The global energy crisis: has net zero been sidelined?

MATHIAS STECK    Hello and welcome to the 13th series of the DNV Talks Energy Podcast. I'm your host, Mathias Steck. During this series, we’ll be exploring some of the key insights from DNV’s Energy Transition Outlook, our annual independent model of the world's energy system, and what they mean for the future of our planet. Across the series, with the help of leading industry guests, we’ll shed light on what's happening right now and the forecast as we move forwards. We’ll explore topics from the geopolitical developments affecting the energy transition to what's needed from technology, finance and policy in delivering net zero. Crucially, we ask – how do we move from ambition to urgent action over climate change?

I'm delighted to be joined by Kazunari Fukui, Decarbonization Leader for Asia at GE Gas Power and responsible for the development of power service business in Asia-Pacific, covering North Asia, ASEAN and ANZ regions. In this episode, we focus on the global energy security crisis, and we ask the question – has net zero been sidelined? Together with my guest, we will explore solutions for how countries can balance immediate energy security needs while at the same time accelerating the move towards clean energy production and distribution. We hope you enjoy the episode.

Welcome, Kaz, to DNV Talks Energy. It's a pleasure having you here.

KAZUNARI FUKUI    Thank very you much for inviting us, Mathias, and I’m very looking forward to our conversation.

MATHIAS STECK    And for a start, Kaz, it would be great for our listeners if you could briefly introduce yourself and tell us a bit about your background in GE.

KAZUNARI FUKUI    Sure. So, my name is Kazu Fukui. I currently manage the Asia gas power decarbonization for the region. I've been with GE for sixteen years, primarily working in the energy sector, working on the various business development marketing area. And recently I've been managing the power service business, managing our fleet in Asia Pacific, and then just transferred to this decarbonization role.

MATHIAS STECK    So, the last couple of years, we have seen quite a few crises, which all had an impact on the power sector. We had a demand shock during the COVID crisis. We have a supply shock now due to the invasion of the Ukraine by Russia. And at the same time, we have seen very visible signs of climate change, which remind us that the energy transition is a very important thing to drive forward. In your view, what do these competing crises, what impact do they have on the energy transition?

KAZUNARI FUKUI    Certainly, and we saw in our customer’s operation as well as in industry, in terms of change in the demand, change in the operation of our units and fleets, in the market, and then associated changes in the fuel price and so on impacting our customers. What we see in this dynamic, is both opportunities and threat. In terms of the environment, we see increased awareness of the customers and then also the governments alike in terms of energy security, making sure that their portfolio of energy solutions are working, rather than relying on one type of solution. And then when you look at the changes in the commodity prices and so on, we see this as a potential opportunity as well. With increasing fuel prices, that means it drives more awareness in terms of energy efficiency, makes more of the clean technologies more competitive in that market space. So, there are various dynamics we see together with these so-called crises being faced.

MATHIAS STECK    So in terms of the timeline of these impacts on the energy transition, how persistent do you think will they be? Is that more like a short-term effect or will it have an impact on the overall race to net zero, to 2050? Or will it maybe even help us to accelerate in parts?

KAZUNARI FUKUI    Yeah, so that's a very challenging question, Mathias, to ask. And then certainly we all know the challenge of achieving net zero by many governments and countries target by 2050 is a very aggressive target, and everyone's racing towards that. Now, I think this short-term crisis did both things, Mathias. Back to the point that I made earlier in terms of the near term, they will cause some slowdown. You see some of the governments in Europe shifting back to traditional technologies in order to secure the energy security. But at the same time, it drove some of their more acceptance, economic viability of some of the more cleaner technology in place as well, right. So, I think the dynamics is both, it’s very difficult to say at this stage whether it’s simply made us reach 2050 quicker or slower at this stage.

MATHIAS STECK    So in your opinion, how much does this imbalance play a role now that we have, of course, this fact, which you just mentioned, that in Europe there's a strong pressure also to become independent of energy supply. But at the same time, we, of course, see costs increase, we see high inflation, we see mounting government debt. What does it mean for the balance of the energy transition globally?

