Opportunities and Challenges Of A Balanced Energy Transition
Keith King and Jerry Kepes
Justified concerns about global warming have resulted in many companies and countries announcing aggressive targets to lower green house gas emissions. Renewables, such as wind and solar, are seen as substitutes for fossil fuels in pursuing this objective. Renewable energy has become increasingly cost competitive but are intermittent and need a "backup" system for times when they are not generating power. Additionally, what is often not acknowledged, is the natural resource requirements for renewable energy. Limited availability of these required natural resources, particularly cobalt, may limit the application of renewables to reliably meet our energy needs. We need a balanced energy transition that reduces green house gas emissions but also provides reliable energy supplies. A balance that will likely include fossil fuels as well as renewables.
The Motivation:
According to NOAA (NOAA) the average carbon dioxide (CO2) concentration in the earth's atmosphere averaged about 225 parts per million (PPM) over the last 800,000 years; today it is nearly twice that average at 417 PPM. The scientific consensus (Scientific Consensus: Earth's Climate is Warming) is that this is due to man's efforts to burn carbon (coal, oil and gas), deposited over the past 600 million years, in the last 200+ years.
Throughout geologic time the amount of CO2 in earth's atmosphere has been closely linked to global temperature, sea level and even mass extinctions.
“The last time the atmospheric CO2 amounts were this high was more than 3 million years ago, when temperature was 2°–3°C (3.6°–5.4°F) higher than during the pre-industrial era, and sea level was 15–25 meters (50–80 feet) higher than today.” (NOAA)
These warmer conditions and higher sea levels will cause more severe weather systems, flooding of coastal cities, desertification, increased insect reproduction rates and acidification of marine waters with resulting negative effects on marine life.
Commitment:
As a result of this awareness, coupled with social pressure, 124 countries (Track) have committed to be carbon neutral or at least greatly reduced carbon emissions by 2050. As of this writing only one country, Bhutan, is carbon neutral.
Individual companies, Repsol, BP, Eni, Shell, TOTAL and Equinor, have also committed to greatly reduce emissions or meeting net zero carbon emissions by 2050. These companies are large enough to spread their risk by continuing the discovery and development of oil and gas (albeit at a reduced rate) while building expertise in renewable resources. This differs from Chevron and ExxonMobil which have only modest interest in renewables.
The investment community is committed. As Blackrock's Larry Fink writes in his 2020 letter to CEOs, “the investment risks presented by climate change are set to accelerate a significant reallocation of capital, which will in turn have a profound impact on the pricing of risk and assets around the world...We believe that sustainability should be our new standard for investing.” (Blackrock)
It's more than just the Environment:
Renewables are becoming increasingly economically competitive with fossil and nuclear energy sources. Lazards (lazards), who analyzes the cost of energy on an annual basis, finds the following.
"Lazard’s latest annual Levelized Cost of Energy Analysis (LCOE 13.0) shows that as the cost of renewable energy continues to decline, certain technologies (e.g., onshore wind and utility-scale solar), which became cost-competitive with conventional generation several years ago on a new-build basis, continue to maintain competitiveness with the marginal cost of existing conventional generation technologies.”
They go on to report that onshore wind and "Solar PV-Thin Film Utility Scale" are among the cheapest forms of energy.
The reason for the drop in wind and solar pricing is due to "Wright's Law" as referenced by Ramez Naam (RamezNaam).
Wright’s Law is essentially "learning-by-doing" and states that for every doubling of production there is a constant decrease in per unit manufacturing cost.
For example, the price of solar modules per watt of power drops by 25% for every doubling of cumulative manufacturing.
As a result of this gain in efficiency, resulting from growing production, the cost of solar has not only dropped, but dropped far faster than IEA or EIA or anyone else predicted. For example, in 2010 IEA predicted that utility scale solar would produce electricity at 20 cents per kilowatt hour in 2020. In fact it's under 5 cents.
The sun doesn't always shine:
So far this article presents a rather bullish view for renewable energy sources but there are some limitations that adversely affect reliability . Firstly, lets look at consistency of supply. In addition to the sun not always shining, the wind does not always blow. Let take a hypothetical example. In a world striving for zero emissions, you would have maybe 70+ percent renewables. What happens when the sun is not shining AND the wind is not blowing? There is a great deal of speculation about energy storage systems which can manage this uncertainty. Shouldn't we have that in-place before moving to a world that depends on the majority of our energy coming from renewable sources?
The most practical backup system, as seen today, is gas combined cycle power plants since it is economic and relatively clean (lazards). In our hypothetical scenario, where renewable energy sources support 70+ percent of the system, the needed investment for required back-up system would be enormous. But in most cases this becomes less of an issue since existing gas infrastructure investment has already been made.
A backup system, however, based on energy storage, maybe batteries, is more challenged because this infrastructure does not currently exist and would require added investment to insure reliability. Furthermore, as seen in the next section, there are risks regarding some of the raw material that goes into batteries.
The unseen resource requirements:
“The transition to 100% renewables also comes with requirements for new patterns of material use to support the renewable energy infrastructure, including wind turbines, solar cells, batteries, and other technologies." (Requirements for Minerals and Metals for 100% Renewable Scenarios)
Clean technologies rely on a variety of minerals, principally cobalt, nickel, lithium, copper, aluminum, silver and rare earths. Cobalt, lithium and rare earths are the metals of most concern for increasing demand and supply risks.
Cobalt: The annual demand for cobalt from rechargeable batteries (electric vehicles and storage) could exceed current production rates in 2023, even with recycling and technology improvements. The cumulative total demand to 2050, with current technology and no recycling, could exceed current reserves by 400%. Even with recycling and a shift to technologies that use less cobalt, the cumulative demand will still exceed cobalt reserves. (Requirements for Minerals and Metals for 100% Renewable Scenarios) Not only are there limited supplies of Cobalt but even these supplies are potentially at risk. Most Cobalt production comes from The Democratic Republic of Congo (DRC) which produces 51,000 (USGS) metric tons annually or 7 times the next largest producer, China. There has been a war in the DRC at different levels of intensity since 1994.
Lithium: The cumulative demand for lithium by 2050 will exceed the reserves unless there is a shift to a high recycling rate. The cumulative demand could be as high as 170% of the current reserves with the current technology. Most production is from Australia.
Rare earth elements: These elements are not particularity rare (despite their name) so total supply is not the issue. The challenge is that rare earths are controlled by a single country. About 85 percent of the world’s rare earths comes out of a few mines in China. (USGS)
Looking to the future:
"Renewable" energy may be limited by essential elements that are not renewable: Should we still call them renewable? Production of these input elements are far more concentrated in far fewer countries than oil and gas production; some carrying significant political risk. This will have significant impact on the United States as it shifts from energy independence to becoming dependent on unreliable foreign supplies. Furthermore, because energy from renewable sources is fundamentally intermittent it cannot reliably provide power at all times. We need to consider fossil fuel backup until there is a commercially viable energy storage system. Betting on a 100% renewable world and ignoring oil and gas investment could carry risk of energy shortages. Of course, continuing to burn fossil fuels at the current rate could have unacceptable environmental consequences. In our bi-polar politically charged world where we are 100% for or against an idea, political party etc it may be difficult to conceive of a balanced approach to the "Energy Transition": but that is what we need.
