Yves here. This post, in an indirect way, confirms some of our pet views about combatting climate change. Most green energy advocates sell these cleaner sources as a way to largely if not entirely preserve current lifestyles. This article contends that widely-used ways of estimating the cost of these newer energy source omit key inputs. Another issue is that certain critical materials like copper are in scarce supply, with prices skyrocketing. Even though renewables fans argue these commodity issues will be solved in due course, we don’t have the luxury of time.
In other words, we don’t see anything remotely approaching an adequate solution save radical conservation. But no one wants to go there.
By Irina Slav, a writer for Oilprice.com with over a decade of experience writing on the oil and gas industry. Originally published at OilPrice
- Investments in low-carbon energy hit $1.1 trillion in 2022.
- Shortages in crucial industrial metals and rare earth metals could lead to rising prices for renewables.
- Hydrocarbons remain very crucial for our energy security.
Last year, investments in low-carbon energy hit $1.1 trillion—a record high and a major increase on the previous year.
However, this record investment did nothing for the world’s energy security, it seems, because besides the record investments in renewables, 2022 was also a year that saw a major increase in oil, gas, and coal demand.
Not only that, but warnings multiplied about more fossil fuels investments that will be needed. Even the head of the International Energy Agency warned earlier this month that the oil market is facing a shortage later this year because of a growing gap between supply and demand.
In such a context, when the most developed economies in the world are striving to reduce their dependence on fossil fuels, one cannot help but wonder why they are also encouraging more fossil fuel production.
Germany, for instance, just closed its last three nuclear power plants—a low-carbon source of electricity—but expanded a coal mine. The United States’ federal government is spending billions on alternative energy but is insisting that oil producers boost their output. Britain wants to become the Saudi Arabia of wind energy, as former PM Boris Johnson said, but gas demand hit a record last year.
Something doesn’t seem to be adding up. This something is the hidden cost of renewable energy. It is not something widely talked about because it has the potential to derail transition efforts by casting doubts over the viability of the transition.
Yet the issue is very much clear and present. Why else would China be building as many coal power plants as the rest of the world despite boasting the world’s most wind and solar capacity?
Many critics of the transition to wind and solar argue that the biggest problem is that these are being touted as cheaper than fossil fuels. And the calculations to do that are made on the basis of something called levelized cost of energy.
The levelized cost of energy is a simple measure. Per the U.S. Department of Energy, LCOE measures lifetime costs for an energy installation divided by energy production. It sounds straightforward and simple enough. The problem is, it isn’t.
LCOE is not a comprehensive measure of costs because it only factors in upfront costs and the cost of operating a wind or solar farm. What it markedly does not factor in is the cost of energy that is not produced by these farms when the sun is not shining and the wind is not blowing.
These are some substantial costs because when wind and solar are down, fossil fuel plants need to step in and fill the gap, and the electricity they produce has become expensive because of those cheap renewables.
But besides LCOE, which proponents of wind and solar have used for years to argue for their affordability, there are also other costs that are making themselves known now. Raw material prices are going through the roof, and there is little anyone can do about it.
Daniel Yergin earlier this month wrote in an op-ed for the Wall Street Journal that the transition would kickstart a mining boom. The reason is that wind, solar, and EVs require massive amounts of metals and minerals, and these are not being produced at anywhere near the necessary scale. And this means some shortages may well be looming over the horizon.
Copper is a case in point. Trafigura warned last year that there was only five days’ worth of copper supply in the world in inventory. Not only this, but that inventory was likely to shrink further to just 2.9 days’ worth. Just how dangerous this is becomes clear from the fact that ordinarily, the world’s copper inventories are measured in weeks.
As a result, copper prices are about to hit a record this year—again—according to Trafigura. This is not going to do anything about the affordability of wind and solar, especially given that it’s not the only commodity in short supply.
“Everything is getting much more expensive in an already stretched wind industry supply chain,” a senior Siemens Gamesa executive told the FT late last year. In the U.S., the Biden administration last suspended exorbitant tariffs on Asian import solar panels after these caused a slew of new project delays and cancellations because of higher costs.
