PERISCOPE Challenges of Energy Security in Australia, Europe and the Asia-Pacific Region - Konrad-Adenauer-Stiftung
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Regional Programme
Australia and the Pacific
PERISCOPE
Occasional Analysis Paper Series, Vol 1.
Challenges of Energy Security
in Australia, Europe and the
Asia-Pacific Region
January 2019
Impressum Periscope: ‘Periscope’ is the occasional analytical paper series of the Konrad Adenauer Foundation’s Regional Programme Australia and the Pacific. Just like the real-world sighting instrument, Periscope is meant to broaden our view – taking in perspectives from different angles. In this instance, it seeks to bring together perspectives from Germany, Europe and the Australia/Pacific region in order to augment our understanding of contemporary issues in the area of foreign and security policy as well as energy, economic and social policy matters. Copyright: © Konrad Adenauer Stiftung (Australia) Limited, January 2019 Editors: Dr Beatrice Gorawantschy, Simon Aleker Publisher: Konrad Adenauer Stiftung (Australia) Limited Regional Programme Australia and the Pacific 11/3 Sydney Avenue Barton, ACT 2600 Australia Tel: +61 2 6154 9322 www.kas.de/australia Disclaimer: All rights reserved. No part of this publication may be reprinted or reproduced or utilised in any form or by any electronic, mechanical or other means, now known or hereafter invented, including photocopyng or recording, or in any information storage or retrieval system, without permission from the publisher. The opinions expressed in this publication rests exclusively with the authors and their interpretations do not necessarily reflect the views or the policy of the Konrad Adenauer Stiftung. Design, Layout and Typeset: Konrad Adenauer Stiftung (Australia) Limited e.V./Corporte Design implemented by MBE Manuka.
Table of Contents
Foreword 3
Executive Summary 4
Introduction 6
Climate Change and Energy Security 9
Digitalisation and Energy Security Strategies 13
Geopolitics and Energy Security 17
Discussion: Energy Efficiency Initiatives 21
Special Contribution 25
Prospects of Future Cooperation 28
Authors 31
Inaugural Energy Policy Dialogue 34
1
2
Foreword
Foreword
Energy security in the modern world of digitalisation, industrialisation and globalisation is one of
the most critical prerequisites for growing economies. Every modern economy is dependent on a
reliable supply of energy in order to satisfy the high energy demands of emerging transportation,
communication, security, and health industries. Thus, energy security plays a fundamental role in
the wellbeing of the global population.
However, achieving energy security is The inaugural Dialogue brought together
accompanied by significant challenges, from leading international and regional experts from
rapid advancements in digitalisation to the government, industry and academia, to exchange
impact of climate change and shifting conditions comparative and contemporary perspectives on
in the geopolitical environment. Furthermore, the challenges for comprehensive energy security
existing energy infrastructure in industrial strategies. In particular, this new platform for
countries, such as Germany and Australia will energy policy debate provided the opportunity
have to undergo a substantial and expensive for those at the cutting edge of private and public
transition towards non-fossil energy systems in interests to discuss the effect of energy and
order to realise the greenhouse gas reductions resource security on international relations and
set out in The Paris Climate Agreement of 2015. geopolitics in Australia, Europe and the Asia-
Pacific region.
Climate change and energy supply security are
of paramount concern for societies moving into Reflecting on the thought-provoking discussions
the coming decades. In response, the Konrad- of the inaugural Energy Security Policy Dialogue,
Adenauer-Stiftung (KAS) initiated the regional it is clear the debate will continue into 2019 and
project ‘Energy Security and Climate Change beyond. I hope that this paper will serve as a
Asia-Pacific’ in Hong Kong SAR in 2015, in order valuable contribution to highlight the manifold
to foster networks and discussions on climate benefits that strategic dialogue between like-
change mitigation and energy security in the minded countries can offer – in particular in an
region. In addition, in 2017 KAS established the area as important as the 21st century challenges
Regional Programme Australia and the Pacific in the energy sector.
located in Canberra, to enhance collaboration
between Australia and Germany in the fields of
foreign and security policy, economic and social
policy as well as energy policy. Warm regards
In line with the Berlin-Canberra Declaration1,
the recommendations of the Australia-Germany
Advisory Group (AGAG), and the Framework
Agreement between the European Union and
Australia, the KAS Canberra office launched its
first Energy Security Policy Dialogue in 2018.
Dr Beatrice Gorawantschy
This key event was organised in cooperation
Director Regional Programme
with the European Centre for Energy and
Australia and the Pacific
Resource Security (EUCERS) at King’s College
London, and Climate-KIC Australia.
1
A declaration of “Intent on a Strategic Partnership between Australia and Germany”
3
Executive Summary
Executive Summary Dr Peter Hefele
In recent years energy security has become a key component in national, regional, and global
security strategies. Access to energy – and resources – is (again) seen as part of a ‘great game’,
substantially shaping the tectonic power shifts between incumbent and rising powers. There
is a global consensus that energy security nowadays comprises three main dimensions: energy
security, energy equity, and environmental sustainability. These three goals constitute a ‘trilemma’
for policymakers, private actors, and business leaders, as complex economic and social factors,
national resources, environmental concerns, and the behaviour of individuals are interwoven.
All this creates a formidable challenge, which no country has so solved so far in a satisfactory
manner, even if, i.e. the European Union or Germany have developed comprehensive policy
frameworks to integrate these dimensions into a coherent setting.
