Risk Governance of Energy Transition Nadejda Komendantova

R

International Conference Renewable Energy Applications for a Sustainable Agriculture December 2-4, 2014, Tunis

Potentials of renewables for energy transition (globally)

Cho, Science, 2010

Source: IPCC WGIII AR5

Allocation of GHG emissions across sectors and country income groups

Sources: International Energy Agency, German Aerospace Centre

TWh/

year

Solar potentials in Europe and North Africa

Benefits for MENA from developing renewables

• Supply for local demand • Diversification of energy

sources • Technology transfer • Impulses for socio-

economic development • Export revenues from

energy trade (Europe, Asia and Sub-Saharan Africa)

Incentives to deploy solar energy in North Africa

Public MSP, Transgreen

North African national and

regional targets and incentives

Private DII, Sahara Solar

Forest, join ventures, small scale

There are several on-going public, private and local incentives to deploy solar energy in North Africa. What are the impacts from these incentives? What are the risks for their realization?

On-going efforts to deploy renewable energies in the region. What are impacts and risks from their realization?

International

Regional public

Regional private

National private and

public

Top-down

Bottom-up

Existing institutions do not sum up to a coordinated governance approach (Fritzsche et al., 2011)

Risks and uncertainties

Climate and energy security

Socio-economic security

Environment security

Risks for security of energy supply Public acceptance of new energy technologies Impacts on costs of energy

Multiplier effects from investment on local economy Employment creation in solar industries

Water use and water scarcity Land use and property rights Impacts from desalination

We need holistic and interdiscip-

linary approach to governance

to bring different goals

together

Energy transition in MENA region

requires not only technical and economic capabilities But also understanding of governance of the transition process, including decision-making, institutional structure, uncertainties, acceptance and risks perceptions of different stakeholders

Transformation of energy systems

Local solutions and practices based on best cases

POLITICAL WILL

Energy sector: drivers and barriers

SCIENTIFIC EVIDENCE

Costs of energy system transformation

ECONOMIC & CIVIL SOCIETY

PARTICIPATION

Who:

Government, investors, civil society Action: Including

stakeholders feedback

Policy options: addressing social, economic and environment concerns

Key Influence: climate, energy and

socio-economic security

Problem: Transformation of energy system and addressing lock-ins

Focus:

Participatory governance

Government Policy

Investment & Finance

Infrastructure & Planning

Market Structure

Supply Chains

Generation Capacity

Grid Capacity Demand

Enabling Areas

Delivery Areas R&D

Energy transition and need for governance

But we also need to understand expectations of different stakeholders to make governance policies robust and sustainable

Expectations on renewable energy

projects

Private sector Perceived risks for

investment

Public sector Drivers for growth such as multiplier

effects from investment and jobs

Inhabitants Public acceptance and

awareness issues

Operationalizing research on governance is more than communicating scientific results to policy-makers and analyzing how these results are perceived and implemented

But it is also

• working with stakeholders to co-generate actionable knowledge

• analysis of how governance structures shape decisions and outcomes

• research on decision-making processes, public acceptance, risk perceptions, cognitive biases and cultural perspectives

Actions, processes and institutions to

implement decisions (IRGC,

2011)

Principles of cooperation, participation and effective

risk management (Renn, 2008)

Systemic approach to positions of stakeholders (Thompson,

2006)

• Why is it important to understand perceptions of risks, expectations and concerns of stakeholders?

• They can be a barrier for deployment of RES

• Make it more expensive

• Can impact implementation of RES deployment strategies

• Successfully addressed can be a driver for stability and growth in the region

Few examples are following

Cost of energy is influenced not only by availability of resource but also by weighted costs of capital

Effect of GHI on LCOE per country (US$2011/kWh):

Source: Ondraczek, Komendantova and Patt, FNU Working Paper, 2013

Effect of WACC on LCOE per country (US$2011/kWh):

Source: Ondraczek, Komendantova and Patt, FNU Working Paper, 2013

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

9.0%

10.0%

Europe Algeria Egypt Morocco Tunisia

environmental

operating

construction

financial

force majeure

technical

revenue

political

regulatory

Euro area rate

The financing cost gap

The weighted average cost of capital (WACC) for CSP investment in North Africa compared to the Euro area WACC

