Author: Ben Debski

Oil was discovered in 1978 deep under the forest floor in the corner of the taigan region in Eastern Siberia, but the many challenges of drilling here were created hundreds of millions of years ago in a churn of silt and sea water.

“There was an ocean here, and it covered all this land,” Igor Rustamov, head of Verkhnechonskneftegaz, the TNK-BP led operator of the field, said. “There was a migration of liquids into the reservoirs.” The modern-day result is one of the more difficult drilling propositions in the Russian oil industry – layers of hard rock and pockets of salt deep under the Siberian taiga, 1,200km from the nearest major city. The oil which emerges is shipped eastward through a newly built $25bn pipeline and loaded onto tankers at the Pacific port of Kozmino, where it competes with Middle Eastern crude in the lucrative Asian market.

It also crosses the Pacific to refineries in the US, where it has acquired a following as a replacement for crude from Alaska’s declining North Slope. For all the field’s complexity, such challenges are normal in Russia, the world’s largest oil producer, which is struggling to keep output steady at 10.2 million bpd as Soviet-era fields decline.

Fields like Eastern Siberia’s Verkhnechonsk, set to pump nearly 100,000 bpd this year and reach its plateau of over 150,000 bpd in 2014, are ever more complex and remote, but essential to maintaining Russia’s oil exports as the Soviet oil heartland of Western Siberia declines.

While the bulk of  Russia’s output come s from those old fields – Western Siberia holds nearly 3/4 of Russia’s reserves – East Siberia is keeping the oil flowing to growing markets of Asia via the ESPO pipeline, which is due to expand to one million bpd in 2012, a tenth of Russia’s total output.

Western Siberia, too, requires heavy investment in technology to maximise output from crudely tapped wells, but the wells have already been drilled and the pipelines, power lines and roads built.

In the east, oil companies face up-front costs to get oil flowing from fields surrounded by nothing but forest for hundreds of kilometres. Even drilling contractors willing and able to work here are harder to come by.

Up to $6bn in investment have been committed to Verkhnechonsk with a view to healthy returns at oil prices from $75-$120 per barrel. “I am positive that Verkhnechonsk will eventually be more profitable than Western Siberia,” Nikolai Ivanov, TNK-BP’s director for upstream planning, said recently.

Mapping progress 
High up on a rig, an operator tracks progress as length after length of pipe bears down through layers of rock, then veers off to the side, using a state∞of∞the∞art tracking system to adjust the path as it goes, tapping the richest beds. Seen from above on a map, the wells wend their way outward from the pad – more horizontal than vertical, said one worker at Pad 19, where one of the contractors at the field, KCA Deutag, was drilling its newest well.

“If you take an ordinary pencil and bend it, it will break,” he said, drawing a parallel to the steel pipe used to drill the curving wells, some of them 2,800m long or more. “But what if the pencil is a metre long?”

Similar technology is in use at only one other Russian field: Rosneft’s Vankor, a 300,000 bpd Arctic field, which this year has kept the country’s oil output at post-Soviet peaks with a stepped-up drilling campaign.

That oil companies are willing to spend billions of dollars to drill here is in part due to the government’s willingness to hand out exemptions on mineral extraction tax and export duty on crude. The operators, encouraged by the duty break, had already decided to add a new drilling rig to speed up development at the field when the government, noting the rise in oil prices in the two years since it began to produce, cancelled the exemption half a year earlier than planned. The government defends the move, saying it is targeting internal rate of return of around 15 percent on behalf of the companies.

But ad hoc tax breaks for individual fields are controversial and may be consigned to the past if the government, after the implementation a reform of export duty in October, follows through with a more radical move to field by field profit-based taxation. “If things were done purely on the basis of economic considerations, perhaps some of these development projects would not be going ahead,” said Alexander Burgansky, head of oil and gas research at Otkritiye in Moscow.

“East Siberia is being incentivised not because it is the only way to sustain its oil production but that is what Russian government has decided to do,” Burgansky said, adding: “It also has political implications for the Asian markets and Southeast Asia.”

Lost gas
A more serious consequence of the field’s location is the fate of the associated gas extracted as a by-product of oil production from the gas-rich field. For lack of a nearby market, hundreds of millions of dollars worth of gas is burnt off, or flared. With an accelerated field development plan in place, the more oil produced, the more it must flare.

“The lost revenue is taken into consideration, but it’s never in favour of the gas,” Rustamov said. “The most economical way of using the gas is to flare it.” In Western Siberia, oilfields regularly burn power at their own plants and sell their excess electricity to the grid, if they cannot deliver it directly to Gazprom.

Far from the grid, Verkhnechonsk burns associated gas in two captive power plants which consume just 8.5 percent of the associated gas. A third, more powerful 63 mW plant will be built next year. From 2013, when a new $168m gas re-injection facility comes on line, it will be pumped back underground to wait for Gazprom to build a new pipeline that could also link Verkhnechonsk to new gas markets.

The gas export monopoly must build new pipelines to supply Siberia’s own customers as well as to ship gas from its Chayandinskoye field to the Pacific coast, more than 2,000km to the east of Verkhnechonsk. Rustamov jokingly states: “It’s just where Mother Nature put it.”

The Paris-based adviser to 28 industrialised economies revised upwards by 10,000 barrels per day (bpd) its expectations for the rise in global oil demand this year. It now sees demand increasing by 1.4 million barrels per day in 2010.

Outright demand will be 86.3 million bpd, still lower than the 86.5 million bpd used in 2007. Consumption has fallen for the last two years.

“Oil demand in China and Asia has been revised higher by 70,000 bpd from last month, which has more than offset a revision of 60,000 bpd in the OECD,” said David Fyfe head of the oil industry and markets division of the IEA.

“By 2011, we’re expecting something like another one million bpd of growth, which would be the highest ever, but it hinges on the economic recovery.”

Fyfe said the cold winter hitting many members of the Organisation for Economic Cooperation and Development was likely to have a limited impact on oil demand.

Over four million travellers a day use the Autostrade per l’Italia (ASPI) network. With its concessionaire subsidiaries and a network under concession of over 3,400km, ASPI is the leading European Concessionaire for toll motorway management and for related transport services. The Group also operates overseas in South America, Poland and the United States, totalling 800km of motorway network. Companies like ASPI, operating outside the Emission Trading System, quite often encounter many types of obstacles in their quest of a high carbon management profile: quick-win solutions with significant impact are usually not available. In many cases they end up building pilot-scale, isolated showcase plants and installations, as a means to testify their environmental consciousness, without, however, dealing with significant volumes, in terms of greenhouse gas reduction.

