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.
Just last year, the Paris-based International Energy Agency (IEA) estimated that to the year 2035, at least 17 trillion of investment would be needed in the power sector: 10 trillion in new generation and another 7 trillion on transmission and the grid. Unfortunately, we are at the extreme front-end of such an investment wave. To illustrate: the United States has barely begun to build the needed grid storage should certain states, like California, follow through on their plan to derive 25%, 30%, and even 50% of their energy needs from renewables. Most of the existing storage capacity in the US today, over 98%, is pumped-hydro storage. This type of storage capacity has tracked along a flatline for a number of years, at around 22-23 GW. Only very recently has non-hydro storage—typically batteries—started to appear.
Conrad Eustis, a long-time energy and utility professional based in Portland, Oregon says, rather charitably, “Well, it’s a start. But in truth it’s just a drop in the bucket.” The most recent data from the Energy Information Administration (EIA) in Washington, DC shows that non-hydro storage has indeed started to grow more quickly. Driven in part by California’s aggressive renewables plans, growth doubled over the past five years from 160 MW to 350 MW. But pay close attention to those units—megawatts. A megawatt is just a 1000th of a gigawatt. Non-hydro storage composes only 2% of total storage capacity, which overall is still exceedingly small compared to the US power generation system.
Now, a word is in order about storage, and just how much national systems will need in the future. As Eustis says, “For 120 years, we’ve built generation to match load needs, and operators schedule that every day—and in that model we don’t need storage. So, for the utilities this is the standard planning paradigm. But that paradigm is changed if we have lots of wind and solar generation. There are only two solutions: build storage and/or shift load use.”
Just about every month or so you can read that German solar power capacity, which is now an enormous 38 GW in a 170 GW electricity system, produced so much surplus electricity that the energy needed to be shipped across borders to other EU countries. Critics of renewables power, years ago, maintained powergrids everywhere would have no flexibility, even as the first small volumes of wind and solar electricity came online. As we can see, that’s just not true. (Not yet). Whether it’s surplus wind power from Spain, Scotland, and various Nordic countries, or, surplus solar from Germany or Italy, Europe is already demonstrating that the existing grid can route surpluses. Indeed, grid operators have always re-routed electricity surpluses, like air traffic controllers.
However, there is a threshold. At some level of renewables penetration, when a state like California is generating half of its load from renewables (its latest, proposed target for 2030), relying on reducing thermal generation will no longer be a sufficient option. Storage, and/or load that consumes renewable energy during peak generation hours will be a necessity. “The 40% level is a trigger point,” says Eustis. “40% is not an exact answer, but the important idea is that, even before you get to 40%, you’ve got to be planning what to do with surplus energy. And right now, the industry doesn’t have an economic planning tool to deal with this problem.”
The storage market appears to be waiting for the hook, or spark, that could get it moving forward on something more than just mandates. California passed, in 2013, just such a mandate that utilities had to build 1.3 GW of storage by 2020. Southern California Edison has already constructed a fairly large scale wind-storage facility in the Tehachapi Pass. This is the location of some of California’s oldest wind power, the sprawling fields of white turbines a driver would see while traveling from Palm Springs to LA. As always, however, notice the scale: the 32 megawatt-hours battery storage facility currently qualifies as the largest battery storage project in North America. And yet it’s tiny. With the leaping, year-over year gains in wind and solar construction in California, the Golden state is already generating an average 63,000 megawatt-hours per day, from combined wind and solar (2014 data). When you begin to understand the variability in this generation, the current California mandate of building 1300 MW of storage by 2020 looks like a minimum.
Tehachapi Pass wind farm (left) and Tehachapi Southern California Edison Wind storage battery
Indeed, a 2014 study released by E3 (Energy and Environmental Economics) of San Francisco, Investigating a Higher Renewables Portfolio Standard in California, it was shown that were California to adopt a solar-heavy policy to achieve a 50% renewables portfolio, the surplus generation could on a daily basis become extreme. Modeling in the report showed that overgeneration could approach, for short intra-day periods, a level nearly double that of actual demand.
Unsurprisingly, markets are keen to see how rapidly costs might come down in storage technology. Cost declines to build renewables are coming down rapidly, so many expect the same to occur in storage. Ramez Naam, author of The Infinite Resource has recently observed that cost declines in batteries are now well underway. In a recent blog post, Why Energy Storage is About to Get Big and Cheap, Naam sees a virtuous cycle now appearing on the horizon, where the economics of investing in storage will start to gain a toehold, expand, and then accelerate.