+4.3 pp +5.0 pp

Source: Schinko and Komendantova 2014

0.00

0.05

0.10

0.15

0.20

0.25

0.30

0.35

0.40

North Africa(mean)

Europe North Africa(mean, withEuropean

financing costs)

Europe withNorth African

financing costs

[USD

/kW

h]

LCOE for CSP investments in Europe and North Africa: alternative financing costs

Levelized costs of electricity (LCOE) for CSP electricity generation in the North African region (mean) and Europe (in USD/kWh): the Status quo (first and second column) and for alternative financing cost

Source: Schinko and Komendantova 2014

Can renewable energies (RE) be a driver? Multiplier effects on economy and job creation processes

Expectations of public sector stakeholders: growth and jobs

GDP growth (annual %) in 2001-2009

Unemployment, total (% of total labor force)

0

1

2

3

4

5

6

7

8

9

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

AlgeriaEgyptMoroccoTunisia

0

5

10

15

20

25

30

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

AlgeriaEgyptMoroccoTunisia

Source: World Bank Development Indicators, 2012: African Development Bank, March 2012

Transfer of renewable energy technologies (RET) • Transfer of RET to developing countries is one of the most

important objectives to industrialize (Romer, 1990) and to limit GHG emissions in these countries (UNFCCC and Kyoto Protocol)

• It is crucial to accelerate the spread of RET in non-OECD

countries (IEA, 2010) • Several forms of RET transfer possible: joint ventures, foreign

direct investment, governance assistance programmes, direct purchases, joint research and development programmes, franchising and sale of turn-key plants (IPCC, 2000)

Vertical RET • New RET are given via investment to a target group • Transfer of know-how to local manufacturers and

technological spillovers are limited (Jabbour, 2005) • Example: large multinational corporation sets factories in

developing countries to bring down costs of production • Managers and technical staff are nationals of developed

countries, general workforce is from developing country

Horizontal • Formation of joint ventures between foreign and local

companies, including technical and business training • More lengthy process but allows embedding of technology

within local population and economy (Gallagher, 2006) • More preferable for local economies as skills and knowledge

are transferred but makes it more difficult for foreign companies to protect their design and to control quality (Pack and Saggi, 2001)

Source: World Bank, 2009; IEA, 2009; SolarPaces, 2003

Jobs created from vertical and horizontal RET

Jobs years per 100 MW 0% 40% 60% 100%

Planning and Construction 74 83 146 151

Materials and Components 126 240 284 463

Total Direct Jobs 200 323 430 614

Induced Jobs 1.520 2.455 3.268 4.666

Source: Komendantova and Patt, Renewable and Sustainable Energy Reviews, 2014

Expectations on growth and jobs can be realized but with deployment of manufacturing RES components industries

0100200300400500600700800900

1000

0% NREL(California)

100% ESTELA

Direct JobsInduced Jobs

Source: Komendantova and Patt, Renewable and Sustainable Energy Reviews, 2014

Thou

sand

s jo

b-ye

ars

Example solar: collector assembly and installation, ground works, production of mirrors and receivers Local share of value chain: short term 17%, long term 80% (GIZ, 2011)

Impacts from investment into solar projects on GDP much higher than on income

Type of Multiplier

Base scenario (current level of investment)

Desertec scenario

Local scenario

GDP 1.62 2.12 1.67

Income 2.15 2.19 2.04

Output 4.04 4.32 4.46

Source: Bakr and Komendantova, Jorurnal of Renewable Energy Research, 2014

Public acceptance is already a barrier for deployment of RES

MENA could profit enormously from RES development But for this to happen right policies in place are needed

Impacts of renewable energy development

• There are numerous initiatives to develop renewable power in MENA countries, for local use and for export. Activity to date has been strongest in Egypt and Morocco.

• ETH and IIASA plan to provide scientific guidance to ensure that such development provides the greatest possible benefits, particularly to people in MENA countries.

2016 2017 2013 2014 2015 Energy security

Human development

Local environmental quality

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• Nine narrowly defined one-year research projects, leading to separate journal articles.

• Scenario specification, data collection in situ and online, statistical analysis, numerical modeling, writing.

• Separate and integrated policy appraisals, to be precisely defined.

• Stakeholder dialogue, numerical and conceptual modeling, historical case study evaluation, writing.

Tasks

Objectives

Contact Information Nadejda Komendantova komendan@iiasa.ac.at