A couple of years ago, ASPI resolved to dedicate resources and capital to carbon management and launched a dedicated programme stemming from the following headlines:
• Following EU guidelines, CO2 reduction must pursue via energy and emissions savings, as well as through renewable energy generation.
• Whichever the initiative, whether based on proprietary know-how or on commonly available technologies, it must be fit for broad deployment: prototypical, pilot-scale solutions are of no interest if not suitable for a quick scale-up.
• Every solution has to be conceived, designed and realised internally and on the Company assets.  
• 360 degree approach: all areas of ASPI activities are to be explored for opportunities and significant numbers generated via multiple projects and initiatives.
ASPI has therefore launched a number of parallel and concurrent initiatives to control its direct emissions, spanning from aggressive energy saving plans (replacement of traditional lighting with LED-based new devices, upgrade of vehicle fleet, low∞consumption pavement maintenance techniques, low-carbon strategies for building management etc.) to an extensive renewable energy generation programme based on photovoltaic technology. Big figures have also been obtained as far as indirect emissions are concerned (those connected to the motorway users) through proprietary know-how and technologies, such as the Telepass and the Safety Tutor.

Along the lines of energy saving, one of the most  important project involves the gradual replacement of traditional high∞pressure sodium lighting  with more efficient permanent LED lighting in tunnels. This action results in considerable energy savings with a reduction of CO2  emissions of about 40 percent and the significant containment of maintenance costs, retaining the required safety standards. In 2009, 6,378 lighting fixtures were replaced. For 2010 the installation programme counts a further 10,766 LED units, reaching approximately 50 percent of the total, with annual energetic savings of around 4 GWh, bringing an estimated environmental benefit in terms of savings of CO2 emissions in the atmosphere of around 2,120 tonnes.

Still on the theme of reducing energy consumption and efficiency improvement Autostrade per l’Italia carried out actions on multiple fronts:
• Vehicle fleet, providing for a careful  management through the in-house implementation of a satellite system to track the position of vehicles (to help reduce intervention times and kilometers travelled) in addition to the replacement of old vehicles with cleaner and higher efficiency models.  The fleet’s average CO2 emissions went from 131g/km (2008) to 129g/km(2009) per vehicle. Kilometres travelled also dropped by 2.8 percent on 2008. Such measures produced a further reduction of 214 tonnes of CO2 emissions.
• Motorway pavement maintenance, using cold in-place recycling procedures and techniques, which  offer the greatest savings in economic and environmental terms, limiting the use of virgin raw materials and curbing costs, fuel consumption and emissions linked to transport and disposal. Total CO2 saved due to road pavement recycling in 2009 was roughly 8,000 tonnes.
• The “Green Building” project, initially targeted at making Rome headquarters energetically self∞sufficient and planned to be deployed on other premises. The project started with  passive systems in buildings such as variable flow sensors for lighting and presence in the common areas, the application of sunlight screening films and the centralised temperature control of all spaces. This is, however, a preparatory phase for the second stage of the project involving the implementation  of a system for the combined production of electricity, heat and cooling (tri- generation). Fuelled by vegetable oil, the module is equipped with a high-efficiency heat recovery system from hot exhausts, engine oil and coolant fluids, thus generating heating/cooling streams, while producing electricity for on-site consumption. Through the combination of all these actions, the building, also equipped with a 500kWp PV generator, requires significantly less energy compared to the original 4.5 GWh/year and becomes almost carbon-neutral.

From the viewpoint of renewable energy, ASPI is currently engaged in an extended programme for the construction of 100+ photovoltaic generation sites. A first phase of the initiative encompasses the installation at 87 service areas of a PV system based on a European Patent obtained by ASPI integrated into sun-shading shelters provided for the users’ convenience: this phase will be completed in 2010 and account for approximately 4MWp of installed solar power.

Phase 2 has also been launched with the design and construction of several other PV sites, each of them ranging from 200kWp  to 1MWp and consisting of a mix of stand-alone and integrated modules, also including two ground-based power centers. Phase 2 has a target of adding 3MWp to phase 1, thus leading to a total of 7MWp planned for 1stQ 2011 and an overall CO2 reduction in excess of 5,000 tonnes per year. As mentioned already, great environmental benefits have been achieved as regards indirect emissions. Traffic congestion produces wasted fuel, increasing trip times by slower speeds, vehicular queuing and “stop and go” events during which emissions increase. Investments in improvements of service levels and safety standards  (such as  motorway expansion projects through the construction of additional lanes, better work site programming and faster removal of accident vehicles, improved winter operations, adoption of accident prevention measures – the Safety Tutor System ≥ adapting infrastructure capacity to meet changing traffic volumes ≥ “dynamic third” lanes ≥ and better information on traffic conditions), have helped over the years to significantly reduce the annual value for traffic  fluidity or Total Delay Index (defined as the total number of hours of vehicles using the motorway at lower speeds than the reference one) decreasing by 36 percent in the three-year period 2007-2009, and thereby significantly reduction of CO2 emissions and other atmospheric pollutants generated by motorway traffic.

Using  two calculation models,  the real advantage in terms of CO2 savings deriving from the introduction and subsequent development of the Telepass (electronic toll collection system ) and Tutor (average speed measuring system installed on 32 percent of ASPI motorway network) systems has been also estimated. In 2009 26,732 tonnes and 56,300 tonnes of  CO2 were saved thanks to Telepass and Safety Tutor respectively. Finally, it is worth mentioning the importance in terms of environmental impact of initiatives directly  involving motorway network users. Autostrade per l’Italia has launched its first project of carpooling applied to highways. Carpooling is a sustainable and more environmentally friendly way to travel. It not only reduces the costs involved in car travel by sharing journey expenses (such as fuel and tolls) between the people travelling, but  reduces carbon emissions, traffic  on the roads, and the need for parking spaces. The initiative, involving in this first phase customers who travel the A8 and A9 highways daily from Como and Varese to Milan and back, both helps to reduce levels of pollution and to improve traffic flow on a particularly busy road affected by extension works. The carpooling project includes a discount for cars carrying at least four people, a dedicated track toll and a web platform to facilitate the matching of supply and demand that has become in just three months the first carpooling platform in Italy.

