The global energy landscape continues to evolve. Sometimes by the nanosecond, sometimes by the day. But there is no such thing as a glacial pace. So to keep up-to-date on the developments that will influence and shape the terrain, here’s the latest installment of Schneider Electric’s “Global Energy Market Trends“. Topics for 2017 include:
- Renewable Energy Growth Regions
- Permian Shale Takes on OPEC
- The Continued Rise of Corporate PPAs
- The Convergence of Efficiency, Supply and Demand Decision-Making
- Expanding LNG Market Signals New Global Price Relationships
- Political and Policy Changes and the Energy Implications: Part I (What won’t change.)
- Political and Policy Changes and the Energy Implications: Part II (What will change.)
Political and Policy Changes and the Energy Implications: Part I
Politics aren’t often fertile ground for widespread agreement. But 2017 offers at least one notable exception. After 2016’s unpredictable votes in the UK and US, 2017 may usher in the first full year in a new political climate. The US certainly offers the most visible shift with Donald Trump’s inauguration signaling an ideological shift away from Barack Obama’s presidential policy on topics ranging from taxes and free trade to international relations.
However, Donald Trump is merely the avatar of a much broader trend.
The 2017 national elections in France and Germany could reshape plans for electricity infrastructure in Europe. In Britain, Prime Minister Theresa May will likely take the first formal steps to begin Britain’s departure from the European Union following a victorious Brexit vote last year.
Elsewhere, France will elect a new president. Polls indicate Francois Hollande’s left-aligned Socialist part is likely to be replaced by either a Republican or National Front candidate – parties frequently described as center-right or far-right, respectively.
In these and many other countries, the political climate has shifted dramatically. They are characterized by growing concerns on ideas of national identity, support for economic nationalism, and increased skepticism of free trade and open borders. These are ideas that are politically charged and extend well beyond the narrow focus of energy markets. Nonetheless, their potential impacts on the global energy landscape have been the subject of frequent discussion. Upon closer inspection, it’s important not only to consider what changes events like these will mean for energy, but also those areas that are unlikely to change.
European Energy Markets
With a focus on energy, the ongoing Brexit timeline is unlikely to significantly impact European energy markets in 2017. Early indications point to a continuation of major energy projects in the European Union (EU), such as the NEMO interconnection line between Belgium and the UK or a 1.4 GW interconnection link to Norway. The continuation of those projects suggests that, despite Brexit, the UK power market is actually poised to develop stronger ties to the continent rather than breaking away.
Considering the UK typically sees some of the highest power prices on the continent, the push for greater connectivity is likely to weigh on corresponding future power prices while it offers support to connected market prices.
The UK’s Membership in the European Emissions Trading System
Additionally, the UK is likely to remain a member of the European emissions trading system (EU ETS), which provides the framework for the region’s carbon market. While the market includes all EU member states, it also already includes several non-EU members (e.g., Norway, Switzerland, and Iceland).
Given the precedent, Britain’s departure from the EU wouldn’t necessarily require a departure from the EU ETS. That’s especially important for the overall cost of carbon in the EU since a Brexit-related departure would likely be a significantly bearish factor for European carbon prices.
The United States’ Role as an Energy Importer
Stateside, the election of Donald Trump will bring about a number of changes, few as significant as federal energy policy. Before speculating on the changes that will unfold, several aspects still live beyond the reach of an executive order. Case in point: despite President Trump’s support for the oil, gas, and coal industry, along with bipartisan calls for “American energy independence,” the US will import energy from foreign sources regardless of who is in the White House. Those imports can come in many forms – from Canadian gas and electricity to Venezuelan oil to UK gasoline.
The simple fact is the US will still buy energy from dozens of foreign countries.Of course, “energy independence” doesn’t have to mean an end to energy imports altogether. For many, the term may refer to the overall balance, with the US eventually becoming a net exporter of energy. The switch from net importer to net exporter is something sectors such as natural gas and propane have already achieved, mainly due to the US shale boom that unfolded over the past decade.
In terms of oil, though, while that shale boom may have succeeded in lowering the need for imported oil, the US still imports millions of barrels of foreign oil every day. Certainly, President Trump is likely to pursue policies that lower the overall need for oil imports, including supporting the construction of new pipelines and opening new areas to drilling activity.
Further, trade restrictions on countries — Mexico or Saudi Arabia, for example – could alter the origin of US energy imports and force oil from those countries to Europe, China, or other markets. Nonetheless, even the most aggressive energy policy will see the US import more oil and refined products than it exports through 2017 and well beyond.
While a rapid rise in shale production helped boost US exports in recent years, the US remains one of the world’s largest importers of crude oil and refined products
Higher Renewable Energy Capacity
Finally, one energy trend is likely to continue almost universally: renewable energy capacity will continue to trend higher regardless of geography. Despite the Brexit turmoil, pro-Brexit Prime Minister Theresa May voiced strong support for clean energy just as anti-Brexit advocate David Cameron did during his time as Prime Minister before May. In France, far-right presidential candidate, Marine Le Pen, once a climate-change skeptic, called for a move towards a “zero-carbon” economy as part of her environmental platform.
Even in the US, where Donald Trump has been an outspoken skeptic of climate change and renewable incentives, renewables are expected to see significant growth in 2017 and in the years ahead. While Democrats and Republicans don’t often find common ground, polls show the idea of renewable energy is popular on both sides of the aisle.
As mentioned earlier, the US Congress extended the investment tax credit (ITC) and production tax credit (PTC) through 2020, which significantly boosts the incentive to build new wind, solar, and other renewable energy projects in the near future. That means even a removal of certain regulations on coal and other traditional brown power sources wouldn’t tarnish renewables as an attractive investment in US markets.
Ultimately, long-term trends and planned projects are difficult to reverse, even in the face of a changing political climate.