Accelerating the energy transition

NARRATOR Welcome to the DNV Talks Energy podcast series. Electrification, rise of renewables and new technologies supported by more data and IT systems are transforming the power system. Join us each week as we discuss these changes with guests from around the industry.

MATHIAS STECK Welcome to a new series of DNV Talks Energy. Our guess today is Remi Eriksen, DNV’s Group President and CEO. Welcome Remi.

REMI ERIKSEN Thank you so much, Mathias.

MATHIAS STECK Remi, we wanted to talk about DNV’s Energy Transition Outlook today, but before we do this, it would be great if you could elaborate a bit on your impressive career in the industry. And especially I’m curious what it means if you call yourself a technology optimist.

REMI ERIKSEN Well, yes, I can do that. I’ve been with DNV for almost 27 years. I worked within the maritime industry, the oil and gas and the renewables industry. I had a few years living abroad outside Norway. I had four years in Houston in the US, and I had almost three years here in Singapore. So, I’ve had the pleasure to live in this beautiful country. And I’m also a part of the Executive Committee of the World Business Council for Sustainable Development. We are around 15 directors on the Executive Committee, and I’ve been that for 30 years now. So, that’s also a really inspiring part of my work to do that.

Technology optimist, yes, I’m a technology optimist. And with that, I mean that I believe a lot of the problems that we have around us can be solved by technology. And if you look back and see how much technology has changed our lives and the way we do business, I think we are only at the start of what technology can do for the planet and for humankind.

MATHIAS STECK DNV has just released the third edition of the Energy Transition Outlook, and there are many different forecasts and scenarios out there already. Why do you believe it is important to create our own outlook?

REMI ERIKSEN That’s a good question, and when we decided on this, we didn’t want to add to the pile of scenarios. We wanted to create a forecast, meaning what is the likely future that we see ahead of us when it comes to the future of energy? And so, we decided some three years ago actually to produce our own forecast, not a scenario, meaning we think this is the likely way forward. We need it as part of our own planning for the future and we also need it to have good conversations with our customers.

And when I say it’s a forecast, it means that it’s a technology heavy, policy light forecast of the future. So, it means when technology does the job with some policy intervention, this is the forecast that we believe it will be in the future. Of course, with more policy into the systems, the forecast could be different. But it’s a technology driven forecast mainly. We are also located in so many parts of the world. We have operations in a hundred countries. We work in so many different industries, from oil and gas, renewables, the grids, energy efficiency and shipping. So, we also feel we have a good basis for understanding what technologies are being implemented today. What are the research and innovation activities going in different industries? Which helps us in building our view on the future.

MATHIAS STECK Right, and I understand the ETO is also one of DNV’s most successful publications in terms of downloads. So, this is great to see the interest, but I would like to hear about the highlights you are finding in that report. What are the key highlights when we are looking at energy transition looking forward?

REMI ERIKSEN Well, the key highlights is that we have a fast transition unfolding within the time span of one single generation – so, 30 years. When I say fast, it means that the energy mix will move from 80:20 fossil:non-fossil fuels today to roughly 50:50 split by 2050. So, that’s fast but it’s not really fast enough for Paris, meaning in terms of meeting the goals and ambitions of the Paris Agreement. So, it’s both fast and slow in that sense. But, going from 80:20 to 50:50 is rather fast.

We have the technologies, that’s the good news. We think what is needed is wider and deeper policies to help accelerate the technologies that are already there. We don't think this will be solved by a breakthrough revolution of a new technology. It’s scaling of technologies that already exist today. We also think it’s affordable, this transition, meaning that we will use a lower percentage of the GDP in 2050 than we do today. So, we think with policy action we can actually meet the ambitions of the Paris Agreement, with current technologies scaled faster.

MATHIAS STECK Right, those points we may want to go a bit deeper on. I would like to start with the technology. That’s a really exciting point, that the technology we need for the transition is already there. But what do you think, what are the technologies which will lead the transition?

REMI ERIKSEN Yes. I think a key thing in this future is about electrification of the energy system. So, you can say the future is electric. And the electrification or the electricity will come mainly from renewables. So, we see that about two thirds of the electricity will be generated from wind and solar PV, so that is the clean part of it. And the efficiency part comes from the electrification. So, let me give you two examples. The electrical engine is almost four times as efficient as the combustion engine. So, electrification has the efficiency improvement and the advantages. If you take a lightbulb, it’s 50 times more efficient than a kerosene lamp. So, going electric is also giving you energy efficiency at the same time.