Electric wires and metal pipes lay in a jumble. Tiles dangled from the ceiling. Dust hung heavily in the air.

But Lu, a construction supervisor, was supremely confident that a train would be gliding past the very same spot by October, the first of 11 metro lines planned in this rustbelt city in northeastern China.

“We’ve been working nearly every day for the past year and we will have it done on schedule. Then we’ll get a month off and come back to work on the second line,” he said with a weary grin.

Shenyang’s ambitions are vast in scale and yet commonplace in China. More than 30 cities have started building or have submitted proposals for entirely new metros. The five cities with existing systems are expanding them. And all of this is just part of a larger investment frenzy in railways, airports and roads.

The stakes could not be higher.

Managed well, the infrastructure boom will bestow on China the hardware to power its growth for decades to come. Managed poorly, money will be squandered, leaving the country with bridges to nowhere and a hefty bill.

But China has not become the world’s fastest-growing economy by dragging its feet. Things tend to move quickly once the government throws its weight behind big projects.

“You solicit views, you apply for approval and then you just do it,” Zhang Zhenbang, vice general director of Shenyang Metro. “London needed more than a hundred years to build up its metro, but we’ll need less than half that in China.”

Over-investment?
When exports collapsed last year due to the global financial crisis, China turned to infrastructure to make up the shortfall.

It built and expanded 35 airports, opened 5,557 km of railways, including the world’s fastest high-speed line, paved 98,000km of highways and, of course, ramped up work on metros from Shenyang in the north to Guangzhou in the south.

Overall, gross capital formation – the best indicator of infrastructure spending – accounted for eight percentage points of the economy’s 8.7 percent growth last year.

The headlong rush to build, build, build has inspired a heated debate among China-focused economists about whether the government is simply overdoing it.

Michael Pettis, a senior associate at the Carnegie Endowment for International Peace in Beijing, is adamant that China already has the world’s best infrastructure for its level of development. Investing too much now suppresses the household spending that is badly needed to prop up a hobbled global economy.

“The growth in Chinese consumption will necessarily be limited by the growth in Chinese household income, and Chinese household income cannot grow quickly enough if they are forced to pay for infrastructure that’s not economically justified,” he recently wrote.

Yet others think that the better benchmark is not countries at China’s current stage of development, but those it is quickly catching up to. Chinese rail density is, for example, only 40 percent of the US level and 11 percent of Japan’s.

Qing Wang, an economist at Morgan Stanley, noted that China’s rate of return on capital – a basic measure of investment efficiency – far outstrips that of most advanced countries.

“We would argue that claiming ‘over-investment’ in China simply based on the pace of investment growth is equivalent to making the observation that ‘a person must be overweight because he seems to be eating a lot’,” Wang wrote in a research note.

“A hearty appetite reflecting a fast metabolism is a sign of health and vitality.”

Money well spent
In Shenyang, at least, the rationale for building a metro is clear enough. Japanese occupiers in World War Two had planned a four-line metro system when the city was home to just over one million people.

Nearly 70 years on, the population has grown to about eight million. Cars clog potholed streets from dawn to dusk, taxis double up on passengers during rush hour and buses are standing-room only.

“People here have no experience of metros, so they don’t really know what it will do for the city. But I’m very excited. I think it will be a big help,” said Sun Nan, a fast-talking real estate agent in his 20s.

Super-charged Chinese growth has boosted government coffers, providing it with plenty of firepower for investment. The budget deficit was just 2.2 percent of GDP last year, even with the burst of infrastructure spending.

Still, some investors fret that China’s local governments are taking on too much debt. Zhang, the metro official in Shenyang, did not beat around the bush.

“The key challenge for us is financing. It’s no problem getting bank loans, but you can’t rely on that alone because of interest charges. So there is fiscal pressure, and we are not a rich city,” he said.

The first phase of Shenyang’s metro will span 50km at a cost of 20 billion yuan ($2.9bn). Based on that average, the city’s planned 400 km system – longer than New York’s – will cost 160 billion yuan.

The expense will be spread out over decades so that the government need put only five percent of its annual municipal budget towards its construction, Zhang said.

Return on investment
Calculating the direct return on all of this investment is something of a mug’s game.

Zhang noted a study by Chinese researchers that argued that every 100 million yuan spent on metro building fuelled a 236 million yuan rise in total economic output, though he waved his hand at the precision of such a claim. As the city’s complexion changes, so will its economy, bringing unanticipated costs and benefits.

Niu Ge, an old man selling tobacco in a run-down shop next to land zoned for a gleaming glass metro station, knows this uncertainty well.

“I plan to expand when it opens. I’ll set up a cigarette stand outside of the station,” he said. “My biggest concern is that the government may want to relocate us.”

On the surface, the pace of Chinese infrastructure investment will slow dramatically this year. The central government has actually budgeted for a 2.7 percent fall in spending on transport, compared with a 38.6 percent rise last year.

But this is likely to be transitory, a reflection of where China stands in the current economic cycle: after flooding the economy with cash to drive it through the global downturn, Beijing is now tightening its belt.

From a structural perspective, China’s investment in infrastructure will remain strong for decades. The government has set its sights on a world-leading network of roads, railways and airports and has already set in motion a multitude of big-ticket projects.

“It will take us another 30 years at least to complete the metro in Shenyang,” Zhang, 58, said with a chuckle. “Not only will I have retired, I will be dead by the time it is done.”

Today, almost all power distribution companies have a smart grid manager; however, this does not imply that they previously had unintelligent power grids, but a recent paradigm shift in how to structure power distribution has caused power distribution companies to rethink their power delivery strategies on a global scale.This paradigm shift is caused by the growing political requirement to lower the carbon footprint throughout the energy sector. This requirement to reduce CO² will have direct and potentially immediate implications for power distribution companies and will lead to significant investment in power distribution grids.

The investments are needed due to a variety of historical factors, one of which is: ‘Electrical power delivery  Today’ (see boxout) which was designed as a black box concept, where power is put into the box on one side and is delivered to the customers on the other side.

Therefore, with the political intentions and demands to lower the carbon footprint, power distribution companies need to rethink power generation, power distribution and the refinement of how that power is used.

Fundamental change
This fundamental change in how to think of power requires a significant change in how power distribution grids are designed and how they are operated. The new distribution grids must be able to handle bi∞directional power flows, absorb power generation from small local power producers and handle new power consumption patterns.