Energy security can no longer be seen as a pure Climate change has massively increased
supply-side problem (as, i.e. in the oil crisis of the vulnerability of national/regional energy
the 1970s). Distribution and intelligent use of infrastructures, which is multiplied by the ‘parallel
energy have shifted the focus towards a more revolutions’ of digitalisation, decentralisation and
sophisticated demand-side management. decarbonisation. Information and Communication
Furthermore, energy is increasingly seen as Technology (ICT) is changing the established
part of a broader understanding of resource energy sector and traditional energy business
security, acknowledging that they are inherently models by creating new consumption patterns,
interconnected with issues like water or rare providers and platforms, also from outside
earth material and need to be dealt with using the energy sector. Digitalisation opens new
an overarching strategy. In addition, rapid and opportunities for innovation and energy
slow onset impacts of climate change – efficiency but increases the leverage of
unstoppable by current mitigation efforts – are cyberattacks on critical infrastructure.
shifting the attention and resources of nations
towards adaptation. The rapid deployment of renewable energies
calls into questions the incumbent fossil-based
power generation, as well as highly-centralised
distribution networks. As an evermore
rapid transformation towards a low-carbon
economy is needed to mitigate climate change,
decarbonisation leads to a dramatic revaluation
of assets and investment strategies. Negative
impacts on stable energy supply, energy justice,
and social acceptance have to be carefully
considered in order to ensure public support. On
the other side, these transformations provide
unique opportunities for innovation, new
business models and value creation – provided
that political and legal frameworks facilitate this
transition and markets remain functioning.
4
Executive Summary
There are three major fields of future cooperation As major middle powers and leaders in
between Australia and Germany in the areas of their respective regions, they have to
energy and climate change policy: actively contribute to regional integration,
stability, and openness of markets. Energy
1. The ‘great transformation’ entails unequally and resource security play a crucial role in
distributed costs – socially as well as between this respect.
regions, i.e. in lignite mining region. Active
engagement by politics is needed in creating 3. Australia and Germany are home to a vast
social support and in enhancing capacities to network of universities, research institutions,
adopt and to adapt to structural economic and think tanks in the field of energy and
changes. Germany has a long experience in climate change. The challenges and
de- and re-industrialisation processes and can complexity of the ‘Energiewende’ open a
provide valuable insights into how to manage vast field of systematic exchange between
these transitions. both nations in basic research as well as in
industrial application.
2. Both nations are very much interested in a
stable political and economic framework on
regional as well as global levels – not least
due to their massive dependence on well-
functioning trade relations.
5
Introduction
Introduction Simon Aleker and Marian Schoen
In late 2016 Australia and Germany ratified the landmark Paris Agreement which came into force
on the 4th November 2016. Complementary to the 2030 Agenda for Sustainable Development,
with its 17 Sustainable Development Goals (SDG), the Paris Agreement under the UNFCC is a
commitment of 184 countries to combat the threat of climate change and to reduce greenhouse-
gas-emissions (GHG) as soon as possible. The Agreement’s aim is to keep the global temperature
rise this century below 2 degrees Celsius above pre-industrial levels, while pursuing efforts to
further limit the temperature increase to a maximum of 1.5 degrees Celsius.
Key emitters of GHG are conventional energy opportunity at a time of rapid change and
sources like coal, oil and gas. Therefore a major increasing uncertainty. The development of
and global energy transition from conventional effective and sustainable energy policies must
to renewable or low GHG energy systems is focus on the ‘trilemma’ of energy security,
required in order to achieve the goals of the Paris environmental compatibility and economic
Agreement. As Australia and Germany are both viability, to accelerate the actions and
industrialised countries which still rely heavily on investments needed for a sustainable low
conventional energy sources, energy transition carbon future.
poses a major challenge to the energy security of
both countries. The decarbonisation of energy systems is a
challenge which is equally shared by Australia
Energy security in the 21st century is widely and Germany. Although both countries are major
understood as a challenge to balance the trifecta trading nations and like-minded international
of affordability, reliability and sustainability. The and regional players, their situation in terms of
combination is more commonly referred to as energy security is very different. Australia, for
the ‘energy trilemma’; a seemingly impossible example, has an abundance of conventional
target of simultaneously achieving all three energy resources and is therefore a major
objectives. Nevertheless, with the expected energy exporter. Germany, on the other hand,
future growth in energy demand, energy security is a major conventional energy importer due
will play a critical role in our environmental, to limited natural resources. The energy policy
social and economic development. The relevance in both countries reflects the individual energy
of energy security will be a significant and security situation they face. In Australia, the
determining factor of our wellbeing into the long term energy vision and policy preferences
future, but there are several challenges to are set out in the Energy White Paper, released
overcome in order to deliver the required energy in 2015, and are framed around limiting
security. Global trends and developments such as government interventions in energy markets.
digitalisation, globalisation and climate change, Conversely, Germany’s energy policy is framed
as well as geopolitical challenges, have a severe around the ‘Energiewende’, aimed at guiding
impact on the way countries can think about, a profound energy transition towards a long-
plan and provide energy security in the future. In term and climate friendly energy system by
most cases a sophisticated and profound energy 2050. This unprecedented transition to a more
transition is required. sustainable, secure and inclusive energy system
that contributes to economic growth, societal
In this context the energy policy challenge in wellbeing and sustainability, is being driven by
coming decades will be to improve access to forces inside and outside of the energy sector,
affordable and reliable energy, and strengthen such as new technological opportunities, policy
energy efficiency and security, while creating shifts and changes in energy consumption.
6
Introduction
Delegation of the Inaugural Energy Policy Dialogue, March 2018
As like-minded partners, Australia and Germany Stiftung, in cooperation with the European Centre
established the Australia-Germany Advisory for Energy and Resource Security (EUCERS) at
Group (AGAG) in 2014 to develop a more King’s College London, and Climate-KIC Australia,
substantial bilateral relationship. Among other launched its first Energy Security Policy Dialogue
topics, the AGAG made recommendations to in 2018.
strengthen the dialogue on energy, energy
security, and climate change related matters. With topics ranging from the geopolitics of
In light of this, the Australia-Germany Energy energy security, the intersection of climate
and Resources Working Group (ERWG) was change with national security and regional
established to foster and advance the energy stability, to energy efficiency and the digital
transitions in both countries through the transformation of energy systems and
exchange of views, best practices and knowledge cybersecurity, this 1.5-track dialogue provided a
on the development of a sustainable energy platform to exchange views and discuss future
system, with particular emphasis on energy avenues for collaboration between stakeholders
efficiency and renewable energy. The potential leading the energy transition in their respective
for cooperation in global energy markets has countries.
