Building a zero-carbon society | KAUTE talks x Aalto University

Building a zero-carbon society | KAUTE talks x Aalto University

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Good morning and welcome to this webinar - which is the third in the series of KAUTE talks by Aalto University. My name is Tuomas Olkku, - I am an Executive Director of KAUTE Foundation. I would like to thank Aalto University for very good cooperation - in organising and producing the webinar series.

KAUTE Foundation supports research in business and technical fields. Our mission is to support sustainable renewable Finnish businesses and society. With these webinars, - we want to bring together business people and researchers - to create common understanding on what is needed in companies - as well as what is happening in the research community at the moment - and how will that shape the future.

Today's theme is building a zero carbon society. The event is hosted by Professor Matti Liski from Aalto University. Matti will introduce you the topic and our speakers today. Once again, welcome, please participate through the chat, - and I hope you enjoy the discussion. Matti, welcome.

Thank you Tuomas and thank you KAUTE Foundation - for organising this opportunity to discuss this important topic, - how to build a zero carbon society. My name is Matti Liski - and I'm a Professor of Economics at Aalto University School of Business. It's my great pleasure to talk about this important topic. And when there's an opportunity to cite Vladimir Lenin - I will do that first. Communism is Soviet power plus the electrification of the whole country. So the builders of the Soviet economy understood very well - how important electricity is for developing the economy.

And it is really the case - that the electricity and energy is the ultimate general purpose technology - that can shape our economies. And this is currently well understood and the process is ongoing. If you look at developing countries, those that are not the OECD countries, - they are already consuming in total more energy - than we are in OECD countries. And they are growing fast. In fact, when they reach our level of per capita consumption of energy, - then the total global energy consumption will increase by factor four.

That is four times more than we currently consume. That is a huge increase. And this electrification is different from the past - because it has to be based on new carbon-free technologies.

Not only here in our economies but also in these emerging economies. And that market is going to be big. The world is already investing a quarter of a trillion euros annually - in renewable energy technologies. And that process continues. If we think about technologies available for this transition - then we have to think about technologies that are scalable. And currently the market technologies are basically wind and solar.

There are other alternatives - that we will discuss today to some extent. Some of them have proven to be quite sustainable - but if they are scalable, the case is yet to be seen. If you think about this really vast transition ahead, - not only here but also globally, - then you may ask if this is possible. My message is that we have seen this before.

Think about countries like France and Germany in the early 1970s. They had very similar electricity systems - in the sense that they were producing about the same amount of CO2 emissions - per unit of electricity used. But more than 10 years later, - France had a system in place that produced only one tenth of the emissions.

But Germany remained the same. And this transition was huge. It happened in a decade. And of course it was about transition to nuclear power - and that is what France is famous for. Maybe today that technology is not scalable in the same sense - but it illustrates that it is possible. And we have seen it many times before, even nuclear. Think about the transition to fossil fuels, to oil.

Oil prices have never been as high as in the beginning of the oil industry. Like 150 years ago. Then after all the investments we made - in the exploration and exploitation of the assets, - in delivery capacity, - oil prices remained a the low level for 100 years. So we have seen it before. But like I said, this time is different - because we need to find new technologies and invest in those.

And the demand for these new technologies is partly - and to a large extent driven by social demands. So there is a government involved. Because the price of carbon emissions - is not automatically there without a government. And in fact governments globally have been very active, - introducing packages that are green, - that are instruments that subsidise new technologies, - taxes on old technologies, - emissions markets that introduce a price for emissions.

And in fact if you look at the numbers, - more than 20% of global emissions - are currently under some sort of carbon pricing. So it's not something that is not yet existent - but it is reality today. So these markets and the government policies - as well as the private aspirations for investing in these new technologies - create a huge demand for these new technologies - and they also create a declining market for the old technologies.

And it's not only about electricity as Lenin was thinking about. Electricity has of course been the sector - where most of the activity has been taking place so far, - but it also covers transportation and housing together with electricity. And in fact for Finland, for example, - the government has a very aspirational target - to reduce carbon emissions from transportation - by 50% during the coming decade, - and then come close to zero emissions in transportation by 2045. And interestingly here in Finland - there's a system under preparation of tradable quotas - for emissions rights for transportation - that would automatically reach this target. Similar designs are in consideration for the housing sector as well.

And for electricity we have that. These designs will not automatically solve all the problems, - for example local aspirations at city levels and municipalities. They are driven by different motivations.

Today we are in an exciting position to have two guests - who are living this reality, the business reality of all of this. First we have Miika Johansson who is from St1, - a business unit lead for renewable energy. And Miika will tell you about this exciting business - they are currently transforming. And then we have Matti Rautkivi from Wärtsilä Energy.

Wärtsilä is a company that has been in the long run in the energy business - and is really a global actor - and we're excited to hear about that market - and the lessons not only globally but also for Finland - and for example the city of Helsinki, - I'm sure Matti will have strong opinions about that. So let me first introduce Miika - and then please use the chat while Miika is talking. We'll collect question and take them on board - when we have the discussion part. So Miika please, the stage is yours. Thank you Matti - and thank you Aalto University and KAUTE Foundation for having me. Good to be here.

Building a zero-carbon society is an extremely fascinating and complex topic. I'm very excited and privileged to be here with you - to discuss the different aspects of the energy transition. Hopefully I will manage to bring you interesting points of view - from energy companies' perspective, - and shed light on our thinking and actions - but also to the challenges we face when we are renewing our value chain - for a more sustainable one. St1's reason is to be the leading producer and seller of CO2 other energy. We want to be in the drivers seat in the energy transformation.

Last year our investments in renewable energy were 50 million euros - and R&D expenditure 15 million euros. Approximately one billion euros of our turnover came from renewables - equalling 19% of the total. In a context of global climate crisis and loss of biodiversity, - these numbers are small, - but our actions in the renewables arena - have put us at the same table and markets - with the biggest energy companies - and technology providers in the world. Thus we have gained good understanding of the time horizon - and the investments needed in the energy system transformation.