New grid operation technology and more advanced tools are needed to integrate more decentralised power generation. This pushes power distribution companies to handle and operate the new load patterns like differentiated price structures which are based on consumption and the usage of electrical vehicles.

A fundamental redefinition of their service and operation structure is also needed and investments in advanced IT systems are now inevitable. This redefinition creates a demand for a far more flexible and dynamic power flow; a power flow that must be monitored and controlled and that unlike today’s technology, must be able to supply energy bi∞directionally. This new style of power grid is more commonly known as the ‘Smart Grid’.

Plan A vs. Plan B
Plan A – The most straightforward way to solve the new market situation, would be to simply change and upgrade the whole power distribution network by adding new components adapted to meet the new requirements. A number of existing market players – like ABB, Siemens, Schneider and GE Energy have designed full solutions as answers to the new market situation.

However, there are some heavy challenges to Plan A – one is the cost. The existing installed infrastructure is still fully functional and does it make sense to retire a complete infrastructure using CO2 as an argument? We think not.

The second challenge is that changing the existing infrastructure will require heavy construction work and a substantial number of blackouts together with implementation times running between 25–35 years for a typical power distribution company.

However, building a Smart Grid from scratch is extremely expensive and time∞consuming. Therefore Plan B – led by some of the most advanced power distribution companies in the world, is now being defined.

They believe the answer is ‘Reusable Power Distribution’; these frontrunners digitalise their existing infrastructure by using cutting∞edge technology, transforming their ageing power grids into state∞of∞the∞art smart grids. The digitalisation of the existing power equipment allows the power companies to prepare for a new power distribution future with more alternative energy sources as well as different load patterns from electrical vehicles.
The great advantages of using new technology to digitalise the power grids are many, but the price of the hardware itself, which is much cheaper than conventional equipment, and the fact that often new sensors and devices can be applied to the power grid without disturbing the power distribution, are the most significant. Once the sensors and devices have been applied to the power grid, the rest will be based on intelligent software which can be upgraded like traditional software without disturbing the customers.

On the horizon
From the technological side, a number of new start∞up companies like PowerSense, Locamation, FMC Tech, BPL Global and many others are introducing breakthrough technologies that will revolutionise the power industry and enable the suggested Plan B for Smart Grids.

PowerSense and IBM have designed and installed the biggest Smart Grid in the world at Ausgrid in Australia. As one of the main outcomes, Ausgrid has increased its distribution grid capacity by more than 20 percent, due to better control and monitoring of the power grid and has today a fully digitalised power grid to take on the power grid challenges of the future. tne

For more information
www.sensethepower.com

It will redefine the energy landscape; how the world generates, distributes and consumers energy, as well as our lifestyle and the environment.  The result will be a connected energy superstructure for the 21st century and beyond.

Within the superstructure of 21st-century energy lies a key foundation, the Smart Grid (SG). A superstructure to be deployed throughout the electrical infrastructure that integrates all the key facets required to deliver on the promise.  Essential to creating this foundation will be three intersecting components: policy, technology and economics. Cisco refers to this confluence as “Gridonomics” and the realisation of a new energy infrastructure will depend on all three “Gridonomic” pillars. So, what are the elements of each? And how will their convergence impact our energy, economic and environmental futures?

Policy makers globally recognise that the transformation of the electric grid is an opportunity to address broad objectives related to climate change, energy independence and clean technology-based economic growth. The creation of a “smart grid” will bring improved grid efficiency by reducing system losses, help integration of large amounts of renewable resources, improved system utilisation as well as grid resiliency and reliability (including cyber security), among other things. Not only will these benefits help ensure sustainable economic growth, they will also help reduce carbon emissions and positively impact global climate change. While the objectives are desirable, it is essential that coordinated national and local regulatory policies consider the impacts to customers involving new pricing and programmes, technology adoption and the potential for resulting rate increases. 

Additionally, the societal and customer value from these policies must be articulated clearly and consistently. In the US, policymakers and key stakeholders need to do a better job of educating customers on the benefits and costs associated with implementing a thorough climate change policy – which includes shifting energy use from fossil fuels to electricity supplied by an increasingly cleaner portfolio of generation and demand side resources.
 
While the smart grid is often associated with just ICT investment, it will be the integration of both energy technology and ICT that actually results in a smarter grid. It is essential that utilities develop an overall smart grid architecture that reflects the physical changes to the electric system as well as the integration of ICT.  Key technology trends include:

Distributed Generation (DG): In Europe, energy from renewable resources in some countries is reaching 50 percent or more of energy delivered on a given day. In the United States, 38 states have Renewable Portfolio Standards or Renewable Portfolio Goals. 

Sensors: There is now widespread deployment of various sensor technologies across the electric grid. In North America, synchrophasor and smart metering deployments have been accelerated by US Smart Grid stimulus funding.  Australia has also recently awarded smart grid funding that will result in a significant deployment of grid-sensing technology. 

Plug-in Electric Vehicles (PEV): PEVs will be coming to the mass market over the next 12 months. In Europe, analysts anticipate perhaps nearly 500,000 PEVs will be on the roads by 2015 and in the US research suggests PEVs will make up 20 percent of new car sales by 2020. The current analog electrical grid was built over fifty years ago and not set up to handle “appliances” of this nature being plugged into the grid all at once, or even one at a time.

Energy Storage: Energy storage has the potential to enable the electric system to be more reliable and stable, and provide better power quality and customer-side energy management. Climate and energy policies are advocating energy storage as an asset that can be used to mitigate renewable energy intermittency, and storage technologies that can provide adequate dynamic response are becoming commercially viable at grid scale. 

Networks: Utilities worldwide are rethinking their telecommunications needs and infrastructure architectures to address requirements for highly-available, low-latency wired networks to link substation and control centre operations as well as robust, secure wireless field area networks to support distribution automation, mobile field force automation and smart metering. 

Data Analytics: Analytics will leverage data from many sources to enable smarter, faster decisions by automated information systems, utility personnel and customers. This tsunami of data will be managed more effectively through the use of communication network-based tools. 

Cyber Security: The transformation of traditional energy networks to smart grids requires an intrinsic security strategy to safeguard this critical infrastructure. In the US, concurrent and complementary efforts are underway to address the development and implementation of a lifecycle approach for the electric industry. The results – expected over the next 12-18 months – can be leveraged worldwide by policy makers and utilities.

