The recent global energy crunch could compel governments to strive for greater self-sufficiency by ramping up renewable power capacity, energy experts have said.
Towards the end of 2021, a post-pandemic economic revival collided with natural gas supply issues in Europe and Asia, driving gas prices sharply to a 10-year high. Several energy providers went out of business. Countries were forced to buy expensive liquified natural gas (LNG), shipped from faraway production hubs like the Middle East.
Coal demand also skyrocketed, causing major global supplier Indonesia to pause exports to protect its domestic energy market, unnerving overseas buyers like India, which nearly ran its inventory dry. China initially instated power cuts to meet emissions targets, but later asked mines to increase coal output.
“This global price shock we saw last year sends a very strong signal to many countries that are heavily reliant on imported oil and gas that they need to start considering self-sufficient and self-sustainable energy methods,” said Morris Zhou, co-founder and chief executive of Australian solar power and energy storage firm Maoneng.
“Does the price of offshore wind change when the price of LNG changes or the price of coal changes? No, there’s no change and this brings predictability to power prices,” added Mark Hutchinson, chair of the Southeast Asia task force at the Global Wind Energy Council, a non-profit that advocates for the wind energy sector.
Does the price of offshore wind change when the price of LNG changes or the price of coal changes? No, there’s no change and this brings predictability to power prices.
Mark Hutchinson, Southeast Asia task force chair, Global Wind Energy Council
Solar and wind prices have been consistently dropping over the past decade as a result of economies of scale and better technology. The cost of wind energy is now nearly on-par with fossil fuels in Asia Pacific, according to a recent report by resources consultancy Wood Mackenzie. Meanwhile, both solar and wind power are projected to again be the cheapest electricity sources this year by the Australian government.
But any renewed demand for renewable energy may not be apparent in the short term, as governments continue to grapple with short-term supply and demand issues. Indonesia resumed coal exports in mid-January, relieving international pressure. Gas prices are also heading down, though there are warnings of further spikes should events like cold-weather spells happen.
“If it’s a temporary thing, the government’s not going to react to it,” said Zhou. “They’re going to wait and consider the implications of this energy crunch.”
“Renewables haven’t emerged as the main winner from the coal and gas crisis,” said Dave Jones, global programme lead at climate and energy think tank Ember. “Wind and solar can’t necessarily be in a position to rapidly help out over the next 12 months.”
But Jones added that a lasting gas energy crisis could prick the natural gas bubble in Asia. Many countries view natural gas as a ‘transition’ fuel away from coal, since it produces lower emissions. But the trend may have created a gas market bigger than the coal power capacity it was meant to replace, according to a report by US non-profit Global Energy Monitor.
“It’s still early days, but there’s a big bubble of people wanting to invest in LNG and gas power plants — but that bubble is going to quickly die out,” Jones said. “If that gas bubble is popping, and you still want to be phasing down coal, it means renewables need to grow twice as fast.”
While renewables uptake has been growing fast, increasing 15 per cent year-on-year in 2020, policymakers and grid operators may still be wary of intermittency issues. Amid last year’s fossil energy crisis was talk that Europe’s low wind speeds meant it couldn’t sustain power generation when natural gas became expensive.
“It was not something that had been fully anticipated. But it’s something that will inevitably happen again,” Hutchinson said of the wind deficit.
While smart grid and storage solutions to balance electricity demand and supply are in the works, Hutchinson believes that progress is not happening fast enough to match demand.
“If it doesn’t happen faster, more gas and coal plants will have to remain operational until energy storage catches up,” Hutchinson said.
He added that educating and gaining the confidence of energy providers, who are tasked with providing a steady supply of electricity to consumers, is key.
Cleaner fuels, like hydrogen produced with renewable energy, could replace natural gas in the future. Some countries have started to test out injecting hydrogen into natural gas pipelines and industrial turbines.
But Jones warned that a wholesale replacement without additional renewables capacity would expose markets to the same price shocks that natural gas has been facing.
In Asia, Japan and South Korea are expected to be major importers of hydrogen produced in Australia. South Korea wants hydrogen to be 33 per cent of its energy mix by 2050, while Japan is targeting 10 per cent by the same year. Both countries now use natural gas for about a fifth of their power supplies.
Zhou added that governments need to carefully manage the transition from fossil fuels to renewable energy to avoid the possibility of sudden power cuts, or if existing plants shut down at short notice in response to unfavourable market signals.
He pointed to how German regulators have been holding auctions to pay coal plants to shut by a set date. Germany has pledged to ditch coal by 2038.
Meanwhile, Zhou is cautious as to whether the energy crunch would will mean higher prices for his solar equipment and raw materials. Reports suggest that renewable energy projects are already threatened by rising costs due to ongoing supply chain disruptions.