Energy Intensity in Europe, the US and Japan

In the previous posting we analyzed the development of energy intensity at a European scale. The findings were twofold: on the one hand, we saw a clear tendency to lowering the amount of energy per unit of GDP. This means that energy is used in a more efficient way. On the other hand, there are still remarkable differences between the EU member states. The gap between, say, Spain and Denmark which amounted to 63.72 kgoe/1000 EUR in 1995 has actually widened over the years and was at 79.44 in 2009. Thus, Denmark has clearly done better than Spain during that period. This, in turn means, that there is substantial room for improvement on the Spanish side.

Arguably one might say, that Spain and Denmark are not at the same level in terms of productivity, and that is certainly a valid point. However, from the Spanish point of view it is strongly desirable to become more competitive and thus increase its productivity.

In this post we want to have a closer look at the energy intensity of the three main economies in the world having comparable levels of productivity: the EU, the US and Japan. The raw data for the following analysis have been taken from Eurostat. As usual, the quantity in question is measured in kgoe/1000 EUR of GDP.

Fig. 1 Energy intensity in the EU, US and Japan, kgoe/1000 EUR

First, we observe a decline of energy intensity in all three economies. However, this decline is much more pronounced in the EU and the US than in Japan. During the period in question the US saw its intensity figure falling by 25.6%, while Europe faced a decline of 20.9%. Japan, on the other hand, came down by a mere 11.8%. Why is that so? It seems that Japan has already reached a saturation level when it comes to using energy in the most efficient way. The US and Europe have considerably improved their output figures, delivering a higher GDP per unit of energy used.

Nevertheless, there is still a huge gap between the two “Western” economies and Japan. Clearly, the gap is narrowing. In 1995, it was some 104.9 kgoe/1000 EUR between the EU and Japan, while the respective difference between the US and Japan was 134.6. In 2009, this has come down to 73.5 (EU-Japan) and 85.7 (US-Japan), respectively. Thus, the United States are still using almost twice as much energy per unit of GDP as Japan.

Improving productivity and introducing energy saving measures are the key parameters if we want to perform equally well as Japan. Clearly, Japanese economy has set the baseline which we should try to achieve. It is possible to bring energy intensity down to less than 100 kgoe/1000 EUR. However, this may take several decades given the current level of progress.

Energy Intensity

Common opinion holds that if economic activity is increasing the consumption of energy will follow suit. At first glance this seems a convincing argument: producing 10 cars uses 5 times more energy than producing 2 cars. However, reality is not quite that simple.

First of all, there are scale effects coming into play. You do not switch on the whole production chain for each car individually, but rather try to produce the whole lot “in one go” which means that the entire production process will become more efficient which, in turn, helps saving energy. This essentially means that the scaling factor in the above example is no longer 5 but less than that.

Apart from making economic processes more efficient there are other factors which determine the level of energy intensity. Introducing energy saving measures, using machinery with a lower energy consumption, changing consumption patterns and other issues may lead to a lower energy intensity. So what is energy intensity? It is defined as the inland consumption of energy (coal, oil, gas, electricity and renewables) per unit of GDP within a certain period, usually one year.

As energy is an important cost factor it is desireable to minimize its use per economic output. This is true not only at the level of entreprises or businesses, but also for the economy as a whole. If we manage to produce more with the same (or even less) energy we may in the long run reduce our import dependency. However, so far the successful lowering of the energy intensity at European level has not yet led to a significant reduction of energy imports from third countries.

In Fig. 1 we see the energy intensity in kg of oil equivalent (kgoe) per 1000 EUR of GDP for EU-27, EU-15, Germany, France, Italy, UK and Spain from 1990 to 2009. Note that there are no data available for 1990 for EU-27. EU-15 and Germany (year of unification between East and West Germany). All data are taken from Eurostat.

Fig. 1 Energy intensity in kgoe/1000 EUR of GDP

One striking observation is that all countries of our selection as well as the EU as a whole have managed to reduce their energy intensity considerably since 1995. At EU-27 level the respective level has gone down by almost 21 %. Germany could reduce its energy intensity by almost 18 %, whereas UK managed to cut it by more than 30 %. On the other hand, the figures for the southern countries Italy and Spain are less impressive with 6.8% and 6.1%, respectively.

