IEA’s birthday, Siemens’ new plant, and more

James Lawler: [00:00:00] Welcome to Climate News Weekly. I’m here with Julio Friedman. Julio, good to see you.

Julio Friedmann: Pleasure as always.

James Lawler: So the story we’d like to start with today is that the International Energy Agency has turned 50. It was established 50 years ago in 1974 in response to the world oil crisis in an effort to develop a more strategic approach to ensuring energy supplies, principally oil supplies, worldwide.

Today, the IEA’s role has expanded significantly. They play a significant role in charting the course toward a more renewable energy future in Europe and then more broadly. But in particular, in Europe. Julio, how would you describe the role in the importance of the IEA when it comes to the energy transition?

Julio Friedmann: The IEA has emerged and evolved essentially into a global energy ministerial. [00:01:00] It is vested with specific powers. It has specific members and plays key roles in the global energy and climate discussion and systems. The most important of these was actually around its founding. People who joined the IEA, countries that were initial members and later members, were vested with an important role and the IEA with important responsibilities.

Specifically, the IEA can compel member nations to release oil reserves. It is an incredible authority. Actually, it’s never been exercised, but that’s why it was made. As a result, almost all the member nations are in fact ones that have strategic oil reserves. And it was deliberately built as a counter to OPEC.

Fast forward to the present, the biggest countries in energy are not members. India, China, and they play an outsized role in everything. So the IEA has created a whole new class of members which are associate members. And one of the stories this week that was announced at the 50th [00:02:00] anniversary was that India is seeking membership, which is a big deal.

The IEA also had an important early role in just gathering and disseminating data. In the seventies, there just wasn’t a place to get good energy data anywhere, including on oil, which was the most important energy stock at the time. So they began gathering and publishing data just for transparency to the market, energy security stuff.

They’ve played that role, but that has expanded into everything. And that includes the manufacturing of solar panels, critical materials, carbon management, clean fuels and hydrogen, all kinds of stuff, industrial decarbonization, a lot of that, you can credit the current executive director of the IEA, Fatih Birol.

He is now in his third term. That is unprecedented, and Fatih has really pulled the IEA into the present away from its original past.

James Lawler: And European Commission President Ursula von der Leyen gave a speech on the anniversary of the [00:03:00] IEA just a few days ago. I just want to quote a couple of things from her speech.

She credits Fatih Birol with producing a plan for how Europe could quickly shift away from its reliance on Russian gas in the days following Russia’s invasion of Ukraine, producing a specific plan for how that diversification could take place and really activating member nations, of which there are 31 member nations, as part of the IEA to quickly replace those fuel sources.

So the IEA was able to spearhead that effort. And as a result, the European Union has made it through two winters when it was thought, you know, it’s highly unlikely that they would even make it through one when the invasion happened.

Julio Friedmann: Yeah. That again reflects this sort of emerging role as a de-facto global energy ministerial. Within a few weeks, the IEA published a strategy to reduce energy consumption in Europe and reduce dependence on imported gas [00:04:00] that proved to be very important.

It also made suggestions around diversifying supply, which many European nations did. The stature of Fatih himself and of the institution today is reflected not just in the fact that the president of the European commission, Ursula von Leyen, talked, but also the- look at all the other people who showed up.

Narendra Modi made a video appearance. John Kerry was there. It was a real who’s who of people in energy and climate.

James Lawler: You know, there were a couple of other things that I thought were really interesting from president von der Leyen and speech. One was her reflections on the difference between what happened in 1974 and what happened post the Russian invasion of Ukraine.

You know, these two energy crises after the OPEC crisis in 1973, the response, as she described it, was impressive, you know, they formed the IEA, created these rules about stockpiling, [00:05:00] you know, 90 days worth of imports of oil, et cetera, to make the whole system more resilient to these kinds of shocks.

But what she said, you know, what we didn’t do is really push hard enough to move ourselves away from reliance on fossil fuels at that time. And she contrasts that with global response now, in face of the climate crisis, in face of, you know, Russia’s aggression and the results she mentions in her speech.

