Characteristics and quality of energy scenarios

Table of Contents

List of figures

List of abbreviations

1 Introduction

2 Scenarios
2.1 History
2.2 Scenario Development: A General Framework
2.2.1 Purpose
2.2.2 System Analysis
2.2.3 Modelling
2.2.4 Selecting
2.2.5 Communication
2.2.6 Application
2.3 Characteristics of Scenarios
2.3.1 Variations in Purpose
2.3.2 Variations in System Analysis
2.3.3 Variations in Modelling
2.3.4 Variations in Selecting
2.3.5 Variations in Communication
2.3.6 Variations in Application
2.3.7 Scenario typology
2.4 Energy Scenarios
2.4.1 DESERTEC
2.4.2 EU-Roadmap 2050
2.4.3 Greenpeace [R]evolution
2.4.4 World Energy Outlook 2011
2.4.5 Shell Energy Scenarios

3 Conclusion

References

List of figures

Figure 1: Peer-reviewed articles on scenarios

Figure 2: The general framework of the Scenario Development Process

Figure 3: System Thinking Iceberg Model

Figure 4: CLD representing the underlying structure of the price of renewable energy

Figure 5: Relationship of predetermines and interpretations in scenarios

Figure 6: The normative approach

Figure 7: The explorative approach

Figure 8: Inductive Scenario Building Approach

Figure 9: Deductive Scenario Building Approach

Figure 10: The Scenario Typology

Figure 11: Electricity generated in MENA and Europe

Figure 12: DESERTEC Typology

Figure 13: The EU-Roadmap 2050 typology

Figure 14: Development of Primary Energy Demand in Energy [R]evolution Scenario

Figure 15: The Energy [R]evolution typology

Figure 16: Changes in primary energy demand in New Policy Scenario

Figure 17: The World Energy Outlook typology

Figure 18: Primary energy by source in Scramble scenario

Figure 19: Primary energy by source in Blueprints scenario

Figure 20: The Shell Energy sceneario typology

List of abbreviations

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1 Introduction

At the moment our energy system is highly dependent on fossil sources, which amount for about 80% of the total primary energy demand with crude oil being the biggest part.^[1] This dependency leads to two major problems. Firstly, fossil energy is stored energy from the sun that took millions of years to be developed. Since the long time frames of development, fossil sources are called non-renewable. Since decades pessimists are predicting the end of oil supply, which was postponed in the past because of new discoveries and technological progress. Still crude oil is the scarcest fossil energy source, since the known reserves are enough to last for about 40 years with current depletion. However the current depletion is not enough to supply the increasing energy demand, which is rising by 6,7% p.a., leading to an increase of 50% until 2030. If there are no major changes in the total primary energy demand, it is unavoidable that a lower supply of crude oil will clash with higher demand. A switch to coal seems meaningful since it is the only fossil source that is still abundant. The problem of coal is that it is the dirtiest fossil source in regard to green house gases, which leads directly to the second problem: Climate change. Changes in the climate have occurred ever since in the past, but this time it is the first time that it is caused by residents of the world – human beings. Before the industrial revolution the concentration of carbon dioxide, the chief greenhouse gas that results from human activities and causes global warming amounted 280 ppm, which increased since then to the current amount of 390 ppm.^[2] This is the highest concentration of carbon dioxide in the atmosphere in the last 400.000 years of the earth’s history. The exact effects of the increased carbon dioxide concentrations on the climate are not known, but there is a scientific consensus that in order to prevent a devastating climate change the emissions have to be dramatically reduced. Since the energy sector is responsible for the bulk of greenhouse gas emissions a switch from oil to coal without technical progress to limit carbon dioxide is not meaningful.^[3]

The alternatives to fossil energy sources are on the one hand nuclear energy and on the other hand renewable energy sources. Nuclear energy amounts at the moment for about 5% of the total primary energy demand. The process of nuclear energy is fascinating, since the energy outcome of one kilogram of uranium equals the stored energy of about 3.000 tons of coal. With an increase of nuclear energy the problem of climate change can be reduced, since the process is carbon neutral. But because of the reason that uranium deposits are also scarce, as well as other problems as, as nuclear proliferation, incidents and the unsolved problem of waste disposal it is be doubted that it will be of great importance in the future.^[4]

Renewable energy sources on the other hand have been the major primary energy source before the era of the black gold. Today they amount for about 15% of the total primary energy demand, with biomass and hydro-power having with 10% and 5% the biggest shares. All the other renewable energy sources, as wind power, solar heat and photovoltaic, play a minor role since they don’t even cover 1% of the primary energy demand. Renewable energy sources could solve both major problems of the energy sector, since they are carbon neutral and by definition renewable. The drawbacks are that at the moment most renewable sources are not competitive and need to be subsidized by governments and the technical challenge of storing the produced energy.^[5]

It is easy to understand that the future of the energy sector is highly uncertain and that tools that are extrapolating past trends are of no use under these circumstances. In the last years several energy scenarios have been conducted, trying to display the major uncertainties. Not surprisingly the results are strongly varying, leading to question of the characteristics and the quality of scenarios. However there has been no analysis of the characteristics and quality of energy scenarios, which is being done in this bachelor thesis.

