The Renewables Part IV: The High Cost of Energy Transition

The Renewables Part IV: The High Cost of Energy Transition

May 12, 2015

Over the past few years, a very encouraging slowdown has taken place in the growth of fossil fuel consumption across the globe. Oil, natural gas, and coal, have endured steady price declines, as demand has failed to fully recover. Meanwhile, in large countries like the United States and China, where deep concerns about pollution and climate have steadily been transformed into political momentum, the buildout of new wind and solar capacity has been rapid, if not astonishing.

We can think of this brief period as a kind of fossil-fuel hiatus. And this hiatus has given a lot of hope to those concerned about climate that maybe, just maybe, a major tipping point has finally arrived in the global energy system. If true, if such an inflection point is now upon us, the familiar suite of renewables—hydropower, wind, and solar—are now poised to start chipping away at the death-grip fossil fuels have held upon the world for the past 250 years.

But there are two problems, two distinct challenges to this happy outcome many now expect. The first is that renewables are a small thing growing fast, and fossil fuels are a big thing growing slow. And while renewables have enormous advantages—everything from falling costs to easier construction timelines, to excellent long-term return on equity—fossil fuels are deeply embedded into world infrastructure just about everywhere. So as quickly as renewables are growing, every time the fossil fuel system picks up just the tiniest amount of new demand, it represents a volume of energy that practically towers over even the most heroic contributions from renewables.

An analogy: in our case study of Los Angeles, Part III of this series, we showed that many measures of the automobile complex indicate the end of growth in miles travelled, cars on the road, and emissions over the past ten years in LA. Great news! Many Angelinos today take the train, and the health of young people has demonstrably improved as air quality in the LA Basin has radically changed. But there are still 6 million cars on Los Angeles roads and highways. And every time the economy strengthens, it sets back for another period of time the moment when the auto complex goes into decline. And that’s exactly where the world’s energy system is today. Renewables are growing fast enough to tamp down new growth in fossil fuel consumption. But, not quite fast enough to consign the existing use of fossils fuels to outright decline.

The second problem can be described rather easily: cost. For renewables to kick the existing fossil fuel system into decline —even with the help of enormous efficiency gains and new grid technologies—it will require massive public investment. You could argue this investment is already underway, as wind and solar are rolled out globally. And that’s true. China will add 18 GW of new solar capacity this year alone, more than all the solar that existed in the world in 2008. So renewables have government policy in their favor. Meanwhile, global capital, hungry for income, remains very eager to invest in wind and solar. And so free-market capitalism is also smiling, on wind and solar. But to start chipping away at the great fossil fuel mountain, the quadrillions of btu that are burned each year on global highways, in power plants and heating systems and manufacturing, will require new infrastructure. Who will bear the cost of retiring the old energy infrastructure, and the buildout of new power transmission, smart grid technologies, and perhaps most important of all—energy storage? This is what’s generally referred to as the cost of energy transition. And the cost is not small.