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Journalist Markham Hislop interviews leading energy experts from around the world about the energy transition and climate change.
Welcome to energy talks, the podcast for energy nerds and inquisitive folks who enjoy interesting conversation. I'm journalist Markham Hislip. On Monday, April 28, Canada elected a new liberal government, and economist Markham Carney became the prime minister. In some ways, the election was a referendum of the future of energy and Canada's role in the global energy system. Will the future be like the past?
Markham:Is there significant opportunity to expand Canadian oil and LNG exports? The Conservative Party of Canada would answer yes to both of those questions. Or will the energy future be quite different, an electric future, where oil and gas are eventually displaced by electricity generated by solar, wind, and hydro on the supply side and electric vehicles and heat pumps on the demand side. This view reflects more or less Kearney's understanding of the energy future. My guest today is Lucy Craig, director of growth, innovation, and digitalization energy systems at Norwegian firm DNV, which provides risk assessment services to energy companies around the world.
Markham:We'll be discussing her recent report, short term volatility, long term optimism, energy industry insights 2025. Welcome to Energy Talks, Lucy.
Lucy:Thank you, Markham. It's a pleasure to be here, and, looking forward to our discussion today.
Markham:Well, this is a conversation that we don't have enough in Canada. And I often say that because I interview about about half of my interviews in a year are with global experts like yourself who have a very different view of how the global energy system is changing. The frankly, the conversation in Europe or, Asia is just entirely different than it is here in in North America. Would you agree with that?
Lucy:Well, you mentioned that we are a Norwegian based company, but we have, offices all over the globe. We are definitely global. And, certainly, there's a very strong urge and move towards the a transition in the energy sector. Each year, we publish our energy transition outlook report, which pry provides an analysis of where the energy sector is moving in the decades out to 2015.
Markham:Right. So it sounds like, if I could, extrapolate from your comments that you would agree the global energy system is is changing. How fast is it changing, from your point of view?
Lucy:Perhaps to give you an illustration of how fast it is changing, we currently, have our energy supplied more or less 50%, sorry, more or less 80% by fossil fuels and around 20% by non fossil. All our studies and our analyses of current trends and where the energy sector is heading indicate that by 2050, that will be reversed, and we will have or at least it will be moving very fast in the other direction. And we'll we expect about 50% of our energy to be coming from fossil fuels and 50% from, renewables. And that is that is the the entire, energy sector. So that is it you know, it's, it's not fast enough, and that is perhaps what we're going to talk about later if we're look going to look at climate goals, but it is a very fast transition.
Markham:Yes. I would agree. And I and I think that an important point here is that the, the transition is accelerating and will accelerate further over time. So while we get to twenty fifty and there might be a 5050 split between fossils and clean electricity, in the energy system, at post 2050, it'll continue to displace fossil fuels. And eventually, I mean, I don't know what date the date will be, 2075, whenever, but we're going to have a an energy system that is predominantly clean electricity.
Lucy:Absolutely. That is, where we're moving. And I should also, highlight that not only is another important trend is that electrification is increasing. So currently, of that entire energy consumption, about 20% less than 20% comes from electricity. And we are expecting in the three decades out to 2050 that that will double to around 40% of total energy demand.
Lucy:So there will be greater electrification. And, of course, if we look at that electricity, most of that will come from renewables.
Markham:Now your, your report, surveyed folks in the energy sector, and, their part of this is short term uncertainty versus long term optimism. So could you explain that, please?
Lucy:Yes. So up till now, we've been talking over the about the longer term decades out to 2050. But, of course, this current report, our survey is about what's happening in 2025. And of course, there is a lot of change in the world right now. There's geopolitical uncertainty.
Lucy:There are wars which are affecting our energy supply, particularly the Russian invasion of Ukraine, is having a large impact on how we view energy supply and the policies which have taken place to respond to that. And so we see also that the urgency of climate change and the urgency of the energy transition has perhaps shifted in terms of priorities with more focus on energy security.
Markham:That's an interesting concept, energy security, because rock, sorry. M, Kingsmill bonded at Amber, they just put out a report and saying that we need to start thinking about energy security, not in terms of our access to importable fossil fuels, coal, oil, and gas, but in terms of investing in, electricity generation using technologies like wind, solar, and hydro, and that we that are that create energy domestically so we don't have to import. And I think you see that in China already. That's and in other Asian countries, that's a big concern. Would you agree with that argument?