Distributed Intelligence: Distributed intelligence embeds digital processing and software in and along the power grid infrastructure to implement flexible grid automation. Networking connects these processing elements together so that they can work individually but act collectively to carry out power grid operational and business functions in a non-centralised manner. The use of distributed intelligence provides opportunities for utilities to implement scalable systems to integrate greater amounts of renewable distributed generation, enhance grid efficiency and operations. Globally, trillions of dollars will be invested over the next twenty years to make the electrical grid more modern, secure, reliable and efficient. The current economic recession, however, has heightened the sensitivity of utility rate increases and capital investment. As such, it is essential that current and future benefits to society, consumers, and businesses be clearly communicated. 

Societal Value: Societal value attempts to capture the importance of climate and energy independence as well as the economic value from increased reliability and customer benefits. For example, the societal value of the smart grid policy trends identified above was recently estimated by McKinsey as $130bn annually in the US by 2019. This forecast attempts to capture the entire value of US smart grid investment, what McKinsey calls the “value at stake.”  

Customer Value: Central to smart grid investments and new business models is the creation and articulation of increased customer value. Exciting new customer products and services that leverage technology platforms are being deployed. These include information services, financial services and energy management, among others. Adoption of responsive technologies can also develop compelling customer value. Adjacent consumer technologies, like “apps” for smart devices are quickly emerging. 

Business Value: The electric system in most developed countries was largely built 40-50 years ago and much of the core infrastructure needs replacement. In the US, the Edison Electric Institute (EEI) forecasts that over $1trn will be spent over the next twenty years on electric infrastructure. The investment associated with Smart Grid technologies could be upwards of $175m in the US alone, according to EEI. In any event, the regulated return on this investment will mean that many utilities will have an opportunity to grow earnings for an extended period while providing better customer service and improved reliability. 

Additionally, new business opportunities are emerging for both utilities, existing competitive energy services providers and new entrants to create customer value as described earlier. Multiple means of monetising these opportunities exist, ranging from traditional product sales, to wholesale markets for responsive demand and energy conservation, to financial services, and to potentially the several “free” market models that have emerged over the past decade in other commercial sectors. While the electricity sector is unique on many dimensions, it is clear that the traditional regulated business model will evolve and new business models will be used to create customer value and meet broader policy objectives.

Further information: www.cisco.com

Its philosophy is demonstrated through its social and environmental policies and through its commitment to develop the communities with which it interacts.

VALE is a global mining company headquartered in Brazil, with a workforce of over 100,000 employees, including outsourced workers. Its mission is “to transform mineral resources into prosperity and sustainable development”. It guides all of the company’s actions, from strategic planning and risk management to its operations. VALE believes that it shares the responsibility to seek sustainable development wherever it operates by responsibly managing the effects of its activities.

VALE has shown commitment in facing the challenge of climate change. As a practice, the company identifies risks and vulnerabilities directly or indirectly related to its activities in several countries, continuously following the regulatory discussions in the relevant regions for its business. In 2009, Vale has developed a project aimed at identifying and analysing risks and opportunities associated with climate change, as well as the company’s strategic plan for mitigation and adaptation to the new low∞carbon economy.

VALE monitors and is engaged in regulatory discussions at the regional, national and international levels, in hopes that VALE may offer solutions that contribute to the GHG management globally.

For instance, in 2009 VALE launched the “Open Letter to Brazil on Climate Change,” in partnership with the Ethos Institute and the Sustainable Amazonia Forum, which was signed by about 30 large Brazilian companies. In this document, the signatory companies made voluntary commitments to contribute to the global efforts for reducing the impacts of climate change, as well as suggestions for the participation of the Brazilian government in the 15th Conference of the Parties of the United Nations on Climate Change (COP15), and provided ideas for the shaping of the regulatory framework for managing climate change. VALE participates, together with groups such as CNI (National Industry Confederation), IBRAM (Brazilian Mining Institute), Business Working Group for Climate (composed by the companies that have signed the Open Letter to Brazil, and the Ethos Institute and the Amazon Sustainable Forum), Brazilian Forum on Climate Change, CEBDS (Brazilian Business Council for Sustainable Development) and ICMM (International Council on Mining and Metals) in discussions on the development of policies on climate change. The company also contributes to the regulation of Brazil’s National Policy on Climate Change, which became a federal law in December 2009, in order to promote incentives so that businesses and government could reduce emissions through the use of low carbon intensity technologies. Furthermore, VALE participates in the initiative “The Copenhagen Communiqué”. This statement issued by the world’s business leaders, including VALE’s CEO Roger Agnelli, aims to demonstrate the commitment of companies around the world on the climate issue.

VALE Carbon Programme
In 2008, VALE established VALE Carbon Programme, a wide-ranging set of globally coordinated measures, aiming to achieve standards of excellence regarding climate change actions by 2012. Its fundamental principles are: Strategic evaluation of climate change impacts on business, and the company’s capacity-building to operate in a new competitive environment; fostering of GHG emissions reduction and CO2 sequestration initiatives; cooperation and partnership for R&D, and for the implementation of mitigation and adaptation measures in VALE business units; engagement with governments and private sectors to monitor and contribute     in the preparation of the regulatory milestones, and; transparency and continuous improvement. Aligned with this programme, the company develops a project portfolio to reduce GHG emissions in all business areas, in order to diagnose the opportunities and support the implementation of such initiatives. Also in 2009, the company started developing a tool, named “Trend of Net Carbon Balance”, to estimate Vale’s emissions evolution vis∞à∞vis the growth of carbon stock in forests that the company protects or helps in protecting, in order to plan actions to increase removals and preserve forests.

BioVale Consortium
VALE believes in the development of new more efficient products regarding the use of natural resources. One of the projects that better illustrates VALE’s efforts on the matter is the BioVale consortium, for biofuel generation from palm oil together with Biopalma Amazonia SA – which has expertise in palm oil plantation and production – to produce biodiesel from 2014. With this partnership, VALE will use part of the production of palm oil to produce biodiesel. With this initiative, the company is anticipating the rules established by the Brazilian Government for the use of B20 (diesel with 20 percent of biodiesel) by 2020.

