Electrifying Everything- Policy Brief

ELECTRIFYING EVERTHING | La Jolla Conference 30 th Anniversary Policy Brief

In September 2015, the State of California passed legislation – formally known as SB 350 – aimed at increasing California’s renewable energy mix to 50 percent. The legislation also sought to double the energy efficiency of existing buildings. All of the provisions of the new legal framework were crafted by energy and climate action advocates to catapult California’s electricity system into the future with a more robust, resilient and cleaner matrix and grid.

In many circles, the bill became known as the “electrify everything” policy framework for the state.

Since its implementation in California, the concept has been heavily debated across the world, particularly as the imperative and society’s pressure for tackling climate change grows but is also an ever more complicated public policy discussion. The energy transition, in some ways, should be understood to signify more energy, not less. But more energy, with less carbon. Or, as the subject of this brief sets forth, more electricity.

This Policy Brief is based upon discussions that took place in May as part of the Institute of the Americas 30th La Jolla Energy Conference and a Virtual Roundtable held under Chatham House Rules.

The Policy Brief summarizes and adds context to those discussions wherein industry leaders and experts discussed the topic of electrifying everything, what it means, where to start, challenges to overcome and what the electric future will look like in 2030.

What do we mean by electrifying everything?

The goal is to build a power system that allows us to meet growing energy demand and consumption as much as possible through our electric grid. Or, as Amy Myers Jaffe wrote in the Wall Street Journal , “the concept, most simply put, is that more of the energy we use will come from the electric socket.”

There is a growing focus on the possibility to replace a significant portion of energy consumption, that is, our tendencies for certain technologies mostly involving combustion, to alternatives that are run or powered by electricity.

A fundamental issue to address as part of the “more, not less” energy transition is: what kind of electricity? Clearly, as the California example underscores, the desire to electrify everything has at its core an effort to enhance climate action and reduce emissions. Therefore, the increased electricity should come from clean sources—as otherwise, the overall effect on emissions might not be the desired one. Of course, those clean sources such as wind and solar must also become available at a competitive price as to replace fossil fuels. Fortunately, wind and solar have proven to be extremely cost-competitive for power generation, if not cheaper altogether, as their levelized cost of energy decreased at an unparalleled pace in the past two decades.

ELECTRYFING EVERYTHING | INSTITUTE OF THE AMERICAS

ELECTRIFYING EVERTHING | La Jolla Conference 30 th Anniversary Policy Brief

What should we electrify first?

Today we face a unique opportunity that marries extremely affordable financing for renewables with a high degree of collective consciousness to address emissions. Yet energy poverty remains pervasive globally while digitalization trends also contribute to increased demand for energy. To achieve a meaningful decarbonization of the energy used in our daily lives, we must turn to electrification. The source of energy for our daily activities is critical. Moreover, not all sectors will, can, or should be electrified. Indeed, from a power system perspective, it does not make sense to create redundant systems in the short term.

As part of the discourse surrounding electrifying everything, where and what activities should we focus on first? Assuming we cannot electrify everything at once, what should we prioritize? Cooking, heating, private and public transportation?

In many ways, and clearly as part of the need to increase energy access and supply while reducing emissions, the electrification process of certain economic sectors will not be from scratch. Cooking and heating have seen huge gains in electrification across the world with many residential and industrial systems now relying upon electricity. These efforts are crucial to reducing energy poverty and delivering modern, secure sources to citizens. The flurry of announcements from major car manufacturers and their plans to electrify most if not all of their product line, combined with several national and subnational policy goals, underscore that the automotive sector has already made its decision in favor of electrification. However, this does not completely translate to all transport segments. Indeed, the electrification of air and long-distance transport, as well as maritime transport, is not as certain in the near-term. Electrification or the substitution of jet fuels with battery systems has not yet been commercialized and most likely other technologies — such as fuel cells — will have to come into play to fully decarbonize these particular segments of the transport sector. As seen through the proxy of the United States debate around a major infrastructure bill and package, the question of EV charging stations and support for the mass-deployment of electro-mobility remains crucial. In many ways, the infrastructure question pertaining to EVs will continue to take center-stage.

Electrifying everything and inclusion

If we start from the assumption that energy access should be guaranteed as a service, how does electrifying everything align with demands for equality and protecting the environment? For some, it should not be seen as a “universal free for all” solution. Energy access should be universal,

ELECTRYFING EVERYTHING | INSTITUTE OF THE AMERICAS

ELECTRIFYING EVERTHING | La Jolla Conference 30 th Anniversary Policy Brief

but at the same time it should never be free to avoid falling into a tragedy of the commons situation (examples with water provides lessons learned and what to avoid given the inherent inefficiencies that are created).

In order to pursue energy transition, countries should follow a path in which the access to this new electrified world should be more readily available. This also argues for the need to make the energy transition a collective effort, with the upside that it will also most likely help tackle civil unrest in some countries. The question around access and providing equitable solutions has a clear financial element. Indeed, as so often is the case, finance and investment are crucial and not easy to secure, particularly in low-income communities. It is then essential to ensure that electrification and corresponding technologies reach everyone—not just the wealthy populations able to afford them. In that sense, universal access to electricity should be part of any government’s mandate, which begs the case for the promotion of energy decentralization and distributed energy solutions. There are clear indicators that market mechanisms and a move away from centralized generation will help. That is to say that making small-sized generation units available for communities can help to ensure access and moreover, can be tailored to specific needs with far less investment and finance requirements compared with the traditional power system. Distributed generation can then become a real, inexpensive solution for remote, low-income communities.