Lucy:I would definitely agree with that argument that, by focusing on renewables, of course, then we are less dependent on international trade. And so I would again go to the difference between the short term and the longer term. So longer term, absolutely, greater reliance on homegrown renewables ensures that energy security. Shorter term, we see that there is more volatility about that direction. I mentioned geopolitical current risks, which are causing uncertainty.
Lucy:And so while the and the focus of our report is that longer term, we see this energy transition very clear. But shorter term, the geopolitical uncertainty is delaying finance decisions. And so that means that the pace of the transition this year may be threatened by by that, current uncertainty.
Markham:I have a a great graph that I used to use to illustrate this point, and it's the displacement of horses and mules in north in North America by tractors and combines from 1,900 to nineteen fifty, and it uses US Department of Agriculture data. And the the graph is just smooth. It's a classic s curve. And yet when you think about that period, you had the great war, you had the Spanish flu, you had recessions, you had the great depression in in starting in 1930, and then you had the second World War. And so the lesson for me is short term noise in the data doesn't change long term trajectories.
Markham:Would you agree?
Lucy:I think that's a fantastic parallel because, yes, we can see that the trend towards the energy transition is unstoppable, but there are short term turbulences. And we've talked about the fact that energy security in the longer term is improved by higher reliance on renewables, but short term is affected by these financing decisions, which in turn are affected by geopolitical uncertainty. But but also there are short term trends which actually accelerate. So for example, I I mentioned our in Europe, our reliance on Russian gas. Now that has as a result of the invasion of Ukraine, there was a sudden move to reduce that reliance and therefore accelerate our independence in in that in that area and also accelerate our uptake of renewables.
Lucy:And that we can see that that is having an impact on, for example, some policy measures in Europe.
Markham:One question I wanted to ask you, Lucy, is the our perspective here at Energy Media is that we are in the industrial revolution or the industrial revolution, but we're clearly in a technological, revolution. And energy has now become, like, a subset of that technology revolution. And so there are all these other areas like AI and materials and chemistry and so on where advances in one affect the the development of technologies of other technologies. And they have this symbiotic relationship now in a way that's that they didn't have in the past, and that is a a big contributor to the acceleration of of this energy transition, and I just wanted to get your view on that.
Lucy:I I like that talk about how the different technologies influence one another. Perhaps a parallel in the energy sector is whole system thinking. Because as the sector is changing from the transitional fossil fuels and also fossil fuel generators supplying load centers through transmission distribution networks, we now see a much more interconnected system. So we can have generators in local residences through solar PV. We have generation also long distance from land through offshore wind.
Lucy:And we are expecting our transmission distribution network to transform to enable those changes. And at the same time, we're looking to decarbonize the oil and gas sector through the use of low carbon fuels, for example. And so instead of considering each of these elements as independent technologies, independent generators, consumers, need to start looking at the system as a whole. And then, of course, to go back to your question, yes, that progress is very much impacted by developments in material science and digitization above all. And it's very clear that the adoption of digitalization, including AI, will be an accelerator as well as an enabler for this energy transition.
Lucy:I would say of all those technologies you mentioned, it's digital technologies that really will have an impact on the pace of change as well. Because as the system becomes more complex, it becomes more essential to have those digital tools to enable it to happen.
Markham:Yeah. And I think we should acknowledge that some countries are going to be at the forefront of change. Some are going to be in the middle, and some are going to lag. And it doesn't it's not necessarily their state of current development or their state of current energy sophistication, we'll we'll call it. It's their embrace of the of change and their their willingness to invest in these new technologies.
Markham:And I think China is just the poster child for this. I I know we call it the the the electrostate. And China is really driving change, isn't it?
Lucy:Absolutely. China now is moving very fast, has installed more wind, more solar than any other country. In fact, the solar installations in China in 2023 were higher than solar installations in the rest of the globe combined. And as a result, they have some of the lowest electricity costs on the planet. So yes, policy in the energy sector is absolutely vital, policy and long term commitment to really, enable these goals of the energy transition.
Markham:Yeah. Your report talks about regional differences, and we I tend to think of the world as global North, global South. And it's clear that the, China is leading change, and it's moving into the global South, into Latin America, into Africa, into Middle East, and into into Asia in a big way and is bringing along not only its export of these clean energy technologies, but it's also got a manufacturing in, investment strategy. And it's industrial diplomacy, I've heard it referred to. So what role do you think, China will play?
Markham:Or maybe the better question is, how will China affect the development of those emerging economies in the global south?
