Paul Gilding on the economics of renewable energy, and how they're already past a "tipping point" of disruption for legacy utilities.
G'day Hubski. Paul Gilding here, author of the article above. Someone Steve (twitter Clausnitzercan) kindly suggested I drop in. I'm a bit flat out responding to lots of reactions to this piece around the world so can't go through and respond to all the comments here, but within reason I'm happy to answer some direct questions if that's useful? If not, then enjoy the discussion - clearly a bunch of interesting and bright people hang around here.
Paul, thanks a ton for dropping in. Great article, and I look forward to reading the rest of your coming series. Living in Detroit, I'm keenly interested in this: This is a hugely complicated issue in the auto industry. Firstly, there's a bit of market irrationality in Tesla's market cap compared to GM's, but that's not really the issue here. GM has to deal with global politics, whereas Tesla doesn't. Anyone who doesn't think that global politics hasn't hampered the traditional auto companies' ability to compete on electric cars, isn't really paying attention. For example, Buick spent years developing an electric car for sale in China (where a huge number of Buicks are sold). Everything from the design to the engineering was in place, prototyped and ready to go. That is, until the Chinese government said, "Thanks, we'll take it from here." To which Buick kindly replied, "Go f--k yourself," so to speak. Problem is, they can't make enough money just selling the cars in the US, so the project was scrapped. Tesla has no such trouble, given that they're just selling expensive toys to rich people. 'Expensive toys' isn't a real global market and never will be, no matter what the product. We see the same thing with solar, if I'm not mistaken. China has been undercutting US production for years (of course it doesn't help that the GOP here tries relentlessly to score political points by hoping that our home grown companies fail). So, I guess my question to you is, how does the world deal with China? They're the elephant in the room when it comes to international trade. They help to create the race to the bottom economically and environmentally. If there's not global political agreement in place (as you suggest is unnecessary), then how do American and European companies compete with them?I haven’t mentioned the revolution underway with electric cars, where Tesla is valued at more than half of GM – despite the latter producing 300 times as many cars! Do you think the market knows where that is going?
Sure, China is subsidising things as everyone does (Worldwide subsidies for fossil fuels are (from memory) over $500 billion, not counting externalities). They are no longer however racing to the bottom environmentally. They are overall a positive force in renewables, driving mass production and therefore allowing huge growth in installations (where most of the jobs are btw) in the US and other rich countries. We can't compete on manufacturing when things go to mass production so we have to compete on higher end products, that applies to all things, not just renewables. I'm very positive about China on energy (vs most people who just see coal but I see the response being game changing.
Tesla has made it clear that their approach is to start with expensive EVs at the outset, and then use efficiency of scale, increasing demand, and improved R&D to move down towards the mass market with each successive release. I can't see why GM shouldn't be able to take the same approach in the US. Perhaps they can't walk it down between brands that are divided into fiefdoms? That said, the Volt seems to be doing well enough, and I am sure that GM will make the transition to an EV fleet, even if it is behind Tesla. I'm not arguing that China isn't a factor, but I'm not convinced it is the largest one in the difference between Tesla and GM stock prices.Problem is, they can't make enough money just selling the cars in the US, so the project was scrapped. Tesla has no such trouble, given that they're just selling expensive toys to rich people. 'Expensive toys' isn't a real global market and never will be, no matter what the product.
Not the biggest difference in stock price. The biggest difference in being able to bring product to market. Tesla's stock price reflects the crazy irrationality of tech stocks; they can be understood much more in terms of Facebook than the GM, GE or Exxon. They will learn some lessons once they earnestly try to break into China. It's a place where IP isn't really thought of with any sanctity. Right now, GM can only operate on scale, whereas Tesla builds on spec, I'm sure.
Hi Paul. If you do find your way back here, I guess I do have a question. I've stated, below that in my view it is a little bit early to claim the fossil fuel industry has hit it's tipping point I have no doubt that a tipping point for fossil fuel does exist, and that it is likely not that far away. Were you aware that currently New England governors are looking to expand access to natural gas? Does a fact like that tempt you to revise your opinion regarding the fossil fuel tipping point and whether it has as yet been reached? Do you think the tobacco industry is a fair comparison in terms of evaluating where fossil fuels are today relative to your tipping point? You seem like a nice enough fella, and I only ask not because I think you are overly optimistic, but rather because I'm unclear how your article may impact the overall pace with which fossil fuels approach that tipping point. In my opinion, based on everything I have read, sooner would be better. I suspect that calls for a greater degree of agitation among the populace, which is something your article does not tend to inspire. That's just my feeling anyway. What do you think?
