Dr Birol's Melchett Lecture 2017

On the evening of the 4^th of July, at an even held in the of the Royal Institution lecture theatre in London, Dr Fatih Birol, Executive Director of the International Energy Agency, was presented with the Melchett Award of the Energy Institute. He then delivered the Melchett Lecture, "Global Energy Markets and Environment Challenges: Today and Tomorrow".

IEA Executive Director Dr Fatih Birol delivers the 2017 Melchett lecture at the Energy Institute in London (Photograph: Energy Institute)

Dr Birol is as tactful and accomplished an energy politician as he is an excellent analyst. Asked by a member of the audience which branch of the energy sector was the best bet for a young person beginning their career, Dr Birol replied that speaking for himself he had always wanted to be a footballer, and that energy was his second choice, but he loved his job, and as for which branch of this wonderful field was to be preferred, it was entirely up to you, and that one had to follow one’s heart. Apart from the footballing, he assured us that this was what he had always done and it seemed to work. Delightful. No one could possibly be offended, or positively informed.

The lecture itself was not dissimilar. All bases were covered, all the  technologies were mentioned, the major concerns were touched upon, climate change prominent amongst them, and everybody could take comfort. All were winners, all won prizes, or had a future. If a listener drew further inferences, following their intuitions, that would be entirely their own affair. Nothing could be attributed to Dr Birol beyond the innocuous content of his slides, and yet this listener, at least, stepped out into the warm summer evening of Albemarle Street thinking that while there had been nothing so definite as an oblique whisper, an important overview had somehow been encouraged to coalesce in the air. I cannot say this was Dr Birol’s view, much less that that of the IEA; and yet I don’t think it was entirely a fantasy of my own making.In trying to reproduce this unattributable impression I can do no better than begin with the lecture’s final slide and its five conclusions, which I paraphrase, drawing on earlier remarks in the talk, and with direct quotations from the slide in inverted commas:

1. The IEA, founded by Henry Kissinger in response to the first oil shock, had its roots in concerns about oil security, but gas security, and electricity security were now of equal importance.
2. US shale oil, the growth in which, 2010–2017, was staggering by historical standards, "will trigger a deep transformation of oil industry dynamics". (For reasons I cannot explain, this phrase does not appear in the file as published on the IEA website.)
3. Major increases in Liquefied Natural Gas (LNG) supply would "catalyse a second Natural Gas revolution, with far reaching implications for gas pricing and contracts".
4. Renewables were doing well, but work was now needed on "system integration".
5. Limiting global temperature increases to 2 degrees centigrade would "require an energy transformation of exception scope, depth and speed."

Elsewhere in his talk, Dr Birol reminded us that fossil fuels had been providing about 80% of world energy demand for decades, adding that without firm policy intervention that was likely to continue, and in response to a question he certainly said, my notebook records it, that renewables were “policy dependent”. That brought into sharper focus an earlier chart showing, as Dr Birol emphasised, that renewables accounted for about 1/3 of growth in world energy demand in the last five years or so, which was a major increase on previous decades. On reflection I realised that it also showed that oil and gas together accounted for well over half of growth in energy demand, and both had enlarged their share at the expense of coal.Dr Birol did, of course and tactfully, say that wind and solar were transforming the electricity sector, but he didn’t say (omissions are important) that cost reductions were both significant and responsible for this impact. The unstated implication was that policy pressure, not fundamental economics, was still responsible. That seems prudent. The Times reported earlier this week that Hywind, a five turbine, 30 MW offshore wind farm of a new type, would shortly be installed, at a cost of £200 million. Using this information, Capell Aris, whose publications on this subject I have discussed before, updated his chart of offshore wind capital cost per megawatt installed and kindly sent me the result:

Figure 1: Capital cost per MW for offshore, 2000 to to 2017. Black dots constructed or under construction; red dots awaiting construction. Source: Personal Communication, Capell Aris.

It would be interesting to know if the IEA’s data miners have different views on this matter, but assuming that the information collected by Dr Aris gives an accurate picture, claims of capital cost reductions in this sector are questionable, and it would seem that the policy pressure projected as necessary by Dr Birol is of no minor order. Renewables have grown, but only with vigorous policy support, and the integration costs still remain unresolved. They now face fierce competition from two spontaneous and  explosive market transformations in fossil fuels, namely from shale oil and LNG.Walking down Albermarle Street and through the thronging crowds and frantic traffic of Piccadilly I had the strong impression that if climate policy were to continue on its present track it would have to rely on an increasingly coercive, even authoritarian policy environment. Dr Birol didn’t say anything of the kind, of course. That was just my heart speaking.