Disclaimer. After nearly 40 years managing money for some of the largest life offices and investment managers in the world, I think I have something to offer. But I can't by law give you advice, and I do make mistakes. Remember: the unexpected sometimes happens. Oddly enough, the expected does too, but all too often it takes longer than you thought it would, or on the other hand happens more quickly than you expected. The Goddess of Markets punishes (eventually) greed, folly, laziness and arrogance. No matter how many years you've served Her. Take care. Be humble. And don't blame me.

BTW, clicking on most charts will produce the original-sized, i.e., bigger version.

Monday, May 23, 2016

So ... the good news about global warming

Global temperatures continue to rise.  Which is terrifying.  But also very depressing, because we appear to be helpless, individually, in stopping global warming.   So what is the good news? Is there any?

Some broad background.    Electricity generation is only part of total global carbon emissions (25%) but it is key, because in principle you can electrify almost the whole economy: transport (+-20%) can be electrified via electric cars, buses and trains, heating can be electrified, and most energy uses in industry can too.  (And we can create synthetic natural gas via the Sabatier process) That leaves agriculture forestry and other land use (AFOLU -- 25%) but that in turn includes 15% from burning forests, which can easily be stopped.  These remaining sectors will be hard: iron and steel 7%, air transport 2%, cement 5%.  To make iron you need to reduce iron ore (basically iron oxide) to iron by heating it with coal or charcoal, producing carbon dioxide as a by-product.  Batteries are still too heavy for aircraft, though we can use bio-kerosene.  And cement is created by heating calcium carbonate and driving off the carbon dioxide.  So let's say 75% of current carbon emissions can be stopped by electrifying the economy and producing electricity via renewables.


China (30% of global emissions) is very rapidly moving towards renewables in electricity generation.


The IEEFA forecasts that China will add 22 gigawatts of wind, 16 GW of hydro, 6 GW of nuclear, and 16 GW of solar this year (2016):

With electricity demand expected to grow by up to 3 percent year-on-year in 2016, this 62 gigawatts of additional zero-carbon electricity capacity will be more than sufficient to meet total electricity demand growth, which is why coal consumption is forecast to fall again this year. China Shenhua said its total 2016 coal sales volumes could decline more than 8 percent year-on-year.

At the same time China is setting new global renewable energy records, rapid improvements in energy efficiency are combining with an ongoing structural change in the nature of Chinese economic growth (2015 GDP growth was up 6.9 percent). The economy is decoupling from growth of electricity demand (of 0.5 percent year-on-year). Tertiary industry accounted for 50.7 percent of economic activity, exceeding 50 percent (up from 48.1 percent in 2014) for the first time.

There’s nothing to indicate this electricity-sector transformation won’t continue.

China’s State Grid Corp. Chairman Liu Zhenya (head of the world’s largest power provider) says his company rejects the so-called all-of-the-above energy strategy—which encompasses fossil fuels—to meet China’s evolving power needs and address climate change. Liu argues that it is better to move on to the next generation of energy technologies and that China believes it might as well start now. He concluded that the only hurdle to overcome is the mindset: “There’s no technical challenge at all.”

The US (15% of world emissions) is moving steadily towards 100% renewable energy.  In Q1, 98.5% of new generating capacity was renewable.  Only 1.5% was gas.  This is prolly an exceptional quarter in the shorter term, but the trend is clear.  In 2015, 69% of new electricity US generation capacity was from renewables.


Of course, generating capacity is often quite different from the amount of power generated, since fossil fuel plants generally are used for considerably higher percentage of the time (their “capacity factor”). That’s why renewables now make up 18 percent of total U.S. installed generating capacity — but only about 14 percent of our total power production.

On the other hand, FERC doesn’t track rooftop solar, so its estimate of solar capacity added is certainly low. Indeed, FERC’s data sources only “include plants with nameplate capacity of 1 MW or greater,” so it’s hard to know how much small-scale renewable power generation they may have missed.

It is increasingly clear that we don’t need to add significant amounts of any new grid capacity that isn’t renewable for the foreseeable future. In part that’s because demand for utility power generation has been flat for almost a decade — and should continue plateauing for quite some time — thanks to rapidly growing energy efficiency measures (and, to a much lesser extent, thanks to recent increases in rooftop solar).

We also know that renewable power — both new wind and solar — is now winning bids for new generation around the world without subsidies. Some bids are coming in at under four cents per kilowatt hour!

