Transition outlook for North America: are we electrifying fast enough?

Tom Heintzman: Welcome to The Sustainability Agenda, a podcast series focusing on the evolving complexities of the sustainability landscape. I’m your host, Tom Heintzman. Please join me as we explore today’s most pressing issues with special guests that will give you some new perspectives and help you make sense of what really matters.

Marion Hill: Despite DNV having a technology focused and optimistic compared to many other energy transitions outlook on the amount of renewables onto the grid, even our outlook, we still are not meeting the decarbonization objectives that are necessary. 1.3 gigatons of carbon dioxide still remain on the grid and in our economy.

Tom Heintzman: Welcome to our multi-part series on the energy transition and the role of electrification. In a previous episode, we explored various forms of energy and how these may evolve between now and 2050. On today’s episode, we’ll explore how energy demand is shifting across different sectors of the economy, the impact on and requirements of the electricity grid, and how this may influence the pace of corporate decarbonization. 

Here to join the discussion is my guest, Marion Hill, Senior VP in Renewables and Power Grids, North America, DNV. Marion’s career in the renewable power industry spans over 20 years, with extensive experience in the fields of technical due diligence, project financing, project development, engineering, and contract negotiation for wind, solar, and storage facilities. She is currently a member of the board of Eocycle and a former board member of the Canadian Wind Energy Association. Good morning, Marion. Welcome and thank you for joining us on today’s show.

Marion Hill: Morning, Tom. Thank you very much for the invitation. I’m very excited for the conversation today.

Tom Heintzman: Fantastic. Well, Marion, last year, DNV published its annual energy transition outlook with forecast to 2050. And I’d like to cover that with our audience. What are some of the key developments that have influenced your most recent North American forecast in 2023 versus prior year’s editions?

Marion Hill: That’s a great question. And preparing this energy transition forecast is a great opportunity for us and society to envision what does the world look like through the energy transition and post-transition. Energy is so integrated in all parts of our society and economy that the amount of changes that will be happening over the next 20 years are profound and is an opportunity for us to reimagine what society looks like in the future so that it is more just and equitable while also reconsidering how energy will be used and consumed. 

One of the biggest changes in our transition outlook that we published last year was related to the Inflation Reduction Act in the US and Canada. These are huge long-term stimulus packages that provide the stability for financing, for business planning, for investments, and the impact that they have in terms of new capital flowing into the industry, in terms of amount of renewables build out of EV build out and EV adoption rates, the amount of energy efficiency that it is encouraging, the amount of changes in hydrogen, electrolyzers, green hydrogen, blue hydrogen, but also the opportunities for carbon capture at scale are tremendous and impact all aspects of the energy transition. It’s definitely the biggest change in our 2023 report compared to previous years.

Tom Heintzman: Marion, that’s very interesting. So pulling on that thread a little bit, DNV’s forecast estimates that final energy demand in North America will reduce over the next three decades, aided in part by electrification and energy efficiency. Can you speak to which sectors of the economy are driving this shift in energy demand and the main influences for each sector?

Marion Hill: Yeah, absolutely. So we’re seeing a major decrease in energy demand. And this is the first time in history where we will have GDP growing and energy demand decreasing. And so this is a decoupling that is happening that is really exciting to see. And we look at three major sectors. So talk about transportation and then buildings and then manufacturing.

So first of all, in transportation. The electrification of road transportation sector leads to the most dramatic decrease in energy use because of the shift from the combustion engine to the EVs is such a greater efficiency use of energy, that that transition period of moving from combustion engines to EVs is the biggest impact in better usage of energy. We expect that the uptake of EVs to reach approximately 30% market share by 2030. So 50% of new vehicles by 2030 across North America will be EVs. And that uptake dramatically decreases overall energy use in North America. 

The second sector is in buildings. And despite the growing prosperity and number of buildings being built out in North America, we’re seeing an electrification of the energy use in the building. So moving from natural gas to electricity, particularly for space and water heating. So, moving to electric water heaters, moving to heat pumps, and improved insulation that will decrease the amount of energy used in buildings between 2022 and 2050. 

