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POLICY
A Site Selection Web Exclusive, January 2014
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The Geneva Triangle

Which countries do the best job balancing the sometimes competing demands of energy policy?

POLICY
Images courtesy of WEF
by ADAM BRUNS
T
Espen Mehlum is director, head of Knowledge Integration, Energy Industries for the World Economic Forum
Espen Mehlum is director, head of Knowledge Integration, Energy Industries for the World Economic Forum

he World Economic Forum is busy this week prepping for next week’s annual get-together of the world’s elite in Davos, Switzerland. But last month’s focus was on energy, as the Geneva-based WEF released the Global Energy Architecture Performance Index (EAPI) Report 2014.

Prepared in collaboration with Accenture and designed to help countries spur their efforts to meet energy challenges and opportunities in innovative ways, the Index assesses regions and 124 countries according to an “energy triangle” comprising economic growth, environmental sustainability and energy security performance, analyzing the complex trade-offs and dependencies that affect country efforts to balance those three elements.

Norway tops the Index rankings, followed by New Zealand and France. The WEF said 41 percent of energy supply in the top 10countries comes from low-carbon energy sources, compared to a global average of 28 percent.

The WEF’s suite of tools to access the Index’s data includes a map widget and access to the raw data platform, as well as contributed essays from top elected, academic and corporate officials in each world region.

“Resource wealth or economic development alone do not guarantee high performance on the Index,” said Roberto Bocca, senior director, head of Energy Industries, World Economic Forum. That point was driven home by the fact that the top-ranked nation in the economic growth and development category — Peru — was the only category leader in the study to not finish in the top 10 overall.

Espen Mehlum, director, head of Knowledge Integration, Energy Industries at WEF, says Peru was a surprise, so his team looked deeper.

“Among the factors driving it is a very good energy intensity score — a lot of dollars out of each energy unit spent,” he says, referencing the key indicator of energy productivity. He also says the country has passed a measure known as the Electrical Concessions Act, thereby opening up to more competition in the market.

But then come the reasons that No. 1 spot didn’t translate to a Top 10 overall score: only an 85-percent electrification rate for the country, and a relatively high prevalence of solid fuel for cooking (i.e. not modern fuels). CO2 emissions from electricity production and lagging fuel economy measures contribute to a ranking of 64th on the sustainability dimension. Other organizations such as Cultural Survival, an advocacy and activism organization for indigenous peoples and cultures, note the country’s ongoing challenges remediating decades of petroleum-based industrial waste: “While billions of dollars worth of oil have been taken from their lands, Indigenous Quechua still lack access to basic services and potable water, a jarring disjunction between their abject poverty and the ‘black gold’ being extracted at a rate of 15,000 barrels per day,” said a recent statement from the organization citing dozens of spills reported and unreported by the national government, especially in an area known as Block 1AB, whose concession expires in 2015.

'Nobody's Perfect'

The Index notably rewards those countries with prominent nuclear power and hydropower assets, paired in many cases with high levels of service economy jobs, which means a low level of energy-intensive industry and manufacturing. The Index also rewards those nations who pair significant and exploitable carbon resources with visions of leaving that carbon behind.

“We believe we can have it both ways. The reality is that resource development and environmental protection are inseparable, not incompatible, and we have built Alberta’s entire system around that premise.”
— Hon. Alison Redford, Premier of Alberta, Canada

But there is gray territory, such as in Germany, where energiewende, the plan to quickly leave nuclear power behind and rush to renewables, is having its share of painful effects. Germany seems to personify the challenges of balancing the energy triangle, as wind turbines go up in every direction, but the country also (more quietly) continues to invest in coal-fired generation even as the rush away from nuclear takes place.

In fact, says the report, "The cost challenge of renewable energy, coupled with the availability and comparative low cost of coal over natural gas in the EU — driven by the shale ‘revolution’ in the US — has triggered a return to coal over natural gas in power generation. The EU increased coal imports by 2.8 percent in 2012, compared to the average 1.3-percent decline trend of the past decade. Because coal generates, on average, twice the amount of GHG emissions as natural gas, this trend is having the opposite effect to that targeted by EU renewable policy directives. This highlights the pricing challenge of renewables, as well as the need to build more resilience against price fluctuations in fossil fuels."

"Nobody's perfect on the index," says Mehlum. "Even Norway can improve. Germany is number 15, very important for Europe, and has traditionally had a diversified energy mix, well integrated into the European energy system. But integration across borders is an area for improvement Germany really needs to work on. And deciding to step out of nuclear has created a gap." (See related story in this issue, "No Nukes, No Problem?")

Aggressive renewables subsidy schemes can help at first. But then they can sometimes hurt, as Germany's energy consumers can attest, in the form of skyrocketing prices.

EnergyTriangle

"It's not easy to get all the renewable policies right, especially as a recent industry," says Mehlum. "Spain went out with an ambitious subsidy scheme, then had to back-track. Germany is facing that problem. If you subsidize something that is marginal, fine, but when subsidizing something that is mainstream [as solar and wind have become there], it becomes much more challenging for the consumer. Germany has to align its policy with how the on-the-ground realities are unfolding."

