Fossil fuels not dying off yet

Fossil fuels, including hydrocarbons and coal, will remain dominant in energy production for decades, because there is nothing else to take their place. Renewables, hydro and nuclear will all grow fast, but the doubling of global demand for electricity over the next few decades will far outstrip any of these alternative sources of supply.

“Coal, oil and gas will remain the dominate source of energy for the foreseeable future,” Dr Michael Suess, Managing Board Member and Energy Sector CEO of Siemens AG told Gulf News. “Their share of total power generation will drop very slightly from 68 per cent in 2011 to 61 per cent in 2030, and there are enough fossil fuels to continue in this way another 200 to 250 years.

“So fossil fuels are not just a bridge technology till renewables take over, but they will be the main source of the world’s power for a long time, even as we work to increase the use of renewable technologies, and find efficiencies in using electricity.

“Fossil fuels include shale gas and there is a lot of unconventional gas yet to be found. But it is important that there is still a lot more conventional gas yet to be found, as we develop new and more sophisticated ways to extract gas from the fields we have today.”

Efficiency is the key

Much better use of the existing fuels means that there are very substantial savings to be made. Suess felt strongly that a lot can be done with the existing technologies and fuels to improve the carbon emissions. He gave two examples:

“For example, if you replace all existing gas-fired power plants with existing technology which you can buy today. Not even speculative future technology, but technology which is readily available today, you would save a third of worldwide present day carbon dioxide emissions. A third of CO2 emissions from fossil fuels would disappear.

“And then if you were more aggressive, and replaced all the coal-fired power plants with the same existing technology, you would save 60 per cent of the world’s CO2 emissions by fossil fuels.”

And this is what is happening in North America. “The Americans have 45 per cent of their electricity based on coal, and they hope to replace it with gas-fired power plants and so save 60 per cent of their emissions,” said Suess.

Suess said that “Saudi Arabia is using 15 to 20 per cent of its oil production to produce electricity and that cannot last. In order to change, they have invested significantly in high efficiency, even if they have low fossil fuel prices. In the last two years, Siemens has sold the equipment for 50 gas-fired power plants to Saudi Arabia, which will work at the highest efficiency levels. The Saudis will replace their old equipment and they will have a similar effect like the US and they will save on average 15 to 20 per cent”.

Suess pointed out that the economics of shale gas varies from country to country. “Shale gas will have a substantial impact in the United States as it is extremely cheap to produce since it is only 150 to 200 metres below the surface. So, for the Americans it is a game changer. But in Poland, the shale gas is 1,500 metres below the surface, which makes it very expensive to produce, and in that case Russia is next door selling lots of cheap gas, so the economics are not in favour of shale in Poland”.

Keep crude out of power

Crude oil and its derivative products are too valuable to be burnt to create electricity, and gas and coal should be the prime fossil fuels that generate electricity.

“Generation should not be done with crude oil,” said Suess. “Crude should not be burnt to create power. Products derived from crude oil should be reserved for what they are good for, like mobility, and doing things like driving aeroplanes or cars.

“Therefore the backbone of power generation on the fossil fuel side will be gas. Modern power plants have very low carbon footprints, at 330 grams per kilowatt hour, which is 170 grams below the 500 grams per kilowatt hour that is the target which was given to achieve the two degrees of global warming. So gas is far below the global targets for CO2 emissions.”

He continue by emphasising that the world cannot ignore the importance of coal, which even if it is a dirty fuel, which has made it very unpopular in Germany and Europe because people do not like the carbon emissions.

“Coal will remain a very important source of power. Energy demand around the world is accelerating, and huge countries like India and China are moving from low consumption to high consumption, with a lot of reliance on coal.

“In these countries, where coal is essential to cover the overall demand, developing new and better ways to capture the carbon is essential. We will have take the carbon out of the air. This is the reality.”

Nuclear will be a state-led business

Private companies will not be able to finance any involvement in nuclear power. Nuclear power will have to be state-led, because the huge capital investment required locks the owner-operator into an 80- to 90-year project, using inevitably dated technology, in a political environment which must be uncertain over such a period for nuclear projects.

“Three years ago, we looked at the nuclear business, because we thought it would be a good area for business,” Dr Seuss told Gulf News. “There are 435 nuclear power plants working today which contribute between 10 to 12 per cent of the world energy production, and in the next 20 years there will be another 400 nuclear power plants brought on steam, as well as 150 to 180 plants being phased out. And at the same time as all this growth, the world demand for energy will double, so the share of nuclear will stay around 10 to 12 per cent.

“This meant that nuclear looked like a good business. But as a tech-driven company, we had to consider if we wanted to re-enter that business and build nuclear power plants. As a private company, it takes 15 years to get a power plant into operation. Therefore, if we build a plant in the 2000s we would be using technology that was designed 30 years ago in the 1980s, and that plant would then operate for 50 to 60 years, after which it would take 10 years to decommission.

“This creates a problem since whatever technology we use, would have to last for 80 to 90 years, and we would be locking ourselves out of five to six innovation cycles of maybe 10 to 15 years each. Why should you do that as a private company which needs to react to volatility in the markets, as well as innovation in business.

“In addition, we would have a $7 billion (Dh25.7 billion) investment for 50 to 100 megawatt plant on the company balance sheet. So the real question is not “Do you trust nuclear”, but “Can you finance nuclear?”

“Therefore you will see nuclear power plants will always be state-backed and owned. The capital cost is a very high financial burden for a private company to carry, as well as being locked into a project which might be the focus of a very critical political environment. For example, in Germany the sovereign people have decided not to be involved in nuclear. Therefore as a private company it makes little sense to be involved.

Growth in renewables

“Renewables provide only three to four per cent of world energy today, and in 20 years time we may get that share up to something between 10, 15, to even 20 per cent of global power generation. Renewables will not become a dominant source as the amount of people looking for electricity will grow hugely as the 1.5 billion people do not have power in today’s world demand access to electricity. And everyone using electricity today will use more and more power, as we all use more devices.

Therefore solar power has a place in a region like the Gulf, but it is not useful for providing base load power in the national grid. Instead, it should be used in decentralised applications like people’s homes or hotels and buildings.

Suess is sceptical of the business model around solar power for a company like Siemens to own and manage solar plants, pointing out that “solar is expensive on the cost side and for Siemens solar is not a business model”. He agrees that it works for developers or landlords who have buildings.

“The region has to decide to work with its strong backbone of gas power plants and if you combine them in a smart way with solar power, it might work because the peak loads are in the summer when solar is available.

The issue in the UAE and other Gulf states is that they need a lot of power for desalination, which needs a lot of consistently high and steady power, as is offered by gas power plants.

Wind better than sun

In most parts of the world, Siemens sees wind power as a much better investment than solar. As Suess explained: “Wind is a winning technology. There is just so much more of it: For example, in an offshore wind farm you have 4,500 to 5,000 hours of wind in a year, and even on shore you get 1,500 and 2,000 hours of wind in a year.

But in a solar field, even in this region, half the day is dark. Therefore solar has a maximum of around 3,000 hours a year, and in Europe you will only get 900 hours a year, out of the total of 8,700 hours in a year”.