also been a focus, given Germany’s objective to
diversify its energy supply and Australia’s position This paper summarises the key topics discussed
as a major energy exporter. at the first Energy Security Policy Dialogue and
provides insights about the challenges Australia
Based on the positive momentum between and Germany are facing in the field of energy
Australia and Germany, the Regional Programme security. It furthermore aims to highlight the
Australia and the Pacific of the Konrad-Adenauer- positive effects a debate between like-minded
7
Introduction
partner-countries can offer. The challenges markets are ways to share experience and
of energy security, particularly digitalisation, lessons learned to meet the strategic challenges
climate change and geopolitical aspects, will be of the energy transition. Australia’s regional
summarised by Dr Graham Palmer. Dr Palmer expertise and the opportunities for low carbon
also provides a discussion on the benefits energy exports, and Germany’s expertise in developing
efficiency initiatives in Australia and Germany innovative technology solutions provide
can provide. A special contribution to this paper opportunities for collaboration and thought
has been provided by Prof Dr Friedbert Pflüger, leadership.
who discusses the aspects of sustainability and
affordability of energy security in the EU. Dr Other initiatives such as the Australian-German
Llewellyn Hughes presents an overview on the Energy Transitions Hub, the establishment of a
prospects of future cooperation in the energy Climate Knowledge Innovation Community in
nexus between Australia and Germany, with Dr Australia with links to EIT Climate KIC in Europe,
Peter Hefele providing the executive summary and the support by the European Commission
for this paper. for an EU-Australian business network on
sustainability and trade are further avenues for
As this analysis demonstrates, bilateral deepening engagement and cooperation on
exchanges on best practices and technological global energy issues.
and policy/regulatory solutions which promote
open, transparent and competitive energy
Panel of keynote speakers at the Inaugural Energy Policy Conference with Prof Friedbert
Pflüger, MP Carsten Müller, Dr Joachim Lang and Dr Kerry Schott AO
8Climate Change and Energy Security
Climate Change and
Energy Security Dr Graham Palmer
The long-term effects of climate change are projected to be pervasive. Rising sea levels, storm
inundation, the loss of low-lying critical infrastructure and arable land, will all contribute to global
insecurity and increase the number of displaced people.
Some of the countries most vulnerable to The highly contested and politicised Australian
extreme weather events are the developing climate debate has made it difficult to establish
countries in the Asia Pacific, especially Myanmar, effective climate policy. Perhaps the most
Philippines, and Bangladesh. Geopolitical durable policy has been the Renewable Energy
instability is exacerbated by growing populations, Target (RET), which was implemented in 2001 and
resource insecurity and natural and humanitarian previously known as the Mandatory Renewable
disasters. Rising sea level is causing problems for Energy Target (MRET). It has enjoyed broad
megacities, such as Jakarta, and Pacific Islands. public support and survived attempts to dilute
the policy, and is the only enduring element of
Energy security lies at the intersection of climate Australian climate policy. By itself, the RET is
change, national security, and global stability. The not the most efficient decarbonisation policy,
Paris Agreement established national emission but it has succeeded in driving investments
targets. However, the challenge for governments in low-emission generation. The so-called
and institutions is to develop coordinated ‘energy trilemma’ – reliability, affordability and
strategies that can effectively address these decarbonised electricity supply – has tended to
complex challenges. Historically, national energy be seen as a suite of competing factors that must
security was at the centre of national security be traded off against each other. The NEG has
considerations, most notably with respect to been framed as a response to the ‘trilemma’.
oil supply. However the challenges of climate
change provide an opportunity to reset and The Australian southern states have traditionally
rethink the traditional challenges. In particular, enjoyed low cost reticulated natural gas.
the emergence of low cost renewables and The development of unconventional gas in
storage provide the opportunity to increase Queensland has led to major export terminals
electrification of heating and transport. This and exposed the local market to world pricing.
opens the possibility to address climate and There has been discussion in Australia of the
energy security as a part of a holistic policy potential to largely dispense with natural gas for
framework. space heating, however the availability of locally
sourced primary energy for heating and power
Australia ratified the Paris Agreement in 2016, hasn’t incentivised an energy security shift away
however there is debate as to whether Australia’s from gas.
current policies are sufficient to achieve its Paris
target. The main policies include the Emissions As a major coal consumer and exporter, the
Reduction Fund and the Safeguard Mechanism. future role of Australian coal remains contested.
Other policies include the National Energy Carbon capture and sequestration (CCS) has
Productivity Plan, Ozone and HFC measures, and remained a policy option since the late 1990s.
Renewable Energy Target. The current public Some international climate mitigation models,
focus is on the National Energy Guarantee (NEG), such as some of the integrated assessment
which includes a low emissions obligation and a models adopted as part of the IPCC scenario
reliability obligation. modelling process, show that CCS may be
important for meeting climate targets.
9Climate Change and Energy Security
There has been substantial public funding of Unlike Australia, which is a net-energy exporter,
CCS in Australia and CCS is considered to be the EU is highly dependent on imported fuels.
a live policy option to meet climate targets. Although Russia has historically been a reliable
However, successful commercialisation is yet supplier of natural gas, the reliance on Russian
to be demonstrated at scale and there remains gas, and the transit of gas through Ukraine
a significant public and private funding gap pipelines, has been viewed as a key vulnerability.
to establish whether CCS will be an important The prevailing EU view is that there is a need to
climate mitigation technology. diversify gas supply and increase the number of
LNG import terminals. Germany is also a natural
The idea of European Union integration was gas transit country, with 45% of the piped gas
based, in part, on energy security challenges. transiting to other EU states. However, although
Coal and nuclear power were originally tied the EU is dependent on imported oil and gas, it
to national sovereignty, but energy policy has remains a major coal producer. In Germany, the
evolved over the several years as the European prioritization of an exit from nuclear has had the
electricity system has become integrated, and gas unintended consequence of increasing reliance
pipeline infrastructure has expanded. In contrast on coal. Over time, coal will be progressively
to the Australian ‘energy trilemma’, a lot of substituted for renewables and gas. But energy
European research has shown that the trilemma transitions are also ‘protracted affairs’, and
can be thought of as a so-called ‘energy trifecta’. natural gas and LNG will have an important role
In Germany, the three factors have been framed in facilitating the transition to renewables.
