Deep restructuring of the energy system: urgent and possible

Ruggero Schleicher-Tappeser, May 2022,

Technologies, capital, and policy tools are there for us all to live better. We only need a systemic approach and co-operate to use them.

Photo by Dennis Kummer on Unsplash

This is the second part of: 
Russia, climate, and resources: Europe must grow up

  1. End of the fossil era: replacing Russian supplies is just the beginning
  2. Deep restructuring of the energy system: urgent and possible
  3. Democracy in times of disruption: The role of Europe

It is an adaptation of the long opening post of this blog in German, Many points touched on here will be treated in more detail in future posts.

There is no single wonder technology that will help us out of the present crisis, not even a combination of three. We must learn to use a different systemic approach and apply the technological progress made in many fields in the last decades. The solutions are ready, but we must learn to apply them. An overview.

The present energy system has grown over two centuries, and we take for granted a series of concepts that have evolved with the incumbent design where electricity, heat and transport mainly were treated separately, and electric power production was distributed top-down from large, mostly fuel-based power stations permanently adapting to the actual demand. The emerging system is essentially based on

  • a large number of renewable power sources whose production varies with the weather,
  • intimate coupling of the electricity, heat and transport sectors,
  • storage options for different time frames,
  • many interconnections of these means at different levels,
  • and, finally, an increased flexibilisation of demand.

Altogether a much more complex system that takes advantage of the manifold digital control and energy conversion technologies developed over the last decades.

Spontaneous reactions to the present energy crisis tend to propose substituting single elements of the old system without looking at the whole development. However, even for emergency measures, we must check whether investments make sense in the long run or whether they lead to lock-ins in the wrong direction. A primary key to assessing different options is a better understanding of energy units and energy conversion losses.

Substitution strategies for Russian fuels may have very different efficiencies

For laypeople (and politicians), the data on energy consumption is often challenging to understand. Different amounts of energy are lost along different paths in the multi-stage conversion of primary energy sources (such as coal, natural gas, or wind power) to the energy ultimately used (such as vehicle movement or space heating). To estimate what can replace the imports, one must consider the losses in different scenarios. In addition, energy quantities are usually given in different units, such as tonnes of coal or oil, cubic metres of gas or kilowatt-hours of solar electricity. From a physical point of view, electricity is the most valuable energy because it can be used to generate temperatures of any magnitude. Therefore, it makes sense to convert all energy values into kilowatt hours (kWh) or terawatt-hours (billions of kWh), always considering the form in which the energy is present.

Suppose natural gas is burned in buildings for hot water and space heating. In that case, it can be replaced by renewable electricity using heat pumps and thereby taking advantage of additional ambient heat. Then about 1 kWh of solar or wind power can replace 3 to 4 kWh of natural gas. If petroleum is used to power vehicles via diesel, then 1 kWh of solar electricity can replace more than 4 kWh of oil in electric vehicles. This is because much energy is lost as heat when fuels are used conventionally.

Fuel can only be partially converted into electricity for physically compelling reasons: Therefore, 1 kWh of renewable electricity can replace about 2.5 kWh of lignite, 2.3 kWh of hard coal, or 2 kWh of gas (in particularly efficient combined cycle power plants). The overall efficiency of fossil fuel power plants can be higher if the waste heat is used for other purposes (e.g., in a combined heat and power plant in a district heating network). Therefore, when converting our energy system, we must always consider the entire system — not only regarding the conversion losses but also the varying energy availabilities over time. And if you want to calculate the costs, it gets even more complicated because you must consider how many hours a year specific plants are in use. Optimising energy systems requires complex models. But a few simple considerations show the fundamental challenges.

How easily natural gas can be replaced depends on its use. This can be very different, as a comparison of the two most gas-dependent countries, Germanyand Italy, shows: In Germany, 36% of the gas is consumed in industry. In Italy, it is only about 15%. On the other hand, 44% in Italy goes to the public electricity and heat supply, while only 19% in Germany. Households account for a similar share of 30% in both countries, as do trade and services (13%). A switch is often more difficult and protracted in the industry — which consumes particularly much in Germany — than in the electricity sector. Space heating is, of course, particularly sensitive to gas shortages. While in Germany just under half of the dwellings are heated with gas, in Italy the figure is almost 70% — but in southern Italy people are less de- pendent on heating. Against the background of these figures, it is understandable that the German government has hesitated to promise a rapid reduction in gas consumption.