Another remarkable feature of our data sample is that intensity lines for individual countries generally do not cross. The line representing France is always above the one representing Italy. At first glance, this may imply some “intrinsic factors” like climate conditions, differences in economic profile (agriculture, heavy industry etc.) which may explain a certain “unbridgeable” gab between countries. However, as our figure clearly indicates, it is indeed possible that country lines cross each other. UK, starting out at an energy intensity well above Italy in 1995, has succeeded to fall consistently below the Italian level. Moreover, this is not a short term fluctuation, but rather can be safely considered a consistent trend. This, in turn, indicates that energy saving measures may have a significant impact on the efficiency of energy usage.

The decoupling of economic performance and energy consumption can be seen in the following two figures referring to Germany and Denmark, respectiveley. In order to facilitate the visibility of the effect we had to adjust the figures somewhat as will be explained immediately. Fig. 2 shows the case of Germany during the period 2001-2009.

Fig. 2 Germany´s inland consumption vs. GDP

The figures for the GDP are given in G€, whereas – for better visibility – inland consumption has been scaled as Mtoe*5. This puts the two curves close to each other and clearly indicates the respective trends.

Fig. 3 shows a similar pattern for Denmark. Here again, the GDP is plotted in G€, and inland consumption is put on a scale of Mtoe*10.

Fig. 3 Inland consumption and GDP in Denmark

Both, Fig. 2 and Fig. 3 show the impact of the economic crisis starting in 2008 on economic output and inland consumption. Nevertheless, during the years before the financial crisis it is obvious that an increase in GDP comes together with a decreasing energy consumption.

One question to be asked is whether there is a lower limit to the energy intensity which cannot be undercut. One is inclined to think that a country´s level of energy intensity may be largely determined by factors such as climatic conditions, the level of industrialization etc. However, it is possible that northern countries may “beat” the southern ones, as the case of UK and Italy indicates. Moreover, there are substantial differences even between countries situated a similar latitudes like Italy and Spain. This, in turn, may indicate that there is still a considerable potential for improvement in the case of Spain.

Summing up, we can conclude that it is possible for developed economies to have a growing GDP while at the same time keeping energy consumption stable or even lowering it.

Using Solar Energy in Sweden

In general, we tend to believe that Nordic countries are unsuitable when it comes to using solar panels. And indeed, at first glance this may seem like an odd idea: winters are long, dark and snowy making solar installations practically useless. Thus, whenever energy is needed most the solar pathway is blocked. However, the other side of the medal may becomes apparent during summer when the sun is shining much longer hours than in southern Europe.

The first question to be asked is, of course, how much sunshine is available in Sweden? The answer depends very much on where you are as can be seen from the picture below

Fig. 1 Average sunshine hours in Sweden (Source: SMHI)

From this we conclude that the South generally receives more sunshine than the North. Furthermore, we see that a big part of the country gets on average more than 1600 hours of sunshine per year. As a reference we may compare this to one of the sunnier parts of Germany, the south-western federal state of Baden-Württemberg which has an average of about 1600 hours.

However, it is not only the number of hours that counts, but more importantly, we have to look at the amount of irradiation coming from the sun onto a particular spot of the Earth´s surface. Here the data are as follows: a substantial part of Sweden (once again, predominantly in the southern areas up to about the latitude of Stockholm) gets more than 925 kWh/sqm of global irradiation. The respective values for Baden-Württemberg are some 1100 kWh/sqm. Thus the better part of Sweden receives only about 15% less irradiation than the south-west of Germany.

We may therefore safely conclude that the situation for using solar energy in Sweden is far from hopeless. On the contrary, it appears that there is some potential for using it, all the more since solar panels have been improved significantly over the past years.

Let us examine the issue by picking a particular location. The city of Linköping is located some 200 km south-west of Stockholm. There, solar irradiation is about 950 kWh/sqm per year. Using solar modules with an efficiency of 10% , facing south at an angle of 45 degrees would safely provide us with an annual output of 95 kWh/sqm. Thus, a panel surface of  at least 10 sqm should yield an output of roughly 1000 kWh, which is considered to be the threshold where solar panels become economically viable. Using a module of that size would correspond to estimated savings of about 1400 SEK (150 EUR) per year (at current electricity prizes). Taking this savings potential into account we conclude that the installation costs of the solar module of about 20000 SEK (2200 EUR) may well be amortized after a bit more than 14 years.

Needless to say, that this amortization period would be shortend in case of increasing electricity prices and/or shrinking costs for installing the PV modules. Both these assumptions are quite realistic since energy costs, on the one hand, are very likely to rise (especially over the next years due to e.g. carbon taxes) whereas module costs, on the other hand, are expected to go down. In this context it may be worthwhile noting that module prices in Germany have slumped some 25% since January 2011.

