When we look at current energy policy decisions, they primarily serve short-term interests. What is lacking is a holistic view.
The COP 26 Climate Summit in Glasgow made me feel confident. Compared to previous summits, which were more aspirational, in Glasgow we had reached a point where pledges resulted in real action. I was impressed by the commitment to invest in the renewable energy sector and hoped that we would all heed COP 26 President Alok Sharma’s call to get on the dance floor.
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Today, almost one year later, Alok Sharma’s dance floor is still rather empty. In view of the distortions on the energy markets and rising energy prices, we continue to talk about climate-friendly solutions, we continue to commit ourselves to sustainable development as a way out of the dilemma. However, if we are honest with ourselves, in some cases we are at risk of fleeing into short-term remedies that may be a solution today but lack one thing: long-term sustainability.
On the homepage of the Carleton University in Ottawa, I found a definition of sustainability that prompted me to write these lines: “Sustainability means meeting our own needs without compromising the ability of future generations to meet their own needs.”
My thoughts here turn mainly to the second part of the sentence: the future generations.
The temptation of short-term solutions
As a 21st century society, we have the opportunity to steer away from a fossil fuel-based economy to an economy that is largely based on renewable energy sources. In the fight against climate change, this has become a matter of survival. While this change may present some challenges, we should not forget that the energy transition also offers us significant economic opportunities.
To materialise these opportunities, we need to learn to think more in the long-term and not fall for the temptation of short-term fixes. While those fixes may work for the immediate future, in some cases they have the potential to exacerbate our problems in the long term and thus become obstacles on the path to a sustainably decarbonised energy landscape.
What is lacking is a holistic view of how we use our finite resources. To ensure that the commitment to sustainability does not degenerate into mere lip service, our decisions need to be driven by the concept of long-term sustainability.
An energy landscape detached from short-term cycles
Our actions to combat climate change are not sufficient. We saw numerous natural disasters in 2021. In 2022, India and Pakistan experienced months of temperatures that made human survival virtually impossible.
In Europe, we experienced an unprecedented dry season with not a drop of rain over six months. There is no more room for decisions today that focus on a five-10 year’s cycle of returns.
More urgently than ever, foresight must drive our decisions. More urgently than ever, we need to decouple investments in energy infrastructure from the short “power cycles” in politics and business.
There is increasing recognition that decisions on energy infrastructure must take into account the entire life cycle of assets and also include the resources required for manufacturing, construction, operation and decommissioning.
This includes an assessment of the CO2 emissions caused by the dismantling and transport of materials during the construction phase. If we want to decarbonise sustainably, the instruments we use along the way must also be sustainable – in the very sense of the word. We should aim for those instruments to stay enabled for generations.
Hydropower is emblematic of eternity
We don’t have to develop new technologies to do that. Many have been around for a long time. In many cases, for well over 100 years. For me, nothing is more emblematic of this lifecycle thinking than hydropower. A look at Canada, where I recently visited our Sorel Tracy site, is enough to appreciate that. One of the oldest hydroelectric generating stations was commissioned in Ottawa in 1891 and still provides clean and renewable electricity to the nation’s capital today.
As the lifetime of a hydropower plant can be extended for many decades to come, hydropower will be as much a part of our future as it has been of our past. A study by the Energy Information Administration indicates hydropower plants account for 99 per cent of all currently operating capacity built before 1930.
But we don’t even have to look at North America. A glance at emerging Europe is enough. The oldest hydropower plant in Europe still in operation today is in Jaruga, Croatia. It was put into operation 1895 two days after, according to Nikola Tesla’s patents, the world’s first hydroelectric power plant at Niagara Falls was put into operation.
These examples alone show that hydropower plants are long-lived facilities that, with proper operation and maintenance, can generate clean electricity for several generations of people. Perhaps it is precisely this aspect of sustainability for generations that has created the momentum for hydropower that I am seeing these days in Poland, Romania, Estonia, or Lithuania.
Capital markets must remunerate the Energy Payback Ratio
To some extent, long-term thinking is at odds with the short-term thinking of the capital markets. As a result, I fear, they may have contributed to some extent to making hydropower the forgotten giant of the energy transition.
I therefore propose that some facts should be considered more prominently in the future. Perhaps we should look at the Energy Payback Ratio (EPR) of different power generation technologies. EPR is defined as the ratio of total energy produced during a system’s normal lifespan divided by the energy required to build, maintain and fuel it. Hydropower has the highest EPR of all electricity generation and storage technologies.
For example, a study by the Swiss Academy of Engineering Sciences (SATW) shows that the EPR of a conventional hydropower plant is more than 20 times better than that of fossil power plants. If we now equate Energy to CO2, I guess what I am ultimately saying is that we need to ensure the true cost of carbon is included in our economic decision making.
In addition to this, it is also interesting to look at one comment I hear very often when discussing hydropower: “Construction times are far too long to make hydro installations bankable”. The good news is that in cooperation with our customers and civil work partners we are finding ways to significantly shorten this cycle time. In some areas of the world, employing simplified and expedited permitting processes as well as new construction methodologies, we are building hydropower plants today in as little as four years.
No economy without ecology
From my point of view, ecology and the economy are interdependent. Without a functioning economy we do not have the means of ensuring adequate care for the ecology. On the other hand, if we don’t make sure we preserve our ecology, the environment and our resources, we will simply never have an economy that can be sustained. Therefore, anybody interested in the sustainability of the energy landscape cannot do so without considering the long-term.
I was struck by this documentary from CNBC a few months ago which in my view should make interesting viewing for any participant in the capital markets. Those who take only a short-term view of their investments in the energy system can earn a reasonable return in their lifetime. At the same time, whilst enjoying these short-term gains, they may be putting the future of our children’s and grandchildren’s generation at risk.
The first hydroelectric pioneers in the 19th century were driven by a mission statement that is more relevant today than ever before: With hydropower, we can provide affordable energy for generations. Of course, hydropower will certainly not be the single silver bullet to address the energy transition. It is one of many technology options – we just have to make sure that when we employ these technologies, we also look at the true life-cycle impact and we don’t forget the long term and the future generations.
If we use this approach, I am sure every technology will find its place and I am also sure that all these technologies together will ensure a power supply that reliably enables our economic growth. A thriving economy, together with a stable environment, is the basis for future generations to enjoy the same prosperity and opportunities that we are enjoying today.
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