No wonder, then, that the wind and solar industries are finding life hard at the moment, despite upbeat reports that continue to insist that wind and solar are the cheapest sources of energy.
This is why oil—and coal, too—continue to be essential for the world’s energy security. Their LCOE may be higher than wind and solar’s, but so is their reliability because, unlike those two, fossil fuel power is dispatchable: it can deliver whenever it’s needed.
And let’s face it – oil and gas production and processing requires a lot less metals and minerals than manufacturing solar panels, inverters, cables, and wind turbines for that low-cost, low-carbon energy that is, essentially, neither of these.
23 comments
Comments are closed.
Oil and gas are principally used for transportation and electricity generation. Electricity is principally used for lighting, heating and air conditioning (HVAC), and industrial production.
These are the sources and uses of energy for the U.S. in 2020, courtesy of EIA.
So if we individuals wish to address individual-level energy consumption, the two big places to focus are transportation and HVAC. If we wish to reduce industrial energy consumption, we need to make things last longer, so products need to be sourced and manufactured and distributed less often.
If we wish to address materials shortages, we need to reclaim materials at the end of the product’s useful life.
That means we need new products that enable less transport, less HVAC. We also need a re-designed economy which will produce and deliver those products.
Why do I emphasize product development capability? Because I think the major impediment to the realization and implementation of “radical conservation” is the lack of products which people can obtain and use _now_ that deliver on those requirements.
We can wish and want and demand all we like; until the enabling products to fulfill those emerging, ever-more-obviously necessary requirements are available, we’re stuck.
New product development is a key missing capacity across our society. You may say “I have no idea how, nor any motivation to engage in product development”. That’s certainly understandable, because we expect the commercial sector to provide what’s needed.
The commercial sector, for some very good reasons, isn’t delivering on those needs, are they?
What if they continue to not provide what you need?
Here are a few of the generic requirements for these “new products”:
* long life-span. Designed for longevity, easy and cheap maintenance
* enable substitution of low-input products for high-input products. Telework is a good example
* address transport and hvac issues first, since they have greatest potential for change
Ideally, those same products would substitute labor for materials and energy inputs. The product designs would enable repair and materials recovery instead of materials digging up and new manufacturing.
Those strategies would work, and they can be mandated by bottom-up consumer choices. No top-down buy-in necessary.
The people – that’s us – can (and in some cases are!) design and build what they need, and buy it. Let the laggards (manufacturing concerns) enjoy declining sales, and see how long they elect to do nothing.
Love this. In MLK Jr.;s last speech before he was murdered, he devoted some time and space to the issue of consumer-demand-driven change. NOT supply-side. I have read that speech a few times, took ’til my most reading that he made this critical point.
Could you imagine a US based basic industries company that made simple, well-designed items like bicycles, lead-acid recyclable battery-drive golf cart style vehicles for in town use, efficient well-insulated refrigerators and freezers, washers dryers, stoves that were mechanical, not digitl, and had a ready, repeatedly re-stocked back stock of parts. Make the company a coop, worker-owned, fair wages… sort of on the Mondragon Spanish model ?
Seems like a huge opportunity. I approached our local trade school community college that is teaching aviation mechanics, construction, and food service trades, as we are becoming a sort-of resort town catering to nearby apparently bottomless wealthy ski/golf fly fishing wonderbread escapist enclaves.
That’s The Future in our region: wiping arses and catering to the aspirational Oligarchs.
My big idea… start manufacturing replacement parts for household appliances. Real-time, just in time, custom fabricated parts. I was seeking a no longer available high wattage electric oven element, obsolete.
Got a resounding meh from the school. Jobz and an honorable trade? Keeping already manufactured white goods from the dump? I guess not so much.
Do little, with less, and vote with your pocket book– and make that cash!
jefemt:
Way, way, way to go, man!!
Pls keep us up to date on developments up your way. This is a slow, tuff grind, but a few successes or even near-misses will get people thinking and – particularly – using these sort of considerations as purchase criteria.
I am well-convinced that purchase-decision criteria is a massive force. Farmers’ markets, aversion to meat, the animal welfare awareness, tobacco, GMO food…those incipient, bottom-up, cultural awarenesses _forced_ industry to change.
