26 JAN 2022
The geopolitics of the energy transition – changing tectonics
Fundamental changes are taking place in the global energy system that will have significant geopolitical implications. These changes will affect almost all countries and will have wide-ranging consequences on economies and society. The geopolitical balance will shift and the dynamics of relationships between countries will also be transformed. Major oil-exporting countries will have to review their economic models and what it means for stability. On the other hand, many countries with large renewable potentials – whether high solar or wind power – still belong to the classic developing countries. How can the risk of geopolitical upheaval be prevented?
Let us start at the beginning. What do we mean by energy transition? At its most basic level, the new energy transition is a shift from hydrocarbons to electricity. To put it simply: our world order has been based on oil. That is gradually changing. The importance of electrons in the overall energy supply chain will continuously increase. The use of electricity is already surging. It provides about 20 percent of energy today, and will have to rise to 50 percent by 2050, if countries are to meet their climate commitments according to the International Renewable Energy Agency (IRENA). Electrification will be a decisive answer for net-zero.
The socio-economic impacts
The pace and scale of the transition has already shot past the most optimistic projections. Another reason for the fast-track transition is that the energy sector holds the key to averting the effects of climate change. We have reached a tipping point and the conversation around clean energy is higher on the agenda than ever. Currently, 14 members of the G20 had announced net zero targets by mid-century, covering 61 percent of global greenhouse emissions, according to Climate Transparency Report, 2021. How fairly and how fast the energy revolution happens is the biggest challenge of our time.
Properly designed and implemented, energy transition will ease progress towards all 17 of the Sustainable Development Goals, not just the goal that relates to universal, affordable and clean energy. It will enhance energy independence for most countries and thus the number of energy-related conflicts is likely to fall. It will also promote prosperity and job creation; improve food and water security; and enhance sustainability and equity.
For example, the US and EU’s plans for green recovery will give a boost to several clean energy technologies. Same for China which is investing heavily in renewable energy technologies and cross-border interconnectors.
As countries prepare for their target of net-zero emissions by 2050, some regions such as the Middle East, are planning to trade more green fuels, such as hydrogen or green Ammonia. This gives rise to a whole new constellation of markets and bilateral trade relationships. We could see a new class of energy exporters that may emerge.
At the same time, the energy transition will generate new challenges. A rapid shift away from fossil fuels could create a financial shock. Workers and communities that depend on fossil fuels maybe hit adversely. That is why we need to develop technologies to enhance a smooth transition.
Countries leading the energy transition race
In the new energy world, technology will be an important differentiating factor. There will be three ways for countries to exert influence in the new system. One is by exporting electricity or green fuels. Another is by controlling the raw materials used for clean energy technologies, such as lithium and cobalt. The third is by gaining an edge in technologies such as electric vehicle batteries. With renewable resources so readily available.
How to transport this energy and ensure it reaches people in an efficient and affordable way is a big piece of the puzzle. Hence, trading power will also be on the rise with an increase in cross-border electricity interconnection projects.
For example, our engineers helped construct Nemo Link, the first high-voltage (HV) interconnector between Belgium and the UK, which can supply up to 1,000 megawatts of clean electricity. It is also one of the several HV transmission links connecting Britain’s electricity grid to the national grids of neighboring countries. In the middle of this transformation lie power grids, the true enabler of energy transition.
Opportunity for transformational change
To ensure the success of a global net-zero approach, we need also to understand some aspects:
1) Regions might take longer on the fossil fuel transition because of the specifics of their development or their energy landscape.
2) Legacy energy infrastructure will need attention and adequate investment.
3) We need also to tackle socio-economic aspects, so we do not end up having winners and losers.
For regions such as the Middle East, which is blessed with natural resources, but also has abundant renewable resources, the transition could be an economic gift. We see many countries working to leapfrog technologies based on fossil fuels with ambitious economic diversification plans.
We are actively supporting the countries of the region through piloting new projects to accelerate the energy transition. A few examples include our partnership with Dubai Electricity and Water Authority and Expo 2020 to construct the region’s first solar-driven hydrogen electrolysis facility. The project also sets an example in public-private partnerships. We also joined forces Masdar, the Abu Dhabi Department of Energy, Etihad Airways, German Lufthansa, Marubeni Corporation and Khalifa University to produce aviation eFuel. This is in addition to other agreements recently signed in both Egypt and Oman to develop their hydrogen economies.
Despite difficulties, the energy transition will ultimately move the world in the right direction by addressing climate change, combating pollution, promoting prosperity, as well as sustainable development. But it requires new frameworks, cross-sector partnerships between public and private sectors, and stronger international cooperation to underwrite our common journey.
Dr. Christian Bruch, President and CEO, Siemens Energy