Lucy:I would say, of course, the a a lot of the technology that is produced or that is needed for the energy transition is currently produced in China. So solar PV modules, also batteries. China is a large producer, so it has an important role to play globally as well as for its domestic production. I think more generally in our report, you mentioned And absolutely, there are important regional differences. I mentioned at the beginning that we see big uncertainty and therefore more turbulence in the North American market, also in Europe.
Lucy:But Middle East and Africa are powering ahead. And actually there, the reason is that we see huge optimism in Middle East and Africa about both aspects of our energy supply, both fossil fuels and renewables are growing fast there. And so we see that as the reason why there's, you know, big optimism there, whereas much greater uncertainty in other regions.
Markham:Well, let's talk about The Middle East and and Africa for a moment because we're seeing some of the supermajors shift their investments, their their, upstream oil investments into, places like Guyana where they have low breakevens sort of anticipating this decline in in in oil demand maybe after 2030. But I have I've interviewed the some some of the African producers, and they're very bullish on this idea that the global South, is going to stick with with oil and gas, as opposed to electrifying. And how do you see that playing out, you know, particularly in Africa? But in fact, also, I guess now that I think about Middle East, I mean, Saudi Arabia and some of those other countries, I mean, they're pouring billions, tens of billions into things like hydrogen and and solar and so on.
Lucy:Exactly. So our own studies demonstrate that the the energy transition, so the transition towards electrification and through electrification to higher percentage of renewables in the energy mix is happening across all global regions. And of course, the pace is slower in some than others, we've just mentioned, but that will happen in Middle East and Africa as well. And as you've highlighted, huge investments in some of the world's largest solar plants in The Middle East, actually to demonstrate that you can have 20 fourseven power a combination of solar and battery installations. And so I would argue based on actually the facts of what we've seen already, as well as deep analysis of where the technologies are heading and where policies are heading, is that that energy transition is going to happen across all those regions, including Middle East and Africa.
Markham:I wanted to since you're DNV is a Norwegian company, I want you to maybe hopefully, you can you address a a common myth, which is, you know, because Norway has got huge electric, hydroelectric resources. It's, leading in EV adoption, certainly in Europe. And and Canadian oil producers always like, well, yeah, sure they're doing that, but they're also increasing their oil production. And one of the things that strikes me is is that, and I think you alluded to it, is oil is going to be lower cost but also lower emissions intensity. And that's where Norway has a strategic advantages, has fields like that Johan Sverdrup, where their emissions intensity is less than one kilogram per c o of c o two equivalent per barrel.
Markham:Why wouldn't Norway continue to increase low emission, low cost oil? That's that's where the market is going. Would you agree?
Lucy:Perhaps I would look at it from a different angle. As I mentioned, we expect that by mid century, we will still be getting around 50 of our final energy from oil and gas. So there will still be oil and gas production. And it's important that we decarbonize that as fast as possible as well. And that is across the value chain.
Lucy:So looking at lower electrification, for example, of platforms, how you reduce the emissions from that whole process, but also how we deploy carbon capture and storage. So Norway is one of the leading countries when it comes to carbon capture and storage. And that is an area where we expect to see huge growth in the coming decades so that we can reduce the impact of the ongoing use of oil and gas?
Markham:Well, you you mentioned electrification. And one of the I I think it's fairly recent, I I I would say, I'd argue about 2020, 2021. And that is that clean energy technologies like wind and solar and batteries and EVs and heat pumps and so on really pass their inflection point on the s curve around that period so that they're now competitive with existing fossil fuel based technologies in the marketplace. And in many places, I can think of, like, China, EVs are very, very affordable. They may not be in North America.
Markham:They are in China. Same with solar panels. Very affordable in China, not so much in manufactured in in North America. And to what extent do you think the economic competitive, the cost competitiveness of this new technology is going to play an increasing role as we go forward?
Lucy:That's a very important point. So I talked about our projections to the uptake of different technologies over the coming decades, and our modeling is based on the cost of those technologies over the future years. And so each of these technologies that we're talking about, wind, solar, but also carbon capture and storage, and of course the uptake of EVs, those are and batteries. Those are going down the cost curve because as they become more widely installed, as those industries scale, the cost continues to decrease. And there are clear models based on historic patterns of how we expect those costs to decrease.
Lucy:That is a huge driver for this accelerating energy transition.