The third sector that we look at is manufacturing. And we are seeing a home shoring of a lot of manufacturing across North America. And partially as a result of the Inflation Reduction Act, we’re building out a lot of new manufacturing facilities for battery manufacturing, for solar panels, for wind turbines. And that increase of manufacturing being brought back to North America does increase the amount of energy used in manufacturing. So overall, from the three sectors, the biggest efficiency improvements that we’re seeing in the amount of energy is as a result of electrification of the transportation sector. 

As we think about energy use in these three sectors, one of the biggest changes that we’re going to see is hydrogen. And hydrogen and its derivatives such as ammonia and e-fuels are a critical piece of the energy transition puzzle in these sectors that are hard to electrify, particularly long distance trucking, maritime, aviation, and high heat processes in manufacturing and heating the buildings. Bringing in hydrogen to energy use is a major component of the transition because it will be used in hard to decarbonize sectors. We expect that about half of hydrogen will be used in the manufacturing sector and the other half will be used in the transportation and building sectors. And this is a totally novel step change of how energy will be used and how hydrogen can decarbonize these sectors. 

So bringing in a lot of creativity and innovation over the next few years, that is going to be exciting to monitor and see the possible opportunities for decreasing emissions in these hard to evade sectors.

Tom Heintzman: And of course, hydrogen itself, the creation generally uses a lot of electricity. So it’s a bit of a cycle here in solving some of the energy transition issues. It also creates its own load.

Marion Hill: Absolutely. Super inspiring, super interesting and a great opportunity for creativity.

Tom Heintzman: Turning now to the implications of electrification on the power sector, the electrification of each of the three economic segments that you just discussed will require significant growth and change in the electricity grid. Can you talk to us a bit about the implications for our energy infrastructure and what will be required in order to enable the electrification of these various sub segments of our economy.

Marion Hill: Yes, the electrification and electrification of everything will really change the way that power is generated and used. Electricity’s share in final energy demand will double. So going from about 21 percent today to about 41 percent in 2050. The electricity grid is the biggest machine that we have in the world, and it is the backbone of industrial North America. 

The electrical grid in North America is going to go under massive changes. The transmission grid itself will more than double between now and 2050 as we build out greater interconnection between ISO regions to have resiliency, to have interconnection, to move abundant low cost renewables from one region to the next with the geographical diversification of the resources. 

The distribution grid will also dramatically increase by about 60 percent and bringing on a lot of [EUBs], a lot of distributed energy, local generation with local communities generating projects and a lot of solar and storage at residences. The HVDC grids are also a major ship that we will see in the grid side as we move higher amounts of energy over longer distances and changing the way that energy is used in projects in ISO regions are interconnected. 

We’re also going to see that hydrogen and its derivatives are an energy source that will increase from approximately zero today to about nine percent in 2050. So a huge increase in the amount of hydrogen on the grid as an energy carrier, but also as a power source.

Tom Heintzman: Marion, you mentioned HVDC and just to translate that for some of our listeners who may not be familiar with the term, it stands for high voltage DC and generally we’re sending power long distances in AC form, alternating current, but by sending it in DC there’s less line loss. Is that a fair summary?

Marion Hill: Absolutely, and Canada specifically is one of the leaders in HVDC. Both Manitoba and Quebec have large HVDC lines and we’re seeing that the expertise and knowledge from those regions being used across North America.

Tom Heintzman: Great. Well, Marion, now turning to DNV’s prognostications for 2050, your 2023 outlook concludes the transition that’s occurring is still not fast enough to reach net zero by 2050. Can you speak to how North America can go faster and deeper in its energy transition and how this may influence the pace of corporate decarbonization?

Marion Hill: Despite DNV having a technology focused and optimistic compared to many other energy transitions outlook on the amount of renewables onto the grid, even our outlook, we still are not meeting the decarbonization objectives that are necessary. 1.3 gigatons of carbon dioxide still remain on the grid and in our economy. And natural gas remains part of the power mix to support and offer that grid stability. 

