Now… or never? Switzerland's renewable energy challenge

rethink sustainability

Now… or never? Switzerland's renewable energy challenge

This week, a fall in oil prices of a scale not seen since the Gulf War acts as a stark reminder of the importance of energy markets to the world economy as a whole. 2020 is also likely to be the first year in more than a decade characterised by a fall in oil demand – owing to the combined effects of a transition to renewable energy but, more acutely, the impact of the coronavirus. The effects of the shock are reverberating through world markets, as well as local markets, here in Switzerland.

Nonetheless, in the coming decades, global energy use will continue to increase, even if efforts at promoting energy efficiency will cause such growth to “decouple” from broader economic growth, and grow more slowly. In Switzerland, for instance, while electricity consumption has increased, total energy supply in 2018 was roughly at the same level as 1990, at 24 million tonnes of oil equivalent.In advanced economies such as Switzerland's, economic growth is no longer dependent on an increase in energy use. However, with increasing electrification and a reduction in dependence on fossil fuels, Switzerland's energy system is going through a similar transition as much of the rest of the world economy.

2020 is likely to be the first year in more than a decade characterised by a fall in oil demand – owing to the combined effects of a transition to renewable energy but, more acutely, the impact of the coronavirus.

Globally, the sharp drop in oil prices seen this week may offer a preview of a necessary future where renewable energy increasingly takes the place of coal, oil, and eventually gas. Albeit the effects of the coronavirus will eventually pass, and energy demand restored, future demand for oil will diminish as the capacity of alternative, cleaner fuels ramps up. This week may therefore act as an eye-opener to the exposure of markets to fossil fuels, and highlight the vital importance of disentangling the complex web to ensure future economic growth comes in tandem with a viable climate transition.

Today, the energy we get from modern renewables is steadily rising, but in 2018 bioenergy, hydropower and renewables accounted for just 14% of primary energy demand in the world as a whole, against fossil fuel's share of 81%, with nuclear making up the remainder.2

Switzerland, at least for now, remains ahead of the game. With none of its own reserves of coal, oil or natural gas, Switzerland has a long history of incorporating carbon-free energy into its mix—as of 2015, 94.3% of Swiss electricity was carbon-free, primarily from hydroelectric (55%) and nuclear (39%) power. Yet, concerns are growing. The snowpack upon which Switzerland relies for hydroelectric power is shrinking due to climate change. And, overall, most of Switzerland's energy is still not carbon-free—including 33.5% from motor fuels and 18.8% from heating fuels3.

Both globally and here in Switzerland, then, there is work to be done. We are on course to miss the targets laid out in both the Paris Agreement and the UN's seventh Sustainable Development Goal ('Ensure access to affordable, reliable, sustainable and modern energy for all'). In real terms, we are set for a global temperature increase likely to have catastrophic effects on both our society and the environment. Therefore, investment in technologies that will reduce and, ultimately, eliminate our carbon footprint has never been more vital. As this week has shown, the oil and gas business is in desperate need of a new trajectory, and companies in the sector face a difficult but necessary transition. If there is an upside to the turmoil of the market, it will be that investors will inevitably be led to critically re-assess as to whether investments in oil, gas and coal should not be re-allocated, at an accelerated pace, to the more sustainable technologies of the present (such as wind and solar), and the future (such as hydrogen).

Switzerland has a long history of incorporating carbon-free energy into its mix

Investing in change

Perhaps the area that receives most attention is that of carbon-free electricity. Today, electricity generation makes up 19 of total final energy consumption globally4, but with the expected electrification of our transport, residential and industrial systems, electricity generation will gain in importance at the expense of the direct burning of fossil fuels. However, the benefits of transferring high-emission technologies to the grid depend on the carbon credentials of that grid—an electric car is not green if it is powered by coal.

Oil and gas business is in desperate need of a new trajectory, and companies in the sector face a difficult but necessary transition

Besides scaling up carbon-free electricity, we must also invest in making it more controllable. “Control is what energy companies love,” says Patrick Schmutz, Head of Energie Durable, a Swiss B Corp in the energy sector. “When there's demand, they open the valves; and when there's less, they close them. But with solar or wind power, the energy comes whenever it comes and you have to use it or lose it. So, to generate more clean energy while maintaining that control is actually one of the biggest challenges.” As demand for energy goes through daily cycles with substantial peaks and troughs, our energy system must have the capacity to ramp up or down rapidly. For now, fossil fuels still fill much of the gap, but will have to be replaced with batteries, demand-side management, biomass, hydrogen and other cleaner alternatives.
 

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As well as cleaning up our centralised sources of general-use power, we must also invest in technologies that decarbonise specific use cases. In particular, around 51% of the world's total final energy consumption goes toward heating and cooling, making the area ripe for innovation. For instance, companies such as SkyCool Systems are pioneering new materials that can cool water passively. These could be used to make air conditioning systems more efficient or even, eventually, take them off the grid entirely. Wider use of architectural techniques that enable buildings to keep cool passively, such as reflective roofing materials and thermal insulation, also have significant potential to reduce the amount of energy we need to stay cool.

For now, fossil fuels still fill much of the gap, but will have to be replaced with batteries, demand-side management, biomass, hydrogen and other cleaner alternatives.

Heating is an even bigger problem than cooling. “Of the total energy consumed in Switzerland, 40 to 45% is for buildings,” says Patrick Schmutz. “My big frustration as a heat salesman is that we talk about electricity all the time and very little about heating.” There are many new and existing technologies through which we might begin to make some headway in this space, one of which we at Lombard Odier are introducing to our new headquarters in Bellevue. Here, water taken from Lake Geneva will pass through a heat pump, where it will be used to generate electricity to heat our building before being sent back into the lake. GeniLac, the project that will supply the heat pump, has been running in Geneva for several years. And heat pumps are becoming more widespread—in 2018, over 1.2 million units were sold in Europe, up 12% on the previous year—a positive sign for the future of this sector.

Alongside high-level investment and policy making, we can now do more than ever to reduce our carbon footprint at the individual level. “We need to make an effort in terms of behaviour,” Patrick continues. “For instance, in Geneva, you are empowered to choose carbon-free electricity for your home if you wish. You can even choose whether your green electricity is hydroelectric or solar. In effect, you can help finance the sector through your personal consumption.” Consumers therefore play a critical role in the energy transition, both in demanding cleaner forms of energy, and in reducing their own energy and emissions footprint. The former may be easier to achieve than the latter, as experience is showing that many consumers are not yet ready to commit to deep lifestyle changes that mean consuming less of the goods and services to which we have grown accustomed.

Consumers play a critical role in the energy transition, both in demanding cleaner forms of energy, and in reducing their own energy and emissions footprint

Ultimately, a vast transition is needed. It is a transition to an economy that is Circular, Lean, Inclusive and Clean. We call this the CLIC economy. Energy is perhaps the most important challenge within the sustainability revolution. And our time to get it right is running out.

IEA (2019). Switzerland. Available at https://www.iea.org/countries/Switzerland
IEA (2019), World Energy Outlook 2019, IEA, Paris. Available at https://www.iea.org/reports/world-energy-outlook-2019
3 Notter (2015) 'Small country, big challenge: Switzerland's upcoming transition to sustainable energy' Bulletin of the Atomic Scientists, vol. 71 (4), pp. 51–63.
4 IEA (2019), World Energy Outlook 2019, IEA, Paris. Available at https://www.iea.org/reports/world-energy-outlook-2019

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