This interview does not represent the opinions of PRINCEPS Advisory.
The October PRINCEPS Executive club meeting was all about the climate, the energy crisis, and, who would have guessed, risk. And for those who could not attend, we asked one of our keynote speakers for his main insights.
Jan Krčál is a researcher, software engineer, and energy analyst at the Czech NGO Fakta o Klimatu. He specialises in creating models of energy transformation scenarios.
How will the current energy crisis affect plans for the energy transformation?
The current situation will naturally bring new changes to our immediate activities and slow many of them down, but I also believe the developments in many other areas will be accelerated. This experience will, for obvious reasons, slow down the transition from coal to liquefied gas resources, but on the other hand, it will also emphasise the development of renewables in Europe and the world at large. The final political outcome will play a key role. If Europe can come out on the other side of the crisis and maintain an elementary degree of unity and solidarity, we will be in a much better place to continue with the transition.
You mentioned the risk of curating a bad energy mix. Is that a current issue?
In many regards. It must be said that from a technical point of view we [the Czech Republic] still have reliable energy supplies which we take for granted. And that is a great asset. But the current crisis has revealed a specific issue in the mix in the form of a dependency on fossil fuels from a single source. As a result, Putin has great leverage over us. For years we were seeing campaigns advocating for the replacement of coal with a combination of renewables and gas - this happened but brought with it another weakness. Various organisations warned against this, but it never became part of the top debate.
The second issue is obviously the relatively high carbon footprint. But we must remain realistic here. It’s impossible to go from 100 to zero immediately. We can’t ask for the impossible. Our demands are currently balancing on the verge between technical possibility and environmental sustainability – and it seems that we have crossed a line in both directions. No path could provide fast enough action in terms of climate safety and at the same time be slow enough to match the pace of current technological development. The situation actually has no ideal solution, we must accept some degree of imperfection in both directions. We simply can’t act fast enough while also eliminating all the risks along the way.
In what time frame can we hope to move beyond these imperfections?
On the one hand, we need to drastically lower the emissions of energy production by the year 2035 or 2040, maybe 2045. And once we have lowered current emissions by 90%, we will have gained enough time to slow down and solve the remaining technological obstacles in completing the decarbonisation of energy production. If we want to secure acceptable living conditions for future generations, we must accept that the next two decades will be relatively turbulent. And if it takes much longer, it will be too late.
Some people are convinced that investment initiatives should come from below because the energy market is driven by demand. What do you think about that?
It’s interconnected. Let me illustrate this on the development of photovoltaics [in the Czech Republic]. When you look at what the price of this technology was 10 years ago and compare it with the recent pre-inflation prices, you will note an impressive drop in costs by almost 90%. But at the same time, the cost of the energy was around 8 - 9 CZK per kWh and therefore above the current capped price. This shows that we can not expect to develop new technology, have it become cheaper than the mainstream and then apply it at grid-scale – that’s just false. If we don’t apply current emerging technology into reality, albeit imperfect and costly, we will be stuck waiting for too long.
But there is also a second risk. Implementing solutions which aren’t commercially competitive can result in high investments and no results. The risks exist on both sides, but it would be illusory to expect technological advancements to appear on their own.
We can see this in the case of energy storage. That’s a category which would be quite unprofitable under the current market conditions. One of the reasons is that we don’t have a surplus of renewable energy at the grid scale. Once that is the case, we will also create space for an energy storage market. And that will be a major stimulus for further development. Development and real application must go hand in hand if we want to manage the transition on time.
Is it possible to consolidate the economic and environmental risks you mention above?
It’s difficult to place these risks side by side because models of the financial impacts of climate change are still quite fuzzy. Basing purely economic decisions on them is tricky – that’s why political decision-making is crucial in this respect.
It is possible to consolidate various transformation risks. What are the transformation scenarios, how can they fail, and what are the risks associated with their failures? Then we can use the answers to diversify our energy portfolio. Part of this can of course be left to the business sector. But certain aspects such as energy security aren’t accounted for by the market, they don’t match the incentives of any company. Public well-being and the minimalisation of associated risks cannot be left exclusively to businesses. This is why we need wise leadership on the state level and wise energy strategies, which are sufficiently ambitious in terms of decarbonisation and name the risks at hand as well as instruments which can help mitigate them.
Generally, would you say the current developments are heading in a positive or negative direction?
I think the current situation is a great catalyst. It has revealed a lot of problems and allowed us to discuss them. It has revealed the mistakes we have made so far and at the same time highlights a need to continue on the path of transition. After all fossil fuels, being the sources preferred by our energy mix, are what made us vulnerable in the first place. So, I believe that despite it being a painful catalyst, it will have a positive role in the end. Furthermore, I hope that it will ground the current discussion and connect it with the technical reality. It is now apparent that energy supplies should not be taken for granted and we could use the situation to create a better path to maneuvering during the transition. This could be the path to connecting the worlds of ethereal political promises and the conservative energy industry to find common ground for future steps.
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