as different parts of an overall strategy, which are
self-reinforcing rather than competing. In part, While energy efficiency has been adopted in
this is due to a near universal commitment to Australia as one part of a multi-faceted energy
climate mitigation, and the European Union (EU) policy, in Germany, demand-side efficiency has
need to diversify energy resources. had a central role. It has an equivalent status
to supply-side energy strategies – a megajoule
10Climate Change and Energy Security
saved is one less megajoule that needs to be practice, the concept of policy efficiency is seen
produced. Although the concept of ‘energy as important to achieving long-term goals at
efficiency first’ emerged out of the Green least cost. Keeping technological choices open,
Movement, it eventually came to be seen as a especially coal with carbon capture, is considered
common sense approach that reconciled industry essential to maintaining policy efficiency. An
policy with environmental conservation. approach of ‘picking winners’ is sometimes
criticized for locking in sub-optimal future
The approach of Germany has been to make pathways.
technological choices regarding energy supply,
most notably choices around renewable energy, In Germany, the challenges of intermittent
efficiency, and a decision to exit from nuclear renewable energy are framed as ‘technological
power. There is an acknowledgment that policy challenges’, and the goal has been to increase
needs to be ambitious to be effective. renewables penetration. Australian community
support for wind and solar, has been strong,
Regardless of policy, technological progress and but arguments persist over the most efficient
the economics of energy are heading in the right policy instruments and energy security. Although
direction. Few expected the magnitude of the the Australian Renewable Energy Target (RET),
cost declines of wind and solar. The German introduced in 2001, has been maintained and
Feed-in Tariff (EEG) was largely responsible for strengthened, support for renewables at a
the rapid price decline in photovoltaics, and federal level has been more restrained, with
the entire world now has access to low cost an emphasis on establishing a resolution to
solar power. renewables integration. Instead, there has been
more support from the states.
In Germany, technology choices have been
embedded in transition scenarios, and mapped Synthetic fuels, produced from renewable
onto transition pathways. These low-emission energy, are one of the long-term options for
technologies will require new rules, especially for energy storage and transport. Synthetic fuels
heat and power ‘sector coupling’. Sector coupling could take the form of compressed hydrogen,
will offer increased flexibility for integration of methane, or ammonia. Methane can be used
natural gas and power with heating and electrical for heating or power generation, and ammonia
loads. Heating loads are higher in Germany than can be combusted directly or cracked back to
Australia. Sector coupling also faces several hydrogen for use in fuel cells. Japan is currently
technical and economic challenges, particularly in pursuing hydrogen for demonstrating hydrogen
relation to high capital cost. technology at the 2020 Tokyo Olympic Games.
Synfuels are not currently economic but may
The benefit of adopting explicit transition emerge in combination with curtailed renewable
pathways is that they permit industry and energy as renewable penetration increases. For
investors to confidently invest in research example, during summer, surplus solar power
and technology deployment on the basis could be diverted for synfuel production. In
of predictable policy. Even though German time, Australia’s natural endowment of surplus
climate targets are sometimes missed, there is wind and solar energy may facilitate the export
nonetheless broad political and social agreement of renewably produced hydrogen or other
as to the goals of the ‘Energiewende’ (energy synfuels. Many firms have ongoing investments
transition). in synfuels, such as Siemens, BMW, Honda and
Toyota. Steel-making is currently dependent on
In contrast to the directed approach of Germany,
coal as a reducing agent, but could be supplanted
the Australian approach has been to focus on
by hydrogen in the future, alleviating one of the
the concept of ‘technology neutrality’, and the
most intractable challenges of decarbonization.
promotion of carbon pricing as a key tool in
European nations have interconnected electricity
climate mitigation. Although rarely achieved in
and gas networks, permitting diversification
11Climate Change and Energy Security
of national energy supplies, but electricity and The concept of ‘resilience building’ is one
pipeline infrastructure is far less advanced in strategy that offers opportunities for nations
Asia. Challenges include the high capital cost of and institutions to address these challenges.
synthetic fuel production, transport, storage, and Resilience building requires coordination and
use, and the relatively low round trip efficiency. engagement across all parts of governments,
as well as industry, the community and other
Many countries, especially those in Asia, face the stakeholders.
twin challenges of reducing the carbon intensity
of energy; and reducing the water intensity of National security, climate change, and global
energy. Both of the baseload low-emissions stability are interwoven issues that require an
options – coal with carbon capture, and nuclear integrated response. The lessons of climate
power – are water intensive. Other low emission policy are that ‘first best’ policies may not be
options also require cooling water, especially achievable. Nonetheless, building national
geothermal and solar CSP. But wind requires consensus and driving overarching goals will
no water and photovoltaics only require water support investor certainty. Policy support
to clean the panels. In water scarce regions, for sustainable energy technologies, energy
energy and water are intertwined. The energy- diversification strategies and energy efficiency,
water nexus requires a multifaceted approach can support multiple goals simultaneously, and
to sustainable development, of which climate enable national security and climate goals to
change is but one part. At this stage, water is not head in the right direction.
embedded in the IPCC Conference of the Parties
(COP) process.
References
IPCC, 2013: Summary for Policymakers. In: A. Nauels, Y. Xia, V. Bex and P.M. Midgley (eds.)].
Climate Change 2013: The Physical Science Basis. Cambridge University Press, Cambridge, United
Contribution of Working Group I to the Fifth Kingdom and New York, NY, USA. http://www.
Assessment Report of the Intergovernmental ipcc.ch/pdf/assessment-report/ar5/wg1/
Panel on Climate Change [Stocker, T.F., D. Qin, WG1AR5_SPM_FINAL.pdf
G.-K. Plattner, M. Tignor, S.K. Allen, J. Boschung,
12Digitalisation and Energy Security Strategies
Digitalisation and Energy
Security Strategies Dr Graham Palmer
Energy systems are part of a nation’s essential infrastructure. They are also undergoing a digital
transformation and represent key vulnerability points for cyberattacks. The primary drivers of
the transformation are the digitalisation of energy; the emergence of smaller, distributed and
modularised generation; and the integration of energy systems into the internet.
