Can the world trust an integrated energy market?
Across the world new supply networks are transforming the energy market reducing costs, improving productivity, contributing to the necessary reduction in emissions and in emerging markets offering commercial energy supplies to some of the poorest people in the world for the first time. New grids for electric power and natural gas are opening up new market opportunities, but at the same time disrupting many existing business models. With the medium-term prospect of grids supplying hydrogen and providing the crucial links in the development of carbon capture and storage, infrastructure connections will become ever more central. But there is one note of caution. Grids depend on open markets and cross border trust. Neither can be taken for granted.
Infrastructure gets far too little attention in commentary on the energy sector but provides the indispensable connection between producers and consumers.
Two very different examples illustrate what is happening. Around the North Sea grids are reshaping the pattern of supply and demand. The new Nordlink cable between Norway and Germany which was commissioned in December has the capacity to transmit 1.4 GW of clean power. This year should see the inauguration of another new link from Kvildal to Blyth in the UK. With a length of 720 km the line will be the world’s largest subsea interconnector.
Looking further ahead as the demand for natural gas declines, the market for hydrogen is set to grow providing alternative means of supplying both heating and industrial energy needs. One part of that hydrogen produced by natural gas with the carbon extracted, with the other part made up of “green hydrogen”, produced by electrolysis and powered by renewables. Reducing costs to make green hydrogen viable is the key focus of German policy. By 2030 the Equinor led project at Saltend in Northern England will fuel one of Europe’s first low carbon industrial clusters, using hydrogen to fuel both chemical and power plants in the Humber region. The project combines a series of infrastructure links between the sources of supply and the different consumers.
Taking carbon out of oil and gas is one of the technologies essential if emissions reduction targets are to be met. Industrialisation of carbon capture and storage technology has begun with the burial of carbon in the subsea Utsira formation near Sleipner and will be extended by the Northern Lights development over the next decade. Those are important steps, but if CCS is to make a major contribution, however, extensive supply links bringing carbon from across Europe to appropriate storage sites will be necessary and will have to be copied across the world.
New super grids
The links being developed, particularly in the electricity market, offer wider opportunities particularly given advances in digital technology. Intelligent grids can balance supply and demand in real time, allow differential pricing of power at different times of the day and reduce if not eliminate the challenge of intermittent supplies of wind and solar power. Grids, rather than electric vehicles, will be the critical element in the development of storage technology. The combination of new technologies makes it possible now to envisage a European wide network of grids capable of “talking” to each other. With much energy currently wasted, the potential gain in efficiency and productivity is enormous.
The graphic below shows one conceptualised view of the linkages which could form a future European “super grid” (Source: Energy Futures Lab, An institute of Imperial College London).
On the other side of the world grid technology is also transforming patterns of supply and demand and doing so on an even larger scale. Projects managed by the Chinese State Grid Corporation can now transmit power over huge distances. One line from Xinjiang in the west of China can carry up to 12 GW of power over more than 3,000 km to the cities on China’s eastern seaboard.
Gas grids from LNG import facilities in areas such as Guangdong and Jiangsu are being expanded to supply local and regional industrial and residential users offering a lower carbon alternative to the coal on which has built its economy over the last half century.
In India the national Indian Power Grid is linking the five regional grids allowing the incorporation of more renewable supplies and improving the continuity of supply. At the same thousands of local micro grids are bringing electricity to the millions of people living beyond the main grids who are escaping from subsistence poverty. Micro grids are using solar power to meet basic demand substituting clean power for basic biofuels.
Looking ahead countries such as Japan are developing trade links to bring supplies of hydrogen produced from Australian coal, with the carbon extracted and buried.
None of the projects mentioned above existed a decade ago. Many more are at different stages of planning and development. The projects under consideration range from a full scale set of interconnected grids across the North Sea to an expansion of Chinese export capacity to supply power from areas of Western China, which have high potential solar and wind capacity, to neighbouring countries and even eventually to Central Asia and Europe.
The map below shows some of the potential routes to market for Chinese power (Source: JRC Science for Policy Report, European Commission).
Grid technology is a growing business market. The global leaders include the powerful and ambitious Chinese Grid company and specialist engineering businesses such as Hitachi, which has recently merged its power systems business with the ABB, the Swiss based pioneer of HVDC technology. It will be interesting to see if the leading European oil and gas companies such as BP, Shell and Equinor choose to join the party as part of their diversification away from hydrocarbons. All three certainly know the value of infrastructure from their histories in the North Sea and elsewhere.
Nothing however can be taken for granted. The economic logic of interconnection and open energy trade is vulnerable to the political barriers of nationalism and protectionism. Historically electricity has been a nationalised business managed in both countries in Europe and Asia by state owned monopolies. Opening up the market and extending interconnection to new energy sources such as hydrogen will not be simple. Trust is in short supply.
Many countries will be reluctant to become dependent on electricity supplied by a Chinese controlled grid. Even within the member states of the European Union grid links which favoured lower cost suppliers would be seen as threatening to established interests and local jobs.
The large-scale expansion of cross border trade which is now possible will depend not just on economics but also on the development of political trust. Technology is moving on rapidly and making possible links which were previously inconceivable. Over the next decade we will see whether political cooperation can keep pace.