“Making Energy Efficiency Work for Energy Suppliers”

International Cooperation on Energy Efficiency:Working together for a Low-Carbon Economy

Geneva, UN Palais des Nations, May 28, 2008

Carlo LuzzattoAnsaldo EnergiaDirector Service, Marketing and Business Development

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Introduction (I)

� The Economic dimensionEconomic dimension – primarily from an enterprise management perspective

� The Environmental dimensionEnvironmental dimension – specifically arising from the energy needs and consumptions

Two dimensions will be considered in this contribution:

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May a balanced relationship between these two dimensions be found, where all human beings can flourish and develop their potential, in a planet where the effects of human activities don’t

exceed certain limits, in order to preserve the system’s diversity & complexity which allows the

“ecological life”?

The “big” question is:

Introduction (II)

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The Economic dimensionEconomic dimension

(primarily from an enterprise management perspective)

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Adding Value to Products & Services

Yesterday’s answer:

In the interest of whom?

Of the shareholders

Today’s answer: Of the stakeholders(i.e.: customers, local communities, suppliers, shareholders, employees,

unions, …)

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Profitability vs. Sustainability

Product Driven Service Driven

Inno

vativ

eC

onso

lidat

ed

� Low differentiation� Highly competitive

environment� Cyclical market� Capital-intensive� Cost-driven pricing

Low profitability

Low sustainability

� Low differentiation� Long Term Customer

Relationships� Non-cyclical market � Non capital-intensive� Mix of cost&value-driven pricing

Medium profitability

Medium sustainability

Medium profitability

Medium sustainability

High profitability

High sustainability

� High differentiation� Shrinking competition� Cyclical market� Capital-intensive� Mix of cost&value-driven

pricing

� High differentiation� Long Term Customer

Relationships� Non-cyclical market � Non capital-intensive� Value-driven pricing

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From Red Seas to Blue Oceans

Product Driven Service Driven

Inno

vativ

eC

onso

lidat

ed

From R

ED SEAS……

.to…

…..B

LUE OCEANS

Product DrivenProduct Driven Service Driven

Inno

vativ

eC

onso

lidat

ed

From R

ED SEAS……

.to…

…..B

LUE OCEANS

Service-driven enterprises, heavily investing in R&D and with strong product and process development capabilities, are more likely to maximize stakeholders value, i.e.:

� Higher financial returns

� Long term sustainable growth

� More adaptive to new laws & regulations

� More aware and respectful of local & diverse environments

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The Supply Side view…..

Key Processes:� Design for maintainability

� Total life cycle management

� Product life extension

� Supply Chain redesign

� Environmental, Health & Safety procedures

Achieving sustainability goals …….while pursuing economic goals

Key Products & Services (examples) :

� Low NOx gas turbine burners

� Low BTU gas combustors (e.g.: syngas from industrial processes)

� Blades and vanes refurbishment

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The Environmental dimensionEnvironmental dimension

(specifically arising from the energy needs and consumptions)

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CO2 “inertial” scenario is catastrophic

Annual GDP growth expressed as an average of 2004-2008 data (source: IMF)11

China

10.1%

Thailand5.0%

Taiwan4.6%

Kazakhstan9.4%Iran

4.9%

Ireland4.9%

Qatar11.1%

UAE8.7%

“Power Rocketing” CountriesEconomic Growth

Venezuela9.4%

Pakistan6.9%

Romania6.3%

Nigeria6.7%

Peru6.2%

Ukraine6.3%

Kuwait6.8%Libya

6.6%

Slovakia7.1%

Vietnam8.1%

Banglad.6.5%

(Base Year 2006 – B$)

GDP ≥ 800Annual Growth Rate*

50 ≤ GDP < 200Annual Growth Rate*

200 ≤ GDP < 800 Annual Growth Rate*

Malaysia5.9%

Philippines5.6%

Chile5.2%

Colombia5.4%

Czech Rep.6.1%

Israel4.8%

Morocco4.6%

Egypt5.7%

Algeria4.4%

Turkey6.6%

Poland5.1%

South Africa4.8%

Argentina7.9%

KSA5.0%

S. Korea

4.6%

India

8.5%

Brazil

4.2%

Russia

6.5%

Indonesia5.7%

Annual Growth Rate*cutoff > 4%

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Energy Consumption reflects GDP’s

