Never mind the climate, it’s the antipathy between clean energy believers and non-believers that is really heating up. But the world we inherit will be the world we have made, so instead of arguing about it Michael Liebreich starts conversations about the energy transition with a fairly conservative forecast of life in 2040: a third of electricity will be generated by wind and solar, a third of vehicles will be electric and the economy will be one-third more energy productive.
Sounds simple, but it isn’t. For EVs to make a third of car numbers in 2040 they will have to account for about half of sales between now and then. Also, investment in wind and solar has wielded such influence in driving costs down that annual spend has flattened out even as installed capacity has kept growing. “The cheapest electricity that you can build nowadays is wind or solar,” says Liebreich, chairman and CEO of consultancy Liebreich Associates and the founder of Bloomberg New Energy Finance, speaking in Sydney in November.
The wee problem in pushing towards greater reliance on renewables is intermittency. “It appears when it wants to appear and not when the grid or consumers need it, but it’s so cheap that you want as much of this as you can get your hands on,” he says. When energy is cheap, money can be found to address variability.
Global investment in clean energy and associated grid infrastructure makes up about a third of all expenditure in energy, but that would need to roughly triple “if we were really serious about only doing clean energy.”
Solar, even at low penetration levels around the world, has “messed up” the price formation mechanism in the electricity market. “Why? It has zero variable cost, so it’s always going to be dispatched in and it pushes everything else off the grid – but it appears when it wants to and not when consumers want it.” An extreme result is negative pricing, as seen this year in parts of Australia.
“As soon as you get to a certain level of renewables you get a huge amount of pushback from incumbents because they see their assets becoming less valuable,” he says. “It happens everywhere in the world.”
Coal on the dole
The peak for coal use is not far away, says Liebreich, speaking at an event hosted by the Carbon Market Institute and the Clean Every Council. “Coal’s problem is being forced off the grid and becoming uneconomic. That’s the supply-demand balance.” The black fossil fuel is also falling out of favour with investors, with research from the Oxford Institute of Energy Studies showing the cost of capital for new coal is “very high”.
Many energy pundits are forecasting a flat outlook for coal but Liebreich goes farther and sees falling demand. Logic says that should bode well for gas, but the numbers show investor disinterest. “The whole age of gas that we heard so much about is not happening.” A fall in emissions in the United States attributed to the shale gas boom is erroneous, as half of it actually was delivered by energy efficiency and a change in the mix in the economy, or “electricity productivity”, he says. “The conventional wisdom that it’s all the age of gas is just wrong.”
Between now and 2040, existing fossil-fuelled power stations in regions where they are today price competitive will be switched off as those economies transition to far cheaper wind and solar. “Every single megawatt-hour it’s worth asking, can we build new wind and solar and shut what we’re using, because you will save money doing that.”
The world can stretch to 70-80% renewables “pretty easily”, Liebreich says. “How we get to 100% is much more difficult.”