Column: Why Green Energy Experts May Have It All Wrong

Global policy makers should consider a staggered migration from fossil fuels to green energy sources, or the planet could face a power crisis, writes Dr Ricardo G Barcelona

Global policy makers should consider staggered migration from fossil fuels to green energy sources, or the planet could face a power crisis, writes Dr Ricardo G Barcelona

In an eerily familiar narrative, solar power is taking centre stage today in much the same way as nuclear energy was the 1970s. “Too cheap to measure” ushered in an age of energy abundance of limitless possibilities.

Three years into solar power’s volume surge, prices from reverse auctions have reached record lows, with 2018 volumes expected to fall by 25 per cent.

But beyond the rosy headlines, two underlying realities are being missed by policy and investors: Gas remains a viable bridge to achieving secure, affordable and low-carbon energy futures. Renewables’ futures lie with hydro, geothermal and wind, with substantially reconfigured solar and storage a later stage addition.

Gas remains a viable bridge to achieving secure, affordable and low-carbon energy futures. Renewables’ futures lie with hydro, geothermal and wind, with substantially reconfigured solar and storage a later stage addition.

Arab oil embargo revisited

The 1973 Arab oil embargo is a distant memory. Lower energy intensity, higher efficiency, and renewables’ ubiquity has banished any thoughts of another price shock. Or has it really?

It’s looking like the world has sleepwalked its way into an energy crisis. In the mid-1960s, oil refineries laid idle amid a capacity glut and the industry was plagued by prolonged bouts of low oil prices. Oil producers and exporters formed OPEC to buoy prices and maximise revenues. As if on cue, the US Supreme Court ruled in favour of petrol price caps. In short order, excess capacity was mothballed, investments dried up, and supply glut disappeared.

President Richard M Nixon finished the job by abandoning the gold standard. Plunging dollar value and rising gold prices wiped out OPEC’s gains from dollar-denominated oil trade.

The rest is history: To support Egypt in the Yom Kippur war, the Arab oil embargo was imposed. Operating at tight refining capacity, and little domestic reserves, US and affected countries were caught off-guard.

Chaotic transitions

Fast forward to 2018. In the rose-tinted world of policy, the aspired 2070 zero-fossil fuel energy system is seen almost as a done deal today. In its single-minded push for solar power, policy relies on a monoculture supply that rises or sets with the sun. While this vision may be alluring, two generations still separate today’s “dirty” energy from tomorrow’s low carbon world.

To achieve an orderly transition, transport and power supplies’ decarbonisation is crucial.

In its single-minded push for solar power, policy relies on a monoculture supply that rises or sets with the sun. While this vision may be alluring, two generations still separate today’s “dirty” energy from tomorrow’s low carbon world.To achieve an orderly transition, transport and power supplies’ decarbonisation is crucial.

Power generation has established clearer pathways via hydro, geothermal, and lately wind. When combined with fossil fuels, supply security and affordable supplies are within reach when competitive markets are functional.

Transport has barely scratched the surface. From today’s 96 per cent dependence on oil, some forecasts still see an 88 per cent dependency even with electric vehicles (EV) gaining traction.

Policy’s bias against fossil fuel resurrects the spectre of 1960s. Several coal firms have already gone bust. And under-investment in oil and gas, if it persists, may yet destabilise energy supplies.

Coal and gas utilisation fell to its lowest levels in Spain, thanks to a weather-induced rise in hydro and wind power supplies, and declining demand. This reduced “carbon space” can also be seen in Europe and the US at varying rates.

This is where policy may inadvertently sleepwalk into the next energy crisis. Paradoxically, EV’s rapid adoption has increased demand for secure, affordable and low carbon power. This increased energy need is being met by gas, geothermal, and hydro, offered as ‘mixed supply portfolios’. Intermittent wind and solar are merely complements, until affordable storage become widely available.

While global pundits are betting big on solar power, the so-called experts may be neglecting the potential downsides of it: eroding efficiency, disposal of panels and obsolescence, among others, could render ‘cheap’ solar exceedingly expensive.

With coal and gas relegated to irrelevance by premature closures, a disorderly transition could turn a stable energy climate into an unreliable one.

Poised for next boom

Energy transitions proceed at pace that is recursive, often tentative. In the midst of these uncertainties, policy’s best intentions are marred with the carcasses of failed investments. The previous “solar boom” that ended in 2010 attested to this.

“Small is beautiful” is likely to be the next energy boom’s mantra. Here’s why:

Extant technologies require large volumes to make the market economically viable. Hence, energy is beyond reach to the peripheries. To expand energy’s reach to these untapped markets, technology plays an enabling role.

Floating regasification and storage (FSRU) for LNG cuts costs substantially, giving access to gas to otherwise uneconomic archipelagic systems (e.g. Indonesia and Philippines).

Slim-hole geothermal technologies cut steam exploration costs to a third, opening microgrids as growth markets. Small scale hydro is enjoying similar advances and benefits.

Offshore wind’s 66 per cent utilisation rates on newer 12 MW turbines hold more promise than solar power’s 20 per cent.

These are game-changers that thrust ignored renewables into contention now. Today’s policy makers are looking for the silver bullet, where none exists; policy’s well-intentioned benevolence could turn its aspirations into unfulfilled promises.

The remedy? A portfolio of supplies should be drawn from available resources in respective markets. Hence, in the word’s of China’s late paramount leader, Deng Xiaoping, markets can “let a thousand energy sources bloom” to secure our future.

Dr Ricardo G Barcelona is the author of ‘Energy Investments: An Adaptive Approach to Profiting from Uncertainties’, a book which examines the uncertainties surrounding global fuel and power markets.

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