For example, we are scanning for the most promising conversion technologies - for solid waste to advance biofuels - together with leading technology providers in the field. The timespan for a project like this is five to ten years - as the technology readiness level is not mature yet. And the cost of development and investment - is hundreds of millions of euros per plant.

And big projects like these, - we would need dozens just to meet EU short-term targets. Zooming in from global to local, how are our Nordic societies doing? We can say our business environment here - is definitely the most ambitious in terms of climate targets. Indeed the role of politics is to set the target - and create a regulative environment for businesses to operate in. We are sharing the sense of urgency.

By all means we need to act now. At the same time we hope for politics- that allows business to use the most effective tools - to reduce CO2 from the atmosphere - and in doing so to build knowledge and competence - that can be commercialised and exported to the global markets. This is how Finland can be bigger than its size in climate actions.

Making things more concrete, I'll give you an example. Nearly all the Finnish political parties - have committed to cutting down the transportation sector emissions - by 50% by 2030. The target has been set. One of the regulative tools used for reaching the target - is a biofuel mandate.

The way it works is - that all the fuel distributors must deliver - a fixed percentage of bioenergy from the overall volume - that they are delivering to the market. This year the percentage is 18 in Finland. By 2030 the level is increased up to 30% - whereas the EU level target is around 10% currently. Similar high mandates are in place in Sweden and Norway as well.

Given our market position as liquid fuel distributor, - we are probably one of the most obligated companies in the world. In theory the model works well. The obligated parties will find the most effective ways to meet the mandate.

However in practice, - currently there is only one option available to meet the growing mandate. Using renewable diesel, HVO. Renewable diesel is in short supply.

The cost of CO2 reduction is hovering around 400 dollars per tonne of CO2 - compared to European Union emission trading system carbon price, - it is almost ten times more. HVO producers are making extremely high margins - which are attracting a lot of investments into a new production capacity. One could say that the market is working.

The challenge is that there is not enough feed stock for growing demand. HVO is produced from mainly imported raw materials - such as Chinese used cooking oil or Indonesian palm oil fatty acids, - and the global potential for sustainable feed stock is limited. The high target has the result that - more than half the HVO production is used in the Nordics currently. From environmental and tax payers point of view, it can be challenged whether renewable diesel - produced from Chinese used cooking oil - is an effective way to tackle climate change in the Nordic countries. Having said that, and coming to the next point in my speech, - our role and responsibility in reducing CO2 - is effectively to make smart investment decisions.

We are also building a renewable diesel production plant - in Gothenburg, Sweden. It is a very logical business decision - and attractive investment in the current legislative environment. However, that is not the time of game changer investment - that truly would reduce CO2 emissions globally.

From a strategic leadership point of view, - the exploit, explore, expand framework - gives a tool to analyse the challenge in transformation business. The balance between short-term cash flow and entering new uncertain areas. The most difficult question for a company in our position is - how to get the timing right. At which point of the technology cycle - is the right moment to invest into a new technology. For example synthetic fuels production.

If you're too early, - you pay the high price when the market or technology is not ready. But if you're too late you're at risk of losing your business - and above all you are not reducing CO2 emissions. In St1 there's always been strong entrepreneurial spirit - and will to do things. A great example is Otaniemi deep heat geothermal project. We have drilled two of the world's deepest holes - 6.4 kilometres down. Nobody has done that before - and we are really doing many things for the first time.

However it's no big secret that the project has delays - and costs way more than originally budgeted. However, we believe that in Otaniemi - we are really solving global energy challenges. Now the EU has a billion dollar challenge - to drive the development towards a zero-carbon society. In doing so it is important to carefully analyse - what do we actually need to transform. We go wrong if we see this black and white, only fossil and renewable.

Transformation doesn't happen in silos. For example liquid fuel infrastructure - is equally suitable for the distribution of renewable and synthetic fuels - versus the building of completely new infrastructure - such as charging for electric cars. From an organisation's point of view, - it's about getting key resources and competences, - business models and culture to support the transition. Equally important is to understand - what is the completely new set of skills - that the organisation needs to learn. For example commodity trading and supply expertise - are also needed in the renewables arena - to create functioning markets.

And another example, in oil and gas exploration, - core competence drilling can now also be used in geo thermal energy projects. To conclude, - in regards to building a zero carbon society - and the EU's Green Deal, - three points. First, to make stimulus effective, - we need to find ready-to-invest projects in the renewable sector, - now still in the middle of crisis. Secondly, - the key is whether the investments are directed to R&D efforts - that create new globally scalable solutions to reduce CO2.

And thirdly, businesses need policies that reduce CO2 globally. Climate change doesn't recognise borders. Thank you Miika. You have an opportunity to ask questions using the chat.

And while we're waiting for those I have some questions for Miika. And I pick up one of those three items you had in the end. You have an exciting company - because you have at the core of the business model - to explore these new technologies - and at the same time your core business where the cash flow is coming from - is very traditional, a fuel business.

And both of them are very relevant for the climate problem. And if I first ask about this explorative project - that you have in Otaniemi - which is really exciting, - I visited the site and I'm also quite impressed by the costs - and the limits that you are exploring there - in terms of how deep the hole is and so on. So what do you think that... What would it take to make this scalable? In Finland, in the local context, - communities, municipalities are facing big challenges - when they are trying to move heat distribution systems - away from the old time systems and sources of fuel. So is this scalable - and what kind of institutional solutions should be there to make it scalable? Yes thanks, good question. Well I think the philosophy behind the project is that - in the core of the Earth there is massive energy storage.

