Transitioning Singapore’s energy system isn’t going to be simply a flick of a switch. While we can all agree solar and wind power will play a major role in our sustainable energy future, it is simplistic to think that solar and wind alone are the panacea for our energy needs here and now. In my work, I have come across self-proclaimed environmentalists who make claims such as “even my 8-year old knows the solution is to deploy solar and wind” as an end-all argument against practical solutions. Such oversimplification of complex issues and close-mindedness can be deleterious and regressive, rather than progressive. And until one dives into the nature of the issues, one cannot fully appreciate the extent of the complexities. I do not claim to appreciate all of it as I can only speak from my experience and perspective. However, I would not make the mistake of oversimplifying the challenges we face and suggest we all keep an open mindset, especially for a challenge as vast as this.
Without dramatizing the point any further, transitioning Singapore to a green and sustainable energy system is going to be fraught with challenges. Most obviously, there will be competing technology and value chain options. There will also be a variety of groups of people, scientists, businesses and policymakers each with deep domain knowledge and expertise in their area of focus and each then having a unique perspective that on logical grounds can be at odds among each other.
How can we consider the pros and cons of everyone’s perspectives and weave together a collective solution that presents the best path forward for all of us?
How will we rationalize and prioritize our choices going forward?
How will we take measured steps so that we can monitor our actions and make corrections when new knowledge supersedes prior thinking?
How can we be prudent in our capital spending to strike a balance between investing in high potential technology and value chains, yet minimize the risks of ending up with White Elephants?
More importantly, how can we ensure everyone can participate in the transition from an economic and social standpoint, and not be left out or marginalized as sectors and cost structures evolve.
In complex issues like this, I think frameworks are helpful. When we can agree on the objective basis of the issues that matter and how we will evaluate our options, we make a big step towards robust debate and critical thinking. Therefore, in Part 3, I propose a framework for how we could answer the above questions:
First of all, I shall explain how I think about a framework for the energy transition, as follows:
- As we make the transition, it is not as discrete as having a fossil-based energy system today, and a green one tomorrow. There is only ONE energy system, and it evolves over time with an infinite spectrum of system compositions, just as we take time to grow from a baby into an adult.
- However, at any point in time, we want to identify attributes or characteristics that are good and those that are bad. And naturally, we aim to keep the good and discard the bad. Just like how good values and bad habits are, we want to nurture and keep good values, and to our best efforts, rid ourselves off our bad habits. In short, Attributes are snapshot characteristics of our energy system.
- The transition is a process where the status quo is going to be disrupted, some for the better, some for worse. Overall, we try to make decisions with the best overall outcome. But even the best decisions come with tradeoffs.
- In short, Considerations are issues that help guide our decision-making process on the path we take to transition our energy system.
- Principles define the mindset we should have in approaching the challenges, and cuts across how we evaluate the attributes of proposed transition steps and the considerations.
While we engage in a discussion on energy transition, it is easy for us to just bag the whole fossil-based energy system, cast it aside and start planning how we transition with a clean slate. However, nothing is all bad, or all good. It would be a mistake not to appreciate what made the fossil-based energy system good and what its shortcomings are. In fact, there are many positive attributes that we often take for granted that our modern lifestyle and economic growth so critically depend upon – not just in Singapore, but ALL around the world.
These are the Fundamental Attributes:
- Profit = Value – Cost. This is basic economics.
- Because of relatively low cost of extraction, processing and ease of storage and shipment to global markets, the economic value derived from using energy to produce and deliver all kinds of goods and services in the economy Less the cost of energy input has resulted in a large economic profit that has driven global economic growth for the past few decades.
- Abundance of fossil fuel resources also plays a role in ensuring energy costs maintain affordable. The several historical instances of global supply shocks and demand spikes have shown us how cost of energy can spike up and down depending on the circumstance around the supply-demand imbalance.
- Fortunately, as global demand for fossil fuels have grown over the decades, so has supply and we have not yet experienced any prolonged global supply challenges that have led to sustained high prices.
- Energy Security:
- At the risk of repeating, energy IS the lifeblood of any economy. Everything would come to a standstill, and revert to manual labor without availability of energy. As such, every country has to ensure the continuity of energy supply to sustain its existence and grow.
- This is especially critical for an energy importing country like Singapore. Unlike some other countries that have their own energy resources to fallback to, Singapore can only count on orderly trading markets to secure the energy it needs.
