Sustainable Recovery

World Energy Outlook Special Report
River running through a forest

Strategic opportunities in technology innovation

The lag time involved in bringing technologies to market mean that clean energy technology innovation remains a near-term priority to achieve longer term sustainability targets. Without innovation, the transition to modern, clean and resilient energy systems would be at risk. Governments have a major role to play in supporting innovation, especially in areas that the private sector perceives as being too risky. Clean energy technology innovation matters in the recovery from the Covid-19 pandemic and its economic aftermath because it can help with:

  • Energy resilience and security of supply: For governments, a broader technology portfolio is a means to build domestic resilience by diversifying the energy mix and energy supply chains. For energy industries, energy technology innovation is a means to diversify portfolios and anticipate changes in energy markets.
  • Future competitiveness: Innovation can help industries come out of the Covid-19 crisis better positioned to supply future domestic and international markets.
  • Emissions reductions: In sectors where few scalable decarbonisation options currently exist, such as heavy industry and long-distance transport, technology innovation has a vital role to play in helping to ensure that new clean energy technologies help countries reach emissions reduction goals. 

Global average jobs created per million dollars of capital spending for emerging technologies

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In this section, we examine four specific technology areas at different levels of maturity that could be important elements of a future technology portfolio and that require support in different ways: hydrogen technologies, which have a potentially important role in a wide range of sectors; batteries, which are very important for electrification of road transport and the integration of renewables in power markets; small modular nuclear reactors, which have technology attributes that make them scalable as an important low-carbon option in the power sector; and carbon capture, utilisation and storage (CCUS), which could play a critical role in the energy sector reaching net-zero emissions. We also compare the near-term job creation potential of some of these measures.

Clean energy technology innovation is a complex and important topic, and it goes much wider than the question of support for specific technology areas. The IEA is preparing an Energy Technology Perspectives Special Report on Clean Energy Technology Innovation, which will be released in early July 2020. This report will examine in detail the ways in which governments can shape and support a broad research development and demonstration agenda in pursuit of the long-term decarbonisation of the energy sector.

Hydrogen technologies

Hydrogen is a versatile energy carrier that can be produced from fossil and low-carbon sources. A future more resilient energy sector could make use of clean hydrogen in industrial applications (such as iron and steel production or in the fertiliser industry), transport (directly in road vehicles such as trucks and cars, or as synthetic fuels in airplanes and ships) and buildings (for heating). It could also be used to store electricity over weeks or months. If hydrogen use is to become widespread, it needs targeted support for low-carbon production, and for efforts to stimulate hydrogen demand in sectors where the near-term opportunities are largest.

Most hydrogen production today takes place in industrial hubs such as ports using natural gas and coal as an input. Some industries are looking to adopt CCUS to reduce emissions from production: there are also a number of planned projects for hydrogen electrolysers which would produce hydrogen from decarbonised electricity. If these projects were to be completed, global electrolyser capacity would rise from 170 megawatts (MW) in 2019 to 730 MW in 2021. The Covid-19 crisis may put some of these plans at risk, although no project cancellations have yet been reported.

In the transport sector, current sales of hydrogen fuel cell vehicles are low and have been hit hard by the crisis: in the United States, sales fell by 65% year-on-year during January to April 2020; in China, they fell by 7% over January to March. In industry, the main near-term opportunities for growth come from the scope to blend hydrogen into commercial steel-producing assets and to use clean hydrogen in place of fossil fuel hydrogen in the production chemicals such as ammonia and methanol. A pilot for steel production with clean hydrogen is currently under construction. While pilots are at risk of being delayed due to the Covid-19 crisis, no delays have yet been announced.

Support for electrolyser manufacturing can usefully be paired with support for fuel cells and battery manufacturing, which use the same principles of electrochemistry as electrolysers and have several similar components. Support for the use of CCUS with existing fossil fuel-based hydrogen production would be best focused on industrial hubs to maximise synergies with the use of CO2 pipelines and related infrastructure. The opportunities for clean hydrogen production would be bolstered by support for new hydrogen demand through blending clean hydrogen into natural gas grids and support for increased use of hydrogen in transport, industry and buildings. Specific support measures for hydrogen might include:

  • Support for developing or expanding electrolyser manufacturing capacity through low-interest loans and blended finance for factories.
  • Support for clean hydrogen production through targets and quotas.
  • Maintain and reinforce market pull instruments for hydrogen end-use technologies and related infrastructure (e.g. hydrogen refuelling stations).
  • Introduce clear and quantifiable targets for the use of clean hydrogen in existing infrastructure (e.g. hydrogen blending in gas networks and for steel production).
  • Provide funding for research into fuel cell efficiency, and electrolyser efficiency and flexibility, together with funding for large electrolyser demonstration plants.

