Chapter 2.6 – Ports and Energy Transition

Authors: Dr. Theo Notteboom, Dr. Athanasios Pallis and Dr. Jean-Paul Rodrigue

[UNDER CONSTRUCTION]

Ports are strategically important locations in the collection, storage, transformation and distribution of energy. In recent years, many have undertook a transition toward alternative energy sources.

1. Energy Efficiency in Transportation

The world’s energy needs continue to grow, with a 30% rise in global energy demand expected by 2040. Still, higher energy efficiency and the growing use of less carbon-intensive energy sources worldwide should mitigate energy-related carbon emissions. The majority of the required energy has conventionally been derived from fossil fuels, but a shift is taking place with a growing share of renewable energy sources. Changing towards a greener energy mix is a key field of action in the transportation sector. Efficiency gains from more stringent energy performance standards play an important role in the evolution of energy demand.

The share of electricity in global final energy consumption is approaching 20% and is set to rise further. Electricity is increasingly used in economies focused on lighter industrial sectors, services, and digital technologies. In advanced economies, electricity demand growth is modest, but the investment requirement is massive as electrical generation and distribution infrastructures are upgraded. A common issue with electrification, which has a much lower environmental footprint, is how electricity is generated. The usage of fossil fuels to generate electricity upstream in energy supply chains undermines its environmental benefits downstream.

Renewable energy is expected to see the fastest growth, with natural gas expected to have the strongest growth among fossil fuels, with consumption rising by 50% by 2040. Coal use has seen strong growth in recent years, but consumption levels are expected to stabilize and decline, as is already the case in Europe and North America. Growth in oil demand is expected to peak by 2030, and a shift in the balance of energy consumption is taking place between developing and advanced economies. By the mid-2030s developing economies in Asia are expected to consume more oil than Europe and the United States.

International agreements concerning the environmental footprint of climate change have been implemented with mitigated outcomes. For instance, the objectives of the Paris Agreement on climate change, which entered into force in November 2016, are related to transformative changes that take place in the energy sector. Countries are generally on track to achieve, and even exceed, in some instances, many of the targets set in their Paris Agreement. While these efforts may be sufficient to slow the projected rise in global energy-related CO2 emissions, they may be insufficient to limit warming below an additional 2 °C. Therefore, five-year review mechanisms built into the Paris Agreement underline the importance of reviewing pledged commitments. This should include actions such as:

  • The acceleration of the deployment of renewables, nuclear power, and carbon capture and storage.
  • Greater electrification and efficiency across all end-uses.
  • Clean energy research and development efforts by governments and companies.

By 2040, about 60% of all new power generation capacity is expected to be derived from renewables, with the majority of renewables-based generation being competitive without relying on subsidies. Therefore, it is expected that by the 2030s, global subsidies for renewables will start declining. However, there is a risk that cost reductions for renewables could be insufficient to decarbonize electric power generation systems. Structural changes to the design and operation of the energy grid are needed to ensure adequate incentives for investment and to allow for a higher contribution of wind and solar power.

The rise of solar power and wind power gives unprecedented importance to the flexible operation of power systems in order to secure enough energy at all times. The cost of battery storage is declining fast, and batteries increasingly compete with gas-fired peaking plants to manage short-run fluctuations in supply and demand. However, conventional power plants remain the primary source of system flexibility, supported by new interconnections, storage, and demand-side response. The European Union aims to create an “Energy Union” to deal with imbalances in demand and supply between different member states, replicating the existing electric grid exchange systems in North America.

Despite expectations for greater use of renewables, fossil fuels such as natural gas and oil will continue to form the backbone of the global energy system for many decades to come. By 2040 oil demand is expected to drop to levels similar to the 1990s, while coal use will move to levels last seen in the mid-1980s. Only natural gas will see an increase relative to the current consumption level. Based on an increase in oil prices in the long term, the trend for exploring fossil energy sources will continue to offshore locations, including deeper waters and harsher environments. More complex energy sources, such as tar sands or methane hydrates, are also being exploited. Energy production on offshore wind farms will significantly increase, and other water-based energy production devices using wave and tidal current energy will have a broader market. These developments will lead to a massive increase in renewable energy, particularly in Europe. They will also result in a significant increase in the production and transport of cleaner fuels such as LNG, shale gas, and hydrogen.