- Abundance again plays a role here but in a different way. When there’s more than enough to go around, distributing resources is just a matter of market dynamics. But a prolonged or permanent inability for supply to meet demand runs the risk of destabilizing geopolitical balances or even leading to conflict. In such as crisis, orderly trading markets break down and procuring energy wouldn’t be a simple function of market trades. I hope we never get there.
- Diversity of energy sources. As an energy importing country, the fact that there is a diversity of sources of fossil fuels reduces the risk that Singapore would not be able to procure the energy supply it needs.
- Energy Resilience:
- Fossil fuels have also afforded us two key attributes of easy to store and distribute. This means we have the logistics advantage of having energy when and where we want it. This is energy on-demand.
- This ensures downtime on our energy system is minimal or negligible, and our economy stays active round the clock.
- The storage attribute also allows fossil fuels to enable energy systems that are able to withstand supply or demand shocks. By keeping strategic energy resources in reserve, we have more resilient energy systems.
- In the case of our electric grid, in addition to the generating of electrical power, natural gas fired turbines also have great responsiveness to load changes and maintain grid frequency to a small band. The failure to do so could result in brownouts, equipment malfunction or an increased risk of fires. In technical speak, natural gas provides us the ability to firm the grid. This attribute is especially important as we introduce increasing proportions of intermittent solar PV capacity.
- Diversity of energy supply also ensures longer-term resilience of our energy system
Fundamental Attributes: As we transition our energy system, we will want to maintain these attributes throughout the transition. Proposed solutions have to show a viable pathway to establishing, maintaining or even enhancing these attributes at-scale.
The world wouldn’t be discussing the energy transition if fossil fuels were clean.
Despite all the positive Fundamental Attributes describe above, the Achilles’ heel of fossil fuel is primarily its negative environmental and social externalities which include:
- Fossil carbon:
- When fossil fuels are extracted and consumed, they release CO2 in the air.
- It is a simple concept that everyone is familiar with, but I want to make the point that carbon in itself is not bad, as the media generally portrays it to be.
- “Good carbon”: Carbon is simply the choice of nature, after billions of years of evolution, to bind other elements, principally hydrogen and oxygen, to store energy from the sun, and to propagate it into the natural world for both energy and material. In fact 98% of the atoms that make up our human bodies are carbon, hydrogen and oxygen, which we derive from the food we eat. The carbon contained in our food have come from the atmosphere through photosynthesis by plants upstream in our food value chain. When we metabolize energy and respire, we are converting our energy stores and emitting (exhaling) CO2 back into the environment. However, our respiratory CO2 emissions isn’t a problem as it is part of the natural carbon cycle – carbon that is constantly being exchanged between living organisms and the atmosphere, that does not result in the build up of atmospheric CO2.
- “Bad carbon”: Carbon is “bad” when we dig up carbon that has been locked underground in fossil fuels for over millions of years, and release it into the atmosphere when we burn the fossil fuels. Over time, this adds CO2 into the atmosphere, which is the specific problem we are now gathered to address.
- Fossil fuels are not pure hydrocarbon molecules. This is especially true for coal, which contains a wide range of elements, minerals and other impurities. Oil also come in different grades and the main impurity is the sulfur content.
- When fossil fuels containing these impurities are burnt, not only do they release CO2, but also major pollutants, the primary ones being oxides of nitrogen (NOX), oxides of sulfur (SOX) and particulate matter (PM).
- When we are able to see “air pollution”, we are observing pollutants and not CO2. According to the World Health Organization, “air pollution kills an estimated 7 million people worldwide every year“.
- From smog-covered cities to household air pollution from inefficient stoves fueled by coal, wood or dung, air pollution affects the health of vast populations. The lower-income are disproportionately affected, which has an overall impact on social inequity and exacerbates poverty.
- Fortunately for Singaporeans, use of natural gas, modern technology for efficient combustion and advanced emissions control greatly mitigates the pollutants in the air we breathe in Singapore.
- Methane Leakage:
- Methane (CH4, the primary component of natural gas), is a greenhouse gas just like CO2.
- When methane is combusted, methane itself isn’t a problem. However, when it is released into the atmosphere, it iss a greenhouse gas that contributes to the warming of the Earth.
- Global Warming Potential (GWP) is a measure of how much heat the emissions of a greenhouse gas will absorb and retain over a given period of time relative to the heat absorbed and retained by the same mass of carbon dioxide.
