Macroeconomic Risks and Vulnerability

Energy Prices - It is worth noting that energy price volatility is much more than just the question of low natural gas prices and high differentials between regions that highlight transport bottlenecks, particularly to Asia. The coal to gas substitution in the US electricity mix has resulted in a higher gas than coal share for the first time in US history, with the consequence that US greenhouse gas emissions have decreased. This development has led to a push of discount- priced coal from the US to Europe where it has changed the competitiveness of the companies who took advantage of the changing dynamics compared to those who were locked into natural gas at European prices. This development has however pushed up Europe’s greenhouse gas emissions further away from previously reducing levels. Meanwhile, Australia, on the way to become one of the world’s largest LNG exporters, has re- directed its interest from North America to Asia and Canada’s infrastructure companies have also started watching out for Asian customers. Price volatility is also about solar, where module costs have collapsed since 2008 from over 4.5 $/Wp to as low as 0.6 $/Wp. This is largely driven by low-cost production in China but has been accentuated by the fact that 2012 demand has not kept up with expectations and absorbed less than half of the global manufacturing capacity of about 100 GWp.

Energy Geopolitics & Regional Issues

MENA - This years’ issues survey has been conducted in the context of a global recession that is symbolised by the lowest GDP growth in China for a decade, only 2% real growth in Brazil and, the Euro-crisis and related currency uncertainty. The geopolitical interests were focused on continued tensions and conflict in the MENA region, a new government in Egypt, a new old President in Russia, US elections and a new Chinese government, as well as the accentuated trade disputes regarding renewables and airline emissions.

Energy Policies & Business Environment

Regional Interconnection - Closer to the energy business there were ample headlines related to the continued boom of unconventionals, numerous reports on companies (solar in particular) struggling for survival or going into insolvency. One year after the Fukushima accident the public debate continues on the nuclear front. The Doha Conference of Parties has prolonged the Kyoto protocol until 2020, but in absence of the largest emitters. Finally, UN Secretary General Ban Ki-moon has called energy “the golden thread that runs through development” in the UN declared year of sustainable energy for all, bringing energy back to the centre of the development discussion, 20 years after the Rio Earth Summit. Furthermore, regional interconnection, which is often the feasibility basis for large energy projects, is also robust in the action space.

Energy Vision & Technology

Nuclear/Renewables/Unconventionals/CCUS - The issue with the most dynamic change over the past years is carbon capture, utilisation and storage (CCS/CCUS) which is almost flying off the map: without a formal price for CO2 emission avoidance this technology is at risk of simply being seen as adding cost and bringing down energy efficiency. This must be of highest concern as we lock ourselves into a high CO2 emission future for the next 40 to 50 years with every new coal and other carbon emitting plant that is built. Only a combination of CCS/CCUS and, possibly, a partial substitution of coal input with solid biomass can mitigate CO2 emissions of existing plants. The issue that is most clearly identified as a game changer, with its solid trend towards the action space, is unconventionals. This is about unconventional oil (shale oil, tight oil, beyond Canadian oil sands or Venezuelan heavy or extra-heavy oil) as much as it is about the still-hot topic of shale gas. The technology revolution is continuing and while further progress is needed to address the energy-water nexus and the costs associated with mitigating greenhouse gas emissions, production volumes continue to increase. This has given rise to North American energy supply independence becoming a possibility within less than a decade. Such supply independence is however put into perspective as crude markets, and therefore prices are global and US prices will continue to depend on international developments. Meanwhile, we do not see other regions replicate the US success at the same speed for a number of reasons including geological, legal, logistical, financial and issues related to the water nexus. Post Fukushima nuclear remains a closely observed and debated issue. Last year’s map saw nuclear jump into the high uncertainty space. This year’s position of nuclear on the monitor shows that uncertainty is almost back to where it was before Fukushima. However, a slightly lower perceived impact indicates that the nuclear renaissance has been slowed down – a message that also came out of WEC’s World Energy Perspective: Nuclear Energy One Year After Fukushima report. Recent signals from Japan suggest a re-evaluation of the role for nuclear in the country’s energy mix, even though only two out of fifty-four plants have resumed operation. Renewable energies and energy efficiency have stayed dominant issues in the action space. Renewables are not only driven by climate policy as shown by the weak regional correlation between climate framework uncertainty and renewables. Renewables are seen as a contribution to diversity and security of supply as well as a critical enabler to enhancing access for the 1.3 billion without access to energy. Large hydro is moving into the action space, explained by huge un-used potential in central Africa, Latin America, Russia and Canada.