That may be true, but at the moment, with combined generation from wind and solar still in the single digits in many domains, we may be caught in a “you go first” situation where a broad spectrum of power professionals, venture capitalists, and industrial companies all agree that storage needs to be constructed—but no one is willing to be the first to commit large capital. “Perhaps it’s more of a ‘Why Should I Go First?’ situation,” says Eustis. “Right now, for example, AES (a global utility) has a major battery they are using in Virginia to provide frequency regulation. This is the one application so far—frequency regulation—that may be economic. However serving peak demand with storage (an application that also allows storing renewable energy) is an application that needs eight to fifteen times more storage per installed MW. And the price of batteries aren’t low enough without incentives to justify investment compared to a peaking plant.”
Overall, Eustis sees that a blend of free-market solutions, and also thoughtful energy policy, will be needed to more accurately deploy grid storage on the required timeline. “There are two general things we could be doing. One is to just make better, general plans for a future with lots of renewable energy supply. The other is to put more effort into standardizing grid communication technology, so that manufacturers can create responsive load devices like water heaters or electric vehicles. If we are going to utilize EV batteries, as part of our storage solution, for example, you’ve got to standardize communication to enable ubiquitous, low cost automation to utilize them cost-effectively. And we could get started on this today.”
A paradox is now appearing, therefore, as the world’s energy system undertakes its first serious effort to transition to renewables. Those most concerned with climate would like to see the pace of wind and solar deployment go fast enough to start displacing existing fossil fuel consumption. And yet, the construction timelines and innovation required to build storage, create smart, responsive-grids, and to bear the losses of retiring existing fossil fuel capacity takes capital—and time. But if the pace of this transition is too slow, then the world might conceivably hang right here at its present location, where new energy demand is fulfilled by renewables, but the existing dependency on coal and oil, remains in place. Without a constant pushing forward, innovation will lack urgency. The world needs an optimal rate of energy transition.
We already know energy transitions are difficult, because the world has been through two of them already. In the late 1700’s, Europe started to adopt coal, as it started to leave the age of wood (biomass). And then in the early 20th century, the world slowed its consumption of coal, and adopted oil. Here’s a quick, and important insight that applies to both of those transitions, however: both coal and oil were cheap, and much more powerful than the energy they were replacing. And it would be a stretch to characterize today’s transition in the same way.
Craig Morris of the renewable energy consultancy Petite Planete, has been watching energy transition unfold for years now, from his offices in Frieburg, Germany. As the data shows, few countries have been more aggressive than Germany in attempting to phase out fossil fuels in the pursuit of clean energy, primarily coal. According to Morris, the energiewende (energy transition) has created visibility for how the energy system will change, over the next decade. “In Germany, the nuclear phaseout, which ends in 2022, means that the coal phaseout will start in 2023,“ says Morris.
“At that point, there is nothing left to protect coal in the power sector, so the coal phaseout will begin that year with or without an official policy.”
The energiewende (energy transition) of Germany has been hugely comprehensive effort to attack both sides of the problem: energy generation and also consumption. The integration of major efficiencies into the German built-environment, affecting everything from building construction standards to transport, has been underway for years even as Germany has added enormous volumes of wind, solar, biomass, and geothermal. While critics have decried Germany’s decision to also phase out nuclear, a source of emissions-free energy, Morris observes the policy will eventually succeed, noting that after the nuclear and then the coal-phaseouts are complete, “there will be nothing left for renewables to offset as gas, in the power sector, is already pushed down to a minimum level today, needed for cogeneration.“
Indeed, the evolution of Europe’s power sector shows a distinct trajectory change. Starting in 2008, electricity generated from fossil fuels in Europe started to fall, as electricity from combined wind and solar started to rise quite strongly. In just a short five-year period, from 2008 to 2013, terawatt hours (TWh) from wind and solar rose from 126 TWh to 319 TWh, as fossil fuel power fell from 3256 TWh to 2940 TWh. And there (once again) we see a now familiar theme of this Talking Points Memo five-part series on renewables: marginal growth energy demand is now populated, and in many domains dominated, by renewables. Germany is no doubt the leader in this regard in Europe. There is little doubt that, without Germany, the energy transition in Europe would be proceeding much more slowly.
