Can energy security, affordability and net zero still move together? | From Climate Week NYC

0:00We cannot forget these people because at the end of the day they are going to need 20x the amount of energy they're using now. And we have the choice now of if that energy is going to be from a clean, sustainable, renewable source or if it's going to be from fossil fuel based. Our max peak demand is about 45 gigawatts on our system. There's currently 125 gigawatts of new demand in the queue waiting to be connected. That is at the moment a large part data center driven. But just this summer, we've seen some real changes on the system. We've had a heat wave. We saw some changes in the demand pattern.

0:38And it's really driven some interesting questions for us about what the demand calves are going to look like, particularly over the summer in future, and how do we plan for that. HVAC products are about 30 to 40, sometimes 50 percent of the energy load in a building or in a home. Welcome to today's show brought to you by Engie. Your business has enough challenges. Energy shouldn't be one of them. That's why Engie builds tailored energy solutions around real business needs to support growth, strengthen predictability, and move businesses forward. Because real power comes from shared expertise and relationships that outlast the paperwork.

1:17Learn more at engieresources.com.

1:27Hello, and welcome to The Energy Gang, a discussion show from Wood Mackenzie about the fast-changing world of energy. I'm Ed Crooks, and this is the first in a series of special episodes from Climate Week NYC in New York. This first episode is a recording of a panel session that I led with three leaders from the worlds of energy business and policy. Here it is. Well, hello, everyone. Hello. Good afternoon. Welcome to this very special session of Climate Week NYC, which is being recorded as a podcast for the Energy Gang podcast. I'm Ed Crooks. It's a great pleasure to welcome guests here to the stage with me.

2:05Damalola Ogunbahi is the CEO and Special Representative of the UN Secretary General for Sustainable Energy for All. Hello, Damalola. David Calabrese is the Executive Vice President of Daikin US Corporation. Hello. Hello, David. And Kate O 'Neill is the COO of the National Energy System Operator in the UK. Hello, Kate. Thank you all very much for being here today. So, title of the session, the theme we're going to be talking about, talking about straight talking, the straight, of course, being the Strait of Hormuz and the impact that that's had on the global energy system, as we've been hearing.

2:41It's not an exaggeration at all to say that we are in an energy crisis right now. And what I want to talk about is the effect that's having right now and how it might change the debate about energy and climate action in the future. And Dama Lola, what if I could come to you first? As I say, when you think about this energy crisis, the impacts it's having worldwide, what are you seeing? I mean, it's quite bleak. You have to understand that 80 % of basically our energy needs just flow through this, you know, as I try to call it, a short piece of water, if you think about this, which really makes us to think about these old energy systems do they really work for us we're going to see between one and two trillion um being increased in terms of the the cost of energy in a lot of locations and that's what the projections are showing so far we're also seeing not just in terms of energy security every relates to people who even have access to energy we're seeing food insecurity as well because a lot of those products also come in the form of fertilizers and things like that so I think it's really a global crisis for food and energy, not just energy.

3:55The other thing that is quite sad as well is we're also seeing kind of a decrease in people that don't have access to energy connecting to energy. Because everyone is so fixated, no offense, in sorting out their own domestic problems, which we get that a lot of people are not thinking that, yes, we still have just under 600 million people who have no access to electricity at all. and 2.4 billion people that then have access to clean cooking. So that's the issue now. Everyone, we have things we have to do one or the other. But the truth is we have to do multiple things in parallel to be able to solve this climate crisis.

4:29And in terms of the work you're doing at the UN then, at Sustainable Energy for All, you're saying that work becomes harder at a time when energy supplies are restricted and prices are elevated. Absolutely. But, you know, I mean, one of the good things, we are seeing some front runners, right? So the first thing you do in a crisis is you use less. You know, I was going around New York and I was like, no one is practicing energy efficiency. Like the ACs are just blasting, like, are you sure we're in a crisis right now? But this is the truth. We could reduce our energy consumption by 25, 30 % if we're more efficient with the way we use energy and we work with more efficient grid systems.