That country's policies for 2020 are now being debated. A group of eight European country energy ministers (including Germany's) in December signed a letter calling for a 2030 target for renewables — something opposed by the UK, which says aiming for greenhouse gas emissions reduction is enough. However, a leaked EU report notes that leaving renewables out of the picture could cost Europe more than half a million jobs. The European Commission will release a full package of proposed measures on the topic on January 22.

"Competitiveness and the link to energy is now a core concern for European countries," says Mehlum. "On the one hand, you have the de-industrialization of Europe, with the exception of Germany, and at the same time the cheap gas becoming available in the US," as well as cheaper electricity. He says higher energy costs don't necessarily always lead to higher end costs because of increased energy efficiency. Not all industries are energy-intensive. And some countries prop up their energy prices with subsidies. But for sectors such as chemicals, manufacturing and pulp and paper, "energy can be among the most important vital input factors, and when those industries are exposed to international competition, yes, there can be concerns around economic competitiveness."

Depends Where You Want to Be

Asked how the Index has evolved in this, its second edition, Mehlum says, “An index is never a 100-percent mirror of reality. It’s always a simplification. Reality is complex, and data is not available for everything one would want to measure.”

Indeed, among the 18 indicators (six per each dimension), figures for cost of electricity for industry were only available as recently as 2009, according to the International Energy Agency, the WEF’s primary data source. Meanwhile, the report has added two elements: a measure examining diversification of energy imports (i.e. how dependent a country may be on one other country for its energy needs) and a measure of methane emissions to go with other greenhouse gas measures looking at nitrous oxide and CO2. Mehlum is hopeful that one day the EAPI will incorporate water footprint and availability data, as well as balance the carbon-free aspect of nuclear power with data on nuclear waste.

Could some major projects in the works — such as pending investments by Chevron and others in low-ranking Ukraine, or Dangote Group’s mega-refinery project in its home country of Nigeria — influence the Index’s next iteration? Mehlum is careful not to speculate. But he does offer that developing energy supply in country can be cheaper than importing it.

“It can be beneficial for energy security and a contribution to economic growth and development,” he says. At the same time, working better across borders can be just as effective. “Integrating your energy system with other countries can be as smart as developing your own resources,” he says. “That is what Switzerland is doing.” (And it’s what the US might still do with Canada.)

So, how should a corporate location decision-maker use the EAPI? Mehlum says the first question to ask is, "How important is energy for my location decision, and how much energy do I need? Then one can start looking at the cost of energy in different locations, especially for those in energy-intensive business, but also think about the stability of supply, and access to energy. Sustainability is becoming more and more important: Some are trying to go fully renewables. With that in mind, one could increasingly think about sustainability, and see which countries are scoring higher, and compare that. Sweden for instance, has a very ambitious plan to move out of fossil fuels. It's easier said than done, but some countries have more progressive paths than others. Corporations want to be associated with countries with good performance in sustainability."

Countdown

Below are the Top 10 countries in the EAPI 2014 with selected report highlights from each of those countries, followed by rankings of the top five performers (and ties) by world region and by category.

WEFTop10
  1. Norway “Norway’s considerable North Sea offshore assets make it the third‐largest exporter of energy in the world, after Russia and Saudi Arabia …Through the roll-out of a number of sound policies, Norway has made great strides towards a low-carbon economy with virtually all its electricity supply coming from hydro, and efficiency measures in public and private buildings. The wealth accumulated from its petroleum revenue positions Norway well to invest in developing new solutions for a low‐carbon future.”

  2. New Zealand “New Zealand’s energy system is characterized by the diversity of its total primary energy supply (TPES), the development of renewable energy sources and a liberalized energy market that has delivered a relatively high level of energy security alongside economic prosperity for consumers … The New Zealand Energy Strategy, published following a government review in 2010, set the path towards improving the energy system by establishing clear long-term policy priorities and energy-savings goals for the country … Although hydro contributes the largest share of installed renewable capacity, New Zealand seeks a wider portfolio of renewables with greater capacity in geothermal and, increasingly, in wind. As the country strives to achieve its ambition in the power-generating sector, it may face challenges of integrating these sources into the national grid.”

  3. France "Energy policy in France has focused on balancing environmentally sustainable energy production, affordability of energy and the competitiveness of its industry. To achieve this balance, France has had a long-standing commitment to establishing and developing its nuclear generating capacity. Currently, nuclear contributes to over 45% of France’s TPES, and 75% of total power-generating capacity ... However, the energy transition debate in France is shifting towards reducing the contribution of nuclear to 50% of power generation by 2025, with plans to diversify into renewable energy sources."

  4. Sweden "In the 1980s, the Swedish government stated its intent to decommission existing nuclear capacity. However, this policy was repealed in 2010, and there are now life-extension and reactor expansions under way. Nevertheless, Sweden imposes high taxes on nuclear power. In 2009, Sweden’s Climate and Energy Policy outlined the goals of a fossil-fuel independent vehicle fleet by 2030, and net zero GHG emissions by 2050 ... Sweden leads the way in transport, with a blend of fiscal incentives for the purchase of flexible fuel vehicles and congestion charge systems in urban centers."