- According to the Intergovernmental Panel on Climate Change (IPCC), the GWP of methane is 28, on a 100-year time horizon. This means that methane as a greenhouse gas is 28x more potent than CO2.
- Methane is released in the production and delivery of natural gas, typically due to aging infrastructure and lack of monitoring equipment. Historically, there is little awareness to methane leakage as an issue and the situation prevailed.
- Methane leakage rates vary widely across basins and pipeline networks. The US EPA estimates US average methane leakage rates at 1.4%, while the IEA estimates average methane leakage rates at 1.7%.
- Fortunately, methane leakage is not inevitable and can be reduced significantly by available technologies and good equipment maintenance. For example, BP and Shell have announced targets to reduce methane leakage rates to 0.2%. This implies that natural gas can continue to play the role of a transition fuel in the decarbonization of energy systems.
Environmental Attributes: As we transition our energy system, we will want to avoid options that contain fossil carbon or pollutant-causing elements/minerals. Proposed solutions have to show how the negative Environmental Attributes are mitigated or eliminated.
Energy infrastructure includes the following examples:
- Upstream: resource extraction and gathering; power generation
- Midstream: pipeline, processing facilities, storage, distribution; power transmission & switchyards
- Ocean logistics: ships
Infrastructure is a key consideration because of two points. They are: (i) long-lived assets of say 20-50 years and (ii) capital intensive. In general, infrastructure needs to be operated with a minimum capacity over a minimum number of years, say 20 years, for the capital investment to make sense.
This has implications on both retirement of old infrastructure, and the building of new infrastructure.
- Retirement considerations:
- The existing global energy infrastructure comprises assets with aggregate value in the trillions of dollars.
- Accelerating the retirement of these assets would be a huge economic loss to the global economy and is not feasible.
- In other words, it is impractical to expect infrastructure to magically covert into a green energy system in 5-10 years as some fanatics try to champion.
- New build considerations:
- The decision to undertake the building of new infrastructure, whether by a government or private sector owner, entails looking into the future to assess the relevance of such infrastructure going forward.
- In the context of the energy transition, the number of options on the table imply uncertainty of what technologies and value chains future energy systems would gravitate towards. The uncertainty is on both sides – demand and supply. The chicken-and-egg situation typically evolves organically as suppliers and customers gravitate towards favored technology and value chain solutions. But the evolution can also be assisted by policy, and we are seeing that play out increasingly.
- Uncertainty can represent a barrier for capital providers to make investment into new infrastructure, until clarity of long-term utility or long-term commitments from either suppliers or customers or both can be secured to underpin the business case.
- Therefore, it is important that proposed solutions consider the following:
- How can existing infrastructure be utilized as much as possible in the transition, with reasonable retrofitting?
- How can infrastructure be incrementally added on, preferably backed by long-term utilization?
- How can new infrastructure be assured of relevance to future energy systems and safeguard against obsolescence in the longer-term future?
Ultimately, we should minimize sinking capital into infrastructure that are at risk of become obsolete too quickly.
Overhauling the energy system will effect changes that may result in disproportionate impacts on certain populations. For example:
- Increased cost of energy
- As the world increasingly acknowledges the negative externalities of carbon, various schemes which have been introduced include (i) a simple carbon tax scheme which effectively adds a legislation-defined cost to carbon-emitting fuels and applications, and more dynamic schemes such as (ii) the EU Emissions Trading System which is based on a ‘cap and trade’ model, and which allows market forces to determine carbon cost.
- Regardless of approach, the transition to net-zero will necessitate the increase in carbon costs to incentivize the adoption of cleaner technology and energy options. This will inevitably result in the increase in costs of energy.
- However, since energy is fundamentally a necessity, the lower-income population, which generally spend a higher percentage of disposable income on energy, directly or indirectly, would be disproportionately affected relative to higher-income population. This has the potential to exacerbate the income gap challenge that is already a perennial issue for policymakers.
- Changing workforce requirements
- Sector shifts could fundamentally change workforce requirements. Certain populations might have specialized skillsets for sunset industries, that which are irrelevant for new industries.
- It will be important to ensure that Singapore’s labour force keep up with these changes and have catch-all mechanism that are able to identify and manage affected populations.