It's practically unlimited. What we're trying to achieve is the proof of concept - and we have probably chosen the most difficult conditions in the whole world - to drill through the Finnish granite down to 6.4 kilometres. But it's really that in the heating sector - we should get rid of burning things.

And geothermal energy is a scalable solution - that allows us to produce heat without burning - and without creating the CO2 emissions. So for us in order to make it scalable - it's really to now make the proof of concept in Otaniemi - and after that move to the next concept, next project. And you think it really could change the landscape, - how the local municipalities look like after 10 years, 15 years from now? When you look to the future you think this is something that we could see - in let's say the 15 biggest cities in Finland - Yes, yes for sure. I think that is a solution that could definitely work in Finland - in bigger cities. Also it doesn't necessarily always need to be in that scale - that we go down to six kilometres. We are also using heat pumps that can utilise the energy - that you can find for example in 300 metres.

Or we can go middle deep, - which is around two kilometres. But when we are doing the project we are gaining the expertise- that we can utilise in all of the depths. And then make the geothermal energy more accessible and economically viable. Well if I may turn to your third point, - which is my favourite point as well. I kind of touched on that as well, - that government policies are very important - in shaping the business environment.

Not only solving the climate problem - but also allowing companies to find solutions that are the best for society. And you discussed the problems with the biofuel mandates. And if you think about the transportation sector, - we economists at Aalto University have proposed a system - where the government should perhaps - on top of these other policy instruments - use a quota system, - where the fuel distributors would have to buy an emission right, - and there would be a limited amount of these rights - and then the government would control the amount of the rights. And with that you'd automatically reach the reduction target.

And then there would be a market price - and that would be a standard market based system. The alternative is that you have these policies - that are directly targeting technologies. Like the mandate is one. So if you think about these two polar solutions, - what is the best for business? What are the benefits you see - in the market based solution for pricing emissions - for society perhaps but also for the business? As compared to the alternative approaches. Thanks. Good question.

Well I guess if the question is - which one is more beneficial for the business - then it's like what business are you in? Now what we see in the transportation sector - is that the price is extremely high for CO2 reduction - and it favours the companies producing such renewable fuels for instance. However we know the limitations on the feed stocks side - and our message for the policy makers is that we need to expand the tools, - how you can fulfil the mandate or meet the emission trading reduction quotas - and I think that's the core of it. We need to have wisdom in the policy making - to have a wide range of tools that you can apply - in this type of quota system. And in that extent it's definitely better - that the politicians are not selecting the technology - but the system is actually technology neutral - and the obligated players - or the participants in this emissions trading system - can then freely choose the most effective tools to reduce CO2 emissions. If we have the same tools that we have currently today - then actually it doesn't make that big of a difference - if we change the actual law or the obligation, - as we are still pricing the reductions based on the same marginal cost - of reducing the CO2. Which is then renewable diesel.

Good, I very much agree. And it's interesting, - when I wrote my PhD thesis a long time ago, - these were just academic ideas. But now it's good to see that it's also the business community - who thinks this is the way forward, - To have the market based solution. And we have some questions here. Heikki Hassi was asking do you see it is realistic - to assume that the full cost of removing fossil CO2 from the atmosphere - will be added to the price of fuels? So I think the question is that... Well first of all the question is, what is the right price for CO2? And we could argue there should be only one global price.

And currently, like you also indicated, - that by having different policies and targets in place - in different places, - we actually implement different prices in different locations. Although it's a global problem so we should have only one price. How does this, in your business...

Because you are operating globally - and you see one price in California for emissions, one price in Europe. How do you see this? This relates to the question of what Heikki is asking here. I very much agree - that in a perfect world there should be only one price for CO2 - because it's a global crisis and it really doesn't recognise borders - or any kind of checkpoint. If we look at this from the moon, - there should definitely be only one CO2 price.

However we all know that the practicalities and the political situation - is not such that it would allow only one marketplace. I've been participating in the market in California - sourcing renewable diesel there. They have a different mechanism and different set of rules. However once again when we see that there is shortage of one commodity, - then in a global market, - it's the same price everywhere you go. Although it takes a bit longer for the market to adapt. I would say that what we need is more flexibility between the sectors.

And that would allow us to use the most effective tools. If we are not breaking the sector borders - then at least introducing a carbon marketplace - where you can then sell your negative emissions - and companies like us could then use at least part of the obligation - by sourcing the emission trading or the CO2 reduction - from such a marketplace. That would lead to a more effective market.

Thank you Miika. So we have a few more technical questions here - related to technologies. Because you come from this innovative company, - maybe this is the right place. So what do you think about having a transition? Ali is asking, what do you think - about having what is called an in-between transition phase - of coal power plant to generate green or blue hydrogen, - before shifting 100% to hydrogen in an existing plant. From technical and economic perspectives. Is this a scenario that is familiar to you? Yes, certainly we are looking into different ways to produce hydrogen.

And the hydrogen economy... I would say we need to be really careful that whatever we do - that we base it on science - and we really are making CO2 reductions. However what I was saying in the keynote speech - is that this is definitely not a black and white question.

We have fossil and synthetic and biofuels in the same systems. And I think that in a transition period we don't have a perfect solution - available yet for all the cases. But really always being very careful that we do real CO2 emissions - that are helping us reduce CO2 from the atmosphere - really in a global pace. Yes that is something... I want to connect this to your earlier answer related to the market mechanisms.

In particular in a small country like Finland. You are a global player of course, - but if you think of the country and we're thinking of achieving the target - in the best possible way for the society, - then there's a particularly good case for a market based solution - that is technology neutral. So when we're pricing the emissions, - and the market is seeing the price, - all the actors in the market, companies and consumers, - are free to choose the technologies that allow the best and cheapest solutions - for avoiding the price of emissions by becoming clean.

