Meeting the energy challenge

With increasing concerns about climate change, security of supply and rising energy demand, the future of the energy industry is now clear: we need to ensure the viability of renewable energies and decarbonise the energy chain.

A commitment to alternative energy

On the path to a carbon management future, there are a number of options, including clean fuels, natural gas and, in particular, renewable energies. These enjoy the fastest growth of any energy source by far, with wind and solar leading the way.

Shell, the second largest energy company in Europe and the third largest globally, with 112,000 people in 145 countries worldwide, has always been a leader in new technologies and remains committed not only to increasing the world’s supply of energy, but to broadening its portfolio. Backed up by an investment of over US$1 billion to date, this has resulted in the company becoming one of the world’s leading companies in renewable energies and hydrogen.

Wind – technically efficient, commercially competitive

Wind energy is the most promising renewable for the near future, the technology having advanced to the point where it is not only technically efficient, but also commercially competitive.

Indeed, Shell WindEnergy has grown to become one of the world’s largest wind developers and operators in just four years, with a profitable portfolio of 740MW, of which 350MW is Shell’s share. This is expected to exceed 1GW of installed capacity by 2007, of which 500MW is Shell’s share.

A world leader in wind developer and operator

Shell’s strategy now is to develop and operate large-scale projects and to sell green electricity, building on the company’s strengths in project management, financing and engineering design. It is also very interested in supporting small-medium private companies who are developing wind technology so as to strengthen the sector supply chain.

Shell currently has a strong pipeline of projects, but key initiatives include the planned construction of the London Array offshore project, in partnership with two other companies, more than 12 miles offshore.

With a potential capacity of 1000MW, it is one of the world’s largest planned wind farms, sufficient to meet the electricity needs of 750,000 homes. It will also contribute around 10 percent to the UK government’s target for renewable energy, preventing the emission of 1.9 million tonnes of CO2 a year. A consent decision is expected soon and we hope to begin operating in 2010.

Other initiatives include a 50 percent share in Offshore Windpark Egmond Aan Zee, the Netherlands’ first offshore wind project. This is now on target to produce electricity for 110,000 homes from 36 large wind turbines by the end of 2006. This 100MW demonstration project was initiated by the Dutch government and will include an extensive environmental and technical monitoring programme.

Shell is also one of the largest wind energy developers in the US, actively progressing developments in Texas, Wyoming, Idaho, West Virginia, California and Hawaii. This includes Mount Storm – a 300MW wind park and potentially one of the largest in the country.

Finally, in Asia, it recently announced plans to explore the potential for wind energy in China, in partnership with Shenhua.

Solar – harnessing the power of the sun

Shell Solar has been converting sunlight into electricity and providing solar power solutions for more than 30 years, and continues to believe in solar energy and its future as an important and growing part of the global energy mix.

However, the company recently revised its approach in order to focus on developing next generation technologies – including Copper Indium Diselinide (CIS) ‘thin-film’ – rather than traditional silicon-based materials. While the silicon PV business will continue to have a role to play, Shell believes that it should be operated by a dedicated player who can maximise the technology.

To this end, the company is divesting its PV manufacturing activities and partnered up with Saint-Gobain, a glass manufacturer, in order to develop CIS thin-film technology on an industrial scale.

Shell will continue to provide solar energy to the developing world and has recently signed a Letter of Intent with Good Energies Investments Inc. with a view to further expanding the business. SolarWorld has also committed to supplying the rural business with modules over the coming years, to support continued growth and success.

Progressing to next generation, CIS ‘thin-film’ technology
Thin-film technology offers several key advantages: it not only allows a lower consumption of materials with half the number of process steps, it also enables simplified materials handling for a significantly streamlined assembly.

CIS, on the other hand, has the highest efficiency of all thin-films (the Shell module holds a world record efficiency of 13.5 percent), with superior energy yield and improved reliability. It also has a low direct materials cost and an attractive, uniform appearance. For these reasons, we believe that CIS will be able to reach cost-competitiveness with retail energy faster than silicon.

The world’s largest solar plant
Shell is proud to be one of three companies responsible for building the world’s largest connected photovoltaics plant for generating solar power in Germany. With a total output of more than 10MWp, the solar park will supply environmentally friendly electricity to around 3000 single-family homes, saving the environment 10,000 tons of carbon dioxide every year.

Hydrogen – the ultimate fuel
The benefits of hydrogen are clear: as a flexible and environmentally friendly energy carrier, it can not only reduce GHG emissions but improve local air quality significantly. Silent, clean and virtually vibration-free, fuel cells can also adapt to a huge range of fuel applications – stationary and mobile, residential and industrial. These include small portable devices, small and large combined heat and power, as well as road, rail, sea and air transport applications.

During the early roll-out stages of hydrogen as a transportation fuel, it will mainly come from natural gas from existing hydrogen production facilities, such as refineries. Later, when fuel cell vehicle penetration takes off, new central or semi-central production sites will be built.

Centralised production is not just the most cost-effective method of delivering hydrogen to the retail site, it will also enable up to 90 percent carbon capture and sequestration, heralding the ‘clean’ hydrogen phase. Ultimately, and in regions where electricity demand is already mainly supplied by renewables, more and more may be used to produce hydrogen. Thus we will see a transition from ‘regular’ fossil fuels to ‘green’ fossil fuels, to a truly green energy using renewables.

With central production the most economic route to delivering hydrogen, we should also consider experimenting with hydrogen-powered power plants and large-scale fuel cells, which would capture and store the CO2 in large, integrated energy projects. This would be the next big step towards a New Energy System, based on hydrogen.

