A Tale of Two Energy Futures

Te Apiti wind farm in New Zealand.

The Te Apiti wind farm in New Zealand. About 80% of New Zealand’s electrical power is generated from renewables, making it an example for the world.

I often joke with Mr. X that “I can see the future”. Yes, I’m usually kidding, but the other day I was thinking about an article about energy that I had read, and the future did indeed seem to me to be as clear as a bell. To back up a bit here, the article is by John Mauldin, an economic analyst, and it is his take on low oil prices, entitled “Riding the Energy Wave to the Future“. It’s well worth reading, but if you want the quick summary, here’s my very-short paraphrasing—

Marked improvements in oil and gas production technology (especially fracking technology) are largely responsible for today’s low oil prices, and these improvement trends are likely to continue. As such, prices for oil and gas are likely to remain low. BUT, the same types of innovation are also causing prices to drop in the renewable energy field, especially solar and wind, and the prices there WILL DROP EVEN FASTER. The likely outcome of this, according to Mauldin, is that future energy prices are likely to be low across the board, and that natural gas will continue to eclipse coal and is likely to become a “bridge” fuel between fossil fuels and renewables.

Now, I think that Mauldin’s article is basically on the right track (I wrote about a closely related topic, grid parity, here).

(And now for an aside—this, as opposed to another article I read this week, that I won’t link to, that went on and on, seemingly supported by all the relevant statistics and graphs and written by someone with all the proper credentials, about how low oil prices are a sign that resources have run out and global growth is permanently slowing and will soon collapse. There are thinkers in the peak oil and similar movements who confidently swear that collapse is imminent every single year. I’ve learned to be a bit circumspect; we’ll overheat the planet before we run out of fossil fuel, and we will need to leave them in the ground. These doomsayers inevitably seem to have vested interests in selling doomsday-related products or services (such as gold, or special “insider” information, or even survival supplies), and they seem to come out of the woodwork every time the stock market has a downturn, as it did the other week. And, I must add, these people and their distortions are not helpful in terms of getting more people in the world to think clearly about sustainability issues. If you come across an article babbling on about “debt-based money” or “fiat currency”, then you’ve stumbled onto one of these sites; you’d be better off just closing that page and moving on.)

Anyway, back to my clear vision of the future—left unfettered, the markets are going to push this situation of inexpensive energy in a particular direction, and it’s a direction that won’t lead us to enough reduction in fossil fuel use to stay below 2 degrees of warming in the future. We will need to switch completely to renewable energy, but it won’t occur. Here’s how this will likely play out, down the road a bit. Solar will be quite cheap, and will provide low power prices during the day. But though the price of solar modules and other components will likely continue to fall, there will always be tangential costs such as land, maintenance, and taxes, so solar (and wind, in a similar vein) won’t ever quite become “too cheap to meter”. But it will be cheap. Then, utilities will build, as they already have been building, gas-powered peaking plants to carry the load at night and/or when wind or solar generation might be low. Unlike nuclear or coal plants, these natural gas plants can be ramped up and down quickly, as grid input from renewables fluctuates. And with the price of natural gas low, these plants will be used to power the grid at night. So, in general, we’ll end up in a situation where we’ll have cheap electricity from solar during the day, and cheap electricity from natural gas at night. This isn’t altogether bad, natural gas emits only about half the CO2 per unit of electricity produced than coal does, and will only be used for a portion of each day. BUT— this pattern will be resistant to change; natural gas is cheap and looks to remain so, so customers will get reasonably-priced electricity, and at all hours of the day and night. This is great for customer convenience, but not so good in terms of phasing out fossil fuels—in some ways we’ll be just as entrenched in a fossil-fuel paradigm as we are now, and we won’t have made some of the behavioral and systemic shifts that we desperately need to make.

Kearny Generating Station on the Hackensack River in New Jersey, which has been converted into a natural-gas peaking plant. Though these plants emit fewer visible emissions than coal plants, they still emit about half the CO2.

Kearny Generating Station on the Hackensack River in New Jersey, a former coal plant which has been converted into a natural-gas peaking plant. Though these plants emit fewer visible emissions, they still emit about half of the CO2 that a coal plants do.

So, that’s my vision of how things are likely to be, if left unfettered. But, consider an alternative future, where a few tweaks allow market forces to create outcomes that are quite different from those outlined above. Those tweaks would favor renewables over fossil fuels, and two that come readily to mind are carbon taxes, and renewable portfolio standards (RPSs) that require steadily increasing portions of renewable power (but there are many other interventions, such as tax credits for renewable energy installations, or power-purchase agreements, and others, that also work in this direction). These types of measures would result in outcomes that would be quite different from my “unfettered market” example above.

Here’s how market forces would cause this to play out—with something to alter the balance between fossil fuels and renewables, the price of daytime power (solar) would be cheaper than nighttime power (from fossil fuels). In this situation, utilities will likely adopt some version of time-of-use pricing, to give their customers an incentive to modify their behaviors and lower their electric bills. (I’m assuming that wind and hydro will also be powering the grid, but because their power levels don’t fluctuate as much or as predictably, they don’t affect this argument as much, so I’ll focus on the solar portion). With time-of-use pricing, if electric customers can shift their electric loads to a cheaper time of day, then they can save money. This will change use-patterns across the board, as people and businesses charge vehicles, heat water, cool or heat houses, etc., during solar-powered time periods where rates are cheaper. It will also allow individuals to arbitrage the system by buying power when it is cheap, and selling it back when it is more expensive. This will soon be possible to do with electric cars, and the advent of cheaper battery technology may soon make it profitable to do with batteries designed for home backup (such as Tesla’s new offerings). Larger-scale entities could arbitrage the system as well, say, utilities investing in pumped-hydro storage, or grid-scale storage using batteries, or thermal solar plants with molten-salt storage for “after-hours” production. It is the difference in prices that will encourage these investments and behaviors, but average electricity customers will benefit as well as those profiting from providing storage– arbitrage will prevent the price spread between cheap solar power during the day, and more expensive power at night, from becoming too great. The is partly because the greater the price spread, the more profitable it will be to build and operate the storage, and partly because more storage increases demand for solar power during the day, and provides more supply during the times when electricity is most dear.

A look at the  Bath County pumped-storage facility in Virginia. At over 3 gigawatts of rated power, in is the largest pumped-storage facility in the world. The power it stores today comes from conventional generation, but in the future the facility could just as easily store daytime solar power for use at night—

Now, there are certainly many other aspects of how our power systems develop that we’ll have to pay attention to. In both of my scenarios above I’ve assumed that grid-tied solar will be encouraged, as it is here in Vermont. This isn’t actually a foregone conclusion, though, as Bill McKibben spelled out quite well in an article this summer in The New Yorker, “Power to the People“, because power companies in some states are actively resisting the development of solar. I’d prefer the grid-tied version of future solar power, partly because it’s more efficient (post: “Not Sexy“), but partly because if residential solar develops under an off-grid paradigm, it would leave industry and large urban areas still using fossil fuel from the grid, as in my first scenario. So there is much to do, on all fronts, and in this case what needs done is in the hands of state and national legislators. Our job is to push them to act.


Top image credit: Jondaar_1, “Te Apiti Wind Farm, Manawatu, New Zealand”, Flickr Creative Commons.
Kearny Generating Station image: Wikimedia. Image has been cropped.