The digitalisation of electricity has been enabled The digitalisation of industrial systems is
by the availability and dramatic cost reduction captured within the expression Industry
of power electronics over the past 15 years. 4.0, a term which originated from a German
Once embedded in electrical systems, power government strategy to promote the
electronics permits the generation, control and computerization of manufacturing. It has come
monitoring of electricity at a highly granular level. to refer to intelligent systems that incorporate
Networking capability allows energy systems to constant learning and improvement, adaptability,
be integrated into the internet. This has opened resource efficiency, and smart integration of
up possibilities for markets, business models, humans and technology. In the context of energy
demand management, fault control, and system systems, it refers to the integration of distributed
integration. energy into electricity systems; the ‘internet of
things’, including smart appliances; demand
However, network capability is a two-edged management; markets; system balancing of
sword. On the one hand, networking opens up variable renewable energy; and energy storage
opportunities for system integration in a way that management.
was impossible twenty years ago. However, it
also makes systems vulnerable to systemic faults Energy is one element of critical infrastructure
and cyberattacks. (CI), and together with telecommunications,
underpins all CI. In the near future, many
The European blackout of 2006 was a two hour smart appliances, smart grids, and other
blackout that affected 15 million customers networked enabled energy equipment will sit
across 12 nations. Millions of customers were above the 5G network. Maintaining reliable
cut-off, there were long delays in rail transport, telecommunications will be essential to obtain
subways had to be evacuated, and the cost to real-time feedback of energy systems. Of concern
restaurants and bars in spoiled products and is that the energy sector has been identified as a
lost sales was estimated at USD139 million. The key target for malicious cyberattacks.
blackout began with a routine disconnection
in northern Germany, but caused cascading In the past, dedicated SCADA (Supervisory
trips throughout Europe, reaching to Portugal control and data acquisition) communications
and Morocco in the south-west, and Greece systems used proprietary technologies and were
and the Balkans in the south-east. One of the physically isolated from the Internet. A shift
important benefits of interconnection is usually towards fourth generation SCADA increases
the increased reliability of supply; however interoperability, but requires robust security.
the blackout also highlighted the risks when a The risk of cyberattacks can be reduced, but will
systemic failure occurs. In the 2006 blackout, the require the implementation of security measures,
source was a routine disconnection. However, a such as industrial firewall and VPN solutions.
cyberattack that targets a point of vulnerability
could potentially propagate outwards and affect
an entire continent.
13Digitalisation and Energy Security Strategies
The first reported attack of a SCADA system was With the digital transformation of energy systems
the Stuxnet worm, which exploited Siemens PLC and changing energy mixes, business models will
software to take control of an industrial control need to evolve, and regulatory strategies devised
system. It was introduced into the host system to reduce the vulnerability of energy systems
by an infected USB drive and propagated via the to cyberattacks. Entire structures may need to
host network. Stuxnet highlighted the risks of be changed to cope with changes, but no-one
vulnerabilities in a highly connected world. has a suite of perfect solutions. There is a need
to stay ‘ahead of the curve’, but the adoption
‘Today, an individual equipped with just a laptop of prospective solutions too rapidly carries the
can bring about greater destruction than a risk of choosing the wrong strategy. Maintaining
conventional weapon.’ co-operation, monitoring developments, and
information sharing is key to a risk management
The Australian Protective Security Policy approach. There is a need for an Australian-EU-
Framework (PSPF) provides policy and guidance Asia-Pacific dialogue to share information.
for all types of security, including ICT. It is a
mandatory requirement that government Security relies, in part, on trusted brands and
agencies adopt the PSPF. The overarching relationships. But there are issues around supply
body for developing cybersecurity policy in chains, and second and third tier suppliers.
Australia is the Australian Cyber Security Centre Major brands usually have a global presence.
(ACSC). Cyber security has only been elevated For example, Siemens has a large presence in
as a key strategic priority in relation to energy China and conducts research and development
infrastructure in the past three years. The globally. From a security perspective, it is difficult
Australian Energy Market Operator (AEMO) to create a sharp demarcation between allies and
and the Energy Networks Australia have potential adversaries.
commissioned work to assess cyber security risks
associated with electricity systems. The asymmetric and pervasive nature of cyber
threats means that traditional distinctions can
In Europe, responsibility for critical infrastructure become blurred. These include the distinction
and cyber security lies across several EU bodies between: physical and cybersecurity threats;
and member states. The protection of critical official and non-official threats; national and
infrastructure was first put on the EU agenda in international; traditional and non-traditional;
2004, and the European Commission adopted defensive and offensive cyberattacks.
a green paper on the European Programme
for Critical Infrastructure Protection (EPCIP), The role of microgrids as a distributed energy
which sets the overall legislative framework. source demonstrates a dual role in building
The 2013 EU Cyber security Strategy outlined resilience. On the one hand, distributed
overarching principles for cyber Security. Recent energy can potentially provide ongoing power
policies include the EU Cybersecurity Act and the during system outages, and it can be easier
introduction of an EU-wide certification scheme to isolate specific parts of the system in the
for ICT products and services. The Computer event of cyberattacks. But the integration of
Emergency Response Team (CERT-EU) is a microgrids into a networked system introduces
co-ordination body that responds to security systematic and cyber vulnerabilities. The 2006
incidents and cyberthreats. European blackout is an example of the benefit-
vulnerability trade-off. Addressing these technical
In 2014, the Australian and German Governments challenges will require coherent regulatory
formed an advisory group to broaden frameworks that systematically address specific
collaboration on digital transformation, STEM and general vulnerabilities.
and ICT education, and progress development of
global Industry 4.0 standards.