This biodiesel will be used to power a fleet of 216 locomotives and the large equipment and machinery of the Carajás mines. The switching from diesel oil to biodiesel will represent an emission reduction of 12 million tons of CO2 in the atmosphere during the 25 years of project,  which is equivalent to the emission of more than 200 thousand cars in that same period. Furthermore, the BioVale consortium will reforest a legal reserve area of 70,000 hectares and create about 6,000 jobs in the Amazon region (Pará state), improving the lives of 2,000 families. Moreover, at the end of 2008, VALE created the ITV (VALE Institute of Technology), which supports the development of R&D projects. Besides that, the company invests in technology through VSE (VALE Energy Solutions), whose main goal is to research and develop systems for distributed energy generation.

VALE Florestar
In 2007, VALE created the VALE Florestar project to promote reforestation on degraded areas in the Amazon region using both native and exotic species, contributing to local social and economic development. Since it began operating, it has invested around R$230m, planting more than 24.5 million trees on 41 leased farms covering an area of approximately 70,000 hectares. VALE Florestar’s operations currently provide around 1,500 direct jobs. During peak production, more than 4,000 direct jobs will be generated.

VALE Florestar will have positive social, economic and environmental impacts for the Amazon region both in the short and long term. Society will gain from new sources of jobs and income and the promotion of a culture concerned with environmental preservation. The environment will benefit from the conservation and restoration of forest areas and reduced impacts on native forests, as well as contributions to regional climate equilibrium. By preserving and restoring forest areas in the Amazon region, VALE Florestar will capture carbon dioxide. This is particularly important given that a large share of Brazilian emissions of greenhouse gases arises from deforestation, forest burning and other land use changes.

Transparency and recognition
VALE is the world’s leading mining company in the ranking published by Goldman Sachs, which analyses opportunities and challenges of climate change. VALE was rated as one of the five most sustainable companies in the sector of basic materials in the GS-Sustain report. In 2009 VALE was awarded the Época Climate Change Prize, promoted by Época (a Brazilian news magazine), as one of the Brazilian companies with most outstanding climate change policy. Furthermore, the company is the best positioned company in the Latin American Index, which assesses the degree of transparency of information on climate change, according to a survey by the Carbon Disclosure Project (CDP). VALE was considered the large mining company with lowest GHG emission intensity by gross revenue.

Finally, in June 2010 VALE´s Greenhouse Gas inventory received the gold stamp of the Brazilian GHG Protocol Program. VALE was the only mining company to receive the gold stamp at this initiative, coordinated by FGV (Fundação Getulio Vargas, Business and Public Administration School). That demonstrates that the company’s GHG inventory is complete and verified by a third party. Three stamps have been established to indicate the degree of deepening of the inventories: bronze, silver and gold. Among the 34 companies participating in the Brazilian GHG Protocol Program, only seven (including VALE) were recognised with the gold stamp.

Further information: www.vale.com

Sweden was an early starter in terms of sustainable thinking. As early as the 1960s, Sweden recognised that the rapid depletion of natural resources had to be confronted. It took a leading role in organising the first UN conference on the environment – held in Stockholm in 1972.

During the oil crisis of the 70s and 80s a tremendous effort was made to find new sources of energy, create new ways to insulate buildings and develop energy saving systems.

Sweden is today one of the few industrialised countries to have reduced carbon emissions combined with economic growth. Between 1990 and 2006, emissions declined almost nine percent. Over the same period, the economy grew 44 percent. This shows that it is possible to combine economic growth with an improved environment.

An important reason for the decreased carbon emissions is that oil is no longer used for heating purposes to the same extent and has largely been replaced by district heating based on biofuels. Compared with 1980, the decline is significant. That year, Sweden released 80,000 tons of carbon dioxide into the atmosphere. In 2006, the figure was slightly more than 51,500 tons.

SymbioCity
During its EU mandate period of 2007-2010, development and use of environmental technology is a priority area for the Swedish government. A major challenge is to achieve sustainable road and air transport by developing new, more environmentally friendly technologies. Research, development and demonstration of new vehicle technologies are thus an important part of the government’s initiatives in the development of environmental technologies. A key proportion of government initiatives for measures with regard to climate involve the development and use of good environmental technology.

To gather all knowledge and experience to the Swedish approach to sustainability, the concept and trademark “SymbioCity” was launched in 2008. Several hundred Swedish consultants, contractors and system suppliers are organised in different networks dedicated to spreading the vision of sustainable urbanism and making the distance to implementation as short as possible.

SymbioCity means urban technology resource efficiency – across and between different urban systems or fields of action. At the same time it emphasises renewable resources and resource management that minimise waste and optimise recovery and reuse. It encourages the development of new and better system solutions as well as the most efficient use of natural resources. The SymbioCity concept uses best-practice methods for the realisation of truly efficient and democratic work processes. In the SymbioCity view, social and economic factors are as important as the ecological and technical – the recognised final goal being health, comfort, safety and maximum quality of life for all citizens, in harmony with nature.

Getting more for less
During last year SymbioCity was presented at more than 30 international exhibitions, seminars and delegation visits around the world. It has been very well received and Tangshan in China, Toronto in Canada, Pune in India and Narbonne in France are just some of the cities that already have adopted the concept, or used it as a source of inspiration. One key to success for the SymbioCity concept is to offer a model which may be adapted to different development levels of cities and towns as well as different planning situations. Another key to success is to deliver value – getting more for less. The main focus is finding ways to increase system and work process efficiencies. For administrative and practical reasons, the functions of the city are often separated from each other. Household waste is collected for deposit in landfills. Sewage water is treated in water treatment plants. Runoff water is led into a river or lake, etc. In other words, individual problems are addressed with one urban technology solution or another – in isolation. These systems are often effective individually but there is a lot more to gain once we see the invisible links and better exploit the synergies between the systems. The result is not only saved tax money but also increased quality of life. With a holistic view of problems and solutions, all involved parties can see the big picture.

Initiatives in environmental technology
Major measures adopted by the Swedish government include:

• The Swedish government has allocated SEK4bn for climate and energy solutions, including the development of second-generation biofuels. The commercialisation and dissemination of new energy technologies is also an important part of this initiative.

• As regards international cooperation, the government is allocating funds for a special initiative for climate aid of about SEK4bn. This will contribute to sustainable development, transfer of environmental technology, and strengthen international cooperation on climate issues.

• The government in its Research and Innovation Bill for 2008 proposed that support for research and innovation increase by a total of SE5bn for the period 2009–2012. Strategic research areas in technology are to be strengthened by SEK650m and within environmental and climate research by slightly more than SEK500m.

