Overview of the Global Energy Scenario – Mr. Anil Cabraal

good morning ladies and gentlemen I’ve been asked to give a perspective of the global energy situation really focusing on the future as to put put in has to be the framework for looking forward to what Sri Lanka can adapt or adjust to the local internet international situation as you know Sri Lanka is a small country is often driven by international situation rather than us driving the international situation however in one area Sri Lanka has been a leader and has been at the forefront of innovation and that is in the in the renewable energy sector particularly the small power program the Sri Lanka instituted in 1997 and had gone on extremely well and now he’s being emulated by a number of other countries and what’s most interesting is a number of Sri Lankan small hydro developers are now very active in several East African countries so Sri Lanka’s model is being replicated and Sri Lanka’s technical expertise is now being exported internationally and that is that is a great encouragement to me as I was there the beginning in 1997 may it all started unfortunately the process in Sri Lanka has stalled for the last two years and I’m hoping today might be a crucial day when when when the right decision is taken with that let me Oh thank you I’m going to cover just four topics in the 20 minutes I have been given look first looking at the trends in global energy demand as as modeled and forecasted by international organizations then look at where we see the energy cost going to the extent that we can be as predictive given the uncertainties in the future look at climate change and the role energy has been playing and finally a brief I will briefly touch upon what it means for Sri Lanka and I and my colleagues who will be following will be addressing that that topic in more detail first now this gives you an overview of energy demand primary energy demand by 2035 as you can see most of this the chart on the right-hand side shows most of the demand increases is going to be driven by demand in Asia primarily China and India and also to some extent of Southeast Asia so we are in the middle of a region which is going to be the dominant dominant consume of all forms of energy going into the future now the growth rate in energy go rising from 14,000 to 20,000 maybe the millions of Tanith tons of oil equivalent between 2013 and 2035 is about one and a half to two percent which is similar to the the GDP growth globally that’s expected unfortunately the decoupling of energy and growth as Karen had mentioned is is not expected to take place according to IEA I hope we can prove them wrong the major driver is going to be China as we’ve already expected but what’s interesting is the major growth pole is going to become India by after the 2020s where China’s energy efficiency goes up cetera and it’s and its growth will also start moderating so these are the areas that one has to look at and we are right in middle of it all now this chart shows the the blue lines the the blue bars shows what the the growth in total demand energy demand was in the last 25 years and the green chart is a growth expected in in the next next 25 years or so what is interesting is ie it takes a very pessimistic look basically what they are saying is in the last 25 years fossil fuels accounted by 82% of the mix going into the next 25 years is going to be 75 percent not much change but if you look closely at those green green child green bars you will notice that the change is very very significant gas the increase in gas is about both the same as it was in the last 25 years what’s interesting the the increase in coal is about 1/3 what it was in the past 25 years so there is a significant shift