Economic Growth Considerations
Like other macroeconomic shifts of the past, new sectors will emerge and others recede. The energy transition will create new economic opportunities and cause certain existing sectors to decline. Considering the vast scale of the energy system, these changes will occur at very consequential proportions.
How can Singapore leverage its position of strength to play an integral role in new global and regional energy value chains?
How can Singapore participate in new growth opportunities and create sustainable competitive advantages?
The energy industry and its transition is a global economic opportunity. Especially as an energy-importing country, Singapore cannot develop strategies that are confined to just its boundaries. Inevitably, Singapore will have to assess its strengths and relevance in the context of global energy value chains. To these, I offer three observations where Singapore could leverage its strengths:
- Positive Business Environment
- Singapore is well known globally to have a favourable business environment. This includes business-friendly regulation, political stability, security, connectivity and a first-world quality of life.
- Already, Singapore is a hub or regional headquarters for international corporations operating in the Southeast Asian, or even greater Asian region.
- This will be a strength that Singapore will continue to rely on as it carves out its strategic relevance in new global energy value chains.
- Plugged into existing global value chain
- Singapore is already an integral part of the global value chain, with oil throughput equal to around 3% of the world’s oil trade volume.
- In addition to being a major oil trading & distribution hub in the Southeast Asia region, Singapore’s refineries process slightly over 1% of the world’s petroleum product volume, a significant statistic for a country that is home to less than 0.1% of the world’s population.
- As global energy systems evolve, Singapore can and must leverage it’s unique positioning to be a regional hub for new zero-carbon energy.
- Singapore can secure this positioning by playing a leadership role in developing these new value chains in partnership with international energy companies.
- Strategic Investments
- One of Singapore’s unique strengths is its ability make strategic investments to secure interests strategic to Singapore.
- A great example is Pavilion Energy, a wholly-owned subsidiary of Temasek Holdings that was started in 2013. Today, Pavilion is a full-suite LNG business with capabilities including natural gas supply, marketing, LNG trading, shipping optimization, and hedging and other financial solutions.
- Not only has Pavilion been a successful company in a thriving and growing LNG global value chain, it has also played a critical strategic role in the procurement for LNG supply for Singapore’s energy system.
- The energy transition is not only going to be an opportunity for transporting energy via cleaner carrier forms, but also an opportunity to innovate new business models that can anchor Singapore’s relevance beyond its borders.
The finishing touch to the framework are the principles, or mindset, we adopt in our approach to evaluating and executing new opportunities. And I would propose three:
- Pragmatism: While we are all enthusiastic about doing right for the world we will pass on to our children, we will need to balance it with a sense of pragmatism – especially our expectations on how and when we will achieve the transition.
- When faced with varying technology and value chain options, myriad interests and perspectives, we will encounter plenty idealistic/one-sided proposals that will emphasize certain attributes or considerations over others.
- These arguments can appear convincing, but run the risk of neglecting other attributes and considerations that are just as important, if not more important.
- The energy transition will require holistic solutions that weigh the pros and cons grounded in science, economic feasibility.
- We will need to focus on definable, quantifiable and verifiable objective outcomes rather than suppositions of ideals and false moralities.
- Portfolio: Taking a leaf out of investment management best practices, there are two key merits to adopt a portfolio mindset.
- Firstly, no one can predict the future, only best educated guesses. Instead of putting all our eggs in one basket, it is best to put our efforts and capital into a few good proposals. This is for risk mitigation.
- Secondly, it is unlikely that any single proposal will be able to fulfil, address or mitigate all the attributes and considerations needed to transition to a fully zero-carbon energy system. More likely, a combination of proposals will be required. Just like in investing, we will have to analyze not just the merits and risks of each proposal on a standalone basis, but also the potential interactions between proposals and determine what the best combination is, and the optimal sequence of implementation.
- Lifecycle: Greenhouse gases respect no political boundaries. Emissions anywhere in the world, affects everywhere in the world. The Earth is a shared home by all humanity.
- Increasingly, we are seeing countries cooperating on combating climate change despite their political differences on other issues. Case in point, despite the rising political tensions, the US and China commit to cooperating on climate change.
- Consequently, the concept of lifecycle analysis has become mainstream – that all emissions attributable to infrastructure buildout, upstream, midstream, downstream, point of use, and recycling must be considered.
- Singapore too, should consider all proposals with this mindset. In that regard, we should not only just consider greenhouse gases emitted in Singapore’s borders, but also our indirect emissions upstream and downstream.