• A number of close-to-market research and development programmes, particularly those for production solutions involving more efficient use of resources, renewable materials, transport, logistics, information and communications technologies, as well as developing the “Green Car” contribute to the development of new environmental technologies. A large part of the Swedish Energy Agency’s R&D budget of SEK800m promotes the development of environmental technology in the energy area.

• Investments in energy efficiency during the period 2008-2010 of SEK310m concern inter alia procurement of technology and market introduction of energy efficient technologies, requirements for energy certificates for buildings, climate guidance for consumers and companies, as well as the development of climate labelling for products and services.

• The appropriation for solar energy will be increased, in order to stimulate the adoption of solar heating in residential buildings. For the years 2007-2010, SEK36m will be allocated for this purpose.

Further information: www.symbiocity.org

It is one of nearly 2,600 remaining schools set up by white farmers to warehouse the offspring of farmhands until they could work the fields – a glaring symbol of an apartheid-era education system designed to suppress the black majority.

Set in fields dusted orange from the clayish soil and among grazing cattle looking for sparse plants in the parched ground, the school also stands as a symbol of the 16 years of unfulfilled promises after the African National Congress took over, ending white minority rule.

The ANC called for drastic measures for farm schools but little changed in a decade of dithering, trapping another generation of black youth in a lifetime of rural poverty.

In local elections next year, Jacob Zuma and his government could take hard hits if they fail to convince voters they are making headway on basic promises including Zuma’s top priority of better education.

“Even our toilets are very bad because we are still using the pit toilets,” said the school’s principal Fredah Mpai.

A newly formed Ministry of Basic Education has begun a long and expensive process that has turned some of the farm schools into places with qualified staff and basic infrastructure.

During the World Cup hosted by South Africa, Zuma placed a new emphasis on education, holding an education summit and linking the event to improving local schools.

Critics said the money spent for soccer stadiums would have been better used for building schools in the country that government estimates say faces up to a 180 billion rand ($23.82 billion) backlog in infrastructure for education.

At Knoppiesfontein, about an hours’ drive east of Pretoria, students squeeze in multi-grade classes in the main building while the overflow of younger charges are placed in corrugated tin shacks without electricity.

Farm schools in other parts of the country are in even worse shape. “The problem is time. We wish it to be soon because we are suffering a lot,” Mpai said of the new government push.

Failing schools and lagging growth
Education is the largest segment of South Africa’s budget, accounting for 20 percent of state spending in the continent’s largest economy, but the largesse has not led to dramatic improvements in the school system or test scores.

The OECD said in a report that the country needed to improve basic education to compete with rising countries in Africa and rich nations globally.

“If we do not tackle education, then we will have failed to tackle the development of this country,” Zuma said at an event in Johannesburg.

Farm schools are officially known as “public schools on private land” and serve what some educators estimate to be at least 15 percent of the country’s 12.3 million students.

After apartheid ended, provincial school districts were supposed to reach agreements with land owners, mostly farmers but also Christian churches, for running the schools.

Most landowners complied, a few converted their farms into wild game preserves for dangerous animals while keeping the schools open, and about 800 have yet to reach any agreement.

“For a long time, the pace of signing those agreements has been very slow. As a result … the infrastructure maintenance and improvement that should have happened did not happen,” said Gerrit Coetzee, director of rural education for the Ministry of Basic Education. “Today, the appearance of most of those schools is in an appalling state.”

A few rays of hope
The government was spurred to action in 2004 after a stinging Human Rights Watch report on the schools’ condition.

Coetzee said the ministry finally has an effective plan in place for improving farm schools that includes closing the likes of Knoppiesfontein – once students are prepared for the change and can be sent to better and appropriate schools nearby.

One of the success stories is the Boschkop Primary School about 30 minutes away by car where, although Spartan, students have desks, books, classrooms with electricity and hot lunches.

The school was once a mud hut set up in 1953 by white farmers who would provide food once a week. It has been rebuilt with money from the government and private donors to help the about 900 students there now being taught by 24 educators.

Principal Peter Masombuka has been in the post since 1983 when he had to work in the fields after the school day. He now oversees the installation of a computer lab.

“There have been improvements,” the ministry’s Coetzee said. “The question is how do you accelerate that”.

The measures would not restrict Iranian oil and gas exports or imports but would seek to shut off new investment in the industry, as well as the transfer of technology, equipment and services to a sector that is economically vital to Iran.

Iran is the world’s fifth largest crude oil exporter.

The EU restrictions, which could go substantially beyond the sanctions agreed by the UN Security Council, are contained in a draft declaration prepared for a summit of EU heads of state and government in Brussels.

The declaration expresses “deep regret that Iran has not taken the many opportunities” to assuage international concerns about its nuclear programme, particularly given its decision to enrich uranium to levels that bring it closer to weapons-grade.

“Under these circumstances, new restrictive measures have become inevitable,” says the draft obtained by reporters, which could be subject to change before it is issued.

It says the measures should focus on trade, especially dual-use goods, and further restrictions on trade insurance and Iran’s financial sector, including freezing additional Iranian banks and insurance firms.

“The transport sector, in particular the Islamic Republic of Iran Shipping Line (IRISL) and air cargo; key sectors of the gas and oil industry with prohibition of new investment, transfers of technologies, equipment and services; and new visa bans and asset freezes, especially on the IRGC (Islamic Revolutionary Guard Corps),” the draft statement says.

The declaration, if issued in its current form, would go further than some EU states, including Spain and Cyprus, had indicated they would be willing to go. Germany was also seen as reluctant to target anything in Iran’s oil and gas sector.

Sanctions and talks?
The move coincides with efforts by US Congress to draw up additional measures against Iran.

It is designed to put extra pressure on Tehran to return to negotiations over its uranium enrichment programme, which the West believes is aimed at developing nuclear weapons but Iran says is purely for peaceful purposes.

The measures are also designed to add bite to the UN sanctions package, parts of which were watered down by Russian and Chinese opposition. The impact of the package was also weakened by Turkish and Brazilian votes against it.

If the declaration is approved, EU leaders will ask their foreign ministers to move ahead with implementing the extra restrictions at a meeting in July.

The rapid push for tighter measures on Iran is part of an EU-US effort to bring Iran back to the negotiating table. It is accompanied by statements saying the EU and the US are ready to talk to Iran.

