December 22, 2018
We’re often asked why we’re ‘anti-renewables’.
Given our company name – Environmental Clean Technologies – it’s a fair question.
The fact is, we’re not.
We’re in favour of the ‘right’ amount of wind and solar for any particular electricity network. And that ‘right’ amount will vary depending on local resources and local market economics.
Renewables advocates are at best wrong, and at worst deceitful, when they claim wind and solar can affordably and reliably replace coal and gas.
But given the data, it’s clear that the economics and technical performance of wind and solar mean they can’t build or sustain and modern society.
To finish off the year, we’ve done a deeper dive on energy, to explain why wind and solar can’t build or sustain and modern society, firstly touching on an article by Bjorn Lomborg about the importance of coal to developing economies, then taking a look at the latest report by the AEMC on electricity price trends in Australia, which confirms the ‘problem’ with wind and solar – they drive up costs directly, and indirectly.
Energy policy is a broad, complex, and often heated topic, driven more by emotion than clear, informed thinking.
So, it’s refreshing when a calm, rational, objective view cuts through the noise. We’ll get to that article by Bjorn Lomborg in a moment, but first, let’s highlight a key issue:
Nowhere in the world do low electricity prices coincide with high wind and solar penetration.
We cannot escape the energy policy trilemma: cheap, reliable or low CO2… pick any two.
People in developed nations take for granted the ability to flick a switch and power their lives.
And, until a few years ago, we in Australia enjoyed some of the most affordable and reliable electricity in the world. But that’s changed in recent years. Initially because of network ‘gold-plating’, but more recently due to direct and indirect impacts of wind and solar on retail pricing (and, allegedly, gaming of wholesale prices by unscrupulous generators).
In a well-intentioned effort to ‘do something’ to curb CO2 emissions, many countries have gone down the path of actively encouraging the increased deployment of renewable energy, mostly wind and solar, through subsidies and mandates.
Renewables advocates like to claim wind and solar are cheaper than coal. To be fair, the capacity cost of wind and solar have dramatically improved. But they rely on ‘creative’ accounting to exclude indirect costs.
We’re rarely given the full picture. Bias proliferates. And most folks find energy policy details hard to digest.
The recent Herald Sun article ($) by Bjorn Lomborg, CEO of the Copenhagen Consensus Centre, highlights the often-ignored benefits of coal and explains why it’s immoral and hypocritical to leave billions in the dark. Benefits that advocates of wind and solar power seek to deny to those in developing nations because wind and solar can’t build or sustain a modern society.
The crux of Lomborg’s argument lies in both the technical and economic performance differences between coal and intermittent renewables.
Lomborg notes that, for the first time since such records began, the number of people in the world without access to electricity has dropped below one billion.
And while this sounds impressive, he stresses the importance of understanding that this is not a level of access that we enjoy in developed economies. The definition of ‘access’ in this context is a mere 50kWh per year. For comparison, Australians consume 9.91 MWh on average per year. That’s nearly 200 times the ‘access’ level described.
Lomborg then goes on to say:
The first rigorous test published on the impact of solar panels on the lives of poor people found they got a little more electricity, but otherwise there was no measurable impact on their lives; they did not increase savings or spending, did not work more or start more businesses and their children did not study more.
In contrast, a study in Bangladesh showed that grid electrification (which mostly means fossil fuel) has significant positive impacts on household income, expenditure and education. Electrified households experienced a 21 per cent average jump in income and a 1.5 per cent reduction in poverty each year.
The very source of reliable, affordable energy that developed nations still rely on, is apparently off limits to those that need it most.
We need to make more breakthroughs in green energy so they can replace fossil fuels at scale.
But we also need to ensure that life-changing electrification continues. There are one billion people in the world still without electricity access.
So, let’s take a moment to consider why electricity from solar, and indeed wind, can’t deliver the same economic outcomes as coal when it comes to electricity production, by taking a look at the economics.
In particular, let’s take a look at the concept that led to the industrial revolution, saving the forests and the whales along the way: ‘net energy’ or ‘energy surplus’.