14Digitalisation and Energy Security Strategies
One of the emerging technologies in peer-to- to be embedded within the product or process
peer energy trading and distributed energy is rather than layered on top of existing products.
distributed ledgers and blockchain. To date,
the financial sector has progressed the furthest There is a need to accede to a ‘higher level’,
with blockchain. Blockchain is one example of reflecting a need to produce an overarching
cryptographic security, providing data integrity, top-down framework that can be applied across
authentication, and non–repudiation. Although multiple technology implementations. The
there is significant interest in blockchain exponential increase in internet of things (IoT)
applications for energy, there are few practical connected devices means that there is a need to
implementations to date. Blockchain-enabled embrace the internet of things.
solutions may eventually support cyber security
by providing a security layer, and there are many Energy systems have already embraced several
examples of startup ventures. At this early stage, elements of Industry 4.0. Furthermore, there is
blockchain should not be assumed to be a silver an inexorable shift away from centralised and
bullet, but the application of cryptography to ‘lumpy’ generation assets towards modular and
energy markets holds promise for enhancing the decentralised assets. However, electricity systems
security of energy systems. are yet to fully embed the physical architecture
of microgrids and distributed generation, and the
A weakness of the current international market and control architecture of peer-to-peer
framework is that there are no adequate trading and blockchain-enabled solutions. These
international standards in cybersecurity. A recent technologies offer the prospect of capturing the
German pact noted that international standards security benefits of distributed architectures
‘need to be more than an airbag or seat belt while reducing the risks of cyberattacks.
solution’ – in other words, the solutions need
15Digitalisation and Energy Security Strategies
References
Australian Signals Directorate, 2016, Australian
Government Information Security Manual
Principles, http://www.dpmc.gov.au/guidelines/
index.cfm
Australian Department of Foreign Affairs
and Trade, 2015, Collaboration, Innovation &
Opportunity - Report of the Australia-Germany
Advisory Group, https://dfat.gov.au/about-
us/publications/international-relations/
Documents/australia-germany-advisory-group.
pdf
Australian Department of Resources Energy
and Tourism, 2011, National Energy Security
Assessment 2011, https://www.energy.gov.au/
sites/g/files/net3411/f/national-energy-security
assessment-2011_0.pdf
Bruch M, Münch V, Aichinger M, Kuhn
M, Weymann M, Schmid G, 2011, Power
Blackout Risks Risk Management Options
Emerging Risk Initiative-Position Paper, CRO
Forum, http://fpn.advisen.com/articles/
article140935191888258975.html
Healey D, Meckler S, Antia U, Cottle E, 2016, Cyber
Security Strategy for the Energy Sector, http://
www.europarl.europa.eu/RegData/etudes/
STUD/2016/587333/IPOL_STU(2016)587333_
EN.pdf
16Geopolitics and Energy Security
Geopolitics and
Energy Security Dr Graham Palmer
Globally, energy demand is projected to grow by 30% by 2035. Much of the growth is being driven
by the burgeoning Asian middle class. Total energy demand in Asia is projected to increase
around 70% to 330 exajoules per annum by around 2035, while liquefied natural gas (LNG)
demand is projected to double to 20 exajoules per annum (BP 2017). Asia currently has the
highest share of coal consumption, comprising around 50% of primary energy demand. Of the
fossil fuels, coal has lowest resource security risk and cost, but fails climate goals
The projected growth of Asian economic, cultural Membership of the International Energy Agency
and political power is encapsulated in the (IEA) requires oil importing countries hold a
concept of the ‘Asian Century’. China’s economic strategic oil reserve. Australia almost achieved
rise is being accompanied by a challenge to the oil self-sufficiency in the 1990s, but the trend
geopolitical status-quo. But many Asian nations dramatically reversed around 2000. The gap
are highly dependent on imported fuels. Japan between production and consumption has been
depends on imports for around 90% of its steadily widening – Australia is now 38% self-
primary energy needs, and South Korea depends sufficient in petroleum. Australia’s petroleum
on 80%. The reliance on imported fuels increases reserves are limited to commercial fuel held
vulnerability to supply shocks, which could be in supply chains. The vulnerability of liquid
driven by geopolitical disputes, natural disasters, fuels has not been fully grasped in Australia
or economic shocks. and has tended to be framed within a narrow
economics framework. The additional cost of
Around 61% of global petroleum production oil or petroleum holdings, and maintaining
is moved by shipping, and nearly one-third refining capacity, has been considered too high.
currently transits the Strait of Malacca, the Furthermore, the Australian petroleum industry
second-largest oil transit chokepoint in the world, has not advocated for increased government
after the Strait of Hormuz. The South China Sea oversight of the petroleum industry. In the 2015
is a significant transit route for both crude oil Energy White Paper, the Australian Government
entering refineries in China, Japan and South was sanguine about Australia’s liquid fuel
Korea, and refined products being shipped security, arguing that supply is not vulnerable to
eastwards and southwards. The Strait of Malacca external supply shocks due to the depth, liquidity
is also an important transit route for LNG from and diversity of international crude and fuel
the Persian Gulf and Africa. The largest importers markets.
of LNG in Asia are Japan and South Korea, and
increasingly, China. As a resource-rich country, Australia has
not traditionally emphasized the role of
As a major exporter of metallurgical and energy efficiency in economic production and
thermal coal, and LNG, Australia is self-sufficient consumer end-use. Since Australians have been
in stationary energy. However, in relation to accustomed to low electricity and gas prices,
coal, there is the risk of stranded resources there has been less incentive to invest in energy
and energy assets, as carbon risk is built into efficiency. Higher efficiency would have mitigated
investment decisions by financial institutions and the impact of the significant rises in the cost of
investment funds. electricity and natural gas in recent years.
17Geopolitics and Energy Security
The responses to energy security concerns are accident forced a significant revision of the role
multi-faceted. These include diversification of of nuclear. Furthermore, many other countries
energy sources and suppliers; improving the also reviewed their nuclear planning, most
functioning of markets; rethinking production notably Germany. China’s strategy of expanding a
and transport infrastructure; improving the suite of power sources includes an expansion of
energy efficiency of production; implementing nuclear, and will be the world’s largest producer
risk management systems; and intelligent of nuclear power – by 2030, nuclear capacity is
demand side management. planned to be 120 to 150 GW.