And it's impossible for us to predict what the winning technologies are. You're in the business of exploring these possibilities - and in a position to respond to prices in the market. But the policy makers should create the institution that there is a price, - and then the market solves it. Rather than that the policy maker decides what is the winning technology - and then starts committing public resources to it. So we have other technology questions. There's a question about - there is plenty of excess heat energy available in the industry, - such as steel production and chemical industry.

That is certainly true. And I suppose there are plans to exploit that further. You may comment on that as well. But the question continues, - that in Sweden such heat is already used - for heating local municipal areas. Shouldn't we invest more into collection of these kinds of heat sources - and utilise such waste heat streams, - rather than perhaps going underground. What do you think? Well I think we need three things - and I think the low hanging fruit here is energy efficiency, and really using this type of excess heat - and I think our next speaker is more familiar - with all the details in these processes.

But in addition we need renewable energy, - and also we need negative emissions. And we need all three. But as mentioned, - the low hanging fruit is really to collect some of the excess heat - and make our energy systems more efficient. And I think they're not conflicting - but really complementing each other. Yes, perhaps the same infrastructure can even serve both ends.

So yes we very much agree with the question. I think it's time to thank Miika for this first part - and Miika will be back later on. But we're now inviting our second keynote speaker - and participant to the discussion - Matti Rautkivi from Wärtsilä Energy. and Matti will tell us - how Wärtsilä is a global player in the energy markets - and we look forward to hearing about the implications for Finland as well. Welcome Matti.

Always good to have two Mattis in the same room. I'm Matti Rautkivi with Wärtsilä Energy. And many of you probably know Wärtsilä as a global player - and energy and marine business. Our strategy on the Wärtsilä level can be said in one word, - decarbonisation. How we help our customers and the globe to decarbonise, - both the marine sector and the energy sector.

And I'm representing the energy sector, - which is in a super interesting phase - and extremely big opportunity. People can view this from a challenge perspective, - how we start to decarbonise, how we do the decarbonisation. But I'm looking at it more from the opportunistic and opportunity perspective. And let me tell you why. A couple of years ago, 2018, - we within Wärtsilä Energy launched our vision towards a 100% renewable world.

At that time when we looked at the world, - we started to already see what is really behind this whole transition. And people think its reducing emissions - which is super important and critical here. But actually we noticed it's driven already in many places by the cost.

That the really cheap renewable energy was available, - is available, and will be available for the energy production. So in countries like Senegal for example, - which is a good example of where we have really good wind and solar conditions - it's cheaper to produce energy with renewables - than with a new coal plant. Exactly the same happened just three weeks ago in South Africa, - where they were planning 6000 megawatts of coal plants, - now it's a massive amount of wind, solar and flexible generation. So a vision is a vision, - but as a technology company like Wärtsilä, - why we need these kinds of visions that look 10, 15 years ahead - is that the market, the technology development takes time. And you need to understand what the world looks like in 10, 15 years - and what is creating value there for the society, for customers - that you have the time - you need to make the investments - to develop technologies available during that time. And that's the path that we need to take, - understand what this transition takes - and what types of technologies are needed - and especially what is creating value.

And one thing that will boost this and already is boosting this - is the last year, 2020. Of course it was a terrible year in many ways due to Covid 19 - which is unfortunately still continuing. But last year the world basically stopped. And if we look at global emissions, - I think it was the first time since the Second World War - when the emissions went down. I think depending on the source - it was around 7% globally that we were able to reduce emissions. And now there are seven, eight billion people, - who understand how we did this, - what it actually took to reduce emissions by 7%.

We stopped travelling, factories and shops were closed, - people were staying at home. And we mutually achieved that 7% emission reduction. A great achievement. But when we now look at what we need to do by 2050 - if and when we need to meet that 1.5 Celsius Paris Agreement target, -

is that we need to reduce emissions every single year - from 2020 to 2050. Every single year, the same reduction. Yes we stopped flying last year, - but on top of that we need to do something additional this year - and then an additional something next year. And when you realise that, - you understand that we can't continue in the same way, - producing energy, producing our industrial goods, - as we have done in the past. So everything will change.

And of course this can be a scary thing - that okay my life will change, and it will be worse, - but actually I claim it will be better. And we already see now the first real signs of this, - how the industry will change, - how it will revolutionise the whole industrial sectors - like the steel production, car manufacturing, - we have electric vehicles, and even the steel will be CO2 free in the future. So it's an opportunity.

Yes things will change but it's an opportunity And when we understand this, - that it's an opportunity and there are tools and ways - to catch that opportunity, - then every company, country, and individual is in a strong position. And that's what we do within Wärtsilä. And as an example, what we've done now during the last couple of years - is investing heavily in energy storage, - which is one of the good examples that will grow massively over the next decade. People think Wärtsilä is an engine manufacturer - and that we produce engines for ships and power plants, - which is definitely an important business today and in the future - as that kind of thermal backup generation will be needed.

It's not using fossil fuels in the future - but it's using those synthetic fuels that Miika touched upon - in the previous presentation. But the energy storage is already happening today. And just last year Wärtsilä was one of the biggest players in the world - to provide energy storage for utilities. You know the names Tesla and Siemens - but Wärtsilä was actually one of the biggest ones last year- And what we're talking about here - it's already a massive business.

It's not something that we also thought - that this 100% renewable vision will take decades to happen - when it's providing business. But because of this Covid 19 situation, - the opportunity to understand that things will change, - there is a global understanding now of what it takes to change things, - there's a global will to do this, - we see way bigger projects taking place already today - Than just a couple of years ago. Two weeks ago we signed a deal - for more than 200, 400 megawatt hours of energy storage in Texas.

And remember there was a crisis in Texas just a couple of weeks before. So things happen fast. And when we're talking about 200 megawatts - I think the biggest energy storage in Finland is 6 megawatts.