KAZUNARI FUKUI    And I think that's a good point, Mathias. That's – what this brought into the picture is the awareness of the complexity of solutions we are trying to tackle and the realization that one solution doesn't resolve all, right? So, relying completely on renewable, just because it's more economical and is green doesn't help there, when it comes to the agreed stability or energy security aspect of it, and there's now realization that we have to pay for that peace as well. But again, newer technologies as they get introduced, they become more cost competitive as well. We’ve seen the dynamics in the renewable sector and, hopefully, in areas like hydrogen and carbon capture, etc., similar dynamics take place in terms of bringing down the economics, right? So maybe there's a near-term impact in terms of that kind of increasing energy price and so on. But then again, over time, hopefully this balances out and then yeah, brings to the other cleaner solution there.

MATHIAS STECK    So we have heard from previous COP events that ambitions of world leaders are defined towards 2030, 2050. We haven't seen maybe the actions we wanted to see. What role do the important industry stakeholders play here? And GE most certainly being a very important stakeholder in the energy industry, how can you contribute to help this race to net zero?

KAZUNARI FUKUI    So, as a OEM of various technologies, we feel we are pretty unique position. GE, we are privileged to have a portfolio of solutions in this space. So, we're not only talking about the gas power, which I represent, but then we're looking at the renewables, the nuclear, the hydro, then storage solutions, digital solutions and so on. So, we're looking through the various portfolio solutions. We have the vantage point to look at what the industry requires. And the role of the OEM is to provide, number one, the reality of what technology is feasible to do. But we've got to be very clear in terms of what the technology solution can be provided to policymakers and to our customers, and then also we have the influence, in terms of making sure the best technologies are being adopted in the right way. So, that's really our position in terms of having the understanding of technologies and their potential, making sure the advocacy works for the governments and our customers so that the right solutions are being implemented over the long period of time.

MATHIAS STECK    So gas may be one of the energy sources which we still need for quite some time. There is, of course, now also a lot of pressure on this energy source. If you see then all of the competing energy sources we have and we have in mind the large amount of renewables we will add, how does that, looking a little bit behind the scenes, inform your way forward as an organization? Again, coming back to this theme, how you contribute, right – so, what are the key technologies you would say now going forward?

KAZUNARI FUKUI    So, when you look at the industry, Mathias, I think you agree the power demand continues to increase. We’ll see the global capacity increase by more than twice over the next 30 years, generation requirement increasing by 70% over the next 30 decades. These are the unstoppable factors. So that's number one. And then to accommodate that, we need more generation capacity. Of course, the renewable growth, there's no question about it. There'll be a tremendous renewable growth between solar, wind, onshore, offshore – that will continue. But in parallel to that, as you deploy these renewable technologies, we need a dependable power to back it up. When the wind is not blowing, when the sun is not shining, we need a backup power. Now, that can be in the form of storage and storage technology is improving. But when you talk about the longer period of storage, really today we rely on the gas technology.

Now, we believe this combination of renewable and gas to be a very key driver in achieving this net zero target, eventually. Near-term, the gas will provide the dependency and support for the renewable. And of course, in the near-term, it’s natural gas operated, so you say, there’s still emission there. But the beauty of the gas technology is that over the long term there's a potential to utilize pre-combustion hydrogen or post-combustion carbon capture in order to achieve the zero-emission technology, right? So the beauty of the gas being that, in the future, there's a potential to get to net zero while in the near term providing the immediate solution for renewable. It would be – we see it as a winning combination in this space.

MATHIAS STECK    I would like to go deeper on this in two angles. So, first of all, on the replacement of gas by hydrogen in, for example, hard-to-abate sectors, how do you see the pace of which that is moving? Which is then leading over to technologies, actually. If we are not fast enough to close the gap, reducing the emissions as much as we need to, how do you see then CCUS as the viable technology to solve this problem?