Catherine Ashton, the EU’s high representative for foreign affairs, has the backing of the US, France, Germany, Britain, Russia and China – the six powers behind the UN sanctions package – to try to reengage with Iran’s leaders.

She has said repeatedly she would be willing to meet Iran’s chief nuclear negotiator, Saeed Jalili, at any time, as long as the nuclear programme is on the agenda and the discussions do not obstruct the UN sanctions process.

Iran has described the UN sanctions as a “used handkerchief” and said they will not halt its uranium enrichment work. Turkey and Brazil, which have negotiated with Iran in recent months, also dismissed the sanctions as a mistake.

The risks come in many guises. Some are easy to predict: a lack of infrastructure, weak administration and low skills. In many cases, market institutions have still to be built, a private sector has to be developed and the constitution of the State is “work in progress” as they make their way from authoritarian rule to more open societies.  It is the less obvious institutional weaknesses, administrative malaise and inter-sectoral fractiousness that is most difficult to predict, measure and manage.

South Africa is an unusual emerging economy. It shows many of the marks of its authoritarian past under apartheid and some of the administrative weaknesses, skills deficits and infrastructure weaknesses found in many developing countries. The impact of HIV/AIDS and crime are particularly acute. What distinguishes South Africa from many emerging economies is an internationally admired constitution, crafted as part of a process of reconciliation at the end of apartheid and installed under the leadership of Nelson Mandela; a robust market economy; and a substantial business sector with world-class companies in many sectors.

Considering its divided past, there has also been an unusual commitment across interest groups to working together to capitalise on the country’s opportunities and overcome the constraints it faces as an emerging economy.

A number of South African institutions have been developed to facilitate that process. One of the most substantial of these is the Business Trust. Established in 1999, it combines the resources of business and government in areas of common interest to accelerate the achievement of national objectives. Its core funding is drawn from voluntary donations made by South Africa’s leading corporations which amount to well in access of R1bn over the last seven years.

It is governed by a board appointed by the companies that fund the organisation and by the President of South Africa. The organisation has eight cabinet ministers on its board and the heads of most major companies. Its work focuses on encouraging the development of priority growth sectors, developing skills and infrastructure and combating poverty.  Its strategy is set on a five-year cycle by
the leaders of business and government and it operates through a series of partnerships structured between the corporate sector and government departments responsible for work in its chosen areas of operation.

The business partners bring business acumen and understanding of markets and a sense of the risk calculations that investors will make. Government brings public sector acumen and understanding of administrative processes and a focus on meeting the country’s development needs. Together they are able to create the conditions for investment, growth and development that emerging economies need.

Building the BPO Sector
An example of this partnership approach can be found in the way in which the Business Trust, the South African Department of Trade and Industry and BPeSA, the industry association for the Business Process Outsourcing sector, have worked together to build an enabling environment, attract and retain investment, and enhance the impact of that investment on South Africa’s development objectives. Through this partnership much has been achieved: A coherent strategy and market intelligence base has been developed by working with some of the world’s leading companies in this area, including McKinsey’s, Deloittes and the Everest Research Institute.

A government assistance and support programme has been created that offers competitive incentives to new investors.

An employer-led training programme has been developed which makes young work entrants work-ready in a manner that new investors to the country have described as world-beating.

Agreements have been struck to lower telecommunications costs. Support has been provided to enable investors to establish their operations in South Africa. 

Over the last year, sixteen new investments with a value of about R1bn have been procured and some of the world’s leading BPO companies including TeleTech and Teleperformance have moved part of their operations to South Africa.

Financial Services Sector
The country is particularly strong in the financial services sector which makes up about 45 percent of the global sourcing.  The current size of financial services off-shored is in the region of $10bn and there is an addressable opportunity here that is 25 times that size.

South Africa’s standing in the financial services sector is world-class. It is backed by a sound regulatory and legal framework and has a large number of domestic and foreign institutions providing a full range of services from commercial, retail and merchant banking to mortgage lending, insurance and investment.

While the recent financial crisis may have immediate consequences for financial service companies’ off∞shoring plans, South Africa was somewhat cushioned from the full blast of the crisis and in the medium term, companies will look to off-shoring to manage cost pressures. The medium-to-long-term growth outlook for off-shore financial services in South Africa is thus robust. It offers a 50-60 percent cost advantage over international destinations for investors and the quality and sophistication of work done in South Africa compares with major source markets around the world.

A recent study by the Everest Research Institute underscored the potential of South Africa in this sector. An investor ROI (return on investment) assessment tool was also created.  The full results of the study and the investment tool can be located at www.btrust.org.za.

Lessons Learnt
The work in Business Process Outsourcing is but one example of how the business community and the South African government are working together to make South Africa a favourable location for investment, an emerging economy of choice and a country that distinguishes itself by demonstrating that different interest groups can work together in the interests of the country as a whole. 

The Business Trust experience in building these partnerships points to ways in which emerging economies can benefit from such cooperative approaches.

The context has a significant influence on what is possible. South Africa’s shift to democracy in 1994 made the cooperative approach embodied in the Business Trust possible. It required a democratic government, confident in its position that saw the value of incorporating business in the national project of growth and development. It also required a business community in a well-established market economy that understood that its ultimate success would be as dependent on the growth of South Africa as an emerging economy and on the building of an inclusive society as on the internal operations of the firm. A second lesson was that working in partnerships requires a capacity for “business unusual” – an ability to work outside the established frames of reference to achieve more together than can be achieved independently. This is demonstrated by the willingness of some 150 private companies to pool their resources through the Business Trust and work in partnerships with the South African government to bring about the type of changes described above for  the BPO sector.

The third lesson was that effective partnership requires individuals with the ability to lead and to accept personal responsibility for the partnership’s objectives rather than merely promoting their own institutional interests. The Minister of Trade and Industry who serves as a board member of the Business Trust and leads the BPO sector Partnership Committee and the head of South Africa’s Standard Bank, helped to lead the process in the BPO sector.

A fourth lesson was that partnerships require the ability to develop a language
of principled partnership building rather than that of positional bargaining so common in negotiations. While itis often easier to win a victory for one side rather than hammer out ways of working together, the results of such cooperation provide for sustained success.

A fifth lesson was that all of this produces tensions that have to be managed by making creative tradeoffs. The South African experience is that without the tension there would be little forward movement and without the trade-off the relationships would collapse.