So the scale of what we see globally in different places is real. It's definitely an industrial scale. And this is happening in countries like the United States, the Caribbean, - in Africa, Europe, all over the place. And that's why we want to be a player here - in capturing this global opportunity. Talking of Finland, as Matti mentioned, - yes I have some opinions about that - and definitely want to discuss those. In Finland what we see, what we can do here, - and once again from a technology company perspective - let's recognise that this is an opportunity.

Let's recognise that we need to act to stop climate change. We need to decarbonise - and we need to understand that decarbonisation is an opportunity. Because we have great companies here - and we are able to develop these technologies that the world needs.

It already needs those today. It's already using those today. And companies like us, our role is then to scale it, - export these great things that we develop here together.

And at the same time how we are then able to utilise those technologies - first for the benefit of Finland and the Nordic countries - but then in the global perspective. Yes. Thanks. Should we continue Matti with the... [From off screen:] Thank you Matti. It's always a pleasure to hear a Matti talking - and in particular such a professional Matti - who is in practice thinking about how to solve this problem.

So let's try first to think in very concrete terms what you do. Because you mentioned that it is a business opportunity - and I see that you operate in all corners of the world. Many times in those parts of the world that are really emerging economies - where I mentioned that the demand growth for energy consumption is huge.

Because there is the middle class arising - and they need the home appliances that we have. We are consuming here energy and electricity - and once they reach the level we have here - then there is a huge demand to be satisfied. And you enter the scene and provide system level surfaces, right, - [Rautkivi:] Yes. - You show the path to renewables - and then you provide your own technology solutions complementing that. Is that the way it works? Yes. So first of all, you need to understand -

what the future system looks like. And let's take South Africa as an example. I mentioned South Africa. And there we started to discuss about six years ago, - when we realised that renewable energy is actually an opportunity - for countries like South Africa, really good wind and solar conditions.

And at that time they were planning to build 10 gigawatts of new coal capacity - just to meet that increasing demand in the country. And it takes time and effort and analysis to convince people - that this is the right way. And just six years later, instead of building that coal capacity, - they are investing in renewable energy and flexible generation - and in energy storage.

So that's then providing an opportunity for companies like Wärtsilä. However, at that point when that opportunity is there on the table, - you need to have the winning technology. You need to be the best there because you're competing in the global market. We can't assume that we open a market there - and it's a monopoly for us. Nobody likes monopolies. So then we need to have the winning technology there. So its a two-fold game. You need to convince about the system level, -

what makes sense, - and then when is the time to actually do the project, - you need to be the best one there and win. So it's two level. System level but then also the technology. It's not enough to talk about what the best system for the world would be. You're not selling anything with that. You need to do that and then be the best one with the technology.

And that's what we do. - Right, right. So at the first level - you could basically say you could choose whatever technology you want, - but then it is our solution... - You could be a professor - and say what is the best one but then somebody else is paying your salary - not the technology provider.

Okay but if we go back to the basics. Like we've been discussing, that there should be a price on emissions. So we're setting a price on something that was free before. And now it's more costly to more these fuels - that perhaps otherwise we'd still be using.

So your vision is a 100% renewable energy system. Is it also 100% more expensive to the consumers in the end? No absolutely not. Actually it is cheaper. Especially once again for those developing countries. And also for Finland.

But it is definitely cheaper and that's the big thing here, - it's about emissions but it's about cost efficient decarbonisation. How we do it cost efficiently. Because then there are fewer reasons to resist the transition - and it goes faster And that's what we want, to have this really fast and efficient way. So absolutely not. It won't be more expensive. Actually I claim that in many places in the world it will be cheaper - to build this kind of new 100% renewable system. And we shouldn't compare that to the existing system - but really what does the future system look like.

But if you only compare the cost level - it will be cheaper for the consumers. The role of the consumer will be different, - how you participate in the market, how you interact with different players. But definitely it's not going to be so costly. So if we come back to the Nordics, - and think about what's happening here, - when we talk about your core business, electricity, - in the energy part... So here in the Nordics - we've not seen so much solar but more wind.

It's more than 10% of our annual consumption - already covered by quite bit more I think already, - it varies of course from year to year. But I would think it's on average a bit more than 10% of the annual load - being covered by wind power production. And that has replaced this old technology in the market. And wind power comes with zero running costs. So that's why it's always going to be there - and it's depressing when you have more capacity, it's going to depress the prices. And we've seen that renewables - have led to the collapse of prices in some places - and that's really bad for the old technologies.

Well we could bring the nuclear investments to the picture - but that's a sensitive topic, - we don't have to go down that road. - I wrote a book about that. Let's leave it to the final discussion. But that means the prices are sometimes very very low.

Here in the Nordics or somewhere else. And you're in this business of exploiting that. The storage. There are many ways to exploit that fact - that sometimes you get electricity for free. But is this the main reason for you to enter this storage business? That you think it's an opportunity to globally see these price differences, - or is it more like that you look at a particular system like South Africa, - and you see it is just reasonable to have that part of the local package, - when you're not only providing balancing power - to serve those situations when you have a shortage - but also to shift power from one to another? Is it more like a local solution, from your perspective? Well yes. We look at it as a global solution - because technology is global and it will be exploited in all of the systems.

And especially energy storage with the solar dominated system, - there is provides more value because you have more cycles. You have a daily cycle so - - It's predictable. It's predictable and utilisation factor - Even I can predict that the sun will not shine. Only midsummer of course. But let's use an interesting example about these price differences - and once again last year, 2020.

In the springtime in Germany the price went down around 7%. So we had lower demand than ever. At the same time wind was blowing, sun was shining. So we had more renewables in the system than ever before.

The percentage of renewable was higher. And we started to see negative prices in Germany. So we saw more negative prices in Germany - and more price volatility than basically ever before - during Covid 19. Why, because the sale of renewables was higher. And of course coal plants were making 40% less money, - nuclear making less money, they were actually making a loss - because of the prices at that point.