The electric car. Solar panels. Those successful products _forced_ industry to change, and they did, bitchin’ and a-moanin’ the whole time, but they moved. A lot.
Aaand, before I buzz off, may I point to the possibility that local trades and consumers will recognize the convergence of their interests, and start deploying their _existing_ resources in pursuit of new markets, and new revenue flows into their own coffers.
jefemt: I’m getting, of course, the same sort of “meh” you’re getting, and it’s partly because people are literalists – they have to see it to believe it. Natch.
So the building of the first prototypes is the sticky wicket. Which is why I like … new product development. Have you read a book on product development lately? Pretty potent stuff.
Malcolm X also advocated for building a black-people economy. “Can’t buy at the local store? Open your own store. Buy from your own people” is what he advocated for.
And the bus boycott is what really frosted the town-folk of Montgomery Ala. Got their goat but good. It works!
Excellent point about HVAC. I work in building trades for people on cutting edge of sustainable home reno (see Pretty Good House concept), for the past decade we have been all in on home electrification and installation of heat pumps as most effective way to reduce energy consumption after effecrive air sealing and insulation. Heres the catch- refrigerants in these systems are very potent greenhouse gases and one leak on a job can negate years’ worth of project gains. Have heard CO2 could be used as a refriferant in future so would obviate this issue. Magic bullets like heat pumps or spray foam always seem to have really bad side. I vote for radical conservation
I’m really not sure where to start with this article. It is packed with unsubstantiated assertions and handwaving.
The IEA have been saying this annually for the past half a century. Even BP is saying oil use peaked in 2019.
um, yes, energy demand of all sorts is rising, mostly due to post-covid recovery and major growth the two most populate countries on the planet. Investment in renewables only overtook fossil fuels 2 years ago, so its hardly surprising that growth in demand for all types of energy increased.
German coal production.
German renewables output climbed 6% from last year.
This is a gross simplification of LCOE and its use in planning power systems and strongly indicates the author has no understanding of the concept. LCOE is just a tool that can be adjusted for any combination of power source, including renewables plus storage. There are plenty of studies out there that widen the concept for comparisons.
Because China is a very big country with a very variable grid system, a massive amount of outdated plant to replace, and a huge overall increase in energy demand. Coal energy outputs have already peaked in China (total tonnage of coal use has increased, but the calorific output is falling as they are running out of good quality coal). But by far the biggest investment and increase in outputs is from renewables.
Copper inventories are down because most refining capacity is in China, and China reduced outputs due to energy constraints over the past 2 years. And demand is up mostly because the number one use of copper is in residential construction, and China has done everything it can to keep housing construction rates high. And if you read the linked article it is clear that this is a prediction – in fact, copper prices aren’t particularly high and most of the rise in demand is the post covid situation in China.
The main problem with the renewable industry is keeping up with extreme rises in demand. If this is failure, any business would love to fail in this way. Of course there are supply chain constraints. This applies to thermal plants, nuclear and oil and gas too (does the author have any idea how long it takes to build an LNG carrier or an off-shore rig?)
This is a gross simplification of how grids work. Coal and nuclear provide baseline power. They are only dispatchable in the sense that if you know well in advance when you need a certain amount of power, they can do so. They can’t provide dispatchable power on short term demand, only CCGT, hydro and CSP can do this. All power systems need a balance of baseline, daily, weekly, annual and emergency power supplies, some of which can be planned, some cannot. Dividing power sources into ‘dispatchable’ and ‘intermittent’ is largely meaningless in terms of how complex grid systems are managed.
Funny how the author left out coal in this tidy little final paragraph. Even without coal, its just not true. First off, you are comparing the fuel (oil/gas) to the supply infrastructure (inverters, cables). As a comparison, its not even close. Mining fossil fuel provides hundreds – perhaps thousands of times as much waste as renewables.
Thanks, PlutoniumKun. I always look for your comments! They add a lot of valuable data and a clear take on things.
2nd orus’ remark. Thanks for clarity and thoroughness and general competency, PK.