And I’m going to quote here, “two years ago, one in five units of energy consumed in the European Union came from Russian fossil fuels. Today it is one in 20. We get more energy overall from renewables in the European Union than from Russia. Last year, in 2023, for the first time ever, we produced more electricity from wind than from gas. So Putin’s attempt to blackmail our union has utterly failed. On the contrary, he really pushed the green transition. You know the story well because all of you here in this room have written the story together with us”. [00:06:00]

I thought that was just very interesting to hear that reflection. What do you make of that?

Julio Friedmann: Well, there’s a lot of truth to it, actually. First of all, it really reflects again, the IEA’s role, not just as a data site and as an advisor, but also as an energy security apparatus, you know, they take that role very, very seriously.

And this was one of those moments where they stepped up. Second, factually, it’s true. European, uh, energy systems rely much less now on Russian gas. They do use a lot more renewables. And again, what she said about wind power is true. This year, wind exceeded gas in terms of total energy output, which is the first time ever and that’s new.

It is also the case that energy imports have increased from other places. Europe is bringing, buying more U.S. natural gas, for example, through LNG. And that has been part of the transition from one to five down to one to 20. That’s great news, actually, as far as I’m concerned, that’s a good thing.

It also underscores, sort of, the [00:07:00] challenge that the IEA faces as it moves forward in the world. It has to balance this energy security mission with the new needs that it has embraced around climate and energy. That has, itself, created a certain amount of controversy, and at the heart of that controversy is the executive director, Fatih Birol.

Fatih has really been championing both of these at the same time, and there’s friction in that. And many sort of hard-nosed analysts have begun to question the IEA’s impartiality and their data and their assessments strictly because of Fatih’s boosterism around climate. It is also the case that the converse is true.

Many environmental NGOs have taken sort of a cottage industry approach of just throwing potshots at the IEA because their original solar predictions were so incorrect or the original wind predictions were so incorrect and blame the IEA for not going fast enough and being in thrall to oil and gas industries.

I think that both of those criticisms are fair, but I take both of them with a big grain of salt, too. The IEA has an [00:08:00] incredibly important mission and is trying its best to navigate this complicated time.

James Lawler: Yeah, it’ll be interesting to track the IEA’s role as pressure to decarbonize continues and as its membership broadens to include India and other countries moving forward.

Another story that we want to cover today, which is a little bit closer to home, is that Siemens, the German energy giant, has decided to increase production of its transformers here in the United States. They are investing $150 million in a transformer production plant. Why are they doing this, Julio? Why is Siemens making this big investment and what should we take from this?

Julio Friedmann: So I’ve had the good fortune of talking to Siemens leadership about this exact question about the need for transformers and I’m really pleased to see this announcement. Number one reason they’re doing this in the United States? Inflation Reduction Act. Thank you, Congress. Thank you, Joe Biden. The provisions that are in there in terms of tax credits, especially things like 48C for clean [00:09:00] manufacturing, really apply.

Part of that also requires domestic content. It has to be made in the United States to qualify for some of this stuff. Thank you, Joe Manchin, for prosecuting those quite hard. So we’re starting to see these things land in real factories and real stuff. I’m personally enthusiastic though, about transformers.

For a long time, the global transformer industry was distributed all over the world. Everybody had transformer production. And then about 20 years ago, Korea just crushed it. Korea basically said we’re going to dominate this industry, they undercut all other nations and so they just shut down commercial production of transformers in most parts of the world.

Transformers are not a new technology, they’re not a sexy technology. But hey, if you care about EVs, if you care about renewable buildouts, if you care about clean hydrogen, you care about transformers. Because you can’t do any of those things without big industrial transformers.

James Lawler: We should define a transformer, actually.