Germany´s Energy Future

Germany´s decision to quit electricity production from nuclear power plants by 2022 raises a number of challenging questions. How big is eventually the task to replace all existing nuclear capacities by renewables and/or conventional power plants? Which alternatives are available and what is their potential? What concequences might be expected by consumers?

In 2009 Germany´s 17 nuclear plants had a total capacity of 20.5 GW, contributing some 26.1% to electricity generation. In that year the country produced in some 592.5 TWh (a significant drop when compared to the 637.2 TWh in 2008, data from Eurostat). From these 154.6 TWh were covered by Germany´s nuclear capacities. This is the order of magnitude which needs to be replaced by other sources and/or imports if Germany wants to keep its current level of economic performance.

The country´s current electricity mix looks as follows:

Fig. 1 Germany´s energy mix in 2009

The are some potential substitutes for nuclear energy. First one could think of extending the coal-fired plant capacities. This, however, meets one serious obstacle, since Germany has committed itself to reducing CO2 emissions within the next decades. Thus comissioning new conventional plants based on hard coal or lignite could significantly jeopardize the ambitious goals set by the government. One might also think of additional capacities in terms of gas turbines. Gas is, on the one hand, a cleaner energy source than coal. On the other hand, Germany is already largely dependent on gas imports. And therefore it is questionable whether the phasing out of nuclear energy should be met with a stronger import dependency on gas.

During the past two decades Germany has significantly enlarged its renewable energy capacities. The most recent figures indicate that almost 16% or 94 TWh of the total electricity mix originate from renewable sources. Let us look at these sources in more detail and examine their future potential.

One natural candidate for replacing nuclear facilities would be hydroelectricity. Indeed, some countries like Norway, Sweden and Austria cover a substantial part of their electricity from water-based power plants. Germany has some capacity in that field, producing about 20 TWh annually which corresponds to a bit more than 3% of the total output. The potential for building new dams, however, appears quite limited given the geography of the country on the one hand and environmental concerns on the other. Thus hydroelectricity is not the first choice when it comes to searching for new production capactities. According to the Bundesverband Erneuerbare Energien (BEE), however, there seems to be some potential to extend the use of hydroelectricity. Their projections aim at a more than 50 % increase in hydroelectrical production by 2020 which then would amount to 32 TWh.

Another largely neglected resource is the use of geothermal energy. So far there are very few installations of that kind in Germany contributing less than 1 TWh to the total electricity mix. Of course, it would be desirable to use more of that in the future. However, the usefulness of geothermal plants largely depends on the location. Thus, there appear to be limits to its growthe potential. Nevertheless, BEE estimates a total geothermal output of 4 TWh in 2020. This scenario is certainly more optimistic than the one we applied.

Wind and solar energy saw a tremendous increase in the past decade, and we will instantly analyse their potential as suitable substitutes for the existing nuclear plants. Although wind power output almost quadrupled since 2000, it came down by almost 5 % in 2009 due to unfavourable wind conditions. The total production in 2009 was 38.6 TWh. However, wind mill capactiy is expected to grow over the next years. We could therefore expect a further substantial increase in  electricity stemming from wind mills. According to our model calculations we anticipate an output of some 113 TWh in 2022. Note that our estimate is considerably more conservative than the forecasts by the producers (Bundesverband Windenergie), according to which 149 TWh of wind energy could be reached already by 2020. Note furthermore that this projected output would roughly correspond to the electricity produced by nuclear facilities in 2009.

As regards solar energy, its contribution to the energy mix is less significant than the one from wind power. Nevertheless, in 2009 some 6.6 TWh could be fed into the grid. Using once again our model calculations, we expect some 37 TWh of solar electricity in 2022. This is roughly in line with the expectations of the Bundesverband Erneuerbare Energien (BEE) which forecasts a production level of 40 TWh in 2020.

Thus both wind and solar energy producers together should be able to face the challenge of compensating the loss of nuclear energy at the time of phasing out nuclear installations in Germany. However, the picture on renewables is still not complete. One additional source to be taken into account is electricity generation from biomass which has strongly increased over the past two decades. Its output in 2009 was 25.5 TWh and, applying our model of expected growth rates, we would expect production figures to arrive at about 88 TWh in 2022. In this case, our scenario is more optimistic than the one from BEE which expects 54 TWh coming from biomass burning in 2020.