After a short introduction of the history of scenarios in chapter 2.1, a general framework of the scenario development process is developed in chapter 2.2 and its possible variations are listed in chapter 2.3. The result is a scenario typology consisting of 15 variables that can be used to examine the characteristics and the quality of scenarios. The scenario typology is then applied at a total of 5 scenarios at chapter 2.4. The sample of scenarios was chosen to display the broad range of different scenario developers. It consists of the DESERTEC scenario of a charitable trust, the EU-Roadmap 2050 of a political institution, the Greenpeace [R]evolution of an NGO, the World Energy Outlook of an intergovernmental institution and the Shell Energy scenarios of a company dealing in the energy sector.

2 Scenarios

The last half of the 20th century is characterized by remarkable economic and political cooperation caused by increased globalisation. The world population doubled and the world income quadrupled in 50 years. These large increases in the well being of more people are going hand in hand with more responsibilities, since environmental and resource constraints are becoming more obvious. For the first time the current generation needs to take into account the impact for several generations ahead. This background of complex environments, together with the recent developments of computing power and tools for simulation of large and complex systems are building the basis for the increased interest in scenarios, which are in general methods in the strategic planning process that are based on the development and analysis of possible developments in the future.^[6]

Figure 1 shows the increase of the peer-reviewed articles on scenarios since 1970.

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Figure 1: Peer-reviewed articles on scenarios

Source: Ramírez R../ Selsky, J./ Van der Heijden K. (2009): Causal Texture Theories of Turbulence & the Growth and Role of Scenario Practices, Working Paper, University of Oxford, Liverpool, P.6.

2.1 History

The history of scenarios starts in the 1960s in the field of social psychology and the development of the Casual Texture theory. The theory deals with systems that are trying to survive in a sustainable way in the outer environment. The system and the environment are connected with each other, leading to a process of co-evolution, in which the inner system and the outer environment systematically influence each other. If there are connections within the outer environment, that the inner system can’t influence the contextual environment becomes a source of instability. Under these turbulent circumstances scenarios are helpful for decision makers to understand how the contextual environment may shape in future. This theory influenced the scientific discourse of organisations trying to find strategies fitting to its uncertain business environment.^[7]

About the same time, the futurist Hermann Kahn and his colleagues at the RAND Corporation and the Hudson Institute introduced the term scenario planning in the field of social and business sciences.^{[8] [9]} His research was strongly influenced by the cold war, which led to publications of probable, possible and worst-case scenarios of the world, including nuclear war scenarios.^[10] Olaf Helmer, who was also employed at the RAND Corporation, focused his scientific work on methodical problems. Together with Norman Dalkey he developed the DELPHI-method, which is still one of the basic tools of futurism.^[11]

One of the best known publications of futurism is the book “Limits to Growth”, in which the authors analyzed the possible future trends of five variables, which are world population, industrialization, pollution, food production and resource depletion. The main conclusion of the book is that an extrapolation of current trends will lead to fast and unstoppable decline of the world population, food production and industrialization. The reasons for that doomsday are environmental destruction and depletion of natural resources.^[12] Although the book was heavily criticized, it is considered to be a pioneer in the field sustainable development and is therefore also of great influence in the energy sector.^{[13] [14]}

The work of futurists and social psychologists influenced the theory and practice of strategy design. Pierre Wack, the former executive of Royal Dutch Shell, is considered among the first to bring these methods and theories to business strategy. He developed multiple, but equally possible scenarios of the future business environment of the company. The use of scenarios led to a huge advantage at the beginning of the oil crises in 1973 and 1979, since Royal Dutch Shell had already worked out a suitable strategy in the case of a crisis scenario and was able to interpret signals for its unfolding correctly, leading to an outperformance of the rest of the oil industry.^[15] Since the success of Royal Dutch Shell, the use of scenario planning as a strategic planning tool is increasing, especially in organisations that are operating in instable business environments.^[16]

