Shale Gas Drilling Operation By Polish State Gas Operator
The use of technologies such as hydraulic fracturing, or 'fracking', has revolutionised the production of oil and gas © Bloomberg

The world of energy is in a state of turmoil. Not only is the way we produce it changing, but also the way we transmit, distribute and consume it.

From the wellhead to the wheel, from the power station to the light switch, the global energy industry is being refashioned in ways that could profoundly affect our lives.

Much of it is driven by the fight to mitigate climate change and reduce carbon emissions. The explosion in renewables has thrown up new, often baffling challenges for energy systems the world over. The proliferation of wind farms and solar panels is putting traditional power networks under intense pressure and necessitating a whole range of new technological solutions.

In Germany, for example, some 66 gigawatts of renewable capacity had come on line by the end of 2012. Yet the actual energy produced can dip to zero when the wind does not blow and the sky clouds over. And when the wind blows hard and the sun is baking hot, the power surges are huge.

“Grids were never designed to transport such a massive amount of energy,” says Jan Mrosik, chief executive of German engineering group Siemens’ smart grid division.

To illustrate the changes taking place, he shows two diagrams – one representing the old energy system and the other the new one. In the first, electricity flows like a river to the sea: a power plant generates electricity which is fed into the high voltage grid, then into transformers and through power lines into homes and businesses.

The new grid bristles with disruptive technologies that have turned that traditional paradigm upside down. Power companies are now wrestling with how to link solar panels, wind turbines and biomass generators with conventional power plants, new storage solutions and intelligent homes to create a stable grid.

The river flows both ways now – especially in Germany, where houses with solar panels routinely send energy back into the system. “The grid has become bidirectional,” says Mr Mrosik.

Even those people who do not produce their own energy are consuming it in new ways that will have big implications for power companies. New technologies such as smart meters and time-of-use tariffs mean consumers can more actively control the flow of power into their homes and businesses.

One attempt to explore the potential of this “demand-side response” is under way in northeast England, where consumers in a pilot study are being encouraged to consume energy during off-peak periods and on Saturdays, when electricity is free. So far, 12,000 customers involved in the trial have reduced their energy consumption and cut their fuel bills.

But the innovations are not confined to electricity networks. The traditional business of extracting energy sources has also seen huge change in recent years, and the pace of innovation shows no sign of slowing.

The use of technologies such as horizontal drilling and hydraulic fracturing, or “fracking”, has revolutionised the production of oil and gas, particularly in North America. The oil industry is still digesting the extraordinary ramifications of the shale boom.

Surging US gas production is having knock-on effects throughout the energy system. Power stations are switching from polluting coal to clean-burning, cheap and plentiful gas, helping to bring down US carbon emissions. Like coal, the US nuclear industry is suffering: four nuclear plants were closed last year, squeezed out by competition from cheaper gas-fired power.

Meanwhile, the abundance of shale is sparking interest in the use of gas as a transportation fuel that could one day replace petrol in certain types of vehicles. Sasol, a South African company, is planning to build a gas-to-liquids plant in the US that would convert gas to high-quality diesel.

The shale boom has not been without its detractors. Environmentalists are strongly opposed to fracking, worrying about its impact on groundwater, the threat of methane leakage and the broader impact of industrial-style development on local communities. Some worry about the waste water that emerges from wells created by fracking – and whether it is being disposed of properly. Here too, technology is offering solutions, with a profusion of new ways to clean up and treat the waste water.

So far, the global energy industry has risen to the challenges posed by ever increasing demand, changing patterns of consumption and the political imperatives of fighting climate change. But it will have to continue to innovate into the future – probably at an accelerated rate. ExxonMobil, the US energy group, expects energy demand to increase by 35 per cent by 2040 and demand for electricity to grow by 90 per cent.

Given those rates of growth, the changes that energy systems have undergone over the past decade could be just the start.

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