50 percent more global energy is needed as well as new sources of affordable clean energy. This is Spain’s moment of opportunity
Let’s understand one thing about energy: it is one of the largest industries globally, possessing 9 of the world’s 25 largest companies, employing in excess of 10 million people worldwide, it touches each of us daily and is a modern life necessity. However, It is estimated by the International Energy Agency (IEA) that globally we will still need 50 percent more energy capacity in the next 20 years. Without energy? Progress simply ceases: imagine no household electricity, no hospital operating theatres, no iPads, mobile phones, no metro. Yet, currently 1.8 billion people globally have no access to household energy and as a result these populations rate among the poorest globally, with the lowest quality of life.
In Europe, most homes have domestic energy, but a major challenge is that our energy comes mainly from two sources – fossil fuel and clean energy. Around 70 percent comes from oil, gas and coal fuels while the second source is clean and renewable: solar, hydroelectric and wind (I will leave the important but emotional Nuclear debate to one side for now). Energy is therefore a necessity but also a major cost to every household – for the sake of our planet it is impossible for all new energy capacity to come from depleting fossil fuels. In Spain we have two huge global opportunities, 50 percent more global energy is needed as well as new sources of affordable clean energy. This is Spain’s moment of opportunity.
The point I will make in this article is that yes, oil and gas dominance of the energy mix will continue for the next 5-15 years. But the future of energy beyond 25 years – especially in Europe – will not be decided by oil and gas and coal giants. Nor will it be decided to today, nor even this year. The future of energy policy belongs to the next generation and Spain genuinely has the potential to lead Europe in clean energy – by changing our energy mix, exporting clean solar, hydroelectric and wind energy to Europe. The Spanish Association of Renewable Energy Producers (ANPIER) has done a remarkable job doubling the capacity in Spain since 2006. Electricity from renewable sources was targeted to hit 20 percent of all Spanish needs by 2020. But, since the financial crisis investment has been cut back and in fact the Spanish government has introduced taxes on solar installations at precisely the time we need to invest and seize this opportunity.
The challenge? Globally, the Spanish Government is among the lowest spenders on energy research. IEA estimates are that Spain spends less than half a percent of GDP on energy research; expenditure that ranks Spain as the third lowest in Europe and among the lowest globally. Additionally the government, in 2015, enacted taxes to feed-in tariffs, even taxing solar self-consumption plants installed by entrepreneurs. These acts will not encourage long term investment and entrepreneurial. The opportunity will not stay open for long, to lead we need policy vision and we need clean energy and utility companies to work together.
In Europe oil prices are now low and so, yes, we all enjoy low prices at the petrol station. But oil and gas and utility companies are sophisticated players that know how to look after themselves. So, why are energy prices now so low? Simplistically, because Chinese growth and energy demand has dipped while new oil and gas technologies have lifted supply. But we have a small 3-5 year window of opportunity before demand for fossil fuels – and higher prices – return. For now? OPEC and other producers will cut production until Chinese and Asian demand increases and then prices will increase again – its already happening. But 70 percent of our current energy mix are fossil fuels purchased from foreign oil, gas and coal producing regions such as Russia, the Middle East and North and West Africa. Spain needs to work with European utility companies on a policy strategy to reduce dependence on these depleting fossil resources. Otherwise we will face looking for alternatives in times of high energy prices.
We need to encourage investment and policy leadership in this industry, not just because Spain can lead Europe in clean energy but also because it encourages so many jobs and entrepreneurs. Why are clean-energy breakthroughs so important in Europe? As I mentioned above, the world is going to need a lot more energy in the coming decades. But, in densely populated Europe the energy sources have to be clean, as well as reliable and affordable. Today’s clean technologies employ around 6 million people globally, this represents a good start, but not good enough. Most countries don’t get enough regular sunlight or reliable wind to depend heavily on these sources. In Spain we have both – but we are simply not investing enough. Renewable energy such as solar, wind and hydro are bright spots for the local economy but these require taxation incentives, investment and a long term strategy to sell into Europe.
At EADA Business School we have been working for 3 years (in partnership with PwC and Kazakhstan) on Future Energy. There are so many entrepreneurial opportunities, so many new technologies. Power generation? Expect a surge in harnessing solar and wind. Power distribution? Expect more localized distribution. Transport? Expect petrol stations to turn into battery storage units. Storage? Expect big technological breakthroughs in car, motorbikes and household batteries. City cars and motorcycles will increasingly be electric or hybrid that run on high capacity batteries. Emissions? In cities and for populations the quality of life must improve, Spanish engineers are among the best in the world, we simply need the political and policy vision.
As business school Professors, we are paid to look ahead. We must anticipate future trends and train our graduates for 30-40 year careers. We invite the Spanish government to co-invest, to find strategic partners, to think beyond the short term gains at the oil pump and create a sustainable industrial advantage for its population.
Dr. Gavin Lee Kretzman
Dr. Gavin Lee Kretzschmar is a Chartered Accountant and also holds a degree in Accounting from the University of Natal and a Ph.D in Finance from the University of Edinburgh Business School. He is a specialist in finance and risk (commodities and shadow financial institutions) having worked for 15 years as a banking executive in top companies such as the Standard Bank of South Africa. Latterly he served as a Lecturer and Programme Director at Edinburgh University Business School, as well as holding the position of PwC Professor, as Chair of Accounting across the CIS. Gavin is author of numerous peer reviewed articles, publishing in the highly regarded Journal of Banking and Finance, Journal of Applied Corporate Finance as well as in the Energy and Energy Economics Journals. Gavin is a professor in the Finance and Management Control Department at EADA.