from away from coal and renewables is is very very significant it has it has increased more than 2 fold in the next 25 years compared to the previous 25 years oil will also also expected to diminish in importance in terms of the growth and nuclear is expected to pick up also so essentially I’m moving from a situation where the dot dominance of coal and oil are going to decrease according to the IEA so I view this a little more positively then I than ie is view that little is changing in the next 25 years the incremental change is very very somewhat optimistic this chart gives you the the expected increase in renewable energy capacity additions between 1991 and to 2035 since 2006 about the last five years there has been a sharp increase in renewable energy intervention primarily not been driven by climate initiatives or climate agreements which are still lacking but mainly by initiatives taken by individual individual countries for their for their own goods where they Steven by climate or interest or industrial interest or or because it just makes sense and in the next in the last five years China has become very dominant in its editions so that even it between now and 2035 they expect about 100 gigawatts 10,000 megawatts of renewable slee added every year globally what is interesting also is the role of China is likely is expected to decrease in terms of additions but the role of the rest of the rest of the world including a Sri Lanka is is going to become the dominant force while the Europe and you are going to remain relatively stable now this is a rather busy chart let me just the the top left-hand chart the oil price projections are projections made by various different organizations ranging from the International Energy Agency the US Energy Information Administration the UK Department of Energy and Climate Change Dec as you can see there’s huge variations that they are projecting now nobody seems to agree and some in some cases some say the prices on rien real you in 2013 US dollar basis the prices are declining others say it increased by a factor of two so similarly coal prices show the similar trends whether at the bottom bottom chart on the on the right again the variation is a factor of two nobody knows we could have anybody could have drawn any line I drew like look look perfectly good so but the fact is that guys what we know do know is going to tremendous uncertainty nobody knows where it’s going yeah now in the case of Sri Lanka we need to take into account likely inflation and currency depreciation the uncertainty and the impact could be could be quite a bit more significant so this is something we have to watch out for to the extent that we are a continued dependence on coal coal oil will continue and perhaps LNG who knows in the future what does what is also known is according to the IEA and other agencies fossil fuel subsidies in the in 2012 just just two year doozy years ago was half a trillion dollars and in the case of renewables it was about 88 billion dollar so now that might seem lopsided however on a unit energy basis the the level of subsidization of renewables still is high compared to fossil fuels because they are using so much more fossil fuels then than renewables but the fact is these are factors that are distorting how people consume various forms of energy so the key point is huge uncertainties we don’t know whether the energy pricing is going to be so we have to make sure that we can respond accordingly now this is a chart that was prepared by the Intergovernmental Panel on Climate Change on the levelized economic cost of renewable energy of various forms of renewable energy currently and I have also interested added to the chart this the green stars which are which is the levelized economic cost now these are not financial cost these economic cost of renewable energy based on the assumptions that go into the tariff calculation that pu pu CSL uses for its

renewable energy tariff estimations now what we do see is that on an onshore wind wind projects Sri Lanka’s assumptions lead to a much lower cost Sri Lanka quite frankly has some excellent resources now in kal PT area the average capacity factors are 32% I understand the mana location the capacity factors may be approaching 50 percent so these are exceptionally good with resources so that is part of the reason Sri Lanka has on show Casta law hydro is somewhere in the in the mid mid ranges and going into the future as Sri Lanka has exploited most of its better hydro resources the costs costs are likely to rise the estimates for solar photovoltaics my estimates based on current international prices and not IPCC is because since IPCC produces report in 2010 there has been a very significant reduction in cost so I had to recalculate that but what is interesting in the if Sri Lanka ever gets around to do utility-scale PV or even commercial scale PV we are the at the low end of the cost rate whereas a residential sector pv b are some in the middle range now in the case of biomass T in Sri Lanka’s cost estimate somewhere in the mid range of international estimates an interesting point is to take a look at this chart the line which says by a mask co-firing co feeding this is when biomass fuels are mixed and a generates electricity along with the coal plant you can go up to maybe 10 maybe 10 to 10 percent in the case of nursery you’re talking about therefore maybe 90 megawatts if we can find the fuel the biggest challenge in sri lanka is to find fuel at the right prices but because coal the larger by larger power plants steam power plants are much more efficient than smaller plants you find that the the generation cost can be significantly lower so so this gives you a sense of where we expect and also if you take a look most of the cost sign the 5 to 15 US cents per kilowatt are range which is also in the in the price ranges of coal generation and certainly much lower than all generation unfortunately the trends in climate change are discouraging cumulative energy related co2 emissions have been raised rising steadily and IE expects them to continue to rise steadily and if these trends continue we are looking at a long term temperature increase of five point three degrees centigrade which the scientists say is going to cause very significant climatic climatic events which is going to affect all of us including sri lanka now the chart at the bottom is also very interesting the US and European Union reduce their emissions in 2012 whereas China and the other parts of the world increased that ever has been a net increase the reason for the u.s. ship reducing his emissions because thanks to fracking they have been discovering a lot lot more supplies of natural gas and this natural gas power plants are are replacing and displacing coal generation in fact in some parts of the US existing coal plants have been has been stopped and replaced by gas gas fired power plants the UK reduction is primarily due to the economic downturn in Europe but if these dude trends do continue I think the world is going to see very very significant climatic events which I would be an unfortunate for all of us however ie estimates there are there are four for energy options which would have net zero economic cost and part of it some of these I think are relevant to us the most importantly energy efficiency half of this half of the emission savings in order to achieve two degrees centigrade scenario by 2020 is is estimated to be due to any energy efficiency improvements this partial removal of fossil fuel subsidies account for about 1/10 10% capturing the methane from upstream oil and gas extraction as well as from limiting the use of inefficient coal plants which are primarily subcritical the smallest subcritical coal plants including for examination or actually will have many will also contribute to reducing climate so there are there are many ways in which emissions can be reduced if we do have the political view and the right financial signals are given and some of

