Conceptualization of system-level transition(s) how energy energy transitions unfold? V Filip Cernoch FSS MU CENTER FOR ENERGY STUDIES Systemic perspective • Energy transition: systemic change in the composition of primary energy supply, technology, and the way we use them. • Fossil fuels and industrial revolution. • Electricity. • Decarbonization — a climate change driven transformation of fossil-fuels based system to low-carbon based system. • Energy system: A complex network of elements necessary to fulfill societal function of the system - production, transport and use of energy. CENTER FOR ENERGY STUDIES The evolution of socio-technological systems CENTER FOR ENERGY STUDIES Components of the system What defines how different technologies emerge, are improved, and diffused in society? Why some technologies prevail and some diminish? CENTER FOR ENERGY STUDIES Techno-economic explanation • Beginning of the 20th century - competition among steam-, electric-, and gas-powered vehicles to substitute horse and carriage, (noxious, noisy, complicated and dangerous vs cheap gasoline as a by-product of kerosene production). • Then period of increasing returns to scale ... locking internal combustion engine (ICE) as the dominant design. •Other designs reduced — in 1890s, 1900 different firms producing over 3200 different variants of ICE vehicles in USA. By 1955 General Motors, Ford, Chrysler held 90 % of domestic and 80% of the global market. CENTER FOR ENERGY STUDIES Performance versus Cost -* Installed base ot Market .sture Techno-economic explanation • Surviving oligopolistic firms shifted their focus from product to processes innovation, development of specialized knowledge = forming the basis of a company's competitive advantage. • General Motors divided engine development into 22 subsystems (ignition, fuels systems, lubrication etc.). That had lasting impacts on specialised labor and knowledge development. = firms tend to focus on existing competencies and away from alternatives that could make their present products obsolete. = capital investment goes preferentially towards projects that reduce production costs and perfect existing product. CENTER FOR j ENERGY STUDIES i Techno-economic explanation — Invention and inovation create several technologial variants. = Period of uncertainty — variants compete for performance improvements and market share. = One of the variants captures a critical mass of the market and become de facto standard (due to the increasing returns to scale). CENTER FOR ENERGY STUDIES Societal factors (Techno)-economic argumentation would suggest that the optimal technology is selected based on market forces and fully informed, optimizing agents — economically most efficient source (availability, price, convenience). But this argumentation is incomplete. There are some other factors (societal, cultural) affecting the people and company's choices (setting the system). CENTER FOR ENERGY STUDIES Different electricity production choices of similar countries Different power production choices of similar countries CENTER FOR ENERGY STUDIES Different power production choices of similar countries CENTER FOR ENERGY STUDIES Socio-technical systems Source: Geek, 2004, p. 903. Infrastructure does not work on its own, but through the involvement of actors and organizations. Infrastructural conditions form a context for action. They enable and constrain. Actors CENTER FOR ENERGY STUDIES Complexity of the modern systems — Systems interact and get interconnected with other systems. = Network externalities arise from systemic relations among technologies, infrastructures, independent industries, and users. = Physical and informational networks can become more valuable to users as the grow in size (road network, telephone network). = increased complexity and inertia of the system(s). CENTER FOR ENERGY STUDIES The techno-institutional complex Capture Learning More on elements of energy systems CENTER FOR ENERGY STUDIES Actors - governments • Ability of institutional policy to override market forces. Government intervention can remove market uncertainty about the direction of technological development through policy (RES, PV car). • Political inertia - changes could be very disruptive — risk of unexpected results. Big changes in policy regimes rare. Significant role of ideology. CENTER FOR ENERGY STUDIES Actors - Public Atomausstieg • Long and success full tradition of nuclear industry in Germany -in 70sl7 000MW • German anti-nuclear movement — Ausserparlamentarishe Opposition in 60s (leftist students), environmental movements, local oposition. • Three Mile Island in 1979, Chernobyl in 1986. • 1998 Greens in federal govt (with SPD) — Germany's plan to gradually withdraw from the atom. •In 2010 the Atomic Energy Act amended — plant lifespan extended, production limits on nuclear electricity increased. • 2011 Fukushima — phase-out by 2022. CENTER FOR ENERGY STUDIES Actors - Companies • Newcommers, challenging the system, vs. status quo actors, defending it (and their positions within). • CEZ and renewables. • „The state is supporting it (RES), which means that from the business perspectiv it is a great idea. But people who understand energy know what kind of energy nonsense it is" — M. Roman, CEO of the company, in 2005. CENTER FOR ENERGY STUDIES Infrastructure