The use of scenarios in the field of public planning is still in its infancy, but becoming more important because of two effects. Firstly, the actions of traditional governance often end up with unintended side effects.^[17] An example in the field of energy policy can be found in Spain, where the feed-in legislation had the intension to increase the share and technological progress of renewable energy sources. The unexpected success of the policy led to serious decreases of coal-fired power generation. Since this clashed with the policy of the protection of coal-mining employment, the government intervened to protect this industry.^[18] Secondly, the importance of regional integration and globalisation is increasing. This means that many actions by one national government have an impact above their own boundaries, leading to more complex environments. Examples are environmental pollution, resource management and energy policy.^[19]

2.2 Scenario Development: A General Framework

A description of a general valid scenario development process is a challenging task, since scenario planning is considered to be a meta-method, in which different methods contribute to the content and the quality of the various aspects.^[20] This means that no single method of scenario analysis exists, nor can the same method be used in all cases. The structure for creating scenarios has to be flexible to fit to its various purposes.^[21]

However, given the observed diversity of scenarios, one can only analyze and compare scenarios in a credible and consistent manner when there is a shared understanding of the commonalties of the scenario development process.^[22] Figure 2 shows the general framework of the scenario development process, which will be described in detail in this chapter. Deviations from the general framework and variations within the framework will be presented in chapter 2.3. Both the general framework and the deviations and variations are essential for the analysis of different energy scenarios.

illustration not visible in this excerpt

Figure 2: The general framework of the Scenario Development Process

Source: Cf. Zürni, S. (2004): Möglichkeiten und Grenzen der Szenarioanalyse – Eine Analyse am Beispiel der Schweizer Energieplanung, Stuttgart and Berlin, P. 223.

2.2.1 Purpose

The starting point of every scenario development process is the definition of the purpose of the analysis. Furthermore the methods, the time frame and the system boundaries of the system under investigation have to be determined.^[23]

The purpose is of great importance since it influences all the other stages of the general framework, meaning that an unclear purpose will lead to poor results.^[24]

2.2.2 System Analysis

In this step the real existing system and its properties are examined. The most challenging part is to gain accurate data that effect the future development of the system. Not surprisingly, this step is exposed to large number of possible variations, depending on the defined purpose, as well as the availability and form of data. Nevertheless a general procedure can be described.^[25]

In order to identify and collect data, which is at least relevant for the defined purpose, the scenario developer has to choose between a broad variety of methods. The integration of experts via interviews or workshops is most commonly used. The gathered data is then divided into two classes. Firstly internal data, which has the characteristic, that the scenario user has an impact on the future development of it. Secondly external data, that can’t be influenced by the scenario user. In this stage the focus is on the external data, which is of the form that it is representing the external environment of the system. The next step is to evaluate what parts of the external environment are predictable and which are uncertain. Predetermines, where there are no different interpretations of what is happening and therefore not exposed to uncertainty are to be neglected in this stage, but included in the process later as described in chapter 2.2.5. In this stage, the attention is on external data that is uncertain, meaning that it is impossible to exactly describe the future outcome or even the existing state with certainty. Because of simplification it is usual that the uncertainties are reduced to those factors with the largest effect on the purpose.^[26]

2.2.3 Modelling

The aim of this step is to model the events, patterns, trends and of most importance the underlying structure of the system under investigation, which are illustrated in the “System Thinking Iceberg Model” in Figure 3. The upper part of the iceberg is the event level, which is visible and can be observed. It is the level that describes how human beings perceive and describe the world. An example in the field of energy is the availability of energy at any time on demand.

The second level of the iceberg model is the level of patterns and trends, which are changes in the events that occur over time. For an examination of patterns the relationships between various events have to be found and described. As shown in Figure 3 this level is under water, metaphorically meaning that it is challenging but possible to see the patterns and trends. An example of a trend in the field of energy is the increase in the oil price since the millennium change.

[...]

^[1] Cf. Quaschning V. (2010): Erneuerbare Energien und Klimaschutz – Hintergründe, Techniken, Anlagenplanung, Wirtschaftlichkeit, Munich, P. 26.

^[2] Cf. Forster, P., et al. (2007): Changes in Atmospheric Constituents and in Radiative Forcing. in: Solomon, S. et al. (eds.): Climate Change 2007: The Physical Science Basis. Contribution of Working Group I to the Fourth Assessment Report of the Intergovernmental Panel on Climate Change, Cambridge and New York, P. 129 -234, P.135.

^[3] Cf. McKibben, B . (2009): Our Energy Challenge – Essay by Bill McKibben, in National Geography, Vol.215, Issue 6, P. 1-96, P.24-27.

^[4] Cf. Quaschning V. (2010): Erneuerbare Energien und Klimaschutz – Hintergründe, Techniken, Anlagenplanung, Wirtschaftlichkeit, Munich, P. 21-36.