Good point ZenDog. I will write more on this in coming months, but I think community action against fossil fuels is a crucial part of the puzzle and the more the better - it creates higher costs for them and makes them less competitive. Of course tipping points are defined by the person calling them ! Fossil fuels are still expanding in many markets as you point out. But I think the tide has turned overall (for example huge collapse in forecast growth of coal use in developing countries) See here http://in.reuters.com/article/2014/03/20/energy-coal-prices-idINL6N0MH30Y20140320
Any decline in coal demand has got to be good news. A Chinese War On Pollution may be the single best thing to date in terms of positioning the geopolitical players in a way that makes a cooperative response to Global Warming even possible. But still, the U.S. consumes . . . or consumed . . . 18,490 barrels of oil per day during 2012 and our consumption beat China by nearly 2 to 1. Do you feel that the price of a gallon of gasoline at the pump is a fair barometer of demand? And if so, is demand a fair indicator of when or if a tipping point has been reached with regard to the demand for oil?
Ahhh, externalities again. Perhaps a more important question - how much of it is due to deep Chinese subsidies for panel manufacturers? That's something rarely mentioned in the Solyndra debacle - the whole reason behind it is that the Chinese are effectively selling solar panels at a loss. I'm not even sure the answer would be useful, considering both sides of the equation are deeply subsidized. Besides which, pollution for coal plants that power Las Vegas and Los Angeles don't count towards those states emissions if the plant is in, say, Arizona. Then of course there's the discussion about the environmental impact of solar panel construction.
Friedman's column in today's Times suggested that we could use Putin's aggression as a pretext for forcing through a comprehensive energy policy that focused on renewables as a way to isolate gas and oil rich oligarchies such as Russia. Not such a bad idea, but really, what's the point of suggesting Congress do anything right now, given their obstinate state.
Haha. Yeah, it's a total fantasy. Ironically, the Iraq War was supposed to bring us more oil. Remember how the $2 billion that we would have to spend on the war was an investment that would be paid off by oil revenue within 6 months? Oh man, sometimes it's fun to reminisce.
Fracking only works for natural gas, which has about a tenth the energy density of gasoline. You aren't going to see LPG cars any time soon. Tar sands are much harder to get oil out of than wells. The only reason we're mining tar sands in Canada and not in Saudi Arabia is we don't have to mine tar sands in Saudi Arabia. This discussion misses the point that the US hasn't mined much of our reserved on purpose. The goal is to let the other guy run out of gas first. Great Game bullshit but it's the truth.
I less brought it from the pov of: "What is the state of competition between the two?" And more with the question in mind: "At the current level of subsidies, could solar panels be sold to an entire country / state without bankrupting the US?" (And China, too, forgot about that place...) Can this similar change be seen in less rich countries where the state pockets aren't quite as deep?
Back in the hoary days of Clinton's first term I did alternative energy design. We ran some numbers - a solar panel 100 miles on a side parked in the middle of the Nevada desert would provide all the energy the United States was currently using. Now all you gotta do is buy the panel, right? Well, and string it up. Makes a point though. What if, instead of spending a billion a week for three years killing Iraqis, we'd spent a billion a week on solar panels? Problem is the wrong republicans get rich then.
Although stringing it up is non-trivial, as I'm sure you're aware. If there were a such thing as a long range, superconducting wire, our energy needs would be solved in short order, since we could turn the bottom of the ocean into a thermal pump. Unfortunately, concentrated energy just doesn't work right now. I think for this reason (among others), materials science is going to be a great field for young engineers to get into in the coming decades. Sure, it's boring to work in materials science research, but the end products are well worth the effort, if successful.Well, and string it up.
From what I understand, it's not so much the subsidies, but the leasing models introduced by SolarCity, etc. Efficiency is now high enough that these companies are paying for the installation upfront (which was a major pain point), and the owner buys it back, sometimes completely with the money saved by adding the panel. I posted an article a couple of months ago about SolarCity trying to create an investment vehicle out of these leases, probably because raising cash is a bottleneck.
I was in Maui last month, and was stunned to see that at least half of the residential rooftops had solar panels. Fossil fuels take an expensive route to Hawaii, so I strongly suspect they are a leading indicator. I flew into Phoenix last fall, and saw that less than 10% of the roofs had panels.The utility death spiral is a great example of system complexity that is simple to understand. Solar energy costs have plummeted – so far that in most places you can get electricity cheaper from your own solar panels than you can from a utility. The impact on the grid of people doing so at scale is to lower the overall cost of electricity generation by reducing both peak demand (and so peak pricing) and lowering volume. Utilities are then stuck with expensive physical assets, less sales and lower margins, so they need to increase either the cost per unit of power or impose grid connection charges to customers. But doing either gives customers more motivation to leave the utility – thus the death spiral.