Energy and the Economy
There are two key takeaways we want to focus on here:
- Energy – as the enabler of all other industries, the lever of wealth and driver of progress
- Economy – specifically, ‘discretionary’ spending and its importance to economic development
The energy industry is the enabler of all other industries.
To the extent that energy is abundant, reliable and affordable, industry thrives, wealth accumulates and discretionary spending increases, supporting the ability to fulfil our needs and satisfy our wants.
A society must have an affordable, reliable energy surplus for there to be a division of labour, the creation of specialists, and the growth of cities, and a substantially greater surplus for there to be sufficient wealth to underpin a widespread increase in the standard of living and discretionary income to support art, culture and other social amenities.
In economic lingo, energy needs are relatively ‘inelastic’. This means energy use does not decrease in proportion to increases in price because of its critical importance to all we do. This means that rapid increases in the economic cost of energy (e.g. from five to ten per cent of GDP) results in the diversion of funds from discretionary spending to energy acquisition. So, any large changes in energy price will significantly impact a developed economy and result in large, adverse impacts on developing economies.
For those unfamiliar with economics, it helps to have a little background on the part that discretionary spending plays. After all, discretionary spending is a manifestation of affordable, reliable, surplus energy in an economy.
Take Australia. We export a lot of minerals. Coal and iron ore make up around 45% of exports. Add in agriculture and they account for 57%. These paint a picture of an exporting nation. However, those exports account for only 10% of GDP.
Australia is actually best described as a mixed economy, built on 4 key sectors:
- Manufacturing, and;
This diversity has provided a good foundation against downturns in any one particular sector. The following chart from IBISworld captures the state of our economy:
Over the past 40 years, Australia has shifted increasingly to a services economy. Last year, services accounted for 55% of our $1.7 trillion GDP.
As such, a small change in discretionary spending will ripple through the economy.
And because the energy industry is the industry that drives every other industry, it is the foundation upon which economies and societies rely if they are to flourish.
Therefore, the claim by renewables advocates that wind and solar should dominate the energy mix needs to be analysed in terms of the likely repercussions for discretionary spending, societal well-being and economic growth.
These arguments are best considered using the concept “net energy” or “energy return on investment” (EROI).
Access to affordable, reliable, abundant energy sources with high EROI determines a society’s discretionary income and therefore the ability to attain (or maintain) a higher ‘standard of living’.
Net energy analysis is a means of measuring the energy surplus of various fuels by calculating the difference between the energy delivered to society and the energy invested in the capture and delivery of that energy, allowing us to understand the relationship between energy flows, economic growth and human well-being. Traditionally, economic growth is measured by changes in the production of goods and services. These goods and services are simply physical manifestations of the net energy, or energy surplus delivered to society.
EROI is the ratio of energy returned from energy exploration and exploitation activities compared to the energy invested in those energy-gathering processes.
The following chart shows the relative performance of several energy sources.
Simply, when the EROI number is large, energy from that source is easy to get and cheap. When the number is small, the energy from that source is difficult to get and expensive.
When the number is one, there is no return on the energy invested, and the entire investment has been wasted.
Crucially, the break-even number for fuelling our modern society is about 7.
Getting a handle on EROI
To appreciate EROI, let’s take a quick trip back in time.
We only need to look back about 150 years to see the birth of our ‘modern’ society and the seeds of development that have resulted in the standard of living developed nations take for granted today.
It all began in the 1700’s with a revolution in the way we used energy when we figured out how to use coal to make lots of steam and iron. Between 1760 and 1840 the energy revolution ignited the Industrial Revolution. Not too long after, we figured out how to refine oil into kerosene (arguably saving the whales). By the early 1900’s we figured out how to find lots of oil (driving the transport revolution, urbanisation etc).
The energy derived from coal and oil were immediate and greatly amplified human effort.
This amplification or leveraging of human effort via affordable, reliable surplus energy – otherwise known as productivity – has been the key to wealth creation and rapid technological advancement.
This underlying ‘surplus’ energy equation has always been there
Consider that for eons, humans relied on muscle power to survive and (very slowly) progress. Initially, we were limited by our own exertion. As hunter-gatherers, we prioritised our efforts to yield the biggest ‘bang for buck‘. The calories required to track and chase game were more readily reimbursed by a larger chunk of meat than a smaller one, despite the risk of hunting larger game.