5:07So we have to look at that as the first, you know the the first thing we we try and do the other thing that we're also seeing is just you know this uptake of renewables really really at scale you know the EU is leading the way a lot of African countries are also leading the way so I mean I'm seeing this this time to really really disrupt which is what we needed to do in the energy space but finally I think you know as we there's not enough energy or we're in a crisis, we also, even last year or a few years ago, we weren't talking about AI. AI is going to be the largest consumer of energy. So as we talk about what are the modern systems that are going to help us regulatory-wise or implementation-wise, if you do not incorporate AI in the model right now of how you're building your energy systems, you're still going to be in the same situation or just be another type of strength.

6:03That's very interesting. The role of AI is definitely something I want to get into and also some of these questions about longer-term changes that are going to emerge as a result of this crisis. Before I do that, I want to bring you in, Keita Neelof again. So, as I was saying, you're the COO at NISO, the National Energy System Operator in the UK. Perhaps it would help people who may not know that organisation, if you could explain a little bit about what it is and what you do. Yeah, of course. So NISO, the National Energy System Operator in the UK, fulfills two primary functions really. One is operating the power system in real time and the other one is strategically planning the energy system for the very long term.

6:46So all the way out to 2050. Not dissimilar to the ISO models that you see across the US. We've just been through a really significant change in the UK where we spun the system operator business out of national grid, so out of the big grid infrastructure business, to be an independent, impartial entity. We're now owned by government, but importantly, still independent from government as well. And the reason for that is that there is a very strong view in the UK that you need a body that is expert, that is impartial and independent, that has the benefit of being able to see across the whole energy system.

7:32and then importantly is tasked with calling out what are the really big trade-offs, where are the really big opportunities, where are the challenges and how do you paint that full whole energy system picture so that you can make some of those really difficult decisions that we're going to have to make in this transition. So quite a new organisation then facing some pretty severe challenges in your first couple of years of operation. Yeah, absolutely. So the UK has been on quite the journey. we are making a very very fast transition away from fossil fuels and towards renewables we have no coal connected to the system in the UK now and last year 60 % of our power was from renewables but being an island based system one of the big challenges that we're grappling with is how do you ensure the ongoing sustainability and resilience of the system as you take away some of that thermal generation and move towards intermittent renewables and we've made huge progress there was a period this year where we powered the system at 98.8 percent clean renewable technologies on the system so we are we are literally that sort of one one power station away one gasified power station away from operating the system at zero carbon for periods but that's taken five or six years of really intense innovation and planning for that technical shift.

8:57And in terms of the challenges that you face the UK has not had blackouts like say Spain had again with a very high level of renewable penetration on the grid and obviously there were a lot of questions asked after that incident about whether the country was excessively reliant on renewables. So I don't know sort of how close you think the UK has come to that kind of risk But anyway, it's been avoided until now. What is the case, though, is that energy is very expensive in Britain, isn't it? And so has that been one of the consequences, actually, that this renewables-heavy grid that you've got costs more than one that you could have had if you'd kept those coal-fired power plants open?

9:38No, I think the challenge that we have in the UK... So we're very, very focused on getting to a secure and resilient grid. We are one of the most reliable grids in the world. You're absolutely right. We have not suffered from some of those same issues. But retaining that reliability and security whilst transitioning to a clean system, which I think is our way to bring down costs over time. I can talk about system costs and investment in renewables and investment in the network and how do we get away from wholesale price impacts of gas. but we also have a big debate going on in the UK around then how do you think about that from a policy context and how those costs end up on consumer bills and you know the great news is all of those questions are sort of continually being asked.

10:26Yeah absolutely I want to bring you in on some of those issues at the moment before I do David I want to bring you in now again perhaps worthwhile just to describe a little bit about your company about Daikin and what it is that you do, because it seems to me they are absolutely one of the key players of your industry. It's absolutely one of the key players in terms of electricity demand and what that implies for emissions and also grid stability and also the affordability of energy. So I want to talk a bit about that. Thank you for the question. Yeah. So Dykin, for many of you who may not know, we are a heating and air conditioning manufacturer, HVAC, as we like to call it.

11:04And our company has really focused on the issue of efficiency, as we've talked about, now that we have this strain on energy supply. And you can certainly always increase, try to increase supply. We're fully supportive of renewables, trying to find more ways to get renewables in a strengthened position. But at the same time, you can keep ramping up the supply, but you're going to use that, whatever you produce. And so what Daikin has focused on for many years, and I'd say it's really in our DNA, is looking for those opportunities where we can make the products more efficient and have a better climate profile or environmental profile, as we'd like to say.