A readily available way to create new demand for clean hydrogen is to require its blending in natural gas pipelines. This would create predictable demand for clean hydrogen while reducing the emissions intensity of natural gas supplies. If hydrogen were blended into all natural gas use in the European Union at 5% (by volume), clean hydrogen demand would be boosted by 2.5 Mt per year. If this were supplied by electrolysers, then it would require almost 25 GW of relevant capacity. Electrolysers could also be used to provide clean hydrogen in industrial clusters, such as at ports. This would create jobs and provide measurable benefits throughout the industrial value chain. Other support to increase hydrogen demand in transport and other sectors could also have positive economic effects and create jobs, including in the development and maintenance of related infrastructure. 

Batteries

The pace of battery manufacturing capacity growth has been rapid in recent years and there is enormous potential for batteries in an increasing number of sectors, including the power and road transport sectors. The cost of lithium-ion batteries, widely used in consumer electronics, has declined sharply in recent years. In 2019, sales-weighted electric car battery pack prices reached an average price of $160 per kilowatt-hour (kWh), down from more than $1 100/kWh in 2010 (BNEF, 2019). Governments in many countries have contributed to this progress through policies encouraging electric car sales, therefore indirectly stimulating innovation in battery manufacturing processes and performance.

Although the power sector now offers increasing opportunities for the use of batteries to support intra-day changes in demand and to help the integration of variable renewables, the current focus of battery manufacturing capacity for the energy sector is on electric cars. At present there is capacity to produce around 320 GWh of batteries globally each year. China is the world leader, accounting for around 70% of global capacity, followed by the United States (13%), Korea (7%), Europe (4%) and Japan (3%). In China, the outbreak of Covid-19 has affected battery production hubs in Hubei, Hunan and Guangdong; manufacturing has only resumed gradually.

If existing announced targets for electric vehicle production by car manufacturers were to be met, around 1 000 GWh of battery manufacturing capacity would be needed by 2025 to supply electric cars alone. Announced targets by a number of leading battery manufacturers would provide around 2 100 GWh annual battery manufacturing capacity in 2030, but additional battery manufacturing capacity is nevertheless likely to be required to supply the growing demands of the power sector. Deployment of utility-scale battery storage systems is rapidly expanding, with an increasing number of auction schemes awarding long-term contracts for battery storage.

Public support for battery manufacturing would be bolstered if it were to be co-ordinated with plans for transport and power sectors to ensure a business case for batteries and to share lessons from experience in the manufacturing, use, recycling and repurposing of batteries. Specific support measures for battery manufacturing might include:

  • Support the expansion of battery manufacturing capacity and infrastructure for the collection, recycling and repurposing of batteries at the end of their lives through low-interest loans and blended finance.
  • Provide targeted support for battery demand to build industry confidence, for example by incentivising the roll-out of electric vehicles in the transport sector.
  • Provide RD&D funding for sustainable battery technologies, advances in battery chemistry and control systems to improve energy and power density as well as lifespan.

Batteries are set to play a crucial role in a wide range of sectors, with major implications for economic performance as well as for clean energy transitions. The development of local battery manufacturing capacity could also boost jobs in electric vehicle manufacturing and in the provision of support to energy storage systems. 

Small modular nuclear reactors

Difficulties in financing the construction of large-scale nuclear reactors are driving interest in small modular nuclear reactors (SMRs). SMRs are generally defined as nuclear reactors with an electrical capacity of less than 300 MW per module, which are built in a factory and then transported to the generation site. Several different types of SMRs are under development: light water-cooled SMR designs have achieved the highest technology and licensing readiness levels with several concepts under construction or advanced in the licensing process. The development of liquid metal-cooled SMRs, molten salt-cooled and gas-cooled SMR designs are less advanced. SMR designs are under development in countries such as Canada, China, Russia and the United States, although none has yet reached commercial maturity.

SMRs offer the possibility of providing low-carbon nuclear power with lower initial capital investment and better scalability than traditional larger reactors, and with the ability to use sites that would be unable to accommodate traditional large reactors. Construction lead-times are also expected to be much shorter as a result of factory manufacturing and the use of advanced modular construction techniques.

SMRs could help provide flexibility in countries with large electricity grids, or be used in countries or regions with small electricity grids that would not be appropriate for large baseload nuclear power plants. Given their lower expected costs, they may also be attractive to countries with no experience with nuclear power, especially those with small and less robust electricity grids. In some cases, notably where there are grid stability and reliability concerns, SMRs may be the only technically feasible nuclear technology option available. 

Support for SMRs would need to take due account of the general principles of low-carbon electricity market design with innovation policy support to facilitate early deployment. Examples of specific policy measures that could be employed include:

  • Provide investment support for pilot projects such as capital grants, loan guarantees and tailor-made long-term contracts.
  • Foster cost-sharing agreements for international collaboration, shared RD&D programmes, and national and international licensing frameworks.
  • Support regulatory authorities to accelerate the resolution of concerns on the validation of innovative safety features and factory assembly. 

