Why “100% Renewables” is a Dangerous Chimera, Part 2

Part 2: Institutional Problems

In Part 1, I wrote about the EROI problems that stand in the way of achieving the dream of a “100% renewable” energy economy.  That’s a dream on which many environmental activists have set their hopes. I’m sympathetic to environmental end goals they favor, so my first impulse was to follow up Part 1 with a Part 2 talking about how to fix the EROI problems. The trouble is, EROI is only one dimension of the “100% renewables” dilemma. Another and arguably more fundamental dimension is the institutional framework in which we’re constrained to operate. A basic engineering rule is that robust solutions to problems must proceed from a clear understanding of what the problems actually are. Hence, this exposition of the institutional issues that need to be addressed if we’re to achieve long term sustainability in our energy resources.

I’ll be cribbing in what follows from an excellent article by Sean Sweeny that I found on the Post-Carbon Institute's Resilience website. It’s Sustaining the Unsustainable: Why Renewable Energy Companies Are Not Climate Warriors. I have comments and a few additional points to make, so I’m not just posting a link to the article with a recommendation to go read it. Readers might nonetheless want to open a tab for notes and references in Sweeny’s article. Where I’ve quoted from his article, the numbers in square brackets refer to those notes and references. FWIW, he is a better writer than I am. At least he documents his positions more rigorously. Caveat lector. 

Clean Energy: narrative vs. reality

I can’t think of a better introduction to what I want to talk about than Sweeny’s opening paragraphs. So I’ll just quote them here:

In the fight to address climate change, renewable energy companies are often assumed to be Jedi Knights. Valiantly struggling to save the planet, wind and solar interests are thought to be locked in mortal combat with large fossil fuel corporations that continue to mine, drill, and blast through the earth’s fragile ecosystems, dragging us all into a grim and sweaty dystopia.

In the United States and elsewhere, solar panels glitter on rooftops and in fields; turbines tower majestically over rural landscapes. The fact that, globally, the renewables sector continues to break records in terms of annual deployment levels is, for many, a source of considerable comfort. Acting like informational Xanax to ease widespread climate anxiety, news headlines reassure us that the costs of wind and solar power continue to fall, and therefore wind and solar is (or soon will be) “competitive” with energy from coal and gas. The transition to clean energy is, therefore, unstoppable.

“Informational Xanax”. I like that. But reality is different and more nuanced than the narratives we construct:

Of course, wind and solar companies are not charities. They are, in a phrase, profit driven. They want to attract investment capital; they seek to build market share, and they all want to pay out dividends to shareholders. In this respect, renewable energy (and “clean tech”) companies are not fundamentally different from fossil fuel companies.

That’s not to say that these companies are necessarily bad, only that they’re not fundamentally different from other companies – including the fossil fuel companies that the popular narrative vilifies as “the bad guys”. However, that’s the leading edge of a complex issue. Climate change mitigation and sustainability should not be about good guys vs. bad guys. Our tribal instincts incline us to see things that way, but it's a mistake. Thinking of issues in those terms is at best unhelpful, and more likely counterproductive. 

A phony war?

Sweeny goes on to pose a rhetorical question: why should it matter if wind and solar companies are profit driven and fundamentally no different than other for-profit companies? The world really does have a serious carbon emissions problem, and every kilowatt-hour (kWh) of energy delivered by a wind or solar resource is a kWh not delivered by combustion of fossil fuels. If companies can “do well by doing good”, isn’t that something we should be cheering for?

His answer lays it on the line:

.. There are several reasons why, in their current role, renewable energy companies could be more part of the problem than they are part of the solution .. They are beginning to squander their “social license” by being party to a “race to the bottom” dynamic that risks turning workers and many ordinary people against action on climate change. Equally serious, large wind and solar interests’ “me first” behavior is propping up a policy architecture that is sucking in large amounts of public money to make their private operations profitable.

They are sustaining a model of energy transition that has already shown itself to be incapable of meeting climate targets.[1] In so doing, these companies have not just gone over to the political dark side, they helped design it.

By “me first” behavior, I presume Sweeny is referring to game strategies aimed at achieving the best outcome for the player as first priority, even if it’s detrimental to the community as a whole.  Not all corporations operate that way -- and indeed it's not even a formal part of ideological capitalism -- it does generally hold for the aggressive profit-seeking corporations we've come to associate with capitalism.

Lest one dismiss this as just anti-capitalist and anti-renewables rhetoric from a lefty academic, Sweeny continues with documented statistics from respected sources that are pro-renewables. The statistics support his suggestion that the supposed contest between dirty and clean energy companies is a “phony war”:

.. From 2009 to 2019, global energy demand grew over 20 percent. Roughly 75 percent of this demand was met by energy sources other than wind or solar.[2] In 2019, wind contributed just over 6 percent of the world’s electricity, and solar just 2.8 percent.[3] What we are witnessing is not an energy transition, but an energy expansion. More fossil fuels are being burned today than ever before, and emissions in 2019 were at record levels.[4]

.. like capitalist enterprises everywhere, energy companies—“green” or not—have a deep affection for steadily rising consumption. This perhaps explains why wind and solar companies have not used their political influence to fight for an aggressive approach to energy efficiency or conservation. 

There is even a blurring of the lines between the two camps, with major oil companies investing heavily in renewable energy. As Sweeny notes, rising demand presents opportunities to make money in both renewables and fossil fuels.