Studies from NOAA and others — and real-world examples around the globe, such as Germany — show that the U.S. can absorb vastly greater percentages of renewables than we currently have, just with existing technology. Yet NOAA’s research shows that, with nothing more than an improved national transmission system, “a transition to a reliable, low-carbon, electrical generation and transmission system can be accomplished with commercially available technology and within 15 years.”

A 2015 study showed that we could “decarbonize the electricity supply with a proportionally small requirement for BES [Bulk multi-hour Electricity Storage] because gas provides much of the intermittency management even when the carbon emissions intensity is cut to less than 30% of today’s U.S. average.”

Thus, we really have more than enough natural gas plants in most places to take us to the point where electric vehicles, second-life EV batteries, advanced solar thermal power and other affordable bulk storage would be needed to finish the decarbonization of the grid post-2030.
So we may well see many more quarters in the years ahead like the last one.

India (7 % of global emissions):  

Meantime on the Indian solar front, January saw yet another breakthrough as solar tariffs dropped to a new low of  4.34 rupees/kWh [6.5 US cents/kWh]. This builds on the 20 percent decline achieved in 2015 (and the 80 percent decline in just five years).

The latest detail: Fortum Finnsurya Energy of Finland winning a reverse tender auction to build a 70-megawatt solar plant under National Thermal Power Corporation’s Bhadla Solar Park tender. The remaining 350 megawatts put up for auction were won at bids of 4.35 rupees (140 megawatts by Rising Sun Energy and 140 megawatts by Solaire Direct) and 4.36 rupees per kWh (70 megawatts by a newer entrant, Yarrow Infrastructure), indicating that the 4.34 rupee bid was not an outlier. It marks a 7 percent decline from the previous record-low solar bid established in November.

In that bid, SunEdison won 500 megawatts at 4.63 rupees per kilowatt-hour. This was repeated in a 350-megawatt solar auction by SoftBank in December. The total installed cost of solar in India dropped by more than 20 percent in 2015 alone.

A big piece of India’s transformation in occurring through grid-efficiency reforms, exemplified in January by Piyush Goyal, India’s energy minister, announcing an $11 billion investment to roll out 30 million solar irrigation pumps for farmers over the next three to four years. Annual savings on existing farm subsidies is modeled at $3 billion, suggesting the program is entirely and immediately commercially viable.

[Meanwhile in Dubai, solar has plunged to US3 cents/ kWh.  Why is India still more expensive than Dubai?  Partly the monsoon which brings rain to India for 3 months of the year (July to September) which reduces insolation in India even though India is closer to the equator than Dubai; partly the cost of capital which is significant for solar because all the expenses are up front.]

Europe (10% of emissions).  Europe was an early mover on renewables.  Already 40-50% of electricity in some countries (Denmark, Portugal) or regions (the former East Germany) is produced by renewables (non-hydro).  And several European countries are planning to ban all petrol-/diesel-engined car sales as early as 2020. 

So countries emitting 62% of the world's CO2 are switching their electricity generation into renewables.  But it's not just the largest emitters who are moving towards renewables.  Lots of countries with smaller CO2 footprints are also moving towards green generation.  Just three examples: Mexico (solar), Chile (wind + solar + CSP), South Africa (solar + CSP)  Then there a few who aren't doing much (Russia, Australia, Poland).

This almost global switch is being driven by government policy, but also by the collapse in renewables prices.  There is a virtuous circle, called a learning or experience curve.  As we use more of a new technology, its price falls, which leads us to use more, which leads to further price falls, etc, etc.  So, solar is falling by 15% to 20% per annum, which means it's falling by +-60% over 5 years.  Wind is falling by 10% per annum. Lithium-ion batteries by 15% or more per annum.  The battery in your laptop cost $2500 15 years ago, $250 4 years ago and now you can buy one on line for AU$ 50 - 100 or US$35 - 70. 

According to Ray Kurzweil [1] [2] [3], who has been much more right than wrong in his forecasts over the last 20 years, solar will dominate world energy within 16 years.  His point is simple: solar has been doubling installed capacity every 2 years for 20 years.  Like computer chips. there is no sign we've reached the end of that road.  Solar now produces 1% of total global energy.  In 2 years time that will be 2%.  In 4, 4%.  In 6, 8%.  In 8, 16%.  In 10 32%; in 12 64%.  Game over.  To quote the first article I referenced above:

Just like computer processing speed—which doubles every 18 months in accordance with Moore's law—the nanotechnology that drives innovations in solar power progresses exponentially, he says.

