Beyond Three Thirds, the Road to Deep Decarbonization - By Michael Liebreich, Senior Contributor, Bloomberg New Energy Finance

In my BNEF Summit keynote in London last September, I talked about how far clean energy and transport had come over the last fifteen years.  Where renewable energy used to be dismissed as “alternative”, I talked about the “new orthodoxy” of what I called the Three-Third World:  by 2040 one third of global electricity will be generated from wind and solar; one third of vehicles on the road will be electric; and the world’s economy will produce one third more GDP from every unit of energy.

The fact that we are on track for the Three-Third World is quite extraordinary.   It certainly outstrips my expectations when I founded New Energy Finance in 2004.  And it is probably unstoppable:  wind, solar and battery costs will continue to fall faster than any mainstream energy forecasters expect, and there is nothing that makes me think President Donald Trump will succeed in his attempts to revive coal.

That’s the good news.  The bad news is that even though we are on track to achieve the Three-Third World by 2040, it will not be enough 
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Building efficiency
First of all, we all need to start treating the energy efficiency of our buildings like it really matters.  Mainly that means insulation, air-tightness, and good thoughtful architecture and design.  It doesn’t need to add much cost to the building; in many cases nothing at all.  Ten years ago, I had never heard of the PassivHaus building standard; in ten years’ time, all new buildings could easily meet it.  In fact, there is no reason why new houses shouldn’t produce more energy than they consume, receiving utility revenues instead of incurring utility costs.  It’s just a question of applying technologies and techniques we know work.

Retrofits are harder.  The important thing is that any time a building undergoes a deep renovation, its energy performance has to be brought up to the highest standard.  It is possible – I’ve done it.  As long as you are doing deep renovation works anyway, the extra costs are not prohibitive.  Even a twenty-year payback would be equivalent to 5% risk-free after-tax – a highly attractive rate of return to most home-owners in a world of persistently low interest rates.  Mainstream mortgage providers need to stop colluding in a system that treats the cost of a new kitchen as an investment, but the cost of a low-energy retrofit as an expense.

Once all new-builds and deep renovations are done properly, we will halve our heating challenge over twenty years, allowing a lot more of the heating load to be met electrically, mainly with air-source and ground-source heat pumps.  If you think they can’t work in cold temperatures, just look at Norway, or Japan.

Then there are other new technologies.  Some of the most intriguing start-ups I come across are working on thermal batteries, using phase-change materials, salts, clever thermodynamics, or just big chunks of concrete or tanks of hot water.  Drake’s Landing Solar Community meets over 95% of its winter heating needs from solar energy collected during the summer.  It lies just 45 minutes’ drive from the 1988 Calgary Winter Olympic venues.  How cool is that – or rather how warm?

There are, however, significant benefits to continuing to power a large proportion of the world’s heating with solid, gas, or even liquid fuels.  These are easier to store in bulk to cope with seasonality and resilience than electricity, which will always need to balance to within a few days’ of real time, and will also be needed by industry.  The question is how to make them zero-carbon.

A significant proportion of the heating load in temperate climates –  in countries like the U.K., Northern Europe, New England, Canada, the former Soviet Union, and Northern Asia – could be met by biogas or biomass, most efficiently using combined heat-and-power, or CHP, cogeneration.  Though it is hard to add district heating in existing neighborhoods, it can be done – look at Sweden.  Some 10% more Swedish households have been connected to district heating every decade since the 1960s, to the point where over half of all homes are now connected.  And here’s a thought – since you are going to have to add more capacity to local grids to charge all those EVs, how about combining new bio-based CHP delivering local heating, with massive battery storage, to provide grid services and improve resilience for energy-intensive industries, all while reducing investment requirements in the distribution grid?

Hydrogen
If there’s not enough biogas, you might consider running your CHP on natural (i.e. fossil) gas, which would still be up to 85% efficient, but not zero-carbon.  To achieve that, you would need to use CCS (carbon capture and storage), but let’s be clear, that is not happening in the absence of a carbon price.  Micro-CHP is attractive until you consider the capital cost, and even with a carbon price it’s hard to see how to capture the emissions from distributed sources.

And that brings us to hydrogen, which can be used anywhere without creating local emissions.

My skepticism about hydrogen vehicles is well known.  What real problem do they solve?  If you have electricity and you want to drive somewhere, just use a battery electric vehicle (BEV) – they will be fully competitive with internal combustion vehicles on a total-cost-of-ownership basis with no subsidy within five to six years in most markets, according to BNEF forecasts ... .  Why would you waste half of your electricity electrolyzing hydrogen, compressing and storing it, only to turn it back into electricity in a car?

If you are concerned about how long it takes to refuel, well that is a problem for the few percent of us who actually drive long distances; everyone else will charge their EVs overnight.  Most people won’t want to visit a hydrogen station every few days just to avoid a 20-minute charge on the rare occasion when they drive long-distance.  Even commercial vehicles, unless they regularly drive long distances – say, over 300 miles – will go electric.  Ships, trans-continental trains, long-distance trucking, and niches like fork-lift trucks are the only parts of the transport system where hydrogen makes any sense.

In fact, even if you have already produced your hydrogen for some other reason – such as seasonal storage – and you want to drive somewhere, it will make more sense to generate power centrally and charge an EV, rather than to put it in a hydrogen-fueled vehicle.  Doing so will be much lower-capex per megawatt, much more efficient, and you can extract value from the waste heat.  And that’s before getting into the lack of hydrogen filling stations compared to the ubiquity of the grid, the complexity of fuel cell vehicles versus the simplicity of EVs, maintenance costs, safety, and so on.

Nevertheless, I am bullish about hydrogen.  It is one of the most promising ways of dealing with longer-term storage, beyond the minutes, hours or days that could be met by batteries, or the limited locations in which pumped storage could work.  It can be stored as hydrogen, perhaps blended into the existing natural gas system, or after conversion into ammonia, natural gas (so-called power-to-gas, or P2G), methanol, or some higher-value synthetic liquid fuel.  It can help provide the huge pulses of reliable power needed by some energy-intensive industries like ceramics.  We need to stop fooling ourselves about hydrogen as a transport fuel, and explore its pervasive use throughout our energy, chemical, and industrial system.

Read more at Liebreich:  Beyond Three Thirds, The Road to Deep Decarbonization