Energy storage was making 25% more margin than the previous year - and flexible gas was making more money than the previous year. So what happened last year in Europe and globally - is a crystal ball for the future. We had a system where we had more renewables - than what we assumed to have in 2030, - we saw what happened to the prices, they went down, - there was more price volatility. And that led to the opportunity for energy storage investments. And now just a year later those investments start to happen.

So I'm not saying it's a bad thing, - it's the nature of this kind of future system. Once again, the future system will look different. You need to behave differently in the marketplace. And there is room for new technology. That's what we want, that new technologies - able to exploit opportunities in the new system will be deployed.

That's an interesting insight. And also what I think is interesting in your market - is it might be that this transition more difficult for us - because the old system is so sophisticated, - to make this transition to the new technologies, - rather than if you consider developing or emerging economies, - where you are building the system from scratch. At least that's what I heard from the Finnish system operator, - that actually if you would build the new system from scratch - it would be a 100% renewable system. Like the type of vision you have.

So in some sense it's natural that your main market is somewhere else. Yes and if we talk about the opportunity in Finland, - it's a small country compared to the opportunity in the developing countries. It's just a massive opportunity.

And I don't say that this is a more sophisticated system. I think it's just what is preventing us from moving faster - is the existing players in the market. They have invested massively and want to defend their position. Somebody said it was a smart investment - to build a nuclear power plant 15 years ago. Right? And if you look at how the world has changed - in 15 or 20 years, it's a massive change. Is it still a good investment? You hold it - because you've invested a massive amount of money.

And you want to defend those things. Nuclear is just one example, - there are coal plants, different types of investments. So they're where you need to meet the new demand.

It's increasing eight percent like in Thailand, - eight or nine percent per year. You need to do something anyway. And then you choose the best one. Okay the world has changed, still changing, where do we invest? You don't need to lock into something for 10,15 years. You need to act and you choose the best path. Yes I think sophisticated is perhaps not the right word.

But it's a different logic. The old system with very centralised production and distribution - and consumers are passively taking or demanding what they need. And the system is managed in a very centralised way. Whereas this approach that you mostly have - is more decentralised.

Take an example, electric cars is a good example. If you're 18 years old, you've never driven an electric car before. You'd say the electric car was easy. Go to MacDonald's, charge your car there.

Spend 15 minutes in the parking lot, watching Netflix - when charging your car. It's not a big deal. For us who are used to charging 100 kilowatt hours of fuel - in your tank in less than a minute, it's like this will never work. This is so different. But it's not about the technology. That it's actually better and cleaner for sure - but it's about the mentality and what we're used to. And that's something we need to continually change.

Every time you come with a new idea, - like I said in 2018 wind was a cheaper way to produce electricity in Finland, - everybody thought I was crazy. Now last week in Finland, head cover, Finland is the El Dorado of wind. Same thing with heat pumps, same with synthetic fuels. In the beginning it is a challenge. But you need to be there and provide the information, - have the debate and discussion there. Yes so it's also the attitude of the consumers.

And we old timers are bad in multi-tasking - so we can only do one thing at a time - which is fill the tank and then do the next thing. Maybe we can gradually invite Miika to come here as well - and meanwhile I might ask Matti - there was a question from Sanna. When we think about the transition into renewable energy production, - should we also think about reducing energy consumption - in order to build a sustainable economy? So is that in Wärtsilä's package? Or you see the storage technology - as a way to meet this call of reducing total consumption? Or it such that where you create an efficient system - where you are more responsive then you're actually achieving this? Now we need to distinguish between energy and electricity.

And for sure we should try to minimise energy consumption. And once again the electric car is a good example. It's a more efficient way to travel than with the engine car, - but it has limitations. So one thing here is what will definitely increase - is the amount of electricity in the global system. And I have an example when we had a global mining company - that has mining operations in more than 40 countries. And they see the demand for electricity in their mines - is going to increase massively.

Not the energy consumption because the trucks are using diesel today, - the power plants are burning diesel there. Where we're going to do there is the decarbonisation for them. So 70% renewables for the energy production, - convert the trucks using electricity, - so electricity consumption will go up, you need more batteries - more solar panels there. But the overall efficiency of the system is definitely more efficient. So in that sense yes we are in the business - and energy reduction and energy efficiency is one of the key metrics there - but the electricity consumption will definitely go up.

Right. Then there is a question to Wärtsilä - but Miika you can see that this is relevant to you as well. Does Wärtsilä see hydrogen as part of the opportunities at hand currently? How about storing the hydrogen as the energy carrier? Well this is a classic question.

Any responses? Well I can start as it's related to Wärtsilä. We have also announced a couple of projects here in Finland and globally - related to hydrogen. One in Vaasa together with the local players - build an electrolyser capacity storing hydrogen, - using that in the engines and as an energy carrier - for local transportation. And the second is here close by in Vantaa, with Vantaa Energy - where hydrogen is used as an energy carrier - combined with CO2 with producing methane there.

And then in the marine side, - ammonia is one of the things we're exploring now. And already today diesel engines are able to burn ammonia. So that's one of the things for our customers, the flexibility, - because nobody knows what will be the winner in the fuel side. So with the engines they put in the ships today - the ship's lifetime is 40, 50 years. They want to run those engines for that long. So they can burn diesel, bio-diesel, gas, ammonia, hydrogen, - whatever is available and the cheapest.

So that gives the flexibility for our customer to choose - what is the cheapest renewable fuel in the market. That's interesting, the complementarities that you have - in these two main business branches. Is there any relevance for you? Yes definitely. I mean in this energy system transition, -

electrification in a large scale is definitely needed. And the question is whether that's direct electrification or indirect - through hydrogen or other potential energy carriers. And I think that's something Matti discussed quite a bit. How to do that in different applications.

