INTERVIEW: Electrification and hydrogen to meet future energy demand says ETC Chair Turner

London — Electrification and hydrogen will account for up to 90% of global energy demand by 2050, with stable returns on investment in proven technology this decade paving the way, Energy Transitions Commission Chair Adair Turner told S&P Global Platts April 29.

Direct electricity demand would account for around 70% of final energy by mid-century, Turner said in an interview, with hydrogen demand making up an additional 15%-20%.

"The two together are not just part of the story; this is the vast majority of the story," Turner said. "This is how we build a zero-carbon economy."

The ETC said April 27 that global electricity supply would have to grow to as much as 130,000 TWh by 2050, from 27,000 TWh at present, to meet net-zero CO2 emissions targets.

The bulk of investment required to make the energy sector carbon-neutral was in power networks, Turner said. The ETC report -- "Making Clean Electrification Possible: 30 Years to Electrify the Global Economy" -- identified around $1.5 trillion-$1.6 trillion/year of investment needed in power grids, and a further $1.1 trillion for transmission and distribution.

The nature of these well-structured, organized, regulated markets meant stable returns on investment, said Turner, who previously chaired the UK Committee on Climate Change and is former chairman of the Financial Services Authority.

"This is a big slug of investment in the global economy, whose natural characteristic -- if we get it right -- is low-risk and therefore, relatively low return, towards the lower end of the capital market risk return spectrum," he said.

The rate of return, while small, would be above returns from government bonds, incentivizing private investment from long-term conservative financial institutions such as pension funds and insurance companies.

"There is a lot of money out there," Turner said. "Anybody who buys government bonds should be thinking about buying this stuff to get a very significant uplift."

Financing the energy transition in poorer countries would require a greater role for development banks, combined with building well-structured markets in those emerging economies.

Subsidies and loss-making local power companies meant that even with low borrowing costs, international banks were limited in the financing they could provide in some sectors, given the lack of creditworthy counterparties, Turner said.

Deeply electrified

Turner was sanguine on the scale and pace of the energy transition, seeing the 2050 target as an acceleration of a transition that was happening anyway.

"Look, by 2080, we would build a deeply-electrified plus hydrogen system with a minimal role for fossil fuels at a very, very low-cost to the economy, and it would occur naturally and without much public policy support because the technologies will win out," he said.

"All of the challenge is that for the sake of the climate, we've got to do it by 2050, not 2080. So we've got a set a technologies which are going to win in the end. But we've just got to accelerate the pace at which they win."

However, the 2050 target was not sufficient.

"If you really want a zero-carbon economy by 2050, you can't leave all the growth to the 2030s and 2040s. There's just a limit to how fast economies are going to respond. So you've got to pull some of that growth forward, you've got to get stuff going in the 2020s," he said.

Hydrogen economy

Hydrogen would play a key role in the energy transition under any scenario, with early wins to be made in decarbonizing existing production, Turner said.

This amounted to around a 70 million mt/year open market, plus an additional 40 million mt/year of captive production, fed directly into refining and chemical processes.

Beyond initial decarbonization, hydrogen could play a role in heavy transport, shipping, aviation, industry and steel production.

"Hydrogen reaches the parts of the economy that direct electrification can't reach," he said.

Turner saw hydrogen production prices falling rapidly and relatively soon, driven by efficiencies, economies of scale and learning curves. He said stimulating the demand side would be crucial to developing the market.

Market mechanisms

Carbon prices would be key to developing the demand side of the energy transition, along with market mechanisms such as contracts for difference, carbon taxes, fuel mandates and green public procurement policies.

"Different markets naturally give themselves to different approaches," he said. Shipping and aviation were better suited to a fuel duty mandate, while a carbon tax or trading scheme, or CFD approach would work for steel and heavy industry.

Turner thought that while net-zero carbon targets worked, large gross reductions would form the bulk of these, and noted that the ETC was pushing industry towards zero-emission targets rather than offsets, with offsetting projects balancing emissions that were unavoidable.

"We think that the 37 gigatons of CO2 being produced by the energy business, industry and transport sectors could get to around 2 gigatons at that net level by mid-century," he said.