Debunking Manhattan Institute’s “The ‘New Energy Economy’: An Exercise In Magical Thinking” — Part One

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I was discussing the dramatic drop in coal use in the US and the dramatic rise in renewable energy production and one of my many conservative friends* referred me to this report to explain why physics proves that there is no way we can transition to renewable sources affordably, that all the innovation is coming on the fossil fuel side, and that renewables have hit a brick wall and won’t be improving much at all. (*Note that I’m a libertarian.)

This was a huge shock to me. I had come from the fossil fuel industry (I never worked there, but I have invested in a lot of oil, gas and coal projects over the years). The reason I’m writing for CleanTechnica (and not Manhattan Institute) is that my own research (about 5 years ago) showed that the solar, wind, and battery industries have used innovation to dramatically lower costs over time.

Lazard’s #LCOE analysis indicates significant historical cost declines for utility-scale #RenewableEnergy generation technologies. View the full study now: https://t.co/cqboEjyMBF #LazardPerspective #Sustainability pic.twitter.com/gC6Og44s5u

— Lazard (@Lazard) November 19, 2019

On the other hand, what about oil and gas cost over the last decade?

Oil prices have been flat (obviously crashing lately) over the last decade, going down barely 8% from 2009 to 2019, as shown in the table above. Well, that is the past, maybe they are right and renewable have seen all the gains that are possible and we are on the verge of a revolution in costs of oil. This may not be good for the climate, but let’s dive into the report and see if it is true.

I hope what I find is interesting to readers in their interactions with other people. I think you find that when someone disagrees with you, you actually agree on most of the facts, but there are just a few different assumptions that cause you to come to a different conclusion than them.

Executive Summary

I’ll paraphrase or quote their point and then make a comment. I won’t provide evidence for my comment, that will happen in the body of the response.

1. We have been trying to replace hydrocarbons for a long time, first because we thought we were running out of them, then more recently because of climate change and other environmental concerns. My comment: I agree our reason for moving away from fossil fuels has changed.
2. Wind, solar, and batteries provide about 2% of the world’s energy. But “a bold new claim” suggests these can replace hydrocarbons. My comment: I agree, we are at about 2% for these technologies, but the 2% figure is looking at things in a way to minimize the success of wind and solar. Energy consuming power plants and vehicles are replaced over a 20 to 40 year cycle (depending on the market). So, even if all new transportation and electricity generation this year was renewable, it would only be a few percent of overall generation. Even though we have made great advances in electricity generation, the Manhattan Institute minimizes those by measuring total energy use, which hasn’t made much progress, but is about to make a lot. A long way of saying: I think their claim is technically correct, but very misleading without context.
3. New energy (electric vehicles, wind, solar, & batteries) claims to be set to disrupt traditional energy (gas cars and fossil fuels) by following the playbook the semiconductor (laptop computers) and communications industries (internet and cell phones) took. This is a false comparison, according to the report — information and communications technology follow different rules than energy technology. My comment: True, they are different industries. The devil is in the details. I think they are more similar than the report author does.
4. In the real world, when we go faster or move more people, it causes hardware to expand. The amount of energy to move people around or power a factory or run a farm are determined by physics, and clever software doesn’t change that. My comment: You would be amazed at what you can accomplish with clever software and hardware design. He is right that Tesla can only improve the motor from 80% efficient to 99.99% efficient, but it could also reduce the weight from 300 pounds to 10 pounds, and the cost from $10,000 to $10. I’m not saying Tesla will make those dramatic gains, but it is possible over many years and cycles of iteration. So, just because efficiency can only go up a bit, that doesn’t mean the other attributes of a product can’t get tremendously better over the next 20 or 30 years. So, this is another point that is true but misleading because it lacks context.

“This paper highlights the physics of energy to illustrate why there is no possibility that the world is undergoing — or can undergo — a near-term transition to a ‘new energy economy.'” My comment: This paper will use a combination of technically correct physics to prove nothing, since it ignores many possibilities, probably intentionally. This is the equivalent to me saying “1+1=2, therefore solar is awesome.” The math I presented is correct, but that doesn’t prove anything good or bad about solar, it is just an unrelated statement.

Challenge of Scale

1. Claim: It has cost $2 trillion to replace just 2% of the world’s energy with new energy. We would have to increase production 90 fold and it would be super expensive if we continue to scale up new energy. My comment: Yeah, if we build lots of solar and electric vehicles at the costs of 10 years ago it would be really stupid. Luckily, we have learned a lot since then. We can’t build 90 times more solar than 2020 than in 2019, but if we just triple production over the next few years (very realistic, with or without subsidies), we could do this over 30 years. He claims it took 50 years for the gas industry to grow 10 fold as evidence this can’t happen. We have a lot of technology to build things we didn’t have 50 years ago, and the sun isn’t hard to find, like oil is. Plus, I think we have more brain power focused on this, but that is subjective.
2. Claim: It would require an effort like WWII. My comment: Maybe. Is that a problem? Are you saying this generation can’t tackle big challenges? It doesn’t mean we have to ration sugar or draft people, but yes, this is going to be a big transition. Just because something is big doesn’t mean it can’t happen. You don’t think the Internet is big? It is changing everything. Imagine someone telling you in the 1990s that the Internet can’t grow because it took forever to get telephone lines strung across the US. True, it did take forever to get telephone service, but the Internet found ways to grow more quickly than the old communications companies. As an aside, my neighbor’s internet went down and they told him they couldn’t fix it for 6 weeks, but then he said he needed it in order to work from home and they are coming Monday. The internet providers — cough, Frontier Communications, cough — that act like this are not making any friends.