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

1971 1980 1990 2000 2010 2020 2030

Mtoe

Middle EastAfricaOceania

200410.2 billion toe

↓

203015.9 billion toe(1.6-fold increase)

World

Asia2004

3.1 billion toe↓

20306.2 billion toe

(2.0-fold increase)

Asia

N.America

OECD Europe

Non-OECD EuropeL.America

* Average annual growth rate

3.9 %4.2 %GDP (Asia)

3.1 %3.1 %GDP (World)

2.8 %4.7 %Asia

1.0 %1.2 %N.America

1.7 %2.2 %World

’04-‘30’71-‘04

AAGR*

3.9 %4.2 %GDP (Asia)

3.1 %3.1 %GDP (World)

2.8 %4.7 %Asia

1.0 %1.2 %N.America

1.7 %2.2 %World

’04-‘30’71-‘04

AAGR*

World primary energy consumption to 2030 by region

Source: EIA Energy Outlook 2006

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The dimension of the challenge is unprecedented

Technological innovation, industry competitiveness and sustainable development should walk hand in hand in the next decades to come. As long as everyone realizes that time is the scarcest resource we have on the planet, rather than oil or natural gas.

When it comes to the environmental concerns, decoupling emissions from economic growth is a long term goal, which even the more optimistic scenarios cannot predict to happen before 2050.

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By that time, the world demand for energy will be double than today, but even more importantly the mix of power generation technologies and their impact on the environment will have to be dramatically changed in order to preserve a living earth.

What measures & policies are needed on the supply side?

The dimension of the challenge is unprecedented

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A case study: Italy

Improving Energy Efficiency

With Best Available Technologies, tosignificantly reduce CO2 emissions

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Combined Cycles GASCombined Cycles OIL

Open Cycles GASOpen Cycles OIL

Steam COAL (from solid fuel)

Steam GASSteam OIL Opearting Hours

5893

Operating Hours1000

Operating Hours7640

Operating Hours1500

Total Efficiency(on generation)

48%

Technological Mix 56.3 GW – 250 TWh

(Power Plants operational as of end 2006)

ST Efficiency35%

**

CC Efficiency56%

25.2 GW

4.2 GW

26.8 GW

OC Efficiency35%

CO2 Emissions139 MTon

44%

4%7%1%14%

9%

21%

The 2006 Scenario

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• Thermal cycle upgrade to USC• Major efficiency improvement (e.g.,

low pressure section modification)

• Coal Fueled• 6 generation units• Large Utilities

• Repowering of the plants intoCombined Cycles

• Oil&Gas Fueled• 5 generation units• Large Utilities

Steam Turbines

Steam Turbines

∆ Efficiency: ~1%

∆ Efficiency: ~8%

∆ Efficiency: up to 20%

Transitioning to 2011………

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Combined Cycles GASCombined Cycles OIL

Open Cycles GASOpen Cycles OIL

Steam COAL Steam GASSteam OIL

Operating Hours5000

Operating Hours300

Operating Hours5500

Operating Hours1000

Total Efficiency(on generation)

52%

Technological Mix 70.6 GW – 273.6 TWh

(Power Plants operational as of end 2011)

ST Efficiency36%

CC Efficiency58%

26 GW

4.5 GW

40.1 GW

OC Efficiency35%

CO2 Emissions136 MTon

55%

2%5%1%

14%

7%

16%

The “as determined” 2011 Scenario

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2006 2011

15%

61%

24%14%

67%

19%

Fuel Mix Change

Coal

GasOil

70.6 GW56.3 GW

Fuel Mix Change between 2006 and 2011

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Performance of the analysed fleet2006 2011

– Fleet Subset: 56.3 GW 70.6 GW– Energy generated: 250 TWh 273.6 TWh– Average efficiency: 48% 52%

(on generation)

– CO2 Emissions: 139 MTon 136 MTon– MTonCO2/TWh ratio: 0.56 0.50

Performance of the analysed fleet

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While the 2011 scenario depends completely on decisions already taken, and little can be done to improve its environmental

footprint, today is the time to make the strategic decisions that can lower the impact of the Italian thermal fleet on the country’s overall

GHG emissions and help reach the target

from 136 MTon CO2 to 100 MTon CO2 by 2020

Major interventions have to be deployed, and they will only in the case that appropriate new

REFURBISHMENTS - UPGRADES – SERVICESpolicies & regulations

are swiftly put in action!