And yet, we have not even begun to address the amount of oil that’s still being used in Europe, for transportation. Moreover, Europe’s economy has been in terrible shape the past five years. So it’s a lot less difficult to for renewables to make gains in an overall system that’s not growing. What if Europe’s economy were to rebound, even rebound strongly? Where would new energy demand flow?
Increasingly, many of the best thinkers in energy transition are realizing it’s the transport sector where transition may be hardest. In a recent episode of The Energy Gang podcast, Michael Liebreich, founder of Bloomberg New Energy Finance, pointed out that the power sector globally is nicely set up now to receive, and distribute, the big shift to renewables. And that’s exactly right. Whether in the US, Europe, or China, a distinct inevitability is now appearing for renewables, in electricity. But just as in Los Angeles, much of the world’s transportation system is still stubbornly running on oil. This is where the cost of energy transition is either going to be shockingly high over a short period, or, will remain at elevated levels—over a longer period.
In Germany, Craig Morris says, “in the transport sector, we face fundamental decisions about infrastructure. Will we have fuel-cell cars (like the ones Toyota is now planning to make – and the ones we have been hearing about for decades?), or will we have battery cars like Tesla – or a combination of both? Probably, some new infrastructure will be needed, so governments will have to become involved.” Interestingly, this sounds a lot like the challenge facing storage. Similar to the array of planning decisions we need, some combination of free-market and also policy directives will be required. Morris asks “But which infrastructure do you build—battery swap systems, quick charging systems, overhead charging lines, a combination of those and maybe something else? Here, we need greater cooperation between industry and policymakers.”
The conversation surrounding energy transition has radically changed in just the past five years. It was reasonable, in hindsight, to doubt whether wind and solar growth rates could ever be sustained for long enough to start impacting marginal demand. Well, that’s now happened. Renewables simply had to cross this first threshold, to make the case for their continued adoption in the world’s energy system. And they’ve done it. Even in China, which still runs primarily on coal, new additions to its powergrid since 2008 have started to run heavily in favor of hydro, wind and solar. In 2012, over 73% of new additions to China’s power generation were from these three renewable sources. And based on data and trends, it’s reasonable to expect that in 2014, and in 2015, as much as 50% or 60% of new additions to China’s electricity generation will come from hydro, wind, and solar.
The problem remains, however, that all the energy used globally so vastly outnumbers renewables today, that any uptick in global growth will cause fossil fuel use to surge. Over the past couple of years, year-over-year new demand for energy has been tepid, at around 2.3% per year. If the global economy heads back to growth levels above 3%, that will create further momentum to continue the build-out of renewables, but, it will also disproportionately favor fossil fuels. It’s just axiomatic that with non-hydro renewables composing only 2% of total global energy use, that fossil fuels will “catch the bid” of new growth. And this will still be true when non-hydro renewables are at 5% or even 10% of total global consumption.
And so that brings us back to our central question: when do renewables start eating into that stubborn pile of fossil fuel consumption? Well, it depends. Without any further radical changes in policy, and with normal global growth, it’s possible that renewables might kick fossil fuel use into outright decline starting in the year 2025. Events that could bring this date forward would be a solar big-bang in India, or a resurrection of rail in the United States that really displaces a lot of oil consumption. Slow growth, which tends to generate low interest rates, can also be surprisingly helpful–especially when combined with aggressive policies. Slow growth also creates time for systems to harvest efficiencies. Finally, some serious innovation in storage technology that not only delivers rapid cost declines but solves system-wide challenges would defintely accelerate energy transition.
A couple of themes are clear, however. It’s not coal that will be the hardest fossil fuel to displace. It will be oil. Also, despite the visibility on the global swing to electricity in general, trillions will have to be invested not only to upgrade the current powergrid but to make it smarter. Indeed, it’s not just generating lots of new electricity from renewables that will accelerate and complete energy transition. Rather, it’s the technology that will be required to time-shift supply and demand. Put another way, if venture capital and innovators start to create the technology to make powergrids responsive and automatic—such that they send signals to devices, users, and power generators indicating when it’s optimal to make or use power—that will do the most to usher in the era of clean energy that many now anticipate.