I think the big challenge really is - when we're talking on terawatt scale. How do we move electricity in time and place. And at the moment definitely - synthetic fuels are providing a very interesting opportunity there. And when we are talking about applications - of fuels like methanol or methane - or even using drops to even further refine those to jet fuel, - that is definitely an opportunity we see - that has a big role in the future.

Thank you. If I connect back to the beginning, - that we are in an exploration phase, - where we're exploring these different technologies, - but when you really thing about technologies - mature enough to be scalable, - to solve these system level problems, - currently we have wind and solar, - and then the technologies you need to complement those. And from an economist perspective I always want to emphasise this. That if you have a market in place that puts a price on the problem, - which is the carbon emissions, - then it's up to the market to decide what technology wins. It's not an opinion.

Survival and the winning technology in the market - is something we just don't know. But of course government policies can have a role - in sponsoring different technologies - because you need some scale networks, - for electric cars for example you need charging networks. And there's a reason to, - once you see the winning technology - emerge and perhaps sponsor the adaption of the technology. But now we come to the really important question - that often arises here, - what is the role of nuclear? There are a couple of questions for example - that none of the IPCC model pathways are 100% renewable. They include nuclear.

So by default excluding technologies makes transition more expensive and slower. So I think the point is that we should not rule out nuclear by default. And I think this is correct. I'd like to hear from you on that. Now the question disappeared - but nuclear might have an important role here. My comment as an economist - is okay, the market can invest in nuclear - but it doesn't for some reason.

And I think the reason has to do with money. [Rautkivi:] Yes. [Liski:] But what's your take on this nuclear issue? From your business perspective. I don't know if it's a business perspective or individual, - but I think I would say both.

And as said, markets decide. And what is creating value in the market should decide. So definitely we shouldn't rule any technologies out. What is the cheapest and fastest way to decarbonise, let's use that.

And we are looking at different technologies - and also in the nuclear space, the small module reactors, - and those being on the table. However, at this point, - we're not just talking about a plan for what will happen in 15 years. That's part of the job. Part of what is the technology bet that we take for 15 years. But we are delivering decarbonisation services already today for our customers. And in that scenario what we have done globally - there hasn't been market driven nuclear projects in those places.

They are happening in China and many places - if there is the market-driven or something else. You can judge what is the best way to do that. And in the same way in Finnish society, - the fastest wave of nuclear power plants are 20 years late. 15 years late.

Cost 10 billion. If you put it to paper to calculate the investment - I don't think it's the cheapest way to do it. But if it becomes available as a cheap alternative to decarbonise, absolutely.

But is it there today? Time will tell. I think the question was about the small scale nuclear. In your global experiences have you seen... Yes and we analysed that also, - once again interesting technology, not available today. We can't deploy that today. And as discussed here about the cash flow, - what business we are providing today, it's not there.

It's not available for deployment for the project. So when it becomes available, it's working, it's feasible, absolutely. Then we scale it. Definitely. Is it Wärtsilä's role or somebody else's role. But is it there today? No. Yes I think the future is definitely in renewables.

The potential in wind and solar is great. Maybe bringing in one rather detailed thing - related to CO2 in electric production and grids in the Nordics, - because we are really coming up with new projects for synthetic fuels production. But when we look at our markets, Finland, Sweden and Norway, - then we have the average CO2 grams per megawatt hour - is different between these countries. Norway is almost 100% renewable, - they have hydro reserves. But in Sweden they have nuclear power - and more biomass used in the electricity production.

And in a practical point of view when looking at projects - Finland has the highest amount of CO2 electricity production - and therefore the premises to invest into Finland - are way worse than compared to neighbouring countries. So I think nuclear energy - can provide the non emission electricity production - which can then be used for the synthetic fuel production. This is once again a small detail from a practical point of view - that how does legislation incorporate these different ways - to produce electricity.

Yes that's a good point. If you think about how Germany started energy transition, - it was initially defined as a transition away from nuclear. And it's similar in Sweden. And they have been running down the nuclear industry - for I don't know how long. But it looks like they're gradually achieving that.

So that will certainly change the Nordic market environment. I think there are 10 nuclear units in Sweden - and that's a sizeable part of our generation capacity at the moment. And the same will happen after next year in Germany. What is the impact there. So we're going to have a learning rate there - on what will be the market impact.

Right, exactly. That's the difficulty of the transition, - because nuclear fits this kind of centralised system. Where you have very central production and distribution - and consumers are rather passive. But when you're moving to this more decentralised system, - nuclear is not fitting so well. The package.

And it's not about nuclear, it's about the inflexible generation in general. That if you can't react to the changing market conditions that's your loss. So not specifically nuclear but just all inflexible generations. Yes and it's also interesting to compare the size of the investments - to energy production. Now I'm talking about production and not megawatts.

If you have good wind conditions which we have up in the North - then we're looking at our big project there, - we are talking about 45 terawatt hours of energy produced. And the cost of that is less than one billion euros. But then if you look at these nuclear projects - and how much energy you get compared to the cost, - then you're talking about a whole different price level.

So whether that's ever economically viable to invest in - to a massive new nuclear production capacity - I think that's the thing, who would that be - investing into a new nuclear plant. Exactly and I think that from the market perspective that should happen. If there is a willingness to invest from a market perspective - let it be. Let it happen. But if we see this UK specific auction for nuclear - with like 109 euros per megawatt hour, - while in Lapland you can build wind around 30 euros per megawatt hour, - it's like yes wind is not blowing all the time, - however you need to put balancing capacity there.

Still there is a big fat margin or spread between those. So once again, analyse, - let's build the cheapest and the most cost efficient system - because then there are fewer reasons to resist this transition. If this is costly, - we make a decision based on the old hypothesis and old system rules, - then this will be difficult.

