The new energy system
We could be standing on the cusp of an entirely new energy system. It will be a system based on clean renewable energy; with reduced demand through energy efficiency and more stability and flexibility through new grid and storage systems. The technology is falling into place but it is now a matter of organising the stakeholders’ responsibilities in order to connect it all together.
While society has become used to the constraints of the energy system we have had for the past hundred years or so, there’s a risk of becoming imprisoned in our mental picture of what is really possible. We want to bring a fresh systems-thinking approach to co-design a new energy future with others who want bring this about too. While we can’t know everything about the future, we can start to plot a flexible course towards an end point that we all agree upon – and make decisions about whether each action we take is really a step towards that goal.
The challenge ahead of us isn’t just about connecting bits of infrastructure – we want to connect people together as well; how we build this new system can be as important as what we build.
It means working with our existing and new customers and partners in new ways: exploring how we can finance parts of the system in the most effective way; sharing what we learn, and inspiring others who also want to help build this new system. That’s a natural role for us to play. As a bank, we’ve been putting money and ideas together responsibly and transparently since 1980. This has had a significant impact on the development of renewable energy in Europe – and we’re now ready to take this to the next level.
The challenge ahead of us isn’t just about connecting bits of infrastructure – we want to connect people together as well; how we build this new system can be as important as what we build. We want to ensure that the social dimensions of our energy system are fully integrated into this picture.
The science and economics
We needn’t rehearse the arguments for taking action. Everyone knows about climate change and we’re already beginning to see the effects. World leaders no longer only talk about the ‘threats’ but are admitting that the recent extreme weather events are attributable to climate change. The IPCC reports have moved on from the consensus around the science that predicts the onset of climate change to the likely socio-economic and environmental impacts and the potential mitigation and adaptation strategies. The conclusion is that there is still time to avert the worst effects of climate change if we act now.
This is not the only concern relating to energy. Global demand for energy is rising with total energy demand likely to double in the next
forty years. Most of that increase comes from emerging markets (outside the OECD) where energy is a precondition for economic development and the elimination of poverty. But this puts pressure on our finite stock of existing fuel supplies which are becoming less efficient and more expensive to extract. The net result of this is that energy bills are increasing for many homes and business, and they are set to continue rising. Even new discoveries of fossil fuel stocks and methods of extraction – such as shale gas – are only likely to have a temporary effect on prices and at the same time contribute to an acceleration of CO2 emissions.
The Existing Solutions
Renewable energy solutions are making a significant impact. Since 2008, around half of all new energy installed has been renewable energy . And the costs of installation for mature technologies has also fallen rapidly. But there is not yet enough international coordination of efforts. Some government announcements in recent years (such as the retrospective reductions of the feed-in tariff in Spain and parts of Eastern Europe have undermined investor confidence in renewable energy, despite the fundamentals of the technology remaining sound.
European and governmental targets on renewable energy, energy efficiency and carbon reductions can be an important policy driver, but to date haven’t been enough to drive change at the required rate. Also, incremental targets can sometimes stimulate policies that only encourage the easiest-to-reach measures without necessarily addressing the design of the overall system. We need change that looks at the bigger picture if we are going to be able to reach much more ambitious goals in the future.
“It is critical that governments…move with a sense of urgency. We don’t have a moment to lose, and if we want to solve the enormous range of problems we are going to be confronted with as a result of climate change, then we’d better start moving fast…”
Rajendra Pachauri, IPCC
The new collective approach
What we don’t really need in the world right now is more people saying ‘we need to do something’. That’s been clear for long enough. Some businesses are increasingly calling upon governments to set the rules of the game so that they can be forced into acting in new ways. But is this the most effective strategy for change?
We think a new approach is needed. By acting together, collectively, in the context of a shared vision of the future, it is more likely that government policy will follow – and when it does it can provide the effective leadership framework that we want to see. This is not just what we believe but what we have observed from our own journey.
When we started the ‘Green Fund’ in the early 1990s, the Dutch government were intrigued. As a very small bank back then, we could not contemplate being able to meet the needs of all the green energy projects in the Netherlands. But through acting, working with developers, showing what was possible, collaborating with others and sharing our learning, our “community of action” had managed to build momentum. The government, recognising the possibility to give this way of working more encouragement, created the ‘Green Fiscal Scheme’ – a tax credit to support individual investors who put their money into accredited funds for green projects. In doing so, it kick-started a movement which included all the major financial institutions in the country leading to over €15bn of individuals investments to be directed into clean energy projects. We think that the relationship with governments can still best work like that today. Rather than complaining, criticising or continually calling upon them, we want to focus on building “communities of action”, united in a common vision who will work together to learn, build something, collaborate and share. In so doing they are more likely to inspire governments into taking action by creating the confidence that when they do, it is likely to be a successful policy.
Our origins and impact in renewable energy
Triodos Bank was active in the mid 1980s when renewable energy (wind and small-scale hydro, and later solar energy) were emerging. We played a role in ‘drawing the map’ for how to manage the financing process for renewable energy projects – developing standards for contracts and processes along with the entrepreneurs, lawyers, and engineers. We played a part in catalysing the development of a renewable energy market that is now fairly mature. We’ve financed hundreds of projects all over Europe producing enough for around 1.5 million homes.