Markham:Sure. And, of course, China is leading the scaling up of those technologies and the bringing down of costs on the on the the learning curve. In terms of the the top priorities to accelerate the transition in your report, I noticed two or three that were at the top. Expansion of energy storage, more investment in in renewables, and grid modernization. And I wanna focus a little bit on grid modernization because and I and I speak from the Canadian context on this where grid managers, policymakers don't realize or don't realize enough that when you start integrating intermittent renewables into your grid, you have to change the grid.
Markham:The old grid is not set up for intermittent, power generation, and you need things like long term transmission and market reform and and storage and all of that. Is that what you're talking about with grid modernization and smart grid technologies?
Lucy:There are a number of different elements here. So it's absolutely the case and, you know, clear that if we're going to increase the level of electrification of our energy use, then the power grid needs to expand as well. And we see the power grid as the backbone of the of of the new energy sector. The the need to modernize is required in many different ways. I mentioned the need for digitalization.
Lucy:So in a much more complex grid where we have different types of generation and also different types of demand, then the types of decisions that need to be made have to be automated. And so that's where the use of digital technology becomes essential to be able to manage the grid. And you you talked about modernization in terms of market reform. Of course, current market rules are often built around conventional generation, and so those market rules need to be reassessed in the light of how a modern generation and demand will will be balanced. And and then, of course, there is investment in the infrastructure itself.
Lucy:This is something that is really being closely looked at right now. And certainly, there's a need for huge investment in grid infrastructure, but also there's a need to make better use of the infrastructure we have right now. So currently, the way that we approach grids management is that that we can usually aim for total redundancy to ensure that if there's any in any incident in the grid, we can continue normal operation. And there are different techniques that can be employed to improve the actual percent usage of grid infrastructure without build out of of new new hardware. So although I would say all those elements need to be looked at, digitalization, new new transmission and distribution lines, but also looking at the way that we use the current infrastructure and, of course, the the market rules that you mentioned.
Markham:One of the I I wanna ask you, Lucy, about, winners and losers because, in 2025, I think we've the energy transition is advanced enough that it's very disruptive. We're seeing industries like the auto industry be seriously disruptive. We can anticipate probably the oil industry will be disrupted because it's upstream of the auto industry. All of these new technologies around the power grid that have to be integrated. There'll be lots of learning, you know, learning by doing.
Markham:Mistakes will be made. Not everybody is going to surf the energy transition as successfully as, as others. So if you were just, I don't know, spitballing, who would looking at the current, landscape of countries and players, who might be successful is taking a a successful you know, a smart approach to this, and who might not be as successful?
Lucy:I think it's good to go back to the parallel you mentioned earlier about changes in transport. And so what we're talking about here is massive and and massive change, transformation of an entire sector. And I think the losers are going to be those who refuse to accept that change is happening and try and stand in its way. And the winners are going to be those who are forward looking, see that this is both happening and very much needed, and are going to be able to grasp the huge opportunities that are lying ahead. And so as with any change process, looking forward rather than trying to stop it is, the way to success.
Markham:On that on that note, we're right now, the technology the electric technologies are competitive, but that doesn't mean that their competitive advantage is pronounced in all regions. It doesn't mean that, the the benefits to consumers are so sing overwhelmingly significant, but it holds the potential to be that. And your report talks about energy efficiency that comes along with electrification. And I we've we're big fans here of, the work of professor Nick Eyre from Oxford, you know, who's talked about how, by 2050, primary energy demand, could be half or 70% of what it is now simply because electric technologies are more efficient and then hence lower cost. Just your your view on that, please.
Lucy:Yes. Absolutely. That is also something that we look at that even though we expect that there's going to be a huge growth in GDP over the coming decades, actually, we begin to see a decoupling of GDP from energy demand. And that has not happened. If you look at the charts of GDP and energy demand, they go tracking pretty steadily.
Lucy:But now with the move towards electrification and the efficiency that comes from that electrification, we expect those two curves to decouple. So we will see continued increase in GDP, but leveling off of energy consumption as a result of the energy transition. So that at a high level, of course, is one of the benefits. I think I'd like to touch on also an important aspect is the affordable energy transition. Actually, while I talked about the need to invest in grid infrastructure, of course, invest in new technologies.
Lucy:But what we see in the longer term is that actually the total percentage of GDP spent on the energy sector will reduce as a result of the shift to renewables and low carbon technologies.
Markham:Well, Lucy, this has been a fascinating conversation. I really appreciate your insights. Thank you very much for this.
Lucy:You're very welcome. Thank you for the invitation.