11:49Because, and I think this is no surprise, HVAC products are about 30 to 40, sometimes 50 percent of the energy load in a building or in a home. So we recognize that fact that we are a major energy user. So it's really incumbent upon us, in our view, that we find those ways to grab efficiencies where we can. And we can talk maybe a little bit more later, but there's really three core technologies that Daikin is focused. First of all, heat pump technology has some tremendous efficiencies built in. You move from a fossil fuel burning appliance or heating system. Also, inverter compressors. And inverter compressors are a tremendous innovation that, again, provide really great comfort for the consumer, but also efficiency.

12:41And then finally, refrigerant, refrigerant technology. Refrigerant that Daikin uses called R32 provides efficiency, but also other mitigating aspects on the climate. So, yeah, just overall, we recognize the challenge that we're in right now and the role that our industry, the HVAC industry, needs to play. And we're really looking for those opportunities. And we'd love to get more of these core technologies really deployed in the U.S. and globally. Yeah. And when we think about that role, then, I think it's important to underline just how important air conditioning is. I heard Fatih Birol, the head of the International Energy Agency, talking the other day.

13:29And he was talking about big sources of power demand growth in the world. And he said, yes, AI, that's certainly one important source of increases in demand. But he said, actually, we think even more important than that is air conditioning globally. That is the single biggest contributor to power demand growth. And so, as you say, David, you know, when you think about the industry and how you can be part of the solution, as well as part of the problem in terms of energy security and emissions. What can be done about that? I think a number of things. As I mentioned, you're right. I mean, air conditioning and really now heating.

14:07As we start to decarbonize and we put more heat pumps into people's homes, and for those of you who may not be familiar, a heat pump is essentially an air conditioner that can go in reverse mode and then heat a home from an efficiency standpoint compared to a gas furnace. And it's a little bit of apples and oranges. But basically, a heat pump is more efficient from a resource standpoint. But recognizing that we are growing that demand and as more parts of the world demand air conditioning, that's, of course, going to increase those strains and those demands on the grid. And so the inverter compressor technology that I mentioned is something that Daikin has been selling all over the world.

14:52It's a technology that we feel is so important to help address this crisis. Frankly, what an inverter compressor is, is it is a variable speed system. So you picture the typical units that are used in the U.S. now. They are a single speed. If you remember your old-fashioned window unit in your home, if it's hot inside, it turns on, air blasts out, cools you down, then it turns off. Room gets hot, turns on, turns off. It's also like driving in a car where you slam on the accelerator, slam on the brakes. Not very comfortable and really not good from an efficiency standpoint. Because what you're getting is that ramp up uses a lot of energy.

15:35And that is actually a big strain on the grid. A verter or variable speed system has an infinite number of speeds. If it's a pleasant day like today outside, it doesn't need to run at 100%. It can run at 60 % or 40%. It provides better comfort to you, but also provides a much higher level of efficiency. And when we talk about grid resiliency, what can happen is a utility is having an event, perhaps. It's a very hot day or even a cold day. They can send a signal to one of these inverter-based units, and the unit can power down, power down to a level that helps ameliorate whatever their crisis is, different from a single-speed system, which would just shut off.

16:19And you as the user, you may not even notice it. So I think inverter technology is one. There's some other innovations that we've been working on. But just getting those technologies deployed, I think, is really important to help to at least do what we see as our industry's part. Right. And so that's really interesting when you talk about these technologies allowing kind of automatic demand response, becoming a kind of variable load. Is that something you think, Kate, from the grid operator's perspective, is going to be really critical as air conditioning use increases around the world? Yeah. Flexibility of demand is ultimately going to be one of the most important tenets when we think about long term planning of the system.

17:05And we talked a bit about the level of investment that is going into building new generation and the new network infrastructure to move power in the UK from typically where it's generated in the north to where it's needed in the south. Before we even start to plan how much generation and how much network we need, the big question is how much demand and to what extent can you flex that? To give you a bit of a sense of growth of demand in the UK. So our max peak demand is about 45 gigawatts on our system. There's currently 125 gigawatts of new demand in the queue waiting to be connected. That is at the moment a large part data centre driven.