Julio Friedmann: Yeah, a transformer just takes one voltage of electricity and steps it up or down into [00:10:00] another voltage of electricity. So, for example, it may take 125 kilovolt electricity supply and step it down to a 55 kilovolt transformer supply. These things are important. In terms of moving energy around the country, because electricity moves with high voltage, but a house doesn’t use high voltage.

So you have to use transformers to step down to every part of the business, down to the transformer substation, down to the bus bar, down to the local transformer on your street corner and even into your home. And it requires real specialty manufacturing, real specialty winding. This is going to be good for unions if this is done correctly, good for electricians, good for steel workers.

But fundamentally, like, we need these things and right now they’re all made by like one or two countries in a couple of places and the supply chains are horrible. If you want a new transformer, it’ll take you two to two and a half years to get one. James Lawler: Right.

Julio Friedmann: And we just can’t wait that long. So having new supply in the U.S. will make the energy [00:11:00] transition faster here.

James Lawler: And so the drivers again, you know, are electrification, the fact that there’s more demand for electricity and one of the main vectors within that growing demand is data centers. This is something we’ve talked about before. But as we rely on, on more computing generally across society, we need more data centers to store data, to process data.

And there’s another story this week in Financial Times on data centers starting to get curbed as pressure on electricity grids grows. And this is not in the United States, this is actually in Ireland. Ireland has the benefit of sitting right at that point where all of the internet cables come ashore to Europe.

And so you have easy access to all of that massive river of data that’s flowing transatlantically. And in 2026, the projection is that power for data centers is set to account for 32 percent of total electricity demand in the country of Ireland.

So they’re starting to [00:12:00] say, you know, we can’t permit these anymore because we don’t have enough power to do this with, and they’re requiring other things like recycling their waste heat and, you know, contributing to building out the renewable energy generating capacity.

So Julio, as you sort of extrapolate from that point and the Siemens data point and sort of other points that we’ve discussed in the past related to data and computation and sort of these data centers, where do you see things in a couple of years as AI continues to take off, et cetera, et cetera, are the, um, data center developersare they going to have to also be renewable energy developers, like globally?

Julio Friedmann: Well, first of all, they already are. Let’s start with that. All of the people who are building data centers are also building renewable energy. They are buying first renewable, then 24/7 green electricity. Like, they are already leading that vanguard.

But it turns out like everything else, this is harder than you think. So let’s start with globally, data centers represent about one or two percent of electricity demand. It’s, it is a small global [00:13:00] average. And for the record, AI represents like one one hundredth of that. So AI is not the key issue. It’s just conventional stuff.

That may grow, we should get more data, but, but that’s not today’s challenge. Today’s challenge is places like Ireland, where there’s a huge concentration of data centers, in part to take care of Irish offshore wind, like the wind industry in Ireland has made it possible to build these things to get clean electricity.

It is also the case that because of this concentration of cables and offshore wind and data centers, now you are starting to see something that people have predicted for a long time, that locally, data center demands are going to start stealing clean electricity from the rest of the grid, are going to start creating new stresses and demands on balancing the grid. And those are landing in places where there are these high data centers.

This article in the Financial Times mentions a few other ones. Places like Loudoun County in Virginia in the United States, parts of Germany have begun to introduce curbs [00:14:00] on the build out rate of these data centers because they said, “whoa, whoa, whoa, guys, we’re not just going to let you build these anymore because you’re starting to create issues. We love the data centers. We love the business. We want to keep growing, but we have to control how this is done. We’re going to slow the permitting process. We’re going to do new reviews so that we don’t create unexpected problems for the grid at home”.

James Lawler: Yeah.

Julio Friedmann: And that’s just growing pains, but I love the fact that we are starting to see these pinch points when we scale any energy technology, whether it is supply or demand, at some point, we hit problems like this.

James Lawler: Julio, thank you so much for your time today. This was informative, as it is every week. Really appreciate you joining us here. Thank you.

Julio Friedmann: Pleasure as always.

James Lawler: That’s it for Climate News Weekly. We hope you’ll join us tomorrow for our deep dive episode, part one of a three-part series on electric vehicle charging.