During his latest Big Think interview, Kurweil explained:

"Solar panels are coming down dramatically in cost per watt. And as a result of that, the total amount of solar energy is growing, not linearly, but exponentially. It’s doubling every 2 years and has been for 20 years. And again, it’s a very smooth curve. There’s all these arguments, subsidies and political battles and companies going bankrupt, they’re raising billions of dollars, but behind all that chaos is this very smooth progression."

So how far away is solar from meeting 100% of the world's energy needs? Eight doublings, says Kurzweil, which will take just 16 years. And supply is not an issue either, he adds: "After we double eight more times and we’re meeting all of the world’s energy needs through solar, we’ll be using 1 part in 10,000 of the sunlight that falls on the earth. And we could put efficient solar farms on a few percent of the unused deserts of the world and meet all of our energy needs."

Needless to say, the implications of cheap solar power would be truly staggering, revolutionizing virtually every aspect of life and geopolitics. Potentially dangerous nuclear power would become obsolete; dirty energy sources like coal and oil would be a thing of the past; and the world would no longer have to kowtow to corrupt governments that just happen to be resource-rich. 

So many other global issues—like impending water and food crises—would also no longer be issues if a cheap, renewable energy source existed. "We’re awash with water, but most of it's salinated or dirty," says Kurzweil. We have the technology to desalinate and clean water, but it is very costly. Cheap solar would change that. If we had inexpensive energy, scientists could also grow hydroponic fruits and vegetables, supplying the growing demand for food and "recycling all the nutrients and materials so there's no ecological impact at all." They could even "grow meat without animals by cloning muscle tissue," eliminating the need for disastrous factory farming, he says.

Sounds utopian, doesn't it?  Yet who would have said  even 10 years ago that we would all these days be carrying advanced computers in our pockets?  And it will prolly not happen as he forecasts, because concentrated solar power is in there with a chance, and wind will still have a role to play because it diversifies solar (wind and solar are not just uncorrelated: they appear to have a small negative correlation--the wind blows more when the sun isn't shining)   But essentially the point remains.  In 20 years time, all electricity globally will be generated by renewable sources.  Note that last year, for the first time, developing countries invested more in renewables than developed countries. (Remember that the data show nominal investment in renewables, i.e., before price falls.  In real, volume, terms, investment will have risen not 5% but 25%.)  Developing countries are not doing it because they are concerned about global warming.  If renewables were too expensive they would make excuses--after all they're poor, and most of the CO2 already emitted was from currently developed countries.  They're doing it because renewables are cheap.  

And they're going to get cheaper.  Let's conservatively assume solar falls by 50% over five years.  Electricity from solar will fall in cost to US cents 1.5 to 3 over the next 5 years.  Five years after that it will cost USc 0.75 to 1.5.  And 5 years after that USc 0.4  to  0.8.  This will be irresistibly cheap.

Meanwhile, electric car sales are doubling every 18 months, as the cost of lithium-ion batteries plunges.  Last year they formed just 0.7% of global car sales.  This year it should be over 1%.  Sales are quadrupling every 3 years,  And that's not going to stop, because (a) global warming is obviously happening and it's happening scarily fast, so governments will be pushing electric cars and (b) we're moving down the learning/experience curve, just as we did with the first petrol-driven automobile, the Model-T Ford.

Well, those are the reasons to be optimistic that  mankind will do enough to prevent global temperatures from rising another 1 or 2 C.  Does that mean we must stop worrying, stop fighting?

No.  There are powerful vested interests which would like to slow this revolution.  Demented plutocrats.  Fossil fuel interests.  The usual suspects.  And the Right, at least in America (and Australia), has become actively hostile to rationality, logic and science.  You have only to look at the Republican candidates for the US presidency to see this pattern.  For some bizarre reason the Right opposes this shift to clean cheap energy, a shift which will transform the world and raise living standards everywhere.  And given the risk of runaway positive feedbacks (the melting of methane clathrates in the tundra and on shallow continental shelves, for example), we need to accelerate this transformation.  We need to slash emissions by at least 3% per annum.  And although global emissions may have peaked, they haven't yet started falling.  Until they do, steadily and persistently, we cannot relax.  We still need to remove subsidies from fossil fuels ($450 billion a year, globally, not including the costs of pollution).  We still need to tax carbon emissions if only to remove externalities which favour destructive energy sources to the cost of mankind.

The battle is far from over.

No comments:

Post a Comment