Will Renewables Be The Next Bubble?

There has been a lot of positive press for renewable energy lately, but despite international conferences and resolutions about greenhouse gas emissions leading to climate change, about 90% of the energy the world uses is still the result of burning some fossilized sink of carbon, whether coal, petroleum or natural gas. With petroleum I include tar sands bitumen which the Canadians cook to make synthetic oil.

As they have begun turning to oil and natural gas, China’s coal consumption and production fell by 3% last year, but they still burned almost four million short tons, four times as much coal as the US. In the US we still produce 40% of our electricity with coal, “clean” or otherwise. India burns slightly less than the US, but it is often dirtier, low grade coal. Russia and Germany each burn less than a third than the US. Germany has quite a bit of wind and photovoltaic (PV) solar installed and probably leads the world in passive solar, but were also relying heavily on nuclear plants until the Fukushima Daichi failure. They then closed their nuclear plants and returned to coal, but even Japan is considering giving nuclear another go. Hardly any African nations burn much coal except South Africa which burns about 200,000 short tons. Australia burns less than SA and sells a lot to China. South Korea burns slightly less than Oz.  Canada burns relatively little coal, but after processing tar sands into dilbit, sells its dirty pet coke byproducts across North and South America where they are burned like coal. Coal is nasty stuff, and more deadly in the short term than nuclear, but we’ll probably have to see a lot more devastating climate events before we give it up.

Fracking is slowly being revealed as a financial bubble, but even with the boomlet, the US is still a net importer of oil. Canada exports its diluted bitumen (dilbit) to Asia, and wants to use the XL Keystone pipeline to move it instead of railway cars. Indonesia generates its electricity with oil. It used to export oil, now it is a net importer. Pakistan relies on Saudi oil, and Saudi debt forgiveness, for electricity, but experiences load-shedding so often that it has become a regular part of life.

The US has replaced many of its coal-fired electrical plants with cleaner natural gas plants. Russia sells natural gas throughout Europe. Canada uses natural gas to process its tar sands. But though it burns cleaner than oil, natural gas is not a renewable resource, and the output from gas wells can decline very quickly with little warning.

Despite the gloomy prospects for carbon fuel, a Deutsche Bank report notes that the Solar Investment Tax Credit drops from 30% to 10% in 2017, and new subsidies for renewables seem unlikely in an election season. Nevertheless, many media outlets, like Clean Technica, are quoting that study’s claim that the world will achieve “grid parity” by 2030 as evidence that we can smoothly transition from a world burning carbon to a world run with energy from renewable sources – meaning the sun, wind, trees and flowing water.

Deutsche Bank Predicts Solar Grid Parity In 80% Of Global Market By 2017

Investment bank Deutsche Bank is predicting that solar systems will be at grid parity in up to 80 per cent of the global market within 2 years, and says the collapse in the oil price will do little to slow down the solar juggernaut.

In his 2015 solar outlook, leading analyst Vishal Shah says solar will be at grid parity in most of the world by the end of 2017. That’s because grid-based electricity prices are rising across the world, and solar costs are still falling. Shah predicts solar module costs will fall another 40 per cent over the next four to five years.

Even if electricity prices remain stable – two thirds of the world will find solar to be cheaper than their current conventional energy supply. If electricity costs rise by around 3 per cent a year, then Deutsche’s “Blue sky” scenario is for 80 per cent of countries to be at grid parity for solar.

“We believe the trend is clear: grid parity without subsidies is already here, increasing parity will occur, and solar penetration rates are set to ramp worldwide,” Shah notes.

The technical definition of grid parity is when you can generate your own power, “at a levelized cost of electricity (LCoE) that is less than or equal to the price of purchasing power from the electricity grid.” That would seem to indicate that powering one’s home or small business with PV would make financial sense.

The reality of grid parity is less compelling. For example, Australia achieved grid parity in 2012, but less than two percent of their electricity is generated by solar energy. The electrical demand curve of a house or business is vastly different than the supply curve of an array of panels. The difference means that either each user only use electricity when the sun shines, store a great deal of power in a great many batteries for dark and stormy nights, or draw power from the wind and natural gas-fired grid when necessary.

As noted in the Washington Post, utilities are not excited about their delivery interface getting more complicated.

Electric utilities appear poorly equipped for how technology will transform the energy industry. For years there hasn’t been an incentive to innovate, in part due to a lack of competition. Plus, making their product cheaper means less revenue, so why innovate?

I’ve been reading about battles between early solar adopters and their local electrical utilities since the 1970s. It may be a tall tale, but back then I was told that one Western US utility expected to be paid for any electricity generated in the state, even if you were off the grid. I am still running across articles about disputes, but it seems that sometimes a developer or panel vendor can actually strike a deal with the local power company where the homeowner both generates power and uses the grid.