SMRs have the potential to provide an alternative pathway for the development of nuclear power, and could provide a large number of jobs in design, manufacturing, supply and construction activities. However, the prospects for SMRs will depend to a large extent on the successful deployment of prototypes and first-of-a-kind plants (NEA and OECD, 2016). An important goal is to establish standardised designs which would allow the development of value chains and accelerate economies of scale, learning and cost reductions.

Carbon capture, utilisation and storage

Carbon capture, utilisation and storage technologies have an important role to play in the development of sustainable and resilient energy systems. They have the potential to support deep emissions cuts from existing power and industrial facilities and underpin energy transition pathways, for example by facilitating clean hydrogen production. Captured CO2 (from fossil or bioenergy sources) could be used as a feedstock for low-emission fuels, chemicals and building materials, while combining CO2 storage with bioenergy or direct air capture could provide the foundation for carbon removal or negative emissions.

The range of technologies and applications associated with CCUS presents significant and varied opportunities for innovation. Some CCUS elements are commercially mature: CO2 capture (via chemical absorption and physical separation) has been applied in industry for decades while the practice of injecting CO2 for enhanced oil recovery (CO2-EOR) dates back to the 1970s. Other CCUS applications, including cement and steel production, are at an earlier stage of development, as are technologies to convert CO2 into products such as chemicals and fuels. These less advanced applications will benefit from continued innovation and scaled demonstration to reduce costs and refine technologies.

There are 21 facilities today that capture CO2 in large volumes (between 0.6-8 Mt CO2 per facility per year); these either store the CO2 in dedicated geological formations or use the CO2 for EOR. Most of these facilities take CO2 from relatively high purity CO2 sources, such as natural gas processing or hydrogen production. There are two large-scale facilities that capture CO2 from coal-fired power generation and one that applies CCUS in steel production.

Recent interest in CCUS has been concentrated in the United States and Europe, where around 25 projects are in various stages of development. Plans for new facilities have been announced in the Middle East and Australia. As with other clean energy investments, these plans are subject to increased uncertainty and potential delays as a result of the Covid-19 related economic downturn. Almost all will rely on some form of policy support or incentive to move ahead, including access to the expanded “45Q” tax credits in the United States (which provide $50 /tCO2 for dedicated storage or $35 /tCO2 for EOR) and to programmes such as the European Innovation Fund. 

Support for CCUS following the 2008 global financial crisis was behind the successful commissioning of several projects in operation today. This includes the world’s first application of CCUS to bioethanol production at the Illinois Industrial CCUS project, the Petra Nova coal-fired power plant in Texas, the Quest facility capturing CO2 from hydrogen production in Canada, and the Alberta Carbon Trunk Line, which began operations in June 2020. 

CCUS facilities are typically large infrastructure investments with multi-year planning and construction schedules. Lower cost and less complex industrial CCUS applications, including retrofits of existing facilities, allow for faster deployment, alongside investment in shared CO2 transport and storage infrastructure.

Examples of policy measures to support CCUS deployment and innovation include:

  • Invest in shared CO2 transport and storage infrastructure, for example through public-private partnerships or a regulated asset base model, to reduce early integration risks for CCUS facilities.
  • Target capital and operational support in the form of grants, tax credits, feed-in-tariffs or contracts-for-difference for early commercial deployment. These measures could be complemented by carbon pricing or emissions standards.
  • Boost public procurement of low-carbon products, including building materials, chemicals or fuel, to provide a market signal for CCUS investment (including CO2 use). Such measures would need to be underpinned by rigorous lifecycle analysis and accounting to verify emissions reductions.
  • Support RD&D to reduce the cost of capture technologies and to scale-up demonstration of key applications, including steel and cement production with CCUS.

CCUS infrastructure is capital intensive with job creation concentrated in the construction phase. For example, the CCUS retrofit of the Boundary Dam coal plant in Canada involved 1 700 workers during construction (Townsend, Raji and Zapantis, 2020), while the planned Norwegian Full-Chain industrial CCS project will create around 4 000 jobs during development and construction, and around 170 O&M jobs (Northern Lights PCI, 2020).

CCUS investment would support job retention in key sectors and regions, including at existing industrial or power facilities, as well as job creation associated with equipment and technology production. Many of the job opportunities in CCUS will rely on the subsurface skills and experience currently available in the oil and gas sector. These include near-term employment needs associated with CO2 storage exploration, as well the more intensive phase of characterisation and development of new storage facilities.

CCUS offers a potential economic opportunity for oil- and gas-producing nations to play a leading role in the technology’s development and deployment. Using CO2 for EOR can boost oil production from existing assets as well as reduce overall emission intensity and avoid the need for new production infrastructure. Depleted oil and gas reservoirs also provide one of the lowest cost CO2 storage options, which could be a valuable resource in a future where hundreds of millions of tonnes of CO2 will need to be stored. The availability of low-cost natural gas and CO2 storage could also provide a comparative advantage in the production of clean hydrogen.