You bring a lot to the table.
Exactly. In general I regard all geopolitical and industry analysis that comes out of OilPrice with considerable skepticism, as I consider the company to be a vehicle for Big Oil, which itself is heavily invested in the continuation of the American empire.
We don’t know who owns it, because ‘OilPrice does not openly disclose ownership’ – this does inspire trust, doesn’t it? However, James Stafford, who is listed as its founder and CEO, has ‘decades of private banking & asset management for many Fortune 500 companies’. Most recently he was portfolio manager for Merril Lynch and Morgan Stanley. Hence my cynicism.
And (wait for it!) OilPrice is also the parent company of OP Tactical, which ‘offers sales of military gear’ – to oil companies, I suspect. Basically, Stafford embodies the American empire trifecta: oil-finance-military, plus a nice dollop of digital media.
More detail on OP Tactical products & services: ‘quality and US-made gear for individual soldier and Law Enforcement Officer, with primary focus on Special Operations-related equipment’. My emphasis. So this is the daughter company of OilPrice.
the “sustainment factors” for wind and solar are ignored or grossly underestimated, mostly in the underwriting of green projects, which make esg uneconomical.
design factors that go into life cycle cost (lcoe is deliberately missing loss of output and sustaining/downtime costs): mean time between a failure on a producing node (wind mill or replaceable solar panel), mean time to restore specified generation, downtime including time to marshal technicians, 150 meter high work stands, test equipment, parts and transport), preventive tasks that cost effectively avoid downtime and repairs costs….. a mechanical engineer once joked about doing repairs on wind turbines in the north sea, as well as clutches that don’t ruin equipment…..
at “end of life” dismantling, disposal, cost/waste of recycled lithium….. etc.
these issues are persistently ignored in us/dod military systems development as well, but the dod doesn’t go to bankers to get bonds!
talking to step son with a domicile solar installation: he is being encouraged to put in a battery at most of the investment in his panels in an attempt to mitigate the harm he does to the grid during peak and winter demand!
I am a bit conflicted by this article as I think it misses the central points. Apples to oranges comparisons among different technologies are not super helpful. While LCoE is indicative as a tool, it is just that a modeling tool.
The real issues, that few seem to want to address, is that the industrial-economic status quo cannot be maintained if climate catastrophe is to be minimized. In other words, the notion that we can consume the way were are (not implement massive conservation and the end of a brand of capitalism that is dependent on constantly replacing perfectly good things regularly) and have power and oil products at the same prices as a few years ago can’t happen.
Yes, shifting to the minerals required for renewables and EVs is really dirty, but so is oil, gas and coal production. Because of where is occurs, much of the consequences of mining are not seen. And, there are literally thousands of oil wells no longer producing product but still harming the environment.
Financial costs of climate change are real and prima facie evidence that a real problem is brewing — namely the price and availability of property insurance in CAT exposed geographies. The models used by the industry simply don’t work. As a result rates are up and limits are way down. No new capital flowed into the reinsurance industry post Ian. Yet, we continue to incentivize movement into Tier 1 counties and make the problems worse.
So there real problem for policymakers is they are unwilling to be honest that preventing this requires changes and people perceive change negatively.
Mining is one of the dirtiest, most exploitative and polluting attacks on nature and humanity one can imagine. Is that figured into its “LCOE”? We live in an age of scientism, where the things people choose to or can easily measure are all that exist. There’s a meme going around showing Greta Thunberg having one of her fits, shouting “you’re stealing my future”, with another photo of an African child bent over hauling up cobalt sludge: “I’m working as fast as I can”. Real conservation and not 100% freaking out over every disaster epic produced by the IPCC will do wonders.
Yes, as PlutoniumKun explained, copper is not the scary problem it is made out to be. Mining of any commodity occurs in response to demand, and pulls back when the producers choose to pull back or there is a glut. Admittedly there is a long lag time in opening up new mines, and nature is very capricious in where she places the deposits. And we’ve blasted through our giant copper deposits in the US over the last couple centuries.