17:47But just this summer, we've seen some real changes on the system. We've had a heatwave, a heatwave for the UK, might not compare to what you see here. but for UK multiple weeks of relatively speaking much higher temperatures customers have been going out and getting air conditioning installed we saw some changes in the demand pattern and it's really driven some interesting questions for us about what the demand curves are going to look like particularly over the summer in future and how do we plan for that and the ability to build flexibility into that will be so central to ultimately being able to keep the cost of the system down for everybody.

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19:06Learn more at engieresources.com. That's E-N-G-I-E, engieresources.com. So, Damalola, I wanted to ask you about this point about short-term as opposed to long-term. interests and things can be achieved in the sense that there is, as you've been saying, the short-term crisis. It's an energy crisis. It's a food crisis looming. It's an economic crisis for some countries. And so there is a natural tendency to kind of rush to the most immediately available solutions, keeping coal-fired power plants open or even opening new ones. It means making sure that supplies of oil and gas can be secured. It means perhaps increasing investment in development of oil and gas production, all of which can then tend to lock in emissions, lock in fossil fuel infrastructure that can make it then harder to transition to low carbon sources of energy in the future.

20:10Is that a real risk as you see it? Are we seeing those kind of tensions between immediate goals for energy security and longer term goals for emissions reduction. I think since COVID, we'd always seen that. I think anyone saying that it's a reason now is a little bit of an excuse. But I wanted to touch on, because we spend a lot of time talking about global north problems. Right. And people at the global north already have electricity, how they become cooler. And I think it's really important to talk about developing an emerging economy. You know, you're dealing with people who don't have a grid system right now to even decide if it's going to be flexible or include an AC.

20:51And we cannot forget these people because at the end of the day, they are going to need 20x the amount of energy they're using now. And we have the choice now of if that energy is going to be from a clean, sustainable, renewable source, or if it's going to be for fossil fuel based. And I'll tell you the problem if that is fossil fuel based, because it comes in the form of decentralized diesel and petrol gensets, not bigger than this, all over the place that you can't regulate, you can't stop. And they actually have more harmful impacts to people and planet than any coal-fired power plant, because there's just millions of them all around the place.

21:28So, I mean, it is very important. And I don't want to take away any sovereign's plans to just make sure their country has all the tools for winter and summer, but I really believe that, you know, the climate crisis, it's a global crisis. You can't just sort out what's happening in your own country. And I feel that in my continent, in Africa, if these people do not get access to electricity in a clean and sustainable way for the people who don't have it, it doesn't matter what we do around the world. We're going to come back and transition again. But the difference with that transition is we can't close down a corporate power plant or close down a gas plant that's already connected to the grid.

22:09You're just going to have hundreds of millions of these smaller systems that you're not going to be able to get rid of. And so when we're thinking about these, especially in the climate conversation, the energy transition for countries that don't have enough energy is energy access. It's not just telling people to transition. I just wanted to really, really stress that point because it's normally left out. Yeah, no, that is a great point. I think it's really interesting and important. My question then is what can be done to make sure that that increase in energy access does go down pathways that involve adoption of low-carbon technologies rather than, as you say, everyone having a diesel generator distributed to provide the power they need across the continent of Africa?

22:55So it's really important for sovereigns and, you know, even states that you develop what is called an integrated energy plan and an energy transition planning to say what happens every five years to your system between now and 2050. We started with the most difficult one, my country in Africa, largest oil and gas country, Nigeria, right? So what does it take for a country like Nigeria to transition and also uplift 80 million people out of poverty and also have an industrial base? And the truth is it's going to cost about$1.9 trillion, right? Of which at least 800 billion of that is above business as usual spending.

23:33But Nigeria is also going to be the third largest country by 2050. So we do have to look at really big pinpoints and say, how am I going to focus resources on these places so they don't affect the rest of the world if they don't transition well? And that's what we try and do in the UN. We try and say, which emerging economies are causing emissions? Countries that are using coal now, you probably can't say stop coal, but you can say no new call. So it's those type of, you know, things that we're trying to identify to make sure we're not in an overall crisis where you just can't stop in a few years.