Looking at the system from the supply side: speed up using neglected opportunities

Hectically, given the prospect of a disruption in supplies from Russia — whichever side it comes from — there is a search for other suppliers of fossil fuels. This is legitimate in the short term. The replacement of Russian gas with coal and oil is also justifiable because the climate policy advantages of gas over coal and oil are smaller than previously assumed, and the containment of the aggressive fossil superpower Russia is of the utmost urgency in terms of security, human rights, democracy and also climate policy. The only thing is that these emergency measures must not create any new long-term dependencies.

Let’s only look at how two key alternatives on the supply side would integrate in a larger system — this is no exhausting overview.

As quickly as possible, other energy sources must permanently replace fossil fuels. France is in a seemingly good position today because it has consistently relied on nuclear energy since the oil crisis in 1973. But this outdated large-scale technology has become more and more cumbersome and expensive because of its high hazard potential, and it will leave behind radiating waste for millennia. Even electricity from old, written-off nuclear power plants costs more today than electricity from new solar power plants (without consideration of the temporal availability) — not to mention new atomic power plants that take more than ten years to build. Currently, France is struggling because unexpected safety problems in the old power plants have led to 17 of the 56 power plants being shut down temporarily during wintertime. Thirty-nine per cent of the uranium used in Europe came from Russia and Kazakhstan in 2020. The new French nuclear energy initiative could cost us Europeans dearly. More on this in a future blog post.

After dramatic cost reductions in recent years, photovoltaics can supply the cheapest electricity . And it is available relatively quickly: In 2021, photovoltaics provided only 5% of the electricity in the EU. To generate the same amount of electricity would have required 18% of gas imports from Russia (2019). If the EU makes a big effort to expand PV, increasing newly installed capacity by 60% per year is not unrealistic. Then solar power in the EU could replace the current use of gas from Russia for heat and electricity in as little as four to five years. More on this another time. Because the sun does not always shine, it has to be supplemented by a lot of wind energy, flexibilities in the energy system that are hardly tapped today (see below), and various types of storage. The availability of land is not an obstacle in Europe: If one wants to replace today’s European energy consumption (17 PWh, of which 12 PWh is fossil) with renewable electricity, the value of the fossil consumption (due to the different valence of the energy sources) can be set at less than 50%. The resulting need for renewable electricity is less than 11 PWh. Covering that with photovoltaics alone (which is not advisable because of the temporal complementarity with wind and other sources), would require significantly less than 2% of the EU’s surface area.

… and from the demand side: shifting comparative costs make structural changes inevitable

On the demand sideenergy consumption can initially be reduced with temporary restrictions: lowering the room temperature, speed limits, traffic restrictions, or restrictions on industrial production. However, replacing all imports from Russia with this alone would be very painful and would hit the economy hard.

However, a significant permanent reduction in energy demand is urgently needed, can be achieved through efficiency improvements and structural changes, and is already economically attractive at the previous low energy prices. Savings through electrification of transport, massive efficiency improvements in buildings, and further significant efficiency improvements in the industry have been under discussion for years and are making (too) slow progress.

Beyond that, however, we must also be prepared that more far-reaching structural changes cannot be avoided and that delaying them is costly. Transporting fossil energies over long distances was cheaper than is possible with electricity or heat. Therefore, energy prices will vary more geographically depending on the local availability of renewable energy. Energy-intensive industries will produce competitively in places where sustainable electricity can be generated more cheaply than elsewhere: in sun- and wind-rich regions or where hydropower is abundant. In Europe, this is particularly the case in Spain and Scandinavia.