Summing up, here are two different scenarios for the contribution of renewables to Germany´s energy mix in 2022 (the forecast by BEE refers to 2020). All figures are given in TWh.

Table 1 Renewables in Germany in 2020 (BEE) and 2022 (VMIS), TWh

Given these independent model calculations it appears likely that Germany may reach its ambitious goal of phasing out all nuclear power plants by 2022. Our considerations refer only to technical feasibility and projected growth rates which make it plausible that the entire output from nuclear may be compensated by renewables only.

However, decomissioning existing capacities and simultaneously building up new production facilities comes at a price for the consumer. So far nuclear electricity has been considerably cheaper than electricity from renewables. On the other hand, given their huge potential and their fast pace of growth, renewables might become economically comptetitive in the not too distant future. We will look into that matter in more detail in one of our subsequent articles.

Europe´s Energy Production and Consumption

Europe´s energy production is declining. Taking the year 1990 as a baseline, total energy production was down by more than 13 % in 2009. Although the years 1995 and 2000 show a slightly higher output compared to the baseline scanario, the overall trend is pretty obvious. In absolute figures, the loss amounts to some 125.6 Mtoe. The source data for the following figures have been taken from Eurostat.

Fig. 1: Total EU Energy Production 1990-2009, Mtoe

However, this observation based on the entirety of all primary energy sources deserves a closer inspection. Let us therefore have a look at the various sectors of energy production. These are as follows: solid fuels, oil, gas, nuclear, renewables and others. Examining these sectors in more detail reveals some important facts.

The first striking observation is that the production of solid fuels went down by more then 50 % during the period in question (1990-2009). Simultaneously, the production from renewables more than doubled. Nevertheless, the increase of the the latter (76 Mtoe) is by far insufficient in order to compensate for the decline in solid fuel production (201 Mtoe). Compared to those two factors the variation of the other components such as gas, nuclear etc. has been of minor importance.

Fig. 2: EU Energy Production by Sector, 1990-2009, Mtoe

At the same time, Europe´s energy hunger is increasing as can be seen from the figure below. Yet, this is not the only remarkable piece of evidence. Whereas production output is ranging slightly over 800 Mtoe in 2009, the consumption figures are about twice as high. This creates a significant import dependency which gets even more pronounced as the data clearly indicate that indigenous production is decreasing while simultaneously consumption is growing (with the exception of 2009 due to obvious economic problems).

Fig. 3: EU Gross Inland Consumption, 1990-2009, Mtoe

It is worthwhile to combine the data for production and consumption in one figure. This clarifies the dimension of the gap between these two basic parameters. This gap needs to be filled with imports from third countries. The slump in consumption in 2008/2009 is caused by the financial crisis which severely affected the European economy. Once the economic activity recovers, an increase to pre-crisis levels may be anticipated.

Fig. 4: Gap between EU Energy Production and Consumption 1990-2009, Mtoe

As a matter of fact, Europe is highly dependent on energy imports. This is not the place to discuss the strategic, political and economic consequences of that clearcut observation. Moreover, it remains to be seen to what extent this apparent import dependency may be compensated by the increasing use of renewable energies. At first glance, it appears that the huge gap may never be filled completely by renewables. So the question is to what extent they may contribute to diminishing Europe´s import dependency on primary energy sources.

What is energy?

The term energy is so fundamental, but at the same time so frequently used that we hardly ever think about its deeper meaning.

Strictly speaking the word has is origin in physics where it comes in various forms, e.g. as kinetic energy, i.e. the energy connected to a body in motion. Here we have the link to our everyday  notion of energy as the driving force of cars, machines etc. That said we tend to think of energy in terms of petroleum, gas, kilowatthours and the like. And indeed all of this makes vehicles move, drives all kinds of machinery and keeps our economy running.

Thus energy is the engine of life. Simultaneously, this engine is fed with various types of fuel. The mixture of these fuels is constantly changing depending on what source of supply we choose or is available.

Energy is a commodity traded in different forms, e.g. as crude oil, natural gas, coal etc. As a consumer we hardly ever think about the primary sources of energy. Instead we are used to getting it in a form which is adapted to our needs, like gasoline, electricity. That is what we pay for. However, the story starts with the primary sources, and it´s there where things may get troublesome. Securing the energy supply must start at the primary level, and these primordial sources constitute the strategic pillars of the entire energy business.