Lighthouse projects: the bridge to commercialisation
So how do we turn theory into reality? The fastest and most cost-effective way is via Lighthouse Projects – a limited number of hydrogen clusters, involving:

•100+ vehicles from different car companies
•4-6 combined hydrogen and gasoline stations
•2+ energy companies
•2 fleet owners

This will enable Shell to coordinate the mechanisms that build long-term investment and supply chain confidence, supported by a regulatory framework and public support.

Active in all major hydrogen markets
To this end, Shell Hydrogen is taking a leading role in joint government/industry discussions and partnerships, including the EU Hydrogen and Fuel Cell Technology Platform, California Fuel Cell Partnership and Japan Hydrogen and Fuel Cell Demonstration Project. The company is also making further venture-type investments in companies with strategic hydrogen or fuel cell technologies.

With offices in The Hague, Tokyo, Shanghai and Houston, Shell Hydrogen has established itself as a world leader in hydrogen, with demonstration projects in Iceland, the Netherlands, Luxembourg and North America. This includes the USA’s very first combined gas and hydrogen retail station in Washington DC. More hydrogen stations due to open in New York, California and Shanghai in 2006.

Carbon management – the responsibility of all
Forecasts of world energy needs increasing by 50 percent within 25 years are no exaggeration. Unchecked, this will result in significantly higher carbon emissions, which most scientists now agree are changing our climate. In fact, science will soon become irrelevant as perception becomes reality and popular pressure drives public policy.

However, most governments are now taking action – the Kyoto Protocol has been ratified by 162 countries and even non-Kyoto countries are taking their own steps. Tackling carbon emissions therefore represents a huge business opportunity for the company that finds the way through alternative energies and carbon management.

And it’s not just the source of energy that matters – it’s how efficiently it is used. The world’s average energy efficiency is currently about half what it could be using the best technology available; and that does not just apply to power. For example, in Shanghai, Shell is helping trial neat Shell GTL Fuel in diesel taxis, where it is showing much greater efficiency than gasoline.

Shell aims to become increasingly competent on carbon management. The company is well placed to respond – having recognised the science of climate change in 1998, it set an absolute greenhouse gas (GHG) emission target of five percent lower in 2010 than in 1990, which it is on track to deliver.

To ensure this goal is pursued vigorously, the company appointed a senior Shell Executive – Mr CO2 - backed up by a team of over 250 Shell professionals working on CO2 management. It also works closely with those individuals and organisations who influence global policy and thinking, and has already helped supported the efforts to shape policy for the United Nations Framework Convention on Climate Change (UNFCCC) and Intergovernmental Panel on Climate Change (IPCC), among others.

Shell currently has many initiatives in place to reduce its carbon footprint, but key areas include:

Driving energy efficiency
A major efficiency drive has been implemented Group-wide, supported by the energy efficiency programmes run by Shell Global Solutions for both its internal and external customers. This includes an initiative to end continuous flaring in Nigeria by 2008. The company also has a trading house, STASCo, that operates on behalf of 100 external companies; an agreement to supply CO2 to greenhouses; and the broadest portfolio of alternative energies of any of the major energy companies.

Utilising CO2 for Enhanced Oil Recovery (EOR)
This approach can be highly beneficial, as long as the source of CO2 is located near the EOR project to minimise high transportation costs. Shell currently has a number of activities in this area.

Maximising CO2 Sales
There is a market for high purity, Food Grade CO2. Although the volumes are small (<1MTPA), it offers niche opportunities. For example, doubling the concentration of CO2 in a greenhouse increases tomato production by 25 percent. In 2005, Pernis refinery began supplying Dutch greenhouses with pure CO2 produced from its hydrogen-making plant.

Promoting renewables offsets
The wider role that Shell renewable energy projects could play in creating value via CO2 management needs recognition. Shell’s wind, solar, bio and other schemes should be assessed for their CO2 credit value, as well as their ‘stand-alone’ values.

Advancing geo-sequestration
With technology for managing carbon capture and sequestration almost identical to that for enhanced oil recovery (EOR), Shell is helping advance this new area by investing in R&D, engaging stakeholders and creating large-scale commercial solutions.

For example, Shell and Statoil are developing the world’s largest integrated CO2 project, whereby CO2 is captured from a gas-fired Norwegian power plant to provide long-term storage in oil fields offshore. This will not only enable near-zero emission electrical power, but the benefit of extra oil production from EOR. The project could potentially utilise, and permanently store, 2.5 million tonnes of CO2 a year, representing a major leap forward towards our vision for greener fossil fuels.

Developing cleaner power generation
Shell’s coal gasification process is already recognised as world leader in producing coal more efficiently and cleanly. The resulting ‘syngas’ can be used not only to fuel combined cycle power plants (which produce 10-15 per cent lower CO2 emissions than conventional coal generation plants), but ultra-clean liquid fuels.

Producing ultra-clean, high quality fuels
Shell leads the market in premium fuels in 50 countries, providing lower emission fuels and those needed by lower emission engines. This includes high quality transport fuels from oil shales using Shell’s in-situ conversion process and ultra-clean fuels from Shell GTL technology. The company is also the world’s leading marketer of biofuels and a leader in the development of advanced biofuels technologies.

Climate change is no longer a matter for debate and Shell believes that it is a responsibility that must be shared by industry, government and individuals alike.

Shell has been at the forefront of energy for over a century, serving society and business alike. It is currently the second largest energy company in Europe and the third largest globally, with 112,000 people in 145 countries worldwide.