The heart of the matter

We’re approaching the key institutional issue that led me to conclude that the dream of “100% renewables”, as conceived today, is a dangerous chimera. Once again, I’ll crib from Sweeny’s words, in a section he labels Not Enough for the Climate, Too Much for the Market:

Although mostly absent from the public discourse on renewables, the fact is that the scale of production required to meet climate targets is physically beyond the capacity of the handful of countries and companies that currently dominate the renewables sector.[16]

The recent advances of wind and solar need to be viewed against the decarbonization challenge. Noting that eighty-two gigawatts (GW) of new wind capacity came online in 2020, the Global Wind Energy Council (GWEC) recently stated, “We need to be installing around 180 GW per year to get to where we need to be [to reach the Paris Agreement climate targets]. Every year we fall short, the mountain to climb gets higher.”[17] ..

The challenge of climbing that mountain is exacerbated by the fact that, according to the GWEC (Global Wind Energy Council) 743 GW of wind power capacity will either be decommissioned or will need to be repowered (blades, hubs, generators, and gearboxes replaced) well before 2050. Sweeny continues:

Europe is home to nearly 12,000 wind turbines expected to be decommissioned by 2024.[19] IRENA estimates that, to meet 25 percent of electricity demand by 2050, more than 8,500 GW of solar PV would need to be installed, which is more than seventeen times today’s capacity (512 GW).[20] 

..

If these estimates are even remotely accurate, then annual levels of net deployment of wind and solar energy will need to be four times higher than they are currently, starting immediately, for thirty consecutive years until 2050.[22] In a 2017 paper, energy experts Thomas Poulsen and Rasmus Lema concluded, “There is a massive shortfall in current industrial capacity to meet an output of this scale.”[23]

Now the kicker:

From a capitalist perspective, however, there is no “massive shortfall” in capacity; rather, there is a surplus.[24] This situation draws attention to how climate targets are completely incompatible with the profit-focused framework. ..

He’s right. There is at once a massive shortfall in industrial capacity to meet the production volume for new wind and solar at the levels needed to reach net zero by 2050, yet a surplus in capacity for the levels that are actually getting deployed. New wind and solar certainly are being added, but for the most part, it’s only at the rate at which growth of the electricity market makes it profitable. The level of investment is a fraction of what’s needed if wind and solar are to fully replace generation from fossil fuels. 

So why is the level of investment in new wind and solar so low, relative to what’s needed to achieve a 100% renewable energy economy by 2050? In financial terms, the easy answer is that there is no justification for investing more. Returns on the money invested would be too low to justify the expense. To understand why, however, we need to look at how wind and solar resources interact with electricity markets.

The levelized cost of electricity (LCOE) from wind and solar resources has gotten low enough, in good locations, to undercut the LCOE from coal or gas-fired power plants. But the low LCOE figures cited for wind and solar resources apply to as-available electricity. The weather determines how much is produced and when. If electricity were a storable commodity, that wouldn’t matter so much. All of the electricity produced by wind and solar resources would have essentially the same value. Long term production would only need to equal long term consumption, and we’d have no problem. 

Unfortunately, electricity is not a storable commodity. Production and consumption must match exactly, in real time. We can achieve the effect of storability by using electricity to produce other forms of energy that can be stored, and then converted back to electricity at some later time. However there are conversion losses at either end, and the capital cost is high. As a result, wind and solar resources deliver full value only when they are producing output that is serving end load directly. When their output is serving to charge storage, it still has value, but it's discounted by the round trip energy efficiency of the storage medium being used. At the same time, its effective cost is increased by the operational cost of the storage medium and by amortization of the medium’s capital cost. 

That’s only one side of the problem. Granted, it’s significant; the cost of available long term energy storage is high enough to preclude ever reaching a 100% renewable energy economy. Without cheap long-term storage, we’ll be forced to rely on full-scale backup generation from stored fuels whenever limited reserves of stored energy run out while adverse weather is still ongoing. If long term storage were the only issue, however, we could probably get to 95% of generation from renewables. It isn’t the only issue, however. The “other side of the problem” surfaces long before we get anywhere close to 95%.

The other side of the problem is diminishing financial ROI as partial curtailment of wind and solar resources becomes routine. From a profit-oriented investment perspective, intermittent renewables are their own worst enemies. To be profitable, they require a grid environment in which fossil fuels provide the bulk of generation. In that situation, the wholesale power auction clearing price will reflect bidding from fossil fueled generators; the clearing price will be high enough to cover the capital and fixed operational costs of RE providers with some profit margin to spare. But the situation changes as RE penetration levels rise. Generation from fossil fuels gets shut out, and wind and solar resources are forced to compete amongst themselves. Wholesale market prices may fall below zero. 

If episodes of zero or negative pricing are brief and occasional, wind and solar energy providers can ride them out. But if they become common, the RE market looks overbuilt and unattractive to investors. Yet a high level of overbuilding is precisely what’s needed for a high percentage of generation from wind and solar resources to be viable. Needed, but unattractive to investors. Something will have to change before it can happen.

Can we fix it?

The financial ROI issue that currently limits deployment of new wind and solar resources on the grid isn’t necessarily insurmountable. If nothing else, there's always the option of throwing a lot of public money at the problem. Different interest groups have different ideas about how that should be done. There's also a chance that some type of market / regulatory reform could address the problem without resorting to new subsidies. We'll have to be very careful about the approach we choose to adopt.

Of course, all that is assuming intermittent renewables are truly the best or only solution for reducing carbon emissions, and that their slow rate of deployment is the problem we need to solve. Not everyone agrees. Some feel that reliance on intermittent resources in the first place is the real problem. Instead of devising new policies and mandates to accelerate their deployment, we should be looking to incentivize the development of clean energy resources that don’t depend on the weather.

There’s a complex space of technology and policy choices we will have to negotiate. Each has its own pros and cons, and they all interact. I’ll take a swipe at sorting some of the more promising options (or classes of options) in Part 3.