It’s become a healthy part of our business, through the bank and through our investment funds. We have worked with a huge range of technologies, in different countries, with different ownership structures. We’ve worked with community-owned projects, with businesses and with farmers; we’ve provided loans, and equity; we’ve invested on behalf of individuals and institutions. While we’re still not a large bank, we’ve seen and completed more renewable energy projects than most other banks in the world.
This diversity of experience means that we have the capacity and the responsibility to do more. Having developed the skills of catalysing the early renewable energy industry, we want to harness these competencies to help catalyse the next phase. We need more renewable energy installed at a faster rate so we will continue to work with existing and new clients on renewable energy projects. The focus may be different in each country and the financing mechanisms may differ depending on the technology. Over the next 10 years, we want to be able to develop financing solutions for all of the following types of renewable energy projects:
- ONSHORE WIND
- OFFSHORE WIND
- ENERGY FROM WASTE
Connected effectively – the new grid
In order to build a new energy system with renewable energy means a new way of operating an energy grid. This means the development of a grid which is designed to connect more distributed and localised heat and energy generation, more flexible energy storage solutions, and smarter grids to help balance supply and demand. Some communities, such as the City of Hamburg in Germany are starting to take greater control and ownership of their local grids – we want to support those initiatives. Having a resilient system in the future relies upon us investing in the supporting infrastructure now. By doing so, we will create the environment in which renewable energy sources can flourish.
We shouldn’t forget that the energy system is not just about technology. It’s fundamentally about people. Having communities participating in local generation projects and distribution networks and empowered to implement efficiency measures is essential to a healthy future.
Energy efficiency measures save energy and therefore save money. When you consider that only 11% of global energy production is actually effectively used, the potential benefits for greater efficiency are enormous. Whether it is fitting new energy efficient appliances, thermal insulation, control systems to regulate a building’s temperature, or installing heat pumps, the technologies are all in place. However the management system of making energy efficiency work in practice is more complex than, say, fitting solar panels on a roof. And because it is a complex system, it requires more investment in time to understand how best to optimise the efficiency of a building. Until there is contractual alignment and a clear system of management responsibilities there can be a barrier to finance. But there are many product providers, Energy Service Companies (ESCOs) and consultants working with individuals and companies to navigate through these challenges. We have financed energy efficiency measures in hotels, offices and schools. We want to be able to develop relationships to unlock the full potential for energy efficiency in the future.
A socially inclusive energy system
We shouldn’t forget that the energy system is not just about technology. It’s fundamentally about people. If we try to design an energy system that ignores how people live, work, and travel or separates people from an engagement and understanding of the energy they use, then it is likely to fail. Having communities participating in local generation projects and distribution networks and empowered to implement efficiency measures is essential to a healthy future.
The new system picture
But it is the integrated picture that we have to keep in view. To us, sustainability means:
- Low-carbon emissions within the life-cycle of a project, including the fuels and materials used.
- Resilient in terms of decentralised energy, flexible demand management and storage systems
- Socially embedded into our cities, businesses and communities including a diverse range of ownership models which encourage participation.
- Balanced in terms of the mix of technologies that are used, but also in respect of the costs and benefits. For example more distributed local energy schemes which combine heat and power.
The energy system is interconnected and we have to act with this bigger picture in view. The idea of 100% renewable energy used to seem over-ambitious. However the concept of transition to 100% renewable energy has been studied and reported by a whole range of experts who have not only found it to be viable but possible in a shorter timescale than we might imagine. We believe that if a community of action comes together in the right way to show that this is possible then it will catalyse government policy, commercial resolve and individual behaviours far quicker than we have witnessed until now.
Why good finance is worth more than just the money
Over the past three decades of financing renewable energy projects, we have learned something very important: it’s not just the ‘money’ that delivers progress; it is the right type of financing ‘relationship’. Working with developers, owners, companies and communities, we act as a kind of sparring partner, working alongside other experts, suppliers, lawyers and other to try to ensure that all the risks are adequately addressed and that all the contracts are aligned. This is our work – and our responsibility to our savers. But it’s also the ‘magic’ that makes the money flow and that makes the projects work better for everyone. Projects only have value if they are working well, and going through a rigorous process gives that the best chance of happening. Making that rigorous process as streamlined and responsive as possible makes it easier for others to go through and sharing those experiences with others helps more projects get built. We’ve cut the keys for some types of projects – like onshore wind, solar energy and a few others, but there are more keys to work on – and we want to start on these today, just like we worked with the renewable energy pioneers back in the mid 1980s.
What we have to do next
We have a lot of work to do together. If you share our vision of what the future energy system could look like then we want to engage with you and figure out what is needed to get the finance to work. If there are enough of us working together in a “community of action”, then we think we could reach this vision far more efficiently than relying on incremental targets, or calling on governmental action.
This vision may take many years to realise – and we’re not ready to finance all that we might ever want to at this moment – but it is our ambition. We’re ready to start connecting – we hope you are too.
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