- Everything we do to reduce emissions along the global value chain of which we are a part of will be a benefit for Singapore and the world.
Applying the Framework
Putting all the above together, the Framework could be illustrated as follows.
- Fossil-based energy system: We begin with our starting point today, which is an energy system that consumes oil, gas and coal. It possesses the Fundamental Attributes, but its shortcomings are the negative Environmental Attributes.
- Zero-carbon energy system: The zero-carbon energy system is our end goal. We can probably all agree that renewable power from solar PV and wind turbines will play a major role in harvesting sustainable energy from the sun into energy we can use in our energy system. However, solar PV and wind turbines alone are insufficient to be a holistic solution. We will need other key components to complement. Not just batteries, but new forms of fuels that can be produced, transported across oceans, stored and used sustainably that is in harmony with mother Earth’s natural cycles. To that, I have put a question mark on what these complements might be.
- Intermediate energy system: Then we have the intermediate energy system, which as we have discussed is going to be a spectrum composition of different types of technologies and new energy value chains. How it will evolve from the present to the future is the bigger question mark that involves all the issues we have discussed above. To that, I have put a question mark to indicate the challenge that which is ours to solve on a dynamic basis – trialing, monitoring, reviewing, revising, transitioning both the energy system and the economy, until we achieve our goal.
- Fundamental Attributes: The Fundamental Attributes are those we want to recognize and preserve, and even enhance as we get to our goal. Given that (i) solar and wind resources are a lot more distributed that oil and gas resources, and that (ii) their supply is virtually unlimited (or sustainable), we have a very real potential of enhancing the Fundamental Attributes in the longer term.
- Environmental Attributes: This the bane of fossil fuels and the primary motivator for today’s widespread enthusiasm to want to do something about climate change. However, just like any addiction, our ‘addiction to fossil fuels’ has to be tapered gradually. Mitigation is my suggested approach for tackling emissions in the near to medium term. And no I do not mean offsets, but actual reduction of emissions by economically viable means. We will need to understand the cost curve of emissions reduction and address the lower hanging fruits and work up the cost curve as carbon costs increase over time.
- Infrastructure Considerations: To ensure we do not shock the existing system and to mitigate our risk in investing in potential White Elephants, we should always ask the following in evaluating any proposals:
- How can existing infrastructure be leveraged as much as possible, allowing for some minor retrofit, rather than forcing a quick retirement? – The more we can leverage the existing, the lower the hurdle for implementation, the lower the costs to customers, the more rapid the rate of adoption and evolution of markets.
- How can we ensure that the retrofits we make, or the new infrastructure we have to build, will stay relevant in the longer-term zero-carbon energy system? – This is the White Elephant question. Investing in short-term solutions, only for them to be obsolete in before the useful lifespan of these assets will be a bane for the economy in future.
- How can we sequence our transition so that existing assets become obsolete on a timeframe that allows for the gradual retirement of these assets? – Either natural retirement, or in some countries, incentives have been provided to accelerate decommissioning of old, high emissions infrastructure.
- Social Considerations:
- Substantial changes in cost structures and workforce requirements have great impact on society.
- On costs: We cannot be extreme or idealistic in our expectation to transition at all cost. We will need to evaluate proposals and prioritize them based on their initial implied premiums and their potential to reduce premiums over time as technology scale-up and market expansion kicks in. Focus on the lowest-hanging fruits.
- On workforce: Focus should be on proposals that leverage existing skillsets with minor retraining, and retooling of industrial processes.
- Economic Growth Considerations:
- I am a strong believer that transitions of this magnitude will give rise to new economic opportunities. We must always be identifying emerging trends, recognize or create our unique role and secure an early-mover / leadership position.
- In that regard, it would be in Singapore’s best interest to consider proposals that Singapore can play a contributing role, rather than just be a consumer market for someone else’s technology or business. When we are just the consumer, we get quality of life, but we do not create new economic opportunities. When we provide value add, either on technology or innovate commercial arrangements, we create new economic opportunities for Singapore.
- Principles. And we should accomplish the above with the principles we lay out.
I write this chapter acknowledging that there is no such thing as an absolute or complete framework, nor a static one. The world is a dynamic place and frameworks such as this should also evolve accordingly to suit the circumstance. However, at this point in time, and based on my experience and knowledge, this is the form I would propose.