The surplus energy concept persisted with the advent of farming, around 10,000 years ago. Clearing land, tilling the soil, planting and harvesting is brutally hard manual labour. This activity used more calories than foraging for nuts and berries. The upside for those extra calories of input was farming allowed us to produce more food on a more reliable basis. Similarly, when we domesticated animals and put them to work in the fields, the calories required to ‘fuel’ the beasts increased. But, so did the output. An Ox tripled the ploughing productivity of a farmer.
The energy costs rose, but the benefit of the additional energy rose by a bit more. Human energy was leveraged. And the difference between input and output manifested as wealth, prosperity and advancement. It allowed for specialisation, which freed up talent for art, science and further technological advancement, in addition to generating the capital to pay for it.
Increased productivity and food supply allowed settlements to form. As settlements grew, the cycle of energy dependence grew. And as societies became larger and more concentrated, the underlying energy equation shifted from calories to fuel.
As urbanisation spread, traditional fuel sources such as wood and dung became harder to come by. Forests were in high demand to supply wood for heating, cooking, firing clay and smelting metals.
People started experiencing their first energy shortages, prompting the establishment of the first energy ‘networks’, aimed at the most efficient sourcing and distribution of fuel.
By the middle ages, Europe was in the grip of an energy crisis, driven by the depletion of its primary fuel source; wood.
This ‘Malthusian’ cycle saw us continually hit the local limits of our environment: farmers cleared forests to plant crops. The crops supported larger populations that needed firewood. Specialisation and technological advancement increased demand for firewood to support growing manufacture of glass, dyes, beer, lime, salt and bricks. These improved living conditions yet decimated forests, capping energy supply. Iron making was the worst, needing a one hundred tonnes of wood to make 1 tonne of the metal. Today, it takes around 850kg of metallurgical coal to make 1 tonne of iron.
By the thirteenth century, Europe was suffering such a shortage of wood, forges were shut down and it became illegal to cut down crown forests.
The fourteenth century saw a brief reprieve as the plague killed off one-third of Europe’s population, allowing the forests to grow back. By the fifteenth century, wood was again a luxury, affordable to only the wealthiest citizens.
As a side note, the social reality of such ‘Malthusian’ cycles imposed by environmental limits relative to the state of technology was serfdom and slavery. Economic expansion was largely achieved through conquest and colonialism. Human and animal energy was ‘harnessed’ by the wealthy elite, with the energy surplus channelled to the wealthy few. The average person lived hand to mouth, typically under a monarchy. For most, life was short, harsh and filthy.
Coal saves the trees
Despite some initial misgivings by industry around the use of coal due to the inability of existing wood-based technologies to burn coal efficiently, negatively impacting the local environment, the quality of iron and the taste of food and drink, it was clear that coal was more abundant and cheaper than wood. It was economically superior, able to provide 5 times more energy than an equivalent amount of wood, and at a fraction of the prevailing price for wood. Coal’s energy density also made another aspect of coal more economically attractive; transport cost.
Scientists figured out that coal varied in moisture and carbon content, and consequently energy content, from peat through to anthracite. Geologists realised deeper coal seems were generally higher quality. The mining of coal drove an increase in productivity, until, in the early 1700’s when a new energy crisis hit; coal mines were suffering from flooding. The easy coal seams had been mined and deeper shafts were flooding with groundwater. Mine after mine lost productivity or shut down completely. ‘Drainage’ was the energy ‘shock’ of the day, stranding otherwise abundant coal reserves.
We take drainage for granted today. We set up a pump, switch it on and the water is removed. Back in 1712, the existing solution was the horse-drawn pump. But this method couldn’t cost-effectively remove enough water, quickly from deep mines, prompting a technology race to find a scalable drainage solution.
Enter the ‘Newcomen engine‘.
Suffice to say, after years of research and development, the Newcomen engine worked, allowing the stranded coal mines to reopen.