These are two things, solar PV and wind fuelling the electricity two thirds, and energy efficiency will be key. We also think there will be a key component on gas to work hand in hand with the variable solar PV and wind. And gas is a dispatchable source that can be mobilized fairly quickly to balance off the variability of this. So, we think the good future is renewable. It’s about energy efficiency, and there will be a component of natural gas.

MATHIAS STECK You mentioned a little earlier the fact of affordability of the transition, and we know that renewables is one strong pillar of this transition. If we look back, renewables were often accused of being relatively expensive. So, I think the report is driving the requirement that wind should be, for example, five times as much as we have today. What are the findings with regards to the cost of renewables?

REMI ERIKSEN We expect the cost of a kilowatt hour to come down significantly. We estimate the cost learning curve for wind to be in the order of 16%. That would mean for every doubling of deployed capacity, we will have a cost reduction of 16%. And you see that for all kinds of technology, if you review the history, cost of technology is reduced between 10 and 20% for every doubling of installed capacity. And that’s why we have seen this rapid reduction in solar PV costs, in onshore wind costs and also offshore wind costs. So, this is again a forecast based on technology and affordability. And that’s why we expect 140-fold increase in offshore wind and around tenfold increase in onshore wind, which is more mature than offshore wind.

MATHIAS STECK So, these days we hear a lot about climate change, climate emergency in the media. But we also read a lot about digitalisation, so bringing those two now together, what role does digitalisation play in the energy transition?

REMI ERIKSEN I think it’s very important. It’s an enabler for the transition to happen. You need more advanced control technologies of the grid, and then you have more variability. You need to shift energy and power in time, so, storage of course will play an important part of that. And to have a better visibility and transparency between demand and supply, you can manage the energy resources in a much better way. And digital technologies will be a key enabler for this transition to happen. Without these technologies deployed, that energy transition will not happen. So, it’s a key enabler.

MATHIAS STECK Fast but not fast enough, you said earlier and that is a bit of a sobering conclusion to this forecast. There is so much happening at a pace and scale that is extraordinary, yet, we will miss the 1.5 degree target set by the Paris Agreement. How can this gap be closed?

REMI ERIKSEN Yes, you’re right. And I also started, it’s not fast enough and with that I mean over forecast point, to a 2.4 degree future. And again, this is with technology mainly doing its job, because it’s competitive and will be adopted at a large scale. And to close the gap, we need stronger policies, as I mentioned earlier, and we need more renewables.

We need to be better at managing the energy that we are already producing, and we need for many good reasons to make sure that CCS is scaled. We need it for combustion, but we also need it for certain chemical processes where CO2 is emitted. So, it’s not only for burning fossil fuels that you need CCS, but you also need it for other reasons. So, those are the key elements that we can play on to close the gap. But again, the technology is there, scaling technologies. We need stronger and better policies to drive the change.

MATHIAS STECK Thank you, Remi. I have one last question for you. What is DNV doing to harness the new collective focus on climate emergency to progress the energy transition?

REMI ERIKSEN Well, one thing of course, it’s to help shed some light on what the energy future looks like if technology is going the job. So, it’s about informing our customers and stakeholders in the industry that we are working with. And I think we have managed to fill a space that was needed. We are on Bayer Foundations, so I think we have a basis for being trusted and being seen as independent, having expertise in so many different areas. So, our voice has actually been listened to, and I think already made a difference. So, that’s of course what we want to contribute with. On a more practical note, of course it’s to work with projects to help scale new technologies or scale existing technologies, to make feasibility studies for, say, offshore wind or the new solar farms. And to help expedite projects to make sure that these technologies are implemented faster and at scale.

So, these, and since we are working in many different industries, we have the advantage that we can work on many fronts. So, one important thing now, for instance, for the maritime industry is to deliver seaborne trade that has an emission that is reduced by 50% by 2050 compared to the 2008 levels. And there of course are many difficult choices in terms of the fuel mix. So, when you are building a ship today, it will be sailing 20 years from now, so it’s important that you make the right choices when it comes to fuel and energy efficiency measures on these ships. This is one example. And there are many, many more.

MATHIAS STECK Thank you very much, Remi, for your insights. It’s great having you to kick off the new series of DNV Talks Energy. And, for those listening, thank you very much for listening in. That was Remi Eriksen, DNV’s Group President and CEO.

NARRATOR Thank you for listening to this DNV Talks Energy podcast. To hear more podcasts in the series, please visit dnv.com/talksenergy.