The Asia Pacific region recently overtook In the longer term, a shift towards alternative
Europe and Eurasia as the largest producing fuels and electric will reduce petroleum
region of renewable power. China is now the vulnerability. These include synthetic fuels
largest producer of renewable energy, with produced from renewable or nuclear power,
150 GW of wind power and 120 GW of solar biofuels, or liquification from fossil fuels. Aviation
photovoltaics. Growth of these technologies is and shipping are likely to remain dependent
currently exponential, with a global doubling on petroleum-based fuels for the foreseeable
time of installed capacity of around 3 years. An future. Liquid fuels permit high energy density
expansion of renewable energy is a strategy storage and transportation, but other storage
with resource security and climate mitigation choices potentially enable alternative means of
co-benefits. The main security risk is the storing and transporting energy. For example,
intermittency of wind and solar. Strategies to the German gas network typically holds
reduce risk include energy market design that the equivalent of several weeks natural gas
sufficiently incentivises dispatchable supply and consumption, and renewably sourced methane,
storage while supporting growth of renewable via the methanation process, could be used to
capacity. support renewables and buffer intermittency.
Through the 1970s and 80s, Japan adopted Most IEA oil importing countries hold a strategic
nuclear, in part, as a hedge against oil supply oil reserve. For example, Germany holds
constraints. An operating nuclear reactor will substantial petroleum reserves in caverns in
typically contain a year’s worth of supply in the north of Germany. But there also needs to
the reactor core, contributing to medium term be flexibility in addressing the challenge of oil
energy security. In Japan, an expansion was security, and increasing fuel holdings is only one
planned to facilitate energy security and emission strategy. Other options include: maintaining or
abatement strategies, but the 2011 Fukushima expanding local refining capacity; broadening
18Geopolitics and Energy Security
supply chains; arranging stock cover through includes economic aspects. For example, the
leasing agreements, referred to as ‘tickets’; EU is dependent on Russian gas, but Russia is
and entering into oil-sharing agreements – for equally dependent on EU gas revenues.
example, Germany has oil stockholding share
agreements with Belgium, France, Italy and At a global level, population growth, growing
Netherlands. energy demand, and growing resource
competition increase geopolitical risks and
The global natural gas market is liquid and energy security vulnerabilities. Of the three
there is currently surplus gas available. main fossil fuels, only natural gas has projected
Strategies for improving natural gas resilience significant growth.
include diversifying supply, expanding pipeline
infrastructure, and building LNG import Coal consumption has traditionally been
terminals. By 2021, Australia is expected to be geographically close, or within the country of
the largest LNG exporter. But despite a surplus origin. Imported coal is considered to have low
of natural gas, the opening of export terminals supply risk. Both Australia and Germany possess
has exposed the local market to the international substantial coal resources and have historically
market and there is now a challenge of bringing embedded coal as an integral part of the energy
affordable gas to the domestic market. resource base. Although the future role of coal in
Australian remains active in public policy debate,
A response to maritime vulnerabilities includes Australia is yet to adopt explicit goals for reduced
the construction of pipeline infrastructure. For consumption and export. On the other hand,
example, the Myanmar-China oil and natural Germany has a stated policy of coal reduction,
gas pipeline project stretches from Myanmar’s including the recent ‘Commission on Growth,
ports in the Bay of Bengal to the Yunnan Structural Change and Employment’, which will
province of China. The oil portion of the pipeline propose a plan for a coal phase-out.
was completed in August 2014, and it is now
operational at full capacity. Internationally traded LNG is expanding, with
the US and Australia leading the expansion.
In addition to energy security, the challenge of Oil remains the most geopolitically vulnerable
mineral ore production is part of the broader energy resource, and liquid fuels for transport
challenge of energy security. One class of ores, have been the most difficult to substitute.
classified as the rare earths, has attracted
attention because of the concentration of rare There are several strategies that reduce the
earth mining in China. Although China currently geopolitical risks of energy supply. In most
produces 90% of the global supply of rare earths, nations, there is a slow but steady long-run
there are several international sources that could trend towards increased electrification of total
be developed given a higher commodity price. energy demand. The multiple methods of
Nonetheless, alternative sources would require generating electricity increase the potential for
investment and time to develop. Many energy diversity of energy supply, with countries able to
supply and use technologies, including renewable adopt the technologies most suited to meeting
energy systems, rely on rare earths. national energy goals. A shift towards electrified
transport, including rail and electric cars, will
The mineral ore challenge highlights the co- reduce liquid fuel reliance. In the longer term,
dependence between mineral ores, rare earths, hydrogen- or ammonia-based transport fuels,
machinery, and suppliers. For example, although produced from multiple supply pathways, could
China is the world’s major producer of rare substantially supplant petroleum-based fuels.
earths, it requires imported machinery and From a fuel substitution perspective, heavy
components to extract and process the materials, transport, shipping, and air travel are considered
reflecting the interconnectedness of global the most challenging.
supply chains. Furthermore, co-dependence
19Geopolitics and Energy Security
Another strategy is the adoption of strong Upscaling of local renewable energy reduces
national energy efficiency policies. These provide demand for conventional fuels, both locally
two geopolitical benefits. Firstly, they reduce the produced and imported. On the other hand,
energy intensity of national economies, enabling intermittency presents a form of short-term
higher economic output for a given energy resource security risk, increasing the need
supply. Secondly, they improve the feasibility for electricity interconnection and gas fired
of higher cost energy supply options that meet generation for capacity firming. Technology
other national goals, especially those that are diversity and geographic dispersion of variable
lower emissions and less reliant on imported renewables are two strategies to improve short-
fuels. Germany is an exemplar of this approach. term security of supply. Energy storage, such as
pumped hydro, provide additional smoothing of
variable supply.