  5. Switzerland "As is the case for France and Sweden, Switzerland’s performance across the energy triangle is largely a result of the prevalence of nuclear generating capacity which contributes to low-carbon, affordable energy. However, in 2011, Switzerland’s Federal Council launched its Energy 2050 strategy that involves both the gradual phasing out of nuclear power and the aggressive target of reducing greenhouse gas emissions by one-fifth by 2020. Although hydropower is the largest contributor to the country’s electricity output, in the absence of nuclear power Switzerland is likely to face challenges in maintaining electricity capacity. The interconnectedness of the Swiss energy market with EU markets will be a powerful tool in addressing these capacity challenges."

  6. Denmark "Denmark is the best EU performer in the economic growth and development and energy security dimensions. In recent years, Denmark has rolled out a number of policies for renewable energy, energy efficiency and climate change with the long-term energy objective of becoming completely independent of fossil fuel consumption by 2050. In its Energy Strategy 2050, the government published this long-term vision, as well as set out a series of energy-policy initiatives addressing renewables, efficiency and climate change."

  7. Colombia " Following steady decline in hydrocarbon production to 2008, Colombia has seen a dramatic increase in production as a result of successful policy reform promoting new investment in exploration and development of its fields. This affects the country’s performance on energy security and on economic growth and development, with production making Colombia self-sufficient in natural gas and generating revenue from exporting gas to neighboring Venezuela. However, this surge in hydrocarbon output also has a negative impact on the country’s environmental sustainability score, with Colombia achieving the lowest score in this dimension compared to the other top 10 performers in the index – 0.50 compared to the average of 0.63 for the other top 10 countries."

  8. Spain "Despite its drive for renewables, Spain remains a large consumer of fossil fuels, with virtually no domestic resources. However, government regulation that limits the percentage of total oil and gas imports any single country may sell to Spain ensures its diversity of supply. This diversification policy is aided by the country’s large liquefied natural gas (LNG) regasification capacity and Spain’s location close to North African exporters such as Algeria, which provides natural gas to the country through the undersea Maghreb-Europe Gas Pipeline. Alongside the diversity of its import base, Spain has pursued policies to increase power generation from renewables, generating a significant amount of power from wind energy, the second most in Europe behind Germany."

  9. Costa Rica "Costa Rica has established itself as a world leader in renewable energy, with considerable investment in developing and expanding renewable energy capacity, especially wind power ... In recent years, Costa Rica has sought to diversify across renewable technologies in a bid to mitigate the risks of energy security challenges in years with reduced rainfall. The overarching government strategy driving the transformation of Costa Rica’s energy system has the goal of making Costa Rica the world’s first carbon neutral country."

  10. Latvia "Affordability of energy relative to the low taxation benchmark of the index is ... a key high performance indicator for Latvia, affording the country an average score of 0.91 for fuel pricing in line with minimal taxation. In terms of energy security, like most Eastern European countries, Latvia is almost entirely dependent on Russia for its fossil fuel supply. To mitigate the risks of over-dependence on a single supplier, Latvia has diversified its electricity sector to derive 54% of power from hydro and another 3% from wind and biomass. To further reduce its dependency, Latvia is also participating in the Baltic Energy Market Interconnection Plan (BEMIP), to increase and improve inter-country connections in the Baltic region."
EU 28 EAPI Performance
Country Name Score Rank
France 0.72 3
Sweden 0.72 4
Denmark 0.71 6
Spain 0.67 8
Latvia 0.66 10
United Kingdom 0.66 11
Romania 0.66 12
Austria 0.66 13
North America
Country Name Score Rank
Costa Rica 0.67 9
Canada 0.66 14
Mexico 0.59 36
United States 0.59 37
El Salvador 0.57 44

Middle East and North Africa
Country Name Score Rank
Tunisia 0.53 60
Algeria 0.50 66
Morocco 0.46 79
Egypt, Arab Rep. 0.46 81
Libya 0.45 86
Sub-Saharan Africa
Country Name Score Rank
Congo, Rep. 0.55 53
South Africa 0.54 54
Cameroon 0.46 80
Namibia 0.46 82
Ghana 0.45 83

Association of Southeast Asian Nations (ASEAN)
Country Name Score Rank
Thailand 0.53 55
Singapore 0.52 62
Indonesia 0.52 63
Philippines 0.51 64
Malaysia 0.48 71
Economic Growth and Development
Peru 0.78
Colombia 0.74
Switzerland 0.73
Denmark 0.71
Norway 0.69
Spain 0.69

Environment
France 0.73
Sweden 0.73
Iceland 0.72
Zambia 0.71
Mozambique 0.71
Ethiopia 0.71
Energy Access and Security
Norway 0.96
Denmark 0.88
Canada 0.88
Australia 0.87
Sweden 0.85
New Zealand 0.85


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