A Pan-Asian energy infrastructure

Asia is set to embark on one of the biggest energy infrastructure rollouts in history. It’s hard to overestimate the impact it will have on 21st Century life.

The reason?

‘Asia’ (China, Japan, South Korea, the Association of Southeast Asian Nation states and Australia) is rapidly emerging as the world’s largest economic bloc. The region now accounts for one third of humanity, one third of global economic output and one-third of global greenhouse gas emissions.

All three are set to grow. One is good (economic growth). One is neutral (population). One is bad (greenhouse gas emissions).

Happily, there’s a good news story in all this. To understand how, take a look at what’s happening:

China is adding huge amounts of new electricity generating capacity. It’s also laying High-Voltage Direct Current (HVDC) transmission backbones to get that electricty to market. That’s good.

The Association of Southeast Asian Nation (ASEAN) states are deepening interconnections between their 10 electricity grids and natural gas pipeline networks. The aim is to increase cross-border energy trade. That’s also good.

In Australia, nearly $200 billion of natural gas projects are planned, primarily for export. Meanwhile, $100 billion of electricity transmission infrastructure upgrades are needed. That’s also good.

Why? Because these networks can and should grow together.

What emerges will be a ‘Pan-Asian Energy Infrastructure.’ This infrastructure will be based upon ubiquitous, low-loss transmission capacity, carbon-adjusted pricing and expanded energy trade across borders. In short: undistorted, frictionless properly-priced markets.

Or, to put it another way, it amounts to applying economic orthodoxy to fixing the climate change problem.

The end result of more open, properly-priced, cross-border markets will be falling regional greenhouse emissions due to enhanced innovation created by a marketplace ‘feed-back loop’ — aka a ‘virtuous circle.’

To understand the concept better, start with a simple model:

US and Chinese researchers estimate China has enough wind blowing across its Inner Mongolian steppes to power the nation several times over. Meanwhile, organizations as diverse as the International Energy Agency to the CSIRO agree that Australia has enough sun falling on its largely-unoccupied desert Outback to satisfy the entire world’s energy needs.

Under the simple economics of trade espoused by 18th Century English economist David Ricardo, China should build out wind energy capacity and Australia should develop solar. The two should then trade. When they do, both come out ahead.

For this to work however, Australia and China must be connected. This can occur through the organic accretion of interconnected national networks outlined above. All these, in turn, will result in a ‘Pan-Asian Energy Infrastructure’ stretching from Australia to Inner Mongolia. This, over time, can be operated on ‘common carrier’ (ie open to all users) principles. Everybody wins.

As a Pan-Asian Energy Infrastructure passes through Southeast Asia, it can pick up Indonesian geothermal, Malaysian biomass and Vietnamese wind for cross-border sale.

And as these new energy resources come online they can replace aging, dirty coal-fired power plants. For their part, regional hydro and natural gas capacity can be shifted to ‘load balancing’ the intermittency of renewable energy resources instead of providing base-load power.

This rearranging of the ‘load stack’ will occur naturally. That’s because market specialisation will be a natural outcome of a reformed energy complex that properly values each energy source’s attributes (ie location, availability, carbon output).

Stated conversely, the long-term market failure of improper carbon valuation has led to the climate change problem the above reforms will fix.

Renewable energy delivered over a Pan-Asian Energy Infrastructure represents a big, ambitious vision. The good news is that big names are thinking about it. They like what they see.

Take the International Energy Agency. It estimates Australia can meet 40 per cent of its electricity needs and 7 per cent of Indonesia’s electricity in 2040 from concentrating solar power. Those figures are contained in the IEA’s June 2010 study “CSP Technology Roadmap.”

German engineering giant Siemens also believes Australia can one day export solar electricity to Southeast Asia. That idea is contained in Siemens-Australia’s corporate vision “Picturing the Future.” Read it yourself.

Tim Flannery, 2007 Australia of the Year, also sees the potential.

Flannery says Australia should replicate in Asia an expanded version of Europe’s DESERTEC Industrial Initiative (DII). The DII is a plan to generate huge amounts of solar energy in North Africa and export that electricity to Europe over High Voltage Direct Current power lines.

A Pan-Asian Energy Infrastructure of interconnected infrastructure solves a host of problems. In a region-spanning network characterised by energy fungibility and price competitive trading, the market can pick the winner. Isn’t that the best way?

If so, the network is the key bit of enabling technology. All else flows from that. The telecommunications industry showed us that in the 1990s.

Back then, the global telecommunications industry was dominated by national monopolies, fixed line telephony and high prices.

Fibre optic cables (the network) coupled with the Internet Protocol (the ‘trading’ platform”) changed all that. The result has been ubiquitous, low cost, fungible communications governed by the price mechanism. All this, in just 20 years.

It’s now the energy industry’s turn for a top-to-bottom efficiency revolution. The good news is that the first step is underway: building out the regional infrastructure, albeit on a country-by-country basis. The second step lies ahead: interconnecting it across borders

The third step? Open, competitive, innovative markets.

That’s the best gift we can give our children.

The writer, Stewart Taggart, is principal of Grenatec, an Australia-based energy research consultancy.

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