References
BP, 2017, BP Energy Outlook – 2017, https://
www.bp.com/en/global/corporate/energy-
economics/energy-outlook.html
BMU, 2018, Commission on Growth, Structural
Change and Employment takes up work, https://
www.bmu.de/en/report/7918/
20Discussion: Energy Efficiency Initiatives
Discussion: Energy
Efficiency Initiatives Dr Graham Palmer
Discussions of energy security usually focus on energy supply. But the provision of energy
services comprises both supply and demand factors. The metric that provides an international
comparative measure is the energy intensity of economic activity.
At a national level, energy intensity is the ratio of Most commonly, energy efficiency refers
energy consumption to economic output. Taking specifically to the last factor. However, these
energy consumption in tonnes-oil-equivalent factors can interact in different, and sometimes
and GDP as purchasing power parity (PPP), in unintended ways. For example, the rebound
2015, Australia and Germany’s energy intensity effect refers to the increasing use of an efficient
was 0.12 and 0.09 respectively, with an OECD product or service because an efficient product
and World average of 0.11 and 0.13 respectively is cheaper to use than a less efficient one. One
(IEA 2017). Hence Australia uses comparatively of the common examples is building heating –
more energy per unit of economic output, and heaters will tend to be operated for longer and at
Germany less, than OECD nations. a higher temperature when the heating system
is efficient, because it is cheaper to run. On the
Energy efficiency is one, but not the only factor, other hand, rising fuel prices incentivise reduced
that defines energy demand. Changes in energy heater use, or energy conservation.
demand are often decomposed to three factors:
Energy efficiency is often promoted as a ‘win-
• The growth effect, which relates to the growth win’ policy because it addresses multiple policy
of primary drivers, such as economic activity objectives, including a positive economic cost-
or wealth; population; or other direct factors benefit. Furthermore, with respect to greenhouse
such as tonne-kilometres shifted by freight. emissions, energy policy measures may drive
actions that exhibit a negative cost-of-abatement
• The structure effect, which relates to changes – the action saves both money, and reduces
in the underlying structure of energy emissions. An example of such an action is
consuming activities. Examples include building insulation, which typically delivers fuel
changes in the share of industry sub-sectors, savings greater than installation costs when it is
such as a shift from manufacturing to service installed at the time of construction.
sectors; a change in ownership rates of
appliances; and a shift in the share of modes However, despite the widespread availability and
of transport, such as from private vehicles to popularity of energy efficiency, there are many
urban transit. reasons that the full benefits may be unrealised.
• The efficiency effect, which is a measure of Insufficient access to capital, budget constraints,
the energy consumption per unit of activity. or a lack of awareness of efficiency options, are
For transport, one measure is the diesel use prime examples. Furthermore, there are many
per tonne-kilometre of freight; for heating or other reasons that optimal efficiency outcomes
cooling, it is the energy use per square metre may not be achieved.
of housing area.
21Discussion: Energy Efficiency Initiatives
The notion of ‘split incentives’ is the case in which Australia
the energy efficiency investor does not obtain
the full benefit of the investment. One example Since 1992, Australia has adopted 55 national
is the landlord-tenant relationship – an efficiency energy efficiency policies and measures, many
investment by the landlord accrues to the tenant, of which were limited in scope, wound up, or
unless the landlord can recoup some of the superseded. In addition, there are also many
investment through higher rental. Conversely, state-based policies. The longest running national
the tenant may be unwilling to make the program is the Equipment Energy Efficiency
efficiency investment themselves because they Program (E3), which covers a range of residential
may move out before realising the benefits. appliances, commercial equipment, and lighting.
It incorporates the Minimum Energy Performance
Appliance, building or equipment purchasers Standards (MEPS), High Efficiency Performance
often have imperfect information, or do not Standards (HEPS) and Greenhouse and Minimum
have ready access to sufficient information. This Standards (GEMS) legislation.
can sometimes lead to the so-called ‘bounded
rationality’ problem, which is the idea that agents The most recent and significant policy is the
make choices that are ‘satisficing’ rather than National Energy Productivity Plan (NEPP). The
optimising. It is based on the principal, that in Australian Government set a target to improve
everyday life, people make decisions that are energy productivity by 40 per cent by 2030. The
‘good enough’ rather than optimal. COAG Energy Council signed a new NEPP in 2015,
which covers all energy use and incorporates
Given that consumers and businesses frequently energy market reforms and energy efficiency
make choices that are sub-optimal from an measures in buildings, equipment and vehicles.
efficiency perspective, policy makers can
constrain the available options by adopting In relation to buildings, the three main policies
regulations or market-based instruments. include: the Commercial Building Disclosure
Policies can be directed at maximising the public Program; 6 Star NatHERS Rating for Buildings,
good characteristics of energy efficiency. For which is part of the National Construction
example, one of the earliest successful initiatives Code; and NABERS (the National Australian
was the Japanese Top-Runner program, which Built Environment Rating System). Vehicles
set a minimum efficiency requirement for each are covered by the fuel consumption labelling
appliance class. The minimum was set according standard (ADR81/02) and fuel consumption label.
to the weighted average value for all products
in that product category, thereby truncating The Australian Energy Efficiency Council (EEC) is
the worst performers and gradually lifting the Australia’s peak body for energy efficiency, and
weighted average. The adoption of national publisher of the Australian Energy Efficiency
standards enabled economies of scale that would Policy Handbook. The EEC identified a suite of
have been difficult in the absence of the policy. actions that require high-level support, and
which would improve productivity and global
Energy efficiency measures may be targeted competitiveness. These include supporting
towards a product or process within an industry strategies that recalibrate investment between
or sub-sector. Other policies may have a broader supply-side and demand-side strategies;
scope, with an overarching national performance strengthening standards for appliances, buildings
target. Policies may be funded within a defined and vehicles; and encouraging a globally
budgetary period, comprise special purpose competitive energy efficiency industry.
funding, or have ongoing funding. As part of the
ordinary political cycle, policies are regularly As a resource-rich country, with population
reprioritised, wound up, or superseded. centres in temperate regions, Australian Federal
governments have not historically placed a
high priority on energy efficiency policies.
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