This was the first time coal had been used for more than just heat. It changed the way we used energy. Whereas we’d primarily used wood and coal to produce heat for cooking and heating, the ‘engine’ took the stored chemical energy one step further, converting the heat from combustion into ‘mechanical’ energy to do work.
The engine was doing with coal, what people and animals did with calories, but with far greater scale and cost-effectiveness. Importantly, wind and water had been used for centuries to do work, but the output was intermittent, less productive, more expensive, location dependent and less scalable than coal-based engines.
By today’s standards, the Newcomen engine was terribly inefficient, wasting 99% of the energy from the coal. But even with this poor performance, it was considerably cheaper than the alternatives. One engine could replace 50 horses, cutting water pumping costs by 85%. Take a moment to understand this; a coal-powered engine with 1% efficiency was 85% cheaper than the incumbent method of the day.
In 1702, people used about half a tonne of coal a year. By 1850 consumption had risen to 3 tonnes and by 1900 more than 4 tonnes.
Energy in itself became an industry, driven by competition and rapid leaps in efficiency. By the 20th century, coal was the basis for a powerful system of production practices and distribution networks. Coal became the enabler of everything in a modern society.
Obviously, coal was overtaken by oil in the first half of the 20th century.
The rise of oil started on January 10, 1901, at Spindletop Hill, Texas. Enabled by the newly invented rotary drill, the Hammil brothers drilled a record 1100 feet, striking an oil field that changed the game. It produced 100,000 barrels a day. More than every other oil well in the world at that time.
Oil had a higher energy density than coal and could now be produced at a scale that could compete with coal. Its energy density and liquid form made it cost-effective, storable and transportable. And ideal for transport applications.
Vehicle manufacturers had toyed with coal and electric power, but oil was cheaper, cleaner burning (and easier to handle) than coal and had more range and less ‘refill’ time than electric cars.
The laws of supply, demand and economies of scale saw the cost of oil drop further as its use increased, driving down the cost of transport and mobilising the world.
By 1930, 1 joule of energy put into oil got 100 joules of energy out, an EROI of 100. Today, the EROI for oil is around 15.
So, it’s the gap between energy in and energy out, that manifests in our standard of living, highlighted by discretionary spending.
Wind and solar have low EROI of 4 and 2, respectively, denying the people of developing nations the surplus energy that developed nations take for granted, and taking the citizens of developed nations backwards.
How the deployment of wind and solar is playing out in Australia
The recent report by the AEMC, released quietly under ‘cover of Christmas’, confirms that intermittent renewables have been a significant driver of increased electricity prices in recent years and continued deployment, without firming capacity, threatens to result in even higher prices.
The direct costs of the large-scale renewable energy target (LRET) are included in the environmental component of the cost stack. However it is important to also recognise the indirect impact of this policy.
The LRET provides incentives for increased quantities of renewable generation to enter the market, even when demand is flat or falling. This is because the revenue that these intermittent generators receive from the scheme is additional to that available from the wholesale market and the LGC penalty price is higher than the expected long-run cost of investing in new intermittent generation.
The technical characteristics of intermittent generation are also not suited to offering the type of hedging contracts that thermal generators can offer. In particular, intermittent generators without firming capabilities do not add to the supply of traditional swaps and caps. This affects the level of liquidity in contract markets and may undermine the ability of retailers to hedge their customer loads against the risk of volatile spot market prices.
The economic characteristics of intermittent generators are also different from thermal generators. Their initial capital costs are relatively high, although these continue to fall rapidly, and their marginal costs of operating are negligible. These economic characteristics let these generators displace thermal generators (which have higher marginal or operating costs, primarily due to fuel costs) at times when they are generating. Over time, to the extent to which the LRET contributes to the exit of thermal generation but does not incentivise investment in firming technologies, it may result in a tighter supply-demand balance and lead to higher wholesale prices. As the LRET target for 2020 is expected to be met through the large volume of new renewable investments in the coming years, and the price of large-scale generation certificates (LGC) is expected to fall significantly as a result, the LRET is not expected to drive additional investment in new renewable projects after 2020.
In layman’s terms, this simply means that more wind and solar, without firming capacity, will increase price volatility, and to the extent coal is displaced, also drive up wholesale prices.