As an aside, we have no solar panels, but we just got an offer from Penelec to, “insure” the outside power lines for some amount of money per month. “Be a shame if something were to happen to our line where it runs across your property.”

Batteries are getting better, and cheaper, but don’t last forever. Elon Musk and others are trying to invest billions to advance the technology for Electric Vehicles (EVs), and that may cross over to home batteries. Hence we see the idea of using your EV battery array as a storage unit for your home’s solar panels.

What is likely to happen? Over time, electricity will become much more expensive and more intermittent. People will adapt their schedules to the vagaries of the power grid, as they do in Pakistan now. I see rich people investing in solar arrays, inverters and battery arrays, as they do in Pakistan now, to stay up late and get through the downtime. Even though many condensers are natural gas-fired, I can’t see how forcing cold air through buildings the way we do now can continue on a renewable grid. Perhaps office dwellers will rediscover operable windows.

As far as transportation, wealthy people are already transitioning from gasoline to battery and fuel cell personal vehicles. Some middle class people are already driving smaller cars, hybrids and motorcycles, but the big tree falling will be when American pickup truck sales decline. Electric assist bikes are very popular in Asia, and will catch on elsewhere, but dirty two-stroke motor scooters are still faster and cheaper.

I can see more people accepting EVs. I already see buses with fuel cells. I have a hard time seeing industrial farm vehicles, which run all day, running on batteries or fuel cells instead of diesel. I can see construction workers switching their handheld tools from air compressors to batteries, but I can’t see battery-powered dump trucks and concrete mixers putting in a full day. I can see street lights being replaced by larger versions of those lawn lights with the little PV panel and rechargeable battery. In Pakistan now, manufacturers simply can’t run their textile machines during load shedding, so I expect there will be a series of ideas floated to solve that problem elsewhere, many of which will fail.

I’ve written about it before, but I’m still thinking back to a Harper’s article from 2008, The Next Bubble. That bubble was to be in renewables, or Cleantech:

There is one industry that fits the bill: alternative energy, the development of more energy-efficient products, along with viable alternatives to oil, including wind, solar, and geothermal power, along with the use of nuclear energy to produce sustainable oil substitutes, such as liquefied hydrogen from water. … Other ventures … are funding an array of startups working on improvements to solar cells, to biofuels production, to batteries, to “energy management” software, and so on.

… The Energy Policy Act of 2005, a massive bill known to morning commuters for extending daylight savings time, contained provisions guaranteeing loans for alternative-energy businesses, including nuclear-power technology. The bill authorizes $200 million annually for clean-coal initiatives, repeals the current 160-acre cap on coal leases, offers subsidies for wind energy and other alternative-energy producers, and promises $50 million annually, over the life of the bill, for a biomass grant program. …

There certainly has been a great expansion of renewable energy, but it hasn’t had the sheen and bluster of a bubble. Here and there, wind turbine ‘farms’ are built and subsidized by tax credits. Sometimes they stop turning when the credits dry up. Photovoltaic solar panels suddenly became more efficient, but local manufacturers were undercut by cheaper products from China, and concerns were raised about PV waste. Molycorp reopened an old mine, and attempted to break the Chinese stranglehold on rare earths, but as recently reported on 60 Minutes, has yet to turn a profit.

Supporting this alternative-energy bubble will be a boom in infrastructure—transportation and communications systems, water, and power.

Harper’s missed the call on US infrastructure. Although the media regularly raises alarms about rusting bridges, and despite President Obama championing infrastructure spending, federal, state and local governments are still reactive rather than proactive. Harper’s also missed that the next bubble was actually in unconventional energy sources like fracking and tight oil and tar sands, but they may be on the verge of being right about the next, next bubble:

… the gross market value of all enterprises needed to develop hydroelectric power, geothermal energy, nuclear energy, wind farms, solar power, and hydrogen-powered fuel-cell technology—and the infrastructure to support it—is somewhere between $2 trillion and $4 trillion; assuming the bubble can get started, the hyperinflated fictitious value could add another $12 trillion. In a hyperinflation, infrastructure upgrades will accelerate, with plenty of opportunity for big government contractors fleeing the declining market in Iraq. Thus, we can expect to see the creation of another $8 trillion in fictitious value, which gives us an estimate of $20 trillion in speculative wealth, money that inevitably will be employed to increase share prices rather than to deliver “energy security.” When the bubble finally bursts, we will be left to mop up after yet another devastated industry. …

Will Harper’s be correct? Or can we adopt aspects of renewable energy with careful consideration rather than believing the hype that we can continue to live a non-renewable lifestyle using renewable energy sources? It does seem clear that the financial industry knows that their customers are not going to be satisfied with slow steady returns. That’s why we see Deutsche Bank hyping grid parity into a done deal on renewable energy.


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