Much more needed…….

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• Thermal cycle upgrade to USC• Major efficiency improvement (e.g.,

low pressure section modification)

• Coal Fueled• > 150 MW• 4 generation units• Large Utilities

• Repowering of the plants intoCombined Cycles

• Oil&Gas Fueled• > 150 MW• 20 generation units• Large Utilities

Steam Turbines

Steam Turbines

∆ Efficiency: ~1%

∆ Efficiency: ~8%

∆ Efficiency: up to 20%

7.4 GW

1.3 GW

All such technologies are 100% available today!

Broader application of BAT…..

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Technological Mix 72.8 GW – 296 TWh

(Scenario at 2017-2020, all proposed interventions ope rational)

Combined Cycles GAS

Combined Cycles OIL

Open Cycles GAS

Open Cycles OIL

Steam COAL Steam OIL

Operating Hours4371

Operating Hours262

Operating Hours4800

Operating Hours874

10 GW

4 GW

58.8 GW

ST Efficiency40%

CC Efficiency58%

OC Efficiency35%

Total Efficiency(on generation)

56%

CO2 Emissions123 MTon

76%

4%5%

1%10% 4%

The “improved” 2011 scenario

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Performance of the analysed fleet2006 2011 2017-2020

– Fleet Subset: 56.3 GW 70.6 GW 72.8 GW– Energy generated: 250 TWh 273.6 TWh 296 TWh– Average efficiency: 48% 52% 56%

(on generation)

– CO2 Emissions: 139 MTon 136 MTon 123 MTon– MTonCO2/TWh ratio: 0.56 0.50 0.42

Great Improvement….not enough though!

Improved Performance of the analysed fleet

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Multiple generation technologies (I)

• BAT Thermal Generation– Increased Efficiency

– Flexible Operations

– Multiple Fuels– Syngas

– Biomass

– Capture Ready– Waste-to-Energy

• Hydrogenerators & Geothermal

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Future ThermalGeneration

– CO2 Capture

– Gasification

Fuel Cells & Micro Turbines

DistributedGeneration

AdvancedNuclear

Multiple generation technologies (II)

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A wide spectrum of energy sources…….

� None of them can be excluded from the game….solution comes from a combination

� More funding has to be deployed for energy R&D

� In the short and medium term (2020 vision), funding has to be addressed to clean energy technologies….e.g. those who help reaching the Kyoto and the new EU targets (i.e.: the “20-20-20” target)

� In the medium to long term (2050 vision), a new generation of technologies (implying major breakthrough’s) need to be commercially viable, in order to head to a complete decarbonization (e.g. hydrogen economy, fuel cells, zero-emission fossil fuel plants with 100% carbon sequestration, 4th generation nuclear from fission, nuclear fusion,…)

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Energy Policies have to help boosting….

� Renewable sources (e.g. wind, photovoltaic, biofuels from wastes)

� Cogeneration

� Distributed energy

� Energy Efficiency

� Clean fossil fuel technologies

While infrastructures need to support the cleaner and more efficient generation through:

� Smart grids (without which renewables and distributed cannot be fully exploited)

� Fuels transportation infrastructures (e.g.: pipelines, LNG, etc..)

� Waste treatment and disposal facilities

� Energy Efficiency

� Energy Storage Technologies

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Cogeneration (I)

losses 1563

Fuel

100

CHP

CHPheat

el.

Fuel

148

Separateproduction

35

50

Power Plant

Heat plant

92

56

57

heat

el.

6

losses 1563

Fuel

100

CHP

CHPheat

el.

Fuel

148

Separateproduction

35

50

Power Plant

Heat plant

92

56

57

heat

el.

6

Source: Vattenfall, 2007

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In Conclusion…..

� We are facing an unprecedented challenge, on a global scale

� Oversimplifications & slogans do not lead anywhere

� Energy-producing and energy-consuming countries have to embarque in a constant dialogue on energy options

� Best Available Technologies will have to make the biggest contribution to the CO2 reduction in the 2020 scenario

� Technology & Innovation will make the difference, especially in a clear political, economical and legal framework

� In such scenario, typical business’ metrics & goals do not conflict with environmental goals and targets, actually they get along hand in hand

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Words of Wisdom………..

The significant problems we have cannot be solved at the same level of thinking with which we created them.