The steel industry has historically developed where coal and iron ore were available. The plan to process iron ore imported into Europe into crude steel with the help of hydrogen imported from overseas makes no sense economically or ecologically. About 50% of the iron ore processed in Europe is imported from Canada and Brazil, 16% from Ukraine, 12% from Russia. The first, extremely energy-intensive stage of steel production can be carried out much more cheaply and in a more climate-friendly way where ores and renewable electricity come from. Europe even exports large quantities of steel scrap that could be used directly in further processing into high-quality steel. Such a structural change will cost some jobs in Europe in the highly automated, highly capital-intensive plants — but far fewer than the 107,000 jobs lost between 2011 and 2014 in the extensive, ecologically nonsensical destruction of the German solar industry.

Another very energy-intensive industry is ammonia production, mainly for the manufacture of fertilisers. In this process, hydrogen, which up to now is being made from methane, is synthesised into ammonia with nitrogen from the air. In Germany alone, ammonia production consumed around 6% of the natural gas imported from Russia in 2015. In the future, hydrogen will be produced with renewable electricity through electrolysis. Considering the costs of hydrogen transport, the technically mature ammonia production should also take place where low-cost renewable electricity is available. The HyDeal Espana initiativewants to produce hydrogen in northern Spain by 2025 with 9.5 GW of low-cost solar electricity, which will be used locally to make fertilisers and steel.

The gas industry hopes to be able to continue using large parts of the gas infrastructure for the transport of hydrogen after a costly conversion. This is an illusion. The diversions from renewable electricity via hydrogen to final use entail high losses that cannot be changed physically and can only be justified where hydrogen is indispensable for long-term storage or special processes. A much smaller infrastructure is sufficient for this. The use of hydrogen for most of today’s gas uses would be unnecessarily expensive and would require subsidies of some kind in international competition. An orderly withdrawal of gas infrastructure from areas without industrial hotspots is inevitable and requires appropriate framework conditions. More on this soon.

A profound, energy-saving structural change made possible by new technologies is already underway in the vehicle sector — with the transition from the internal combustion engine to electric propulsion. It is just being accelerated considerably by rising fuel costs. However, some of the efficiency gains are being eaten up by the trend towards ever larger and heavier private cars — this must be stopped. A transition to collectively used vehicles as quickly as possible — one after the other (car-sharing with autonomous vehicles) or simultaneously (ride-sharing and mass transport) — can massively reduce the consumption of material resources and public space. Efficient transport and space- and time-saving mobility in dense settlement structures are increasingly becoming decisive competitive advantages of metropolises.

To avoid public and private misinvestment, such structural changes and relocations should start as soon as possible. An end to business-as-usual can lead to significant savings within a few months or years. This cannot be done without cutting jobs in primary industries, vehicle manufacturing or transport — but it will create new ones elsewhere. In view of the long-delayed and inevitable upheavals, we must learn to accept changing our jobs several times in a lifetime. The state should help with retraining and bridging but cannot absorb all the risks. Inflexible companies that have long denied the signs of the times cannot claim the right to maintain their structures. In terms of society as a whole, this need not lead to a loss of prosperity in Europe — on the contrary.

We do not have to wait for great innovations: huge flexibility opportunities

On a more general level, it is necessary to enable more flexibility in the entire energy system. On the one hand, this includes incentivising more flexibility of demand and supply in the electricity system through appropriate market rules. On the other hand, sector coupling of the hitherto largely separate markets for heat, electricity, and motive power, can both significantly increase overall efficiency and better balance the fluctuation of renewable energy supply. This is helped not only by changed market rules but also by highly efficient, digitally controllable new technologies developed in recent years that enable extensive electrification, low-loss energy conversion (electricity <-> electricity, electricity <-> heat, electricity <-> mechanical motion, electricity <-> chemical energy) and cost-effective storage for electricity and heat. This also includes the targeted use of green hydrogen where a direct — and thus much more efficient — use of electrical energy is not possible. The optimised use of all these technologies can increase the efficiency in a system, e.g. a building, a company, a region, quite considerably. Technological development will continue here and further reduce costs. But full supply is already possible with the solutions available today.