So some of the things that we need to go faster includes more transmission lines for resiliency, flexibility, and moving abundant low cost renewables from one region to the next. We need to continue to invest in long duration energy storage. We’ve got a lot of lithium ion batteries on the grid right now and exponentially increasing. But going from a four hour battery to an eight and 12 hour battery will dramatically help move the abundant renewables over a longer period of time. We also need more pipelines to move hydrogen and captured carbon at scale. We need carbon capture at scale in North America to capture and reduce our emissions, to even get us close to the objectives. A price on carbon would probably be the fastest needle mover, but what we’re seeing in Canada and across the US is very unlikely that the US will have a price on carbon anytime soon. 

One of the other things that we need to think about now to ensure and give us the best chance is how does the energy transition going to be equitable? How are we bringing societies along? How are we retraining people that are impacted by sectors that are decreasing and bring them into high paying, good quality jobs? How do we bring different parts of society that are currently most affected by pollution into the energy transition and make this an inclusive transition that accelerates?

Tom Heintzman: Marion, thanks for that. And I have one last question before we let you go. What trends or developments are you monitoring closely this year that could influence your next annual outlook?

Marion Hill: Yeah, absolutely. The year of AI, all over the market right now. The exponential growth of AI, it has a huge increase in the demand for electricity and energy. And we are seeing that while up until recently we had anticipated that demand would decrease. It is very possible that the exponential demand for electricity increases due to AI. That’s changing where renewable projects are being built. And actually, there is greater consideration from many players in the market to actually consider building new natural gas facilities to enable the growth of this AI industry. And so it will be very interesting over the next couple of years to see how, as an industry and society, do we enable AI and all the advantages that bring with AI, while also finding ways to hit the objectives as a society that we need to do in terms of decarbonizing the economy. So opportunities and challenges related to the AI side. 

We’re also monitoring carbon capture as more and more carbon capture projects come to market, the technologies, the performance, how are they going to scale, how they’re going to perform so that those first couple of projects and their performance at scale in North America will really enable further capital to flow in. So it is critical for us to get the first couple of designs and the projects performing well so that further capital flows in and we can enable carbon capture at scale. 

We’re also monitoring hydrogen. There was a lot of hype two years ago on hydrogen and projects being built up. Some of the hype has decreased as economics brought in the reality, the cost of moving hydrogen is a lot more expensive than initially thought. And so seeing how some of the first hydrogen, big hydrogen, green hydrogen projects, overcome some of the barriers, get their permits. Can we get hydrogen shipped to Asia Pacific? Can we get hydrogen from North America shipped to Germany? We’ll really change the direction that we go. 

And then the other ones that we’re monitoring that has a major impact is sustainable aviation fuels. Where do sustainable aviation fuels go? What are the breakthroughs in the maritime sector, the aviation sector having some of the biggest impacts on emissions and a sector that the electricity sector hasn’t previously delivered energy to? And so how do we couple electricity, aviation and maritime fuels together to decarbonize that sector at scale.

Tom Heintzman: Well, those are all fascinating topics, Marion, and I look forward to your 2024 report, and we can discuss at that time how SAF and aviation fuel and the general trend of electrification has fared over the course of the year. So thanks for taking the time to join us on the show today, and thank you again to the listeners for tuning in.

Marion Hill: Thank you very much, Tom, again for the invitation, great discussion, great questions and look forward to continuing to explore what the energy transition will bring for us going forward.

Tom Heintzman: If you’d like to learn more about how electrification trends will impact your business, join us for CIBC’s Electrification Summit on June 11, 2024, in Toronto. The summit will bring together leaders in energy markets, companies in the midst of electrifying their operations, financial sponsors, lenders, and policy experts to discuss how electrification is core to achieving net zero. To register, please contact your CIBC Relationship Manager. Please join us next time as we tackle some of sustainability’s biggest questions, providing you different perspectives to help you move forward. I’m your host, Tom Heintzman, and this is The Sustainability Agenda.

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