2. Ports as Energy Platforms

At the global level, about 40% of all the cargo handled by ports is energy-related. Energy products are massive and are carried in bulk. Conventionally, ports played a strategic role as energy platforms, particularly for fossil fuels. The coal trade and the transformation of shipping with the steam engine. The switch to petroleum. The setting of petrochemical complexes.

The importance of ports as energy platforms relies on three interrelated functions:

  • Ports can be energy transport platforms, acting as gateways for the exports or imports of energy products, including their temporary storage. This relies on the principle of economies of scale that ports offer to transport energy products, particularly in bulk.
  • Ports can be energy transformation platforms, where they act as sites for the energy industry to perform their activities. This relies on the principle of economies of agglomeration where energy activities benefit from the adjacency or proximity of suppliers and users.
  • Ports can be energy generation platforms that can provide conventional and alternative energy sources to their users. This relies on the principle of economies of scope benefiting from the diversity of the energy provision and user base.

Depending on their position within energy supply chains, the clustering of energy transformation activities can either be upstream or downstream of the supply chain.

The relations of ports with energy markets are undertaking an energy transition in their functions as providers, consumers, and energy processors. Even if ports and maritime shipping only account for about 3 to 5% of global carbon emissions, there are pressures to improve their environmental performance, mainly because of their high level of integration with energy supply chains.

3. The Decarbonization of Ports

The decarbonization of ports involves a series of potential strategies and a network of actors clustering around energy generation, electrification, and distribution:

  • Transformation of port-centric energy generation. Ports have conventionally been highly involved in energy generation, such as coal and gas power plants. Since resources were brought in bulk by maritime shipping, ports were effective locations for energy generation systems built on the principle of economies of scale, including centralized distribution. Any future energy system relying on this principle will be inclined to use port facilities. Still, ports are not in the business of energy generation. They are convenient locations for energy generation facilities operated by third parties, particularly public or private energy companies.
  • Ship energy supply systems. The ongoing regulations toward low sulfur bunkering, including LNG, will involve a new energy transformation process and related port-centric activities. The location of bunkering is likely to remain the same, but the transition can offer opportunities to ports able to provide lower-emission fuels first. Another transformation concerns cold ironing, which supplies docked ships with electrical power instead of power generation by the ship’s power generator. Using shore-generated power has a net cost advantage since the electricity is cheaper than the supply generated using onboard generation systems.
  • Electrification of port-centric activities. These activities include terminal operations, bunkering, logistics, and freight distribution, cold storage facilities, service vessels (e.g. tugboats), and supporting buildings. In addition to reducing carbon emissions, the electrification of port equipment lowers noise emissions and their negative community impacts. However, this requires a network of recharging stations that must be supplied by an energy production system.
  • Electrification of port-centric industries. Many heavy industries located within port facilities depended on fossil fuels as a core energy input. The transition of port energy systems will be accompanied by a transition of the port industrial ecosystem.
  • Offshore wind power generation. Through the maritime interface, ports can access large coastal oceanic areas offering wind generation opportunities. The port and its industries already offer an existing demand for installed wind generation capabilities and can offer port authorities new revenue sources. The port can also act as the platform to procure, install, and maintain offshore wind power systems.
  • Integration of port energy systems. Port clustering allows different energy systems (conventional and alternative) to operate independently, seeing a better integration between supply and demand. This allows for an energy trading system where energy surpluses could be traded between suppliers and users within the port community. A more efficient electric grid and energy storage capabilities have to be developed in tandem.

Once the energy transition of ports has matured, it is expected that ports will play a more strategic role within the respective regional energy systems as platforms to generate and distribute energy.

The challenges that ports face in the energy transition are note few. They include securing funding, finding the right expertise, strategic planning of land use, complex operations, collaboration with stakeholders, and dealing with technical uncertainty. Applying a “one plan fits all” approach is problematic. Every port has its profile defining its options, priorities, and potential role. Seaports often play a role in connecting multiple flows of cargo and energy. In general, ports increasingly need to balance commercial and economic objectives. At the same time, the energy transition offers opportunities in terms of cost savings, securing market share, and attracting new cargo and industries. 

4. Cost of Inaction vs Unintended Consequences


Related Topics


References

ESPO (2022) The new energy landscape: Impact on and implications for European ports.