KAZUNARI FUKUI    If you deploy the gas technology, Mathias, we believe there’s two stages of emission reduction. Firstly, is switching from coal. Coal to gas shift already reduces 50 to 60% emission down. The latest technology, HA technology we have, it comes down to 60% reduction. So that's number one. And then to your point about for the future, how do we get to the hydrogen and the CCUS? Hydrogen, no doubt there's going to be a significant challenge, right, in terms of infrastructure build, economic viability of it. And there'll be a tremendous challenge in terms of infrastructure.

Technologically, actually the hydrogen presents less technology difficulty for us. Today our gas turbines, we have 100 gas turbines operating on hydrogen or equivalent low calorific value fuels, and there’s about 8 million hours of operation already. So, in terms of – can our gas turbines burn hydrogen? They can burn hydrogen. Now, different degrees of hydrogen, of course. Some units can do 100%, some units we’re promising 50%. Most recent demonstration we have done is in New York. New York Power Authority has done a demonstration with one of our aeroderivative LM6000 units and they achieved 44% hydrogen. So these technologies are there.

But, question comes to hydrogen supply and how much of this we can achieve. And then, when you come to the capture technology, again, technology based on EMI capture has been around. This has been already deployed globally in various chemical plants, oil refinery plants and so on. It's a question of, again, getting to the scale and the economics of it in terms of implementation. And we see that as a challenge. So it's more of the infrastructure challenge, the economy of scale challenge that we are looking at, versus the fundamental science or technology challenge.

MATHIAS STECK    So how about then the rise of CCS and CCUS and the chances of that?

KAZUNARI FUKUI    We highly encourage all sort of development in this space. And then we see to your point that people are trying different flavors of hydrogen today. We see significant development in the region as well and then in places like Australia, developing green hydrogen development and offshore suddenly present a promising renewable source for the region. We see lots of offshore developments in Japan, Korea, Taiwan and in Vietnam as well, we're talking now, and leveraging that electricity to generate green hydrogen, suddenly is a viral thing.

But we also have to be cognizant about the one solution, not providing another problem. Creating green hydrogen, of course, there's a challenge in terms of water requirement, it requires a significant amount of water. Again, we need access to the water to be able to generate hydrogen. So, one thing we're always concerned about is that we're not creating another problem by solving one problem in one place.

MATHIAS STECK    So, talking a bit more about trends we see in hydrogen, hydrogen production and the different colors of hydrogen, one very interesting area is to combine offshore wind, electricity production, with then electrolysis to hydrogen either offshore or onshore. What would be GE’s view, your view on where this is going?

KAZUNARI FUKUI    So, as I mentioned in the beginning, the business area from DNV that I represent is called Energy Systems, and there's a good reason for that. And the reason for that is, obviously, that the future is very much about thinking systems and integration of systems. So, we have to think about collaboration both from an energy systems perspective, but also a cross-industry perspective. And I think this is very important to remember, that there are so many industries now that are obviously using energy and the way that they think about using energy going forward. And we need to work with all of them and we need, together, to find the right optimal solutions.

One example, for instance, would be, what will be, since we are in Singapore here today, what will be the future role of ports if you're not going to use them anymore for shipping out of coal? What role can they play if you have to bring a massive amount of electricity from offshore wind parks in and store it and distribute it into societies? So just for instance, the ports are going to play a new role, the vessels are going to play a new role if they're going to either be electrified or be running on green fuels, etc., etc. So, we need to think about everything in the infrastructure in a different way and how they need to adjust in order to – because we are changing to using a complete new type of fuels going forward and the way we are going to work with that. So, it is not just an energy transition in brackets, it is a – I would call it nearly an industrial revolution, because we need to change so many things across industries. So, it involves everybody who is actually consuming energy.

MATHIAS STECK    So, coming now from these opportunities, new technologies, we will have remaining industries which still create large pollutions. What could be promising technical solutions there to help?