24:07And you're talking about then reliance on diesel generators. Obviously, the price of diesel has nearly doubled just in the past 12 months. Does that mean then that you can actually find a more receptive audience if you say you should invest in renewables, you should invest in battery storage? Absolutely. I mean, China to Africa itself, at least even Nigeria, Ghana and Senegal in solar panels alone, last year was$15 billion of trade, right? So we are seeing organically that people are choosing solar plus inverter, solar plus storage solutions instead of the diesel and petrol gen sets. So, you know, things are happening.

24:44It's the same thing we saw in Pakistan with their huge rooftop solar. But you have to encourage those markets, you know, you have to be able to provide the same or similar subsidies that you do in the global north because the energy systems in global north are still heavily subsidized and people don't talk about that a lot especially the power going through the grid so you need to be able to have those incentives for emerging and developing countries you can't say the subsidy works somewhere else with the richest people but the poorest people you need to figure out this great financing model is just not going to work and that is what we have to do more of.

25:20And that's why MDB reform is just so important in really getting us there. Yeah, that's very interesting. Although that's, I guess, you could say a whole other debate. Exactly, a whole other panel. It gets to be a much bigger issue. But yeah, no, that is very interesting. Kate, I wanted to bring you on this again, this question of sort of the short term versus the long term. I know this is true in the UK. It's true in many countries in Europe as well, and I'm sure around the world. energy is a very very hot political issue right now and a lot of kind of competing ideas and arguments kind of flying around one of the arguments you'll hear very often expressed is net zero is a mistake we need to move away from that the countries that still have coal plants want to keep them open other countries will say i don't even know exactly what the argument would be in the uk but i guess open up the north sea maybe increase natural gas production in the north see and use that.

26:13How do you see those debates evolving and what does that mean for you? Does that mean that you're potentially going to be, if the government changes, sent in a very different direction? So a few things I think to say. One is we have a mandate to ensure overall a secure energy system, a clean energy system and an affordable energy system and I think a big part of the challenge is how do you think of those as three sort of combined objectives and rather than thinking about them sort of rubbing against one another how do you find a set of solutions that can can align on those objectives through all of the analysis that we've done we are strongly of the view that actually overall in the long term and particularly and we are committed to net zero by 2050 that is uh that is law in the uk and we also have a policy ambition to have a clean power system by 2030 we've done all of the analysis on that and our view is that broadly speaking it is about the same cost a clean power system over the long term is about the same cost as not being on that clean power trajectory uh and you and you get all of the other benefits of of a sustainable clean system so that's the first really important thing to say the other thing I would say is that it is true in the UK that although we have this objective to be able to operate the power system completely clean there will be a role for gas in our system all the way out through the 2040s it's just that the hours of use of gas will decline over time and we've got another big strategic question there to think about how do we keep an appropriate amount of gas available and ready on on the system to be used but how do you incentivize that when it might only run for for a few hours a year so you know that you're thinking about the big long-term gnarly questions you can't ignore them you you have to maintain some focus on those big long-term questions because they take an awfully long way at time to sort of plan plan your way out of but we are very much of the view that that can be coherent, that can come together, that does give you an optimal energy system over time.

28:34The only other lens I would add is just building on where Damalola was talking there. The other aspect I think is planning not just at a national level but also looking at local and regional requirements, thinking about place, thinking about what customers, consumers in their own communities and their own sort of parts of society need and trying to bring those two plans together so that national long-term trajectory to a net zero system, how does that play out in ensuring that you are building something that works? David, I want to ask you a related question then about policy. So policy in the United States has shifted very firmly away from climate action.

29:20Part of that, for instance, the tax credits that were available for heat pumps have been scrapped and so on. What do you think in terms of policy needs to happen to encourage adoption of these more advanced, more efficient technologies that you've been talking about? Is it just a question of bringing back tax credits or other things and perhaps more complex things that could be done that would make a difference? I think you're right. I mean, there has been a policy shift, although I would say that in some regards, the shift has been from kind of an environmental focus more to an energy resilience, energy security type of aspect.

29:59And it's actually the same thing or very close to the same thing. We want to be secure, have a good energy supply. And so what are the ways you do that? Yes. Anytime you make a major transition to a new technology, there are going to be costs. and we recognize that. So government has a role. One role is incentives. And there were some very robust federal incentives a number of years ago. They were very helpful. They really drove many things in the market for a period. So I think these incentives are important. They're really shifting, though, to the state level now and even the local level. A lot of utilities are doing it So that's really important.