^[5] Cf. Quaschning V. (2010): Erneuerbare Energien und Klimaschutz – Hintergründe, Techniken, Anlagenplanung, Wirtschaftlichkeit, Munich, P. 14-35.

^[6] Cf. Ramírez R./Selsky, J. /Van der Heijden K. (2010a): Preface, in: Ramírez R. (Ed.)/Selsky, J. (Ed.)/Van der Heijden K. (Ed.): Business Planning for Turbulent Times: New Methods for Applying Scenarios, 2nd ed, London, P. XVI-XX, P.XVI-XVII.

^[7] Cf. Ramírez R./Selsky, J./Van der Heijden K. (2010b): Conceptual and Historical Overview, in: Ramírez R. (Ed.)/Selsky, J. (Ed.)/Van der Heijden K. (Ed.): Business Planning for Turbulent Times: New Methods for Applying Scenarios, 2nd ed, London, P.17-30, P.17-18.

^[8] Cf. Van der Heijden, K. (2010): Scenarios: The Art of Strategic Conversation, 2.ed., Chichester, P. 3.

^[9] Cf. Fink, A. (1999): Szenariogestützte Führung industrieller Produktionsunternehmen, Diss., Paderborn, P. 14-15.

^[10] Cf. Kahn H./Wiener A. (1967): The Year 2000 – A Framework for Speculation on the Next Thirty-Three Years, New York, P. 248-358.

^[11] Cf. Dalkey, N. (1963): An Experimental Application of the Delphi Method to the Use of Experts, in: Management Science, Vol. 9, Issue 4, P. 458-467, P. 460-467.

^[12] Cf. Meadows, D. et al. (1972): Die Grenzen des Wachstums – Bericht des Club of Rome zur Lage der Menschheit, Stuttgart, P. 110-113.

^[13] Cf. Rao, P. (2000): Sustainable development: Economics and Policy, Malden, P. 8.

^[14] Cf. Rogers, P./Jalal, K./Boyd, J. (2008): An Introduction to Sustainable Development, London, P. 20.

^[15] Cf. Van der Heijden, K. (2010): Scenarios: The Art of Strategic Conversation, 2.ed., Chichester, P. 3-10.

^[16] Cf. Fink, A. (1999): Szenariogestützte Führung industrieller Produktionsunternehmen, Diss., Paderborn, P. 16.

^[17] Cf. Arvidsson N. (2010): Designing More Effective Political Governance of Turbulent Fields: The Case of Health Care, in: Ramírez R. (Ed.)/Selsky, J. (Ed.)/Van der Heijden K. (Ed.): Business Planning for Turbulent Times: New Methods for Applying Scenarios, 2nd ed, London, P.131 -146, P.133-134.

^[18] Cf. BP (ed.) (2011): BP Statistical Review of World Energy June 2011, http://bp.com/statisticalreview, October 5th 2011.

^[19] Cf. Arvidsson N. (2010): Designing More Effective Political Governance of Turbulent Fields: The Case of Health Care, in: Ramírez R. (Ed.)/Selsky, J. (Ed.)/Van der Heijden K. (Ed.): Business Planning for Turbulent Times: New Methods for Applying Scenarios, 2nd ed, London, P.131 -146, P.133-134.

^[20] Cf. Fink, A. (1999): Szenariogestützte Führung industrieller Produktionsunternehmen, Diss., Paderborn, P. 96.

^[21] Cf. Masini, E/Vasques J. (2000): Scenarios as Seen from a Human and Social Perspective, in: Technological Forecasting and Social Change, Vol. 5, Issue 1, P. 49-66, P.66.

^[22] Cf. Van Notten, P. et al. (2003): An updated scenario typology, in Futures, Vol.35, Issue 5, P. 423-443, P.423.

^[23] Cf. Zürni, S. (2004): Möglichkeiten und Grenzen der Szenarioanalyse – Eine Analyse am Beispiel der Schweizer Energieplanung, Stuttgart and Berlin, P. 224.

^[24] Cf. Lindgren, M./Brandhold, H. (2009): Scenario Planning : The Link between Future and Strategy, rev. and updated ed., Basingstoke, P. 56.

^[25] Cf. Zürni, S. (2004): Möglichkeiten und Grenzen der Szenarioanalyse – Eine Analyse am Beispiel der Schweizer Energieplanung, Stuttgart and Berlin, P. 224.

^[26] Cf. Van der Heijden, K. (2010): Scenarios: The Art of Strategic Conversation, 2.ed., Chichester, P. 228-230.