I read a recent paper published by JP Morgan on the Energy Transition, and the theme addressed issues that were Elephants in the Room. The graph below, taken from that paper shows the relative changes that are taking place as new technology is implemented, the magnitude is addressed and just how much more will be needed.
The public has not found the same incentive to clean energy that has occurred with other technologies. The graph shows the rapid increase in the application of technology in other areas, including smart phones, high speed internet access and e-commerce. At the absolute bottom right corner of the chart is the share of total energy provided by wind and solar, as well as the overall share of EVs on the planet. This is both a concern and may be somewhat may be somewhat disheartening. In looking at the floods that are occurring in Australia, as well as wildfires that seem to occur in many areas, it is hard to understand why there has not been a far greater reaction to address energy and climate related emergencies. Meanwhile we see that more than 70% of new vehicles are either trucks or SUVs—a strong indication of a reluctance to accept a climate change and a changing world.
A subsequent graph in the same paper showed a ratio in the stocks of clean energy vs oil and gas companies. This appears to reflect is a transition that is taking place with some of the oil and gas companies. European companies (Shell, Total and BP) appear to be in the process of converting from Oil and Gas to energy companies and the results are interesting. Shell has announced plans to be a major electrical utility and made significant advances in EV charging, as well as clean electricity sales. Transitions of this type reflect a realization of reality and a commitment of major industries to change course.
The Elephant in the Room Remains
It is becoming apparent that this fight is going to need support on many fronts. The share of total energy provided by wind and solar is still at near 5%, with little chance of clean energy reaching the required target of 100% in about 28 years. As mentioned in a previous note, we need to work to improve efficiency, reduce use and to use clean fuels. This all appears to lead to the electrification of most, if not all energy demand. The most important missing piece is support from consumers. The paper went on to describe several of the elephant issues, all need to be considered carefully:
- The costs for wind and solar generation have fallen dramatically, and enthusiasts claim that victory is near. But to utilize this form of generation, other factors need to be included. Storage to smooth an intermittent supply is required, and there are two extremes here. Where there is hydro generation available, the storage may be easily captured, at low or even no cost. At the other extreme is the use of batteries for longer term storage. While battery storage costs have declined dramatically, the potential need to store energy for more than a few days, becomes a large cost and could drive prices for electricity up significantly.
- The reduction of fossil fuel in electrical generation is often the stated target, but the principle uses for fossil fuels are generally for heating, transportation, or industry, and these would all be new loads for the electrical grid. Reducing existing fossil fuel use for electrical generation, while a significant achievement, is a small start. We will potentially need 3-4 times the existing electrical supply. The big challenges will be to provide heat and energy for industrial use. Transportation, while a problem, is less critical because the efficiency of existing internal combustion engine powered vehicles is so low that a transition to electricity will reduce energy use to less than 25% of existing use for similar vehicles. Emission reductions for a transition to EVs are large, but the energy consumption is relatively small. A 10 year transition of all existing personal vehicles powered by fossil fuels to electricity would increase the total electrical demand by less than 2% annually, a growth rate that is far less than what was normal a few years ago. This transition, with low electrical needs and a large impact on emissions NEEDS TO BE A PRIORITY.
- The most challenging issue is the divide between the developed and developing world. In the last 20 years, much of the heavy industry that creates the largest share of emissions has moved to developing countries. To compound this issue, people in these countries earn far less money that people in North America or Europe. Any major increase in energy costs could easily result in the starvation of many people living at near poverty levels. This will need careful consideration by the global community.
If these challenges are not sufficient to bring focus to the issue, the recent war in Ukraine has caused massive upheaval in Europe, as much of their oil and gas came from Russia. That will soon be stopped. Compounding this issue, Norway Oil and Gas workers closed their fields because of a strike by workers, but the Norwegian Government ended the strike. All of this has resulted in dramatic increases in energy costs everywhere.
Opportunity Is in Chaos
The existing situation is chaotic, but amidst the chaos, there may be opportunity. One may expect that the threat of long term increases in fossil fuel prices will lead to countermeasures among users that will reduce use, be more efficient or switch to cheaper fuels. All of this will hopefully be consistent with the target of reducing emissions. We can now hope that the prices for storage, clean generation or energy efficiency devices such as EVs do not inflate rapidly. We live in a period that has a need for rapid change, and perhaps the crisis that we are witnessing in our energy supply may be a ticket for real progress.