Cost of durable capital gigawatts 60 1930 1940 1950 1960 1970 1980 1990 2000 2010 Institutions and their role in the system • Path dependence in institutions. • Superior technological variant doesn't allways win out in dominant design frameworks. Inferior designs can become locked-in through a path-dependence proces. • It is because of once the institutions (formal, such as legal structures, or informal, such as culture, norms and values) are established they tend to persit in their initial form for extended period. • Some form of systematic barriers to the adoption of new energy systems (technologies). • Czech emphasis on energy security (= energy autarky). CENTER FOR ENERGY STUDIES A unique nature of decarbonization? CENTER FOR ENERGY STUDIES Technological optimism • Are we better equipped to deal with upcominig transition? • Historically, problems with inadequate scientific understanding of the processes, lack of suitable high-performing materials needed for mass production (steel), manufacturing processes inadequate both in quality and quantity, uncomplete infrastructure, lack of large-scale competitive markets. • Now, however — enormous wealth of information, no shortage of materials, advanced and fast manufacturing processes, highly competitive market delivering efficiency. CENTER FOR ENERGY STUDIES rgency of climate change 2100 WARMING PROJECTIONS 1^ Emissions and expected warming based on pledges and current policies ©Tracker jjj 200 Sept 2019 update 6 Warming projected by 2100 - Baseline 4.1 -4.8°C = ^^^^_ Current policies I 3.0-3.4T u 50 oi -""^ ..... J 2.9°C I Historical 3 2.6-2.9T 0 -— - 2°Cconsistent 1.6-1.7X 1.5°C consistent 1.3°C -50 1990 2000 2010 2020 2030 2040 2050 2060 2070 2080 2090 2100 Decarbonization — deliberate and politically driven energy transition. Acceleration needed to stay below 2°C of global temperature rise. CENTER FOR ENERGY STUDIES (Eforced) disruptions • disruption in the system = a radical interference in one or more of the elements of a stabilised socio-technical system. • Vs. incremental developments. Dimensio n Explanation Technology Actors and ownership - Novel technology disrupting dominating technology and infrastructure by differentiated qualities. - Requires initial shielding from mainstream selection pressures. - Emergence of new actors in production and supply. - Changing ownership of assets (in terms of kind of actors), with implications on justice and democracy. - Incumbent actors' reduced influence or fight back. (Eforced) disruptions in the system Dimensio Explanation n Markets and business models Regulation - New value propositions and ways to capture value. - Reducing market share of incumbent companies. - New entrants and new business models from incumbents (connected to the actor dimension). - Dis-alignments between disruptive innovation and existing regulation, calling for regulatory change. - Regulatory interventions to intentionally disrupt non-sustainable systems. CENTER FOR ENERGY STUDIES A mini case-study of Germany CENTER FOR ENERGY STUDIES Germany's Energiewende •Aim of reducing GHGs by 80-95% by 2050, compared to 1990. • 2010/2011 — Attomaustieg + Energiewende. • In 1990, about 5% of RES electricity, in 2018 about 38% (wind 14%+3%, biomass 8%, solar PV 9%, hydro 3%...). • RES transport and heating lagging behind. CENTER FOR ENERGY STUDIES Technology • Decentralized, not large scale (offshore wind, larger biomass) RES, challenging existing system + increasing role of distribution grid. i • Storage i • Cross-sectoral disruption in merging the electricity and transportation. CENTER FOR ENERGY STUDIES Actors and ownership • Start-up companies, individual households (PV), farmers, energy cooperatives (Emerging prosumers challenging the traditional roles of producers — customers). In Germany over 1000 energy cooperatives, around 51% of Germany's RES capacity owned by farmers and citizens. i • New type of actors in energy (as Google) 4 • Cross-sectoral disruption in merging the electricity and transportation. CENTER FOR ENERGY STUDIES Markets and business models • Conventional sources struggle, low carbon technologies profit from merit-order-effect pricing mechanism. Splitting-up of E.ON, RWE. i • Business models reflecting increasing role of consumers — focus on services, instead of commodity. 4 • Cross-sectoral disruption in merging the elektricity, transportation, heating. CENTER FOR ENERGY STUDIES Regulation • Changing role of BNetzA, cooperation between grid operators (due to the re-dispatch)... 4 • Gap of missing regulation for the non-dispatchable decentralized sources perceived as obstacle to development (Energy Industry act — EnWG - replacement?) i • Cross-sectoral disruption in merging the elektricity, transportation, heating. CENTER FOR ENERGY STUDIES Political considerations • Disruptions = rapid changes, with often painful and sensitive impacts on society. Politial management needed to avoid social disturbances? CENTER FOR ENERGY STUDIES Sources • Gawande, A. (2009): Getting there from here. • Unruh, G.C.(2000): Understanding Carbon Lock-in. • Schmalensee, R.(2012): Energy Decisions, Markets, and Policies. •Johnstone, P. et al. (2020): Waves of disruption in clean energy transition: Sociotechnical dimensions of system disruption in Germany and the United Kingdom. CENTER FOR ENERGY STUDIES