There are also financial services and technologies (FinTech) that must be a part of the electrification and inclusion path forward. FinTech firms in conjunction with multilateral financing institutions, will have a major and critical role to play in solving the access challenge.

Additionally, Small Modular Reactors, or SMR, already exist and could become a key technology aimed at scaling up and allowing distributed generation to be part of base load in a clean and efficient way.

Managing challenges of electrification

To meet increasing energy demand set forth by the concept of electrification, there must be substantial investments in solar and wind technologies, albeit these are intermittent sources. Thus, managing the heated question of back-up generation must be considered. There are existing solutions, such as boosting hydro and thermal, possibly including geothermal sources to support increased deployment of intermittent renewable generation. However, there is also the clear need to further develop and lower costs of large-scale storage (such as battery and fuel cells) that can be coupled with renewable sources. Today, only one percent of electricity in the U.S. is generated through storage. To overcome this challenge, renewable and storage levelized cost of energy needs to decrease even further as to compete with thermal sources of generation, particularly in terms of baseload power demands.

A further element to properly support the growing level of clean energy in the electricity mix is transmission infrastructure. A large portion of the growth in renewables comes from wind and solar projects that are located in more remote and oftentimes far-flung locales, far from urban and

ELECTRYFING EVERYTHING | INSTITUTE OF THE AMERICAS

ELECTRIFYING EVERTHING | La Jolla Conference 30 th Anniversary Policy Brief

demand centers. The timelines and costs associated with increased transmission capacity to wheel the growing amount of renewable electrons must also be considered and planned years in advance, as transmission lines can end up becoming sunk costs with limited scope for expansion. In many ways, these constraints and challenges further support the case for storage solutions. Certainly, distributed energy resources provide an additional solution to redressing the transmission issues.

A last challenge worth highlighting stemming from the electrification of our daily lives is that of cyber-security related to the increased digitalization and growth of the power market and grid, as it inherently increases the risk of cyberattacks. It is a challenge to consider and discuss, particularly for grid operators and power producers, and one that needs further understanding. Cyber-threats are more likely to occur on the operator side and present more of a problem for transition or distribution networks. The upside is that, as with regards to solving some of the challenges of transmission networks, there are clear advantages of distributed generation to mitigating cyber threats and challenges. The decentralized nature of microgrids and behind-the- meter distributed solar and storage greatly reduces the reach of cyberattacks in transmission or distribution networks.

What does the electric future look like in 2030?

Beyond the previously noted elements of the electrification of transport, along with navigating challenges of universal elect ricity access, there was consensus amongst panelists as to what the near-term future holds: by the end of the decade, electrifying everything will likely appear through the use of micro grids for small communities. In addition, nimbler demand and flexible approaches from regulators will add to the electrification efforts. Furthermore, though perhaps not by 2030, part of the electrifying everything equation will be what may be called the new geopolitics of energy . Certainly, control over critical minerals and particularly supply chains of key inputs for electrification are ominous challenges — and opportunities— for countries, while cyber threats and attacks are part of that geopolitical equation in which data and electrons are the new oil. The more positive side of the new geopolitics of energy as posited by those seeking to pursue broader electrification goals is the potential for a more balanced global system if we electrify everything. Electrification could be key to removing the distortion from fossil fuels and geopolitical games around those energy sources that make the world unbalanced and where too often projects are politically motivated. Electrification and distributed solutions for smaller grids will make people more independent in terms of self-sufficiency and allow for fewer disruptions.

The Institute of the Americas would like to recognize Cecilia Aversa , Managing Director for Innovation at Integra Capital for chairing the Virtual Panel and the participation of expert presenters: Andres Chambouleyron , Non-Resident Fellow at the Institute of the Americas; German Chullmir , CEO of OREL Energy Group and a member of the IOA’s Energy Steering Committee and Thorsten Dradrach , Head of Power Region America, MAN Energy Solutions and a member of the IOA’s Energy Steering Committee.

We would also like to acknowledge the efforts by Romie Tejeda-Barron and Kathryn Hillis , graduate students at UCSD’s School Global Policy and Strategy (GPS), who served as the rapporteurs and assisted in drafting the Policy Brief.

ELECTRYFING EVERYTHING | INSTITUTE OF THE AMERICAS

ELECTRIFYING EVERTHING | La Jolla Conference 30 th Anniversary Policy Brief

About the Institute of the Americas

Established in 1981, the Institute of the Americas is an independent, inter-American institution devoted to encouraging economic and social reform in the Americas, enhancing private sector collaboration and communication and strengthening political and economic relations between Latin America and the Caribbean, the United States and Canada. Located on the University of California, San Diego campus in La Jolla, 30 miles from the border with Mexico, the Institute provides a unique hemispheric perspective on the opportunities opened by economic and social reforms in Latin America and the region’s relationship with the United States and Canada.

Since 1992, the Institute’s Energy & Sustainability program has played a crucial thought-leadership role in shaping policy discourse and informing policymakers and investors on the most important trends in the energy sector.

The Institute continues to serve as an honest broker between the public and private sectors across the hemisphere to help forge a constructive dialogue on the issue of clean energy transitions and emerging economic opportunities derived from renewable energy deployment.

For more information, visit iamericas.org

@IOA_Energy

ELECTRYFING EVERYTHING | INSTITUTE OF THE AMERICAS