Then you're in the path that this will cost a lot - and people start to resist this and that's what we definitely don't want. Yes. I am glad you confirmed this - because this is also the academic point of view. There was an MIT report on the future of nuclear, - first published I think 15 years ago, then updated, - and they concluded in the updated version that it looks quite bad. The future of nuclear from the economic perspective.

But from the technical perspective, - there would be enough fuel and capacity in principle - to contribute significantly to the carbon reduction targets. But the market is not moving forward and you pointed out the reasons. Of course it's not completely market driven investments - because you make system level decisions - of what kind of system you allow to develop. And if you put the nuclear there- it's going to pre-empt many other types of investments.

And you need to have a certain philosophy - for what kind of system you want to have - and this discussion is something we would need to have more of - here in Finland. And this is the discussion they're having all the time in Sweden. And Germany as well. I don't know how much nuclear we want to talk about - but it's an interesting feature we have here in Finland in particular - that the nuclear projects are like cooperatives.

That behind some projects you have tens, - maybe even a hundred independent entities. So it's not any single individual firm undertaking the investment - but it's more like - a consortium of investors - that are sharing and making it a rather small risk for any individual partner. And that makes it cheaper perhaps in Finland than in other places.

Which might explain why it happens here. But there was a question, was it Susanna, - that it's not only the price for CO2 but also price for diversity. Biodiversity. And there was a reference - to Dasgupta report. And we have the question actually, - so conserving biodiversity is rising as a key sustainability issue. Along with the CO2 emissions.

So this is more complicated. And I think it relates to your business to some extent. Yes and I think it's good that that's brought up - to the discussion as well, - the loss of biodiversity - and I think what we should be more and more aware of - is our impact when producing energy in different forms.

I think there is a consensus that there are limitations - with the biomass that we have available - and what is sustainable biomass. And definitely there - we should always look for the highest value added application - because it's a limited resource. And it's not only... If we price CO2 emissions but we are not pricing in any other factors - such as losing biodiversity, - then we don't have the full impact priced. So that's definitely needed to assess when we're doing any big system changes.

But yes. What we try to do - is that we are aware of the impact that we do - when we are producing energy - and we are always trying to limit the impact to the biodiversity - and also make sure we have the social acceptance - for the energy that we produce. And aim for the projects - that are actually then also optimising those angles, - human rights, biodiversity, and also the social acceptance in many forms.

That's certainly a very important question. But I think even the academic question is bending. The academic answer to that question is bending. How to precisely price it in to the price of CO2. So we still have a few questions.

Time is running out but let's quickly go back to nuclear - because this is a question that might be of interest to many. That actually nuclear might be used - as a balancing power for the intermittent renewable production. So it's a strong assumption that nuclear is not flexible.

What do you think about that? Given your system level experience. Well you can go check for example from last year - or yesterday or the week before - from an energy transition lab, - that is a tool where you can look at the European level, dispatch on an hourly level, you have the prices there, the dispatch for every hour. And once again looking at last year - when we had in Germany for example 70% renewables in the system. 60, 70% renewables.

Every time the prices went negative, what happened, - at least six or seven gigawatts of nuclear were running all the time. Why, does it really make sense to run the nuclear at that point - and to make loss? Absolutely not. Yes they can reduce their output, - but once again it's a capital intensive investment.

So are you really building that kind of a massive system - to do the balancing for the renewables? Yes it can reduce its output from 100% to 50 or even lower. But is it economically feasible? Absolutely not. And there is evidence, just go back and look at last year. What happened there when the prices went negative. Nuclear is still running flat out there in the German market.

But economical? Absolutely not. And you can also see that in the Finnish market. I think it was a couple of days back that we had negative prices - and you had the straight line nuclear, - but actually it was the wind producers that got the production down. Actually you don't have any cost in running the turbines.

You actually want to cut the production down - if the price is negative - but the nuclear was the steady line. Yes exactly. And this is now.. Yes it can be reduced - but if you look at what will happen in the future, - more wind and solar will be put in the system - we'll see more price variation, - and the more demand there is to shut down capacity. Is nuclear best to do that? I don't think so. Well, here you have experts. I'm not an expert.

We are coming close to the end but given that we have the experts, - I would have one question that is haunting me all the time. If you think about big tech companies - they are shaping our lives. Like electricity was shaping everyday life of ordinary people in the beginning.

Now we have Amazon, Google, all these companies - that are transforming the way we communicate and all aspects of life. So are these companies going to revolutionise also the energy sector? Any quick takes? I'm sure you could give a lecture on this as well. No I was just commenting that before coming here - I watched the previous editions of KAUTE talks - and I can't remember the person's name representing Google - and his presentation went through what Google is doing. But I would think that digitalisation is definitely one of the angles - we need to take into account with the energy transition as well. And there we really need multidisciplinary groups - coming together and thinking how digitalisation - can be used in smart energy systems.

So certainly I hope that big tech is also taking this seriously. And I'm pretty sure they are having a big investment into this sector. Absolutely and they're already doing that. We've been working with Google for example - how they're using their data centres - from the west to east coast to shift load. And let's look from the Finnish perspective in three minutes. As a scenario, Google have a big data centre in Hamina.

It's already 140 megawatts and growing fast. Consuming a lot of energy. At the same time Google has bought PPAs for wind power in Finland.

I think the biggest here. So they can buy cheap renewable energy. They consume a massive amount of energy - that they can shift the demand - if not in Finland they can shift it to Ireland - in a split second. So it's now running 140, it can run 60 in a second.

Nobody sees any difference in the service level - but they have this opportunity. So they know how to buy renewables, - they have the demand response from their own load. And now what Google is doing, Google Home, - they know a lot about you. Probably even more than you know about yourself.

Then you've got the electric vehicles. You have Google Home. So imagine what an opportunity for Goog

2021-04-25 17:11

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