But, with the concept of affordable, realiable surplus energy in mind and the fact that firm wind and solar provide an EROI of 4 and 2, respectively, you can appreciate the conundrum.
And while the AEMC report expects wholesale prices to ‘soften’ a little through to 2021, due mostly to subsidies and mandates bringing an additional 9,732MW of wind, solar and battery storage online, those ‘softer’ wholesale prices will still be around twice as high as they were just 5 years ago.
Notice how Victoria had the cheapest power (light blue line), until it closed one brown coal power station in 2017?
So, how do we progress to a low, or zero, CO2 economy if wind and solar can’t deliver the energy surplus necessary to build or maintain a modern society?
Clearly, the two zero CO2 energy sources that can deliver an energy surplus are hydro and nuclear. Unfortunately, most renewables advocates hate nuclear as much as coal and tend to prefer wind and solar over hydro.
Gas is the next best choice for a CO2 constrained economy, which is great if you have a glut of gas like the US, but terrible if your natural gas price has doubled.
Lomborg believes that ‘green’ energy needs more time to develop. Though after several decades and hundreds of billions in subsidies and favourable mandates, wind and solar still can’t deliver the EROI needed to support a modern society, let alone bring modern power to several billion more people.
The bottom line; achieving an affordable, reliable energy mix that supports human development and wellbeing, characterised by an EROI above 7, ultimately depends on local market economics and resource availability.
Here in Australia, nuclear is banned. Hydro is limited by geography and rainfall. Natural gas is limited by bans on exploration and high prices driven by international parity pricing. Coal will continue to be required for decades but increasing exposure of our two black coal states, NSW and QLD, to international coal prices has contributed to increased domestic wholesale electricity costs.
This is a bit to take in, so to summarise the key takeaways:
- Human advancement requires an affordable, reliable energy surplus
- EROI is a handy measure of energy surplus, helping us identify the best energy sources to support human advancement
- Coal, gas and oil are energy dense, historically providing the huge energy surplus that drove the industrial revolution
- Wind and solar, despite decades of mandates and subsidies, can’t deliver the energy surplus required to build or maintain a modern society, and therefore can’t replace coal, gas and oil in the short term
- A significant technological development is required to lift the EROI of wind and solar above 7
How does our own Coldry technology fit into this narrative?
We see Coldry as a transitional technology, bridging the gap between todays use of fossil fuels and a low or zero CO2 future. Based on the current technical and economic performance of wind and solar, that transition will take a generation, if at all. We suspect the answer to scalable, zero CO2 power generation will ultimately come from new technologies like fusion power.
Meanwhile, developing nations will turn to the most affordable, reliable and scalable energy solutions. In many cases, this means the inefficient, CO2-intensive burning of wet brown coal.
Coldry can enable the deployment of existing high efficiency, low emission (HELE) power technology.
For developing nations, Coldry can reduce their CO2 intensity, in line with Paris Climate Agreement commitments.
In our own home state of Victoria, Australia Coldry would enable reliable, affordable electricity with up to 63% lower CO2 intensity than old brown coal plants.
Facilitating the lower CO2 use of Victoria’s world-class brown coal resource, we’re able to decouple part of Australia’s generation network from the impact of high gas prices of gas and increasing black coal cost while backing up intermittent wind and solar.
The Newcomen engine removed groundwater from black coal mines, liberating stranded energy assets, and improving the economics of mines that managed to eke out marginally profitable production by replacing horse-drawn pumps.
Similarly, Coldry removes water from brown coal in a manner that delivers a net energy surplus, liberating this otherwise stranded resource for use in the thermal coal market and other higher value coal upgrading markets, while replacing other drying methods that deliver net energy deficits.
Bjorn Lomborg opinion: Wrong to deny poor what we take for granted ($)
17 December 2018 | Herald Sun | Bjorn Lomborg
One of the most overlooked development success stories right now is that the population without access to electricity has fallen below one billion for the first time since records began. New data from the International Energy Agency shows that in 2017, 120 million people gained access to electricity, meaning more people today have access to electricity than ever before.