KAZUNARI FUKUI    And I believe that's why there's so much attention to the energy sector. So, if you think about the global emission, energy sector only represents 40%. So, why do we talk so much about reducing the emission from energy sector? That's because we believe decarbonization, or getting the energy sector clean, has got a potential implication to other areas, in terms of spreading the benefit. And then, to a point, there could be a manufacturing process which can be electrified, transportations which can be electrified and so on. So there is a ways to do that. So in our view, to achieve this, net zero, requires a balance. There will certain industrial processes which you cannot stop the emission. Then you have to get some of the emissions down in other places, or even talk about negative emission in terms of direct air capture and so on, right. So, we believe all this technology development to balance out and achieve this net zero rather than zero everywhere I think is – will be the key.

MATHIAS STECK    One more area I'd like to go into is barriers which could hold us back, and these could be adjacent technologies, as the grid, for example, for both electricity and gas or even hydrogen, because at some point we need to get it to the households and the factories. What do you think needs to be done there and do we need to see more investment in this place?

KAZUNARI FUKUI    And that's a brilliant point you bring, Mathias. It's completely true. We've been focusing our discussion so far on generation side, but certainly as a business as well, we see a challenge on the grid aspect. Now, grid, of course, it was originally designed for unidirectional supply from central generation to the eventual uses. Now we're talking about the bidirectional flow of the electrons in a grid. Also, the unpredictability of supply and demand, causing lots of challenges for many of our customers as well. And that's certainly the dynamics that we're observing.

And then with this, the flexibility of the power supply becomes very important. And that's where again, another value of the gas technology brings is the flexibility. Renewable, we have to depend on whatever the weather takes. When you have the flexible power, you can actually match the supply and demand much more effectively. So again, together with the energy storage method, we believe that kind of flexible generation supply is required. But we agree completely – there's a tremendous amount of investment required on the grid side and our grid business is significantly working on that area as well. And then, divergent technology like digital technologies, making the grid smarter and to be able to manage the supply and demand – certainly a very big topic that we’ll face.

MATHIAS STECK    As the last question. I would like to ask you a personal question. In the last couple of years, we have all acknowledged that climate change is a threat. Despite that, we have seen that emissions have increased, and we can't afford this going forwards. So, from your personal perspective, how optimistic are you that we will now actually see actions which drive us towards net zero so that we reach the 1.5 degree future?

KAZUNARI FUKUI    And I think that's an interesting dynamic, Mathias. We traditionally saw the advanced economies, the consumption per capita energy efficiency improving, and then it was getting to a stable point or reducing in some countries, but now, with electrification of things, the consumption is going up, so, and then rising middle class and everything. Again, there's no stop about our growth and then consumption of electricity, which in my personal view is a good thing. It's a progress for our society, it’s a good thing. But then how to do it in a sustainable, reliable and affordable manner? That becomes the question.

I personally remain optimistic in this space, Mathias. I'm always impressed with human ingenuity, advancing technologies we achieve when the right support framework is there. We’ve seen a number of cases throughout the history of this technology development and even recently, we've been surprised with the rise of renewables and the how economical it got and so on. So, when you look at the future technologies, like hydrogen, carbon capture, getting to net zero by 2050, I personally remain pretty optimistic in this space. But of course, this is a very complex issue, which requires a global work together and collective effort to get there. So, very much looking forward to the journey ahead. And then this kind of discussion, you know, DNV is hosting, is a very important part of the equation. So I really appreciate you hosting this event and then allowing me to share these kind of thoughts. Yeah. Thank you.

MATHIAS STECK    Thank you so much, Kaz. We've covered a lot of ground and it was really great having you here.

KAZUNARI FUKUI    Thank you very much, Mathias.

MATHIAS STECK    The energy transition is an ongoing journey and Kaz explained to us how we can meet urgent energy needs now by moving towards a cleaner energy future. In particular, he highlighted the role of gas, the lower carbon fuel, which can be further decarbonized to limit its impact in bridging towards even cleaner energy use as we go forward. It was encouraging to hear his practical vision for how the world can reach net zero. Join us next time as we discuss global carbon emissions, the lower than hoped for progress over reducing them and how major emission hotspots can be reduced in the effort to achieve net zero.

To hear more podcasts in the series, please visit dnv.com/talksenergy.