Physics-Driven Cost Realities of Wind & Solar

Wind isn’t new. Fiberglass wind turbine blades have been around for 50 years. Solar PV has been around for 50 years. Batteries are key to making this all work. Over the decades, all 3 have become roughly 10-fold cheaper.

My comment: the 3 technologies are quite a bit different and it cheats them to just lump them together. Solar has improved at least 100 fold over the decades. Wind is totally different. It didn’t start out with sky high prices at the beginning of this century like solar did. It was close to competitive from the start and has made slow gains. Now that solar costs have caught up to wind in many places, it still has value due to wind continuing at night, so it needs fewer batteries than solar to provide power when power is needed. Low-cost batteries are newer to the scene than solar or wind and have been used on the grid for only a few years, as opposed to wind and solar for more than a decade. Battery costs are rapidly declining.

Shale wells are more capital efficient than wind or solar. This is because oil is more energy dense.

My comment: Who cares? The current Lazard report (just a year newer than this report, which is not a significant change) shows electricity from new natural gas plants (gas is far more competitive for electricity than using oil) cost over 50% more than electricity from new wind or utility-scale solar plants (depending on geography, of course).

So, how can both of those claims be true? (They are). The reason is, once you have a barrel of oil, you have a lot of other costs to get some electricity out of it. You need to transport it to a refinery. Then you have to refine the oil. Gas doesn’t really need refining, but the transportation is expensive. Then you have to transport the diesel or natural gas to a power plant to convert it to electricity. Those pipelines, refineries, and electrical plants will require many employees to build and many employees to maintain. Solar and batteries require little maintenance. Wind requires much more maintenance than solar but much less than oil and gas. That is the point of using the Lazard reports — they calculate the total of all the costs, one-time capital, and the ongoing maintenance so that you can compare sources that have dramatically different costs. You still have to worry about reliability of each source, but that is a different issue.

How do wind and solar cost-compare to conventional energy? The 2019 #LCOE has insights: https://t.co/cqboEjyMBF #Sustainability #LazardPerspective #RenewableEnergy pic.twitter.com/slE2hjHXdf

— Lazard (@Lazard) November 18, 2019

Availability

Oil is easy to store (except when we recently ran out of storage), while coal is even cheaper. The sun doesn’t shine at night, and sometimes the wind slows down. Solar and wind have lower capacity factors, so it takes several gigawatts of capacity of solar or wind to replace a gigawatt of a fossil fuel plant. Batteries are expensive.

My Comment: Coal is quickly dead, so let’s quit wasting time talking about it — it is dirty and expensive and will be shut down as fast as possible. He is right that the intermittency of wind and solar are a major challenge, and until we had the hope of large increases in battery production, it was going to be very tough to get a large percentage of the grid to these modern renewables. (Several grids are already at or near 100% renewables due to hydropower.) Once again, though, Lazard does adjust for capacity factors. It realizes that a gigawatt of solar capacity doesn’t produce the same amount of electricity (gigawatt-hours) as a gigawatt of a combined cycle natural gas plant.

Seasonal storage is an unsolved issue. He makes a good point there, but we have a few years to solve that. If solar gets cheap enough, we could just overbuild it for the worst season of the area it is servicing. Many researchers argue that’s the lowest-cost option. Or maybe we will find another solution.

Myth of Grid Parity

The Manhattan Institute claims that Lazard’s figures don’t include all of the costs of producing reliable power. Additionally, if you use a low discount rate, that favors renewables since they have higher upfront costs.

My comment: He is pretty much right on this. As we increase the penetration of renewables, these issues need to be solved. However, the Lazard figures also don’t include all of the societal benefits that solar and wind provide — real health and life expectancy benefits that economists can try to quantify.

Hidden Costs of a “Green” Grid

Claim: Those countries that have gone green (Germany and Britain) have higher electricity costs, not lower costs. Renewables make fossil fuel plants run less efficiently, since they force the plants to ramp up and down to make up for changes in solar and wind output. He gives examples in South Australia where there were 2 blackouts when the wind died down. We are adding a lot of oil and gas peaker plants to balance the grid because we have some much wind and solar. It is unfair that wind and solar generators don’t have to pay for the grid problems they create.

My Comment: He is technically correct that those that pioneered wind and solar a decade ago are paying higher costs. They realized that and we have them to thank for our low costs today. That doesn’t prove that if we convert today we will have the high costs of Germany. Also, much of the high cost of electricity in these countries, especially Germany, are due to tax policies and the like. These countries — in some cases the citizens through voting and in some cases the grid operators and regulators on their own — have decided that higher electricity costs are beneficial since they encourage energy efficiency and are a good option for revenue generation.

Solar and wind are much cheaper and batteries weren’t available 10 years ago. He is right that fossil fuel plants run less efficiently when they ramp up and down. They will have to bear that cross as they compete with batteries for balancing out the grid. If that makes them too inefficient, then we don’t need them. Maybe we just need a few for seasonal needs until solar gets to a penny a kWh. On the claim that it isn’t fair to fossil fuel plants to have to deal with the solar and wind problems? Are you kidding me? What about the fairness of the pollution and carbon emissions? I don’t think you want to go down the fairness rabbit hole. It won’t end well.

Conclusion

So far, I haven’t really found any lies, just a lot truths that lack context. Some of them, like the amount of electricity produced with a million dollars in hardware, seem too tortured to be an honest mistake. Others, like the overemphasis of the traditional weaknesses of wind and solar (their intermittency), could be excused by not being up to date on the latest in grid-level batteries. Probably not, but Hanlon’s razor says not to attribute to malice what can be explained by stupidity, so let’s give him the benefit of the doubt.

It the second article on this topic, I’ll cover:

• Batteries
• Moore’s Law
• Future Costs of  Renewables
• Digitization
• Transportation
• We Need More Energy To Bring The World’s Poor Up To Middle Class