Ever since the industrial revolution heralded a transition from an agrarian economy to one that is dominated by machine manufacturing, the supply and reliability of energy sources has shaped global geopolitics as well as built domestic economies.
Fossil fuels have driven global security as well as prosperity of the nations that depend on its exports. However, fossil fuels are the main contributor to carbon emissions and one of the major issues of our time – climate change. Global efforts such as the Paris Agreement alongside the strong climate policies around the world is transforming the energy system rapidly.
Globally, there will be both ‘winners’ and ‘losers’ in energy transition. We have already seen competition in new energy technologies such as solar photovoltaics, electric vehicles and battery storage. China has set itself apart in energy transition with cheap solar photovoltaics and first-generation clean-energy technologies such as crystalline silicon solar, onshore wind, and lithium-ion batteries.
Europe and the US are now racing to take the lead in developing next-generation technologies that promise improved performance and lower costs. The new Biden Administration is expected to invest and develop much more clean energy innovations.
Countries that are dependent on oil and gas for their economies will be the ones most at risk due to declining demand of fossil fuels from this transition.
However, energy transition faces major challenges. This includes increasing energy demand, greater consumer participation and increasing intermittent Renewable Energy (RE). In “The New Map” book, Daniel Yergin argues that energy transition will be hard to scale, with 84% of the economy still reliant on fossil fuels, boosting supply chain and scaling the raw materials (e.g., lithium, cobalt, nickel) to meet demand will be a big challenge.
For Malaysia, the declining demand for oil and gas will impact our oil and gas industry and ultimately the government’s revenue. From COVID-19 alone, PETRONAS experienced RM 21 billion loss from April to June 2020 due to lower demand and oil prices. To prepare itself for the energy transition, PETRONAS is planning to achieve net zero carbon emissions status by 2050 by reshaping their existing business models.
On top of that, Malaysia’s power sector has set hopeful targets to achieve 20% renewable energy in the capacity mix by 2025. Currently, the daily average of low carbon generation is only at around 8%, mainly from hydropower generation. In addition, there are many recent initiatives in the RE space including the 1000MW LSS@MEnTARI, Net Energy Metering 3.0 and new Feed-in-Tariff allocations.
While energy transition has a clear goal for climate change, its transition pathways will look different across the globe. A crucial challenge for a developing country like Malaysia is to balance energy transition with affordability.
For example, Covid-19 lockdown has exposed issues in our electricity tariff’s affordability despite our currently subsidized prices for domestic consumers. Consumers experienced massive rise in their bills due to increased usage at home. In fact, this has prompted RM 2.6 billion of electricity bill discounts for the consumers in the economic stimulus packages.
To ensure that we can sustainably transition to a low carbon energy system, we need to critically assess our system’s capability to withstand reduction of stable and cheap fossil fuel generations like coal and gas and to take on more expensive RE.
Energy transition will not be as simple as increasing RE penetration, and it needs a whole-of-society and systemic action to reduce carbon emissions – from producers to consumers. Consumers of the future will play a bigger role to reduce peak demand by becoming prosumers with their own distributed energy resources and battery storages.
Currently, our rigid energy system may find it challenging to be sufficiently flexible to manage changes in the supply and demand sides at all times.
Moving forward, to address this monumental challenge, energy transition should be driven by the understanding of these complex dynamics, both globally and domestically. This requires clear direction and policies that understand that this is as much of a technical problem as it is a societal one.
This article was first appeared in New Straits Times on 9 March 2021.