these as you can see are do affect us and I think some of the speakers following will be addressing some of these topics unfortunately over the last couple of years thanks to the economic crisis that the world has faced global climate change has taken a lower political priority than economic change on the other hand there have been mixed news on the energy trends the US has been switching from gas to coal coal as I mentioned unfortunately renewable energy investments also decline in 2012 but we hope it can it can pick up as a co economic development takes place there has been great efficient improve investments in energy efficiencies however nuclear and carbon capture and storage is still some ways of being truly economic options finally let me just address a few points which my colleagues on the panel and later are not going to discuss in more detail what does this all mean for Sri Lanka number one in my view I think we do need to diversify energy sources to those that are not necessarily correlated with fossil fuel prices and to increase our energy use I mentioned to you that we have little little control over for severe prices because we are a small small player in the international trading oil and gas trading business and coal trading business so as a result we do need to diversify into other technologies renewables is one of it that will have no no correlation with with the fossil fuel prices and energy efficiency improvements can often be a no first and even economically or profitable investment I think we do need to give rate a greater emphasis in that we have we have started some work I think in Sri Lanka but I think a stronger political and Apollo Bush would make it even stronger the transport sector which I think accounts for 60 maybe even going forward maybe 80% once all the coal oil generation switches to coal is going to be key oil is going to oil in the last year was about five billion dollars I think in imports and if you are ever going to moderate that if you do not address the transport transport sector we are we will not get out of further dependence on increased dependence on oil and we are looking at not just improving existing transport modes but also looking at alternatives to to transport as a way of reducing petroleum one area that I think we still akka has not given from adequate political or even attention our aware at the institutional level at the government level is to take measures to mitigate against likely climate events it doesn’t matter whether the current route is due to El Nino or with is due to in other climate change the fact is Sri Lanka’s climate has become less stable and unpredictable and we are suffering from I mean we see the drought this year it seems to be a repeat or 2011-2012 but little has happened in those years to help us mitigate against those climate events we’ve seen rainfall variability there has been sudden floods in certain parts of the country there have been droughts now so there is hydropower output uncertainty as we have witnessing right now there is also going to be even if you switch to renewables energy biomass yields are going to be variable depending on the rainfall intensity of rainfalls will affect if effect structures throw floods and floods and also damage to various agricultural plantations whether it is floods on the other hand routes are both both affected sea level rises as storms are facilities are going to have to be adjusted and strengthened to withstand these effects going into the and particularly fuel delivery we’ve seen that for example in order surely you have to stockpile months of coal because during the monsoon season delivery of coal is difficult and weather becomes more more uncertain the more stocks will have to be kept which means tying up / tying up capital in inventory high temperatures will affect the efficiency of cooling plants it will also increase the demand for cooling where they say our conditioning which is now a rising demand in the Western Province and we’ve seen the peak demand in Colombo becoming an orphan peak thanks to thanks to so these are these are effect and finally cyclones and are the extreme weather will the good damaged energy facilities including

wind solar plants so so I think there needs to be a greater attention to mitigation measures in every sector with this energy or agriculture or health services or whatever if you don’t take a take care of mitigation measures I think it’s going to be it’s going to be we are going to be in a very very difficult situation so with that I would like to thank you very much for your attention and I hope some of these points are picked up by my colleagues in their Talk’s today thank you