Right now I'm debating whether to buy or build. One of the great advantages of building is being able to control the way in which your house uses energy (to some extent, anyway). I would build the shit out of the most efficient house possible, and I think it would be a ton of fun doing it. Unfortunately, solar panels aren't as great in MI as HI, but I still think they'd be well worth installing.
David JC MacKay described his struggle to improve the energy efficiency of his 1940's era semi-detached house, with a history of his gas usage. He did quite well, but concluded that you get better results when you build with energy efficiency in mind, as did energy consultant Alan Foster. MacKay's book on sustainable energy is highly recommended, and available on the web site and as a free PDF.
Wow! Thanks! Guess I got some reading to do. Although, of course the finance of it runs deeper than energy efficiency, as it seems quite a bit cheaper per square foot to buy a preexisting home. But on the other hand, there's probably some non-quantifiable benefit to designing a home from scratch. Also, finding a suitable piece of property that doesn't already have a home isn't so easy, either.
I suppose in that case, you could install electric heating and appliances, and then you'd really be onto something. Right now, my combined energy bill is about $200/mo in the winter and summer, and about half that in the spring and fall. Are solar and geo typically amortized over the life of the mortgage? If so, I could definitely see it being at least price neutral.
It's weird, you'd think that the US would be leading with its combination of a powerful economy and lots of sun hours: Solar panels are more popular here than ever, even after the subsidies stopped two years ago. My parents are moving to the countryside and using part of the financing specifically for solar panels. They'll earn back the money in 10 years, at worst, and 5 years in optimal conditions. Every kilowatt from there on is free.
Cheap, cheap, cheap cheap cheep energy in the US. Solar? Solar we pay the same as you. What's gas cost per liter where you're at? I'll bet it's a factor of three or four more than it is here. I'll bet heating oil and electricity are similarly expensive. I pay less than a euro per liter for super unleaded and eight cents per kilowatt hour. Hard to incentivize renewable energy when dinosaur blood costs so little.
You bet yo' ass it's expensive here. I looked it up: the price at the nearest gas station is 1,65 euro ($2,28) per liter, and $0.96 per liter in the US according to Wolfram. Not that it's more expensive to make or to haul over here: the difference is all in taxes. Here's a Dutch news article which says that regardless of the oil price, the petrol tax is 72 cents, there's an additional levy and on top of that there's 19% regular VAT.
On the positive side, due to high fuel prices, public transport is a really viable option. It's about the same price per kilometer, but not having to pay off a vehicle and pay insurance makes it an economically more viable option. And money from the fuel tax can be poured into public transportation, which drives more people into trains and buses.
Public transport is actually stupid cheap in most of the US, too... it's just slllllllllowwwwwwwwww. I used to take the bus to college. If the price of the bus pass wasn't rolled into my tuition, it would have been three bucks a day for sixteen miles. On that route, it took about as long as driving and had the distinct advantage of dropping me off in campus, as opposed to the $8/day parking a quarter mile away. Same bus route went to a club I mixed at, too. Even followed the same route. Difference being the bus got there in an hour and a half. I could drive it in 20 minutes. Things get really stupid in LA - if you're on one of the subway lines you're golden. I could make it the six miles from North Hollywood to Hollywood and Vine faster than I could in a goddamn helicopter for $1.75. And while I could make it from the Long Beach Airport to NoHo for $4... it'd take three and a half hours.
I'm going to look into it. We have a few on our block. I've read that on new construction it is often less costly overall to include the solar lease in the mortgage. If that is true, that seems like a tipping point.Two of my friends have solar leases on their houses.
I believe that is an accurate analysis. As to whether or not the fossil fuel industry has already passed a tipping point is I think still up in the air. That should not be confused with passed peak oil - I believe the only explanation for the exploitation of tar sands is the high price of crude dictated by dwindling reserves. I do believe the tipping point is and must be near, and when it is realized we will see changes take place quite rapidly all across the social strata. Consider the tobacco industry. Before their tipping point was realized they were able to quash a 60 Minutes report on the industry and here. The following is from: Tobacco Timeline: The Twentieth Century 1950 - 1999--The Battle is Joined
- 1992: LITIGATION: Supreme Court rules that the 1965 warning label law does not shield tobacco companies from suits accusing them of deceiving the public about the health effects of smoking.
