Energy industry calls for UNFC to embrace renewables
As the renewable energy industry commercializes, it is increasingly important to be able to assess and quantify renewable energy resources in a common and transparent way to secure needed investment. This was the view of a group of experts – the Renewable Reserves Working Group – that met in London from 31 October to 1 November. Following a review of existing classification systems, the experts agreed that the United Nations Framework Classification for Fossil Energy and Mineral Reserves and Resources 2009 (UNFC) could be applied to renewable energy resources. Deploying the UNFC to encompass renewables would allow a meaningful comparison of renewable energy resources with non-renewable resources. Jason Channell, Director and Global Head, Cleantech & Alternative Energy, Citi Research, Citigroup stated "A standardized system of classifying reserves of alternative energy based around the UNFC would be of enormous use, enabling investors to easily compare diverse portfolios of both alternative and conventional forms of energy with a high degree of confidence in the underlying methodology and resulting metrics. This would allow the most efficient allocation of capital between companies, industries, geographies and technologies, thereby removing barriers to investment and aiding the development of the rapidly changing global energy complex."
Whilst the potential application of the UNFC to renewables was first discussed at the meeting of UNECE’s Expert Group on Resource Classification in May 2012, the initiative is currently being explored and progressed by an industry-led Renewable Reserves Working Group.
The workshop, which gathered experts covering the bioenergy, geothermal, hydro and wind sectors from Governments, industry, the financial sector, international organizations and the United Nations, was hosted by the international law firm Norton Rose. At the close of the event Damien Gerard, Head of Strategy, BP Alternative Energy International Limited, reflected “The workshop addressed a range of issues with regards to assessing renewable energy using an existing classification framework designed for fossil energy and mineral reserves, including that renewables are by definition non-depletable. But it also revealed that using the concept of “renewable reserves" could be a powerful way of contrasting different energy sources on a common scale. The diversity of the group allowed for a frank and productive debate, and we will now have to reach out to a much broader community while drafting the specifications and assessment guidelines.”
Many participants expressed urgency for the development of the documentation (notably the specifications or basic rules of application) to enable the UNFC to be applied to renewable energy resources. A plan to move this initiative forward with the engagement of all stakeholders will be elaborated, with a second workshop envisaged during the first quarter of 2013.
Note to editors
Operating under ECOSOC Decision 2004/233, UNECE’s global work on the UNFC is carried out by the Expert Group on Resource Classification, whose key focus is the further development and global promotion and implementation of the UNFC. Generic, intuitive and user-friendly, the UNFC is the only modern classification system in the world to address the minerals, petroleum and uranium sectors using a single set of definitions and terminology.
The UNFC is an umbrella classification system which is fully aligned with the key commodity-specific systems in place worldwide for minerals – the Committee for Mineral Reserves International Reporting Standards (CRIRSCO) International Reporting Template and for petroleum – the Petroleum Resource Management System (SPE-PRMS) of the Society of Petroleum Engineers (SPE), the World Petroleum Council (WPC), the American Association of Petroleum Geologists (AAPG) and the Society of Petroleum Evaluation Engineers (SPEE). SPE-PRMS is also endorsed by the Society of Exploration Geophysicists (SEG).
The UNFC is designed to meet the needs of four principal stakeholders or constituencies:
(i) analysts of international energy and mineral resources;
(ii) Governments – to manage their resources accordingly;
(iii) industry – to provide data and information necessary to deploy technology, management and finance in order to serve the host countries, shareholders and stakeholders; and
(iv) the financial community – to provide the information necessary to allocate capital appropriately so reducing costs. A strong code, offering simplicity without sacrificing completeness or flexibility, the UNFC paves the way for improved global communications which will aid stability and security of supplies, governed by fewer and more widely understood rules and guidelines. The efficiencies to be gained through its use are substantial.
A common methodology for renewable resource classification could provide a measure of comparability and reduce the subjective nature of estimation of these resources, it would also offer a basis to estimate the scale of each renewable resource, as well as providing more reliable estimates that are based on standards which consider widely-adopted technological advances and a consensus on best practices. A renewable resource assessment methodology can also provide the foundation to calculate a whole range of metrics, such as profitability, operating costs, or net income per unit of energy produced or any other energy metric. Ultimately energy companies could report externally their renewable resources on a consistent basis alongside their reporting of hydrocarbon and other reserves, and that should offer key benefit to the accounting and valuation of the renewable assets of those companies.
There are many similarities between oil and gas and renewable projects when it comes to resource estimation. For example, resource evaluations are focused on those quantities that can potentially be recovered and marketed by commercial projects. Just like oil and gas, renewable resources progress from a “prospect” all the way to production as projects gain in commercial and technical maturity. Renewable energy projects face the same issues and development steps as petroleum projects; they need a license to operate, a final investment decision, a technical assessment of the resource available, a viable route to market, etc. However, there are also clear differences between assessing renewable resources and petroleum resources. Renewable resources are by definition non-depletable and are not physically constrained in a sub-surface reservoir, which raises the question as to how to put a limit on an infinite resource. Unlike oil and gas, a natural resource such as the wind or sun does not belong to the state or surface owner; however a project developer still requires access to a land or a catchment area to exploit the resource. While hydrocarbon projects deliver primary energy inputs into the energy system, renewable projects deliver electricity or biofuels which are end-products in the energy supply chain; this raises the challenge of fair and equivalent reserve assessment for all energy commodities.