All the more reason to pursue harmony with other nations, we never know where the next gotta-have element is going to occur in nature, and being able to secure necessities—well, that’s what world trade is really for. It would be nice if we weren’t running around making enemies everywhere in the world.
You might find the following Tweets on the problem of copper of interest here-
https://twitter.com/Mining_Atoms/status/1584306032653717505
Excellent thread! Mining proponents seem to forget that mining is fuelled by diesel. And open pit mines with their attendant leach pits and mounds of waste are hideous to behold.
As long as we (humanity) allow the market (and tribalism) to dictate to us the definition of “A Good Life”, radical conservation is not possible. The market holds the pole that’s dangling the carrot, and the influence of every other institution that might be able to turn this Titanic is in decline or currently under attack (sowing doubt) in the media.
If I were The God of Fossil Fuels, I would no longer view renewables as a flea, an annoyance, but rather a growing threat to my power and rule. Actually I’m an agnostic living amongst a deeply superstitious species, but can’t help wonder how an industry with godlike resources might respond over time to a growing threat. Old Testament, maybe? Or something more nuanced and on many fronts?
We are on a battlefield; this is a class war; the rich are winning. The only way to stop them is to take the pole out of their hands (voluntarily or by force) and reclaim the carrot for ourselves… right after we figure out what to do about those who will try to step into the power vacuum.
I think the commentariat is on the same page that there are some aspects of human nature that simply will not change under any living conditions we may create in the future. To get humans to spend their lives ‘laboring’, there have to desirable rewards in this life. ‘Delayed gratification’ is so 40’s, I don’t see it making a comeback.
time to tell us how we keep a 21st century lifestyle with gse that cannot go w/o massive subsidy, and the empire needs a new bc the war machine that was built by raygun must be replaced with expensive unreliable profits
The electric bill arrived in the mail yesterday. We’re budgeted for $79 a month. Every previous winter to this one, we ran about $300 in arrears that caught up over the summer months, and this was with 23 solar panels on our roof over the last 8 years.
Currently we’re $89 in the hole, a $200 difference. What changed? We replaced our fireplace insert, and frankly, struggled all winter to get the house cool enough to sleep comfortably. We’ve owned the house for 21 years. In very round figures, we lost $4k up the chimney.
We have a pressing need for housing; the housing that’s being built is energy inefficient, as though is were quite beside the point. Grand on the outside, leaking like a sieve on the inside, and so very expensive.
What if the energy anti-efficiency of the housing that’s being built is not “beside the point” or “accidental”?
What if it is malicious and deliberate ?
Great thread. One thing radical conservation would stimulate is innovation. Why not do some serious rationing of energy and watch what develops? I didn’t quite get the calculation for energy costs – the levelized cost sounds like nonsense – “the long term costs divided by productivity.” Reminding me of RM’s point yesterday that all valuable things require time and attention – which highlights the fact that energy is a substitute for time in a destructive way because it accelerates value beyond a natural scope. and bla blah. Also, I’m wondering why some very basic renewable resources are so ignored. Like water and gravity and geothermal. Because there seems to be water, water everywhere these days.
we give up lifestyle
Most of us are in favor of radical conservation, but what does that mean in terms of a bill of particulars? We all have favorite conservation agendas we think are radical, but what can we use to point to when we’re trying to communicate with others?
A lot of people here argue, with justification, that trying to rein in climate heating will not work since it conflicts with the perpetual growth lifestyle that nobody wants to give up. Consequently, for me radical conservation begins by doing whatever I can to undermine economic growth per se, and promote Herman Daly’s steady state alternative. All the energy alternatives and green technologies bandied about make sense only if they are implemented within a steady state economic model. Otherwise they will be only ineffective diddling.
If we fail to sell the steady state idea, there is still hope for the Earth’s biosphere, although not so much for Homo sapiens. The Paleocene-Eocene Thermal Maximum, the the 5°temperature rise endpoint that climate scientists fear we are headed, was not all that bad for planetary biodiversity. A lot of large mammals were swept away but other familiar groups (like horses) had their beginnings around this time. And insects made spectacular gains.
tried to post stats on 2021 German coal production, with link, but blocked. very odd, not the admin but something else, base on the behavior.