- 1994-03-24: Wall St. Journal publishes, "Smoke & Mirrors: EPA Wages War on Cigarettes," by Jacob Sullum. The article takes issue with the EPA's 1993 report on secondhand smoke, quoting industry-paid scientists--Alvan Feinstein, James Enstrom and Gary Huber. - 1994-05-31: World No-Tobacco Day. Slogan: The media and tobacco: Getting the health message across - 1995-07-12: AMA excoriates tobacco industry over "secret" B&W papers. AMA devotes entire July 19, 1995 issue of JAMA to a study of the papers, finds The evidence is unequivocal -- the US public has been duped by the tobacco industry. No right-thinking individual can ignore the evidence. We should all be outraged, and we should force the removal of this scourge from our nation . . . - 1995-08-31: LITIGATION: $1.9 million awarded plaintiff Milton Horowitz in Kent Micronite filter case; only the 2nd time an award has been given in a liability case against a tobacco company. However, the suit concerned asbestos, not tobacco - 1996-07-19: LITIGATION: Massachusetts becomes the 10th state to sue tobacco companies.. - 1996-08-09: LITIGATION: FL: Brown & Williamson is ordered to pay the Grady Carters $750,000 in only the second financial judgement ever in a strictly-tobacco-oriented liability lawsuit. The eventual payment of $1.1 million on March 8, 2001, will be the first time an individual collects payment from the tobacco industry for a tobacco-related illness. Carter Atty: Norwood S. Wilner I think this tends to show that the tide of public opinion turned long before the influence of the tobacco industry on the political establishment began to seriously diminish. And it is only in the last few weeks that political figures have attempted to get big stores to stop carrying cigarettes. Point being: the fossil fuel industry is a long long way away from actually seeing their political allies turn away, much less witness a decline in revenue, both clear barometers of the health of the industry overall. I think it’s important to always start with a reminder of the underlying context. As I argued in my book The Great Disruption, dramatic economic change is not a choice we get to make it, but an inevitable result of physical science. This is because business as usual, with results like ever increasing resource constraint or a global temperature increase of 4 degrees or more, would trigger economic and social collapse. So the only realistic outcomes are such a collapse or an economic transformation that prevents it, with timing the only big unknown.
Interesting chronology of the tobacco industry there, but I don't think you can equate fossil fuels to tobacco. I'm playing a bit of devil's advocate here, and oversimplifying... Tobacco is a certain type of vice. Vice has always been, and always will be in demand. Certainly, tobacco usage was curbed via science and a change in public opinion, but big tobacco still limps by to this day. So this is less about public opinion, because most people don't actually care about how their energy consumption needs are met. This is more about economic forcing. If it's cheaper to not use fossil fuel, game over. Fossil fuel's political allies will turn away the moment that their pockets get lighter, which is of course driven by profit (or the lack thereof). The fossil fuel industry will not continue to limp on, it will rather abruptly die.
Sure, of course. The question is what will it take to make alternatives to fossil fuels cheaper? Take the automobile - to fuel that using something other than fossil fuels requires not only improvements in battery technology - which at this point may be maturing more quickly now than even two years ago - it also requires significant upgrades in the electrical grid itself. See:
As I understand it, upgrading the the electrical grid will cost money and take time. Until that happens I will be surprised to see electrical vehicles take up a significant share of the auto market, and until they do I think we have to assume the fossil fuel industry is in charge. Scientific American: Will Electric Cars Wreck the Grid?
Unless you were thinking of fueling the automobile by some other means? Clean Technica: Southern California Edison Offers Insight Into Impact Of Electric Vehicles On Grid
The power drain argument against electric cars is very weak, solutions have already been determined.
All that's needed is to have the cars pull their power at times of lower load, which is during the night. They also could use the car batteries to reduce the peak load (around 5-6pm I think?), which would help the electric industry, as the peak load the lines have to be designed for won't be as high. No links, as it's something I saw ~5 years ago on television.
Is it weak? Is the electrical infrastructure and its carrying capacity uniform nationwide relative to current demand? I don't know what the numbers are, but it seems reasonable to presume that on a hot summer night in southern California demand might not fall to far from capacity now. And given that our entire economy, rightly or wrongly, is predicated on a premise of growth one tends to expect electrical demand to follow an upward trajectory even in an absence of electric vehicles - assuming: the economy itself is healthy and no alternative form of energy has displaced electricity's share of the energy market. that in turn suggests that anywhere where the electrical grid is operating during any part of the year at peak capacity, an increase in demand represents a problem in demand of a solution. I don't dispute that those solutions do exist, simply whether or not they are already in place. The premise of the article above was that fossil fuels had reached a tipping point, and the author makes a strong case regarding coal - but there remain significant sources of carbon from fossil fuels that in my view have yet to see a down turn in demand of any meaningful significance.