Max Gladwell

THE ECONOMIST paints an upbeat picture about a clean-energy future that is less dependent on fossil fuels. All it will take is some good policy, a realistic approach, and entrepreneurs eager to build wealth and change the world.

One way or another, everything is riding on energy. Hanging in the balance is our health, the environment, national security, continued prosperity, and anything resembling world peace. In other words, everything. The ripple effect of rising gasoline prices is an early warning sign…a shot across our collective bow…and so it is in everyone’s interest, regardless of ideology, to support an abundant, healthy, and sustainable energy future.

Our position on energy is simple: factor all of the costs for each type, both internal and external, and let the market sort them out. When the impacts on our environment, health, and security are taken into account, clean (or cleaner) energy will prevail.

The Economist takes a big-picture view and then drills down into each of the energy types while highlighting the academics and companies who are demonstrating leadership in solar, wind, biofuels, nuclear, smart grids, and electric vehicles. There is no silver bullet or cure-all vaccine. Our energy future will be a patchwork of different energy sources that are driven by geography and market forces. And one of the keys to free markets is the people who define them.

First, Americans have become intolerant of large, polluting industrial plants on their doorsteps. Second, American power companies are fearful that they will soon have to pay for one particular pollutant, carbon dioxide, as is starting to happen in other parts of the rich world.

The economics of fossil fuels is starting to work against them, even if we don’t factor all of the externalized costs.

The future price of [solar and wind] resources—zero—is known. That certainty has economic value as a hedge, even if the capital cost of wind and solar power stations is, at the moment, higher than that of coal-fired ones.

Global warming, a long-range phenomenon, may not be uppermost in people’s minds during an economic downturn. High fuel prices may fall as new sources of supply are exploited to fill rising demand from Asia. Security of supply may improve if hostile governments are replaced by friendly ones and sources become more diversified. But none of the reasons is likely to go away entirely.

Even if you deny global warming, there is no shortage of compelling reasons to wean ourselves from fossil fuels, especially petroleum.

“Peak oil”, if oil means the traditional sort that comes cheaply out of holes in the ground, probably will arrive soon. There is oil aplenty of other sorts (tar sands, liquefied coal and so on), so the stuff is unlikely to run out for a long time yet. But it will get more expensive to produce, putting a floor on the price that is way above today’s. And political risk will always be there—particularly for oil, which is so often associated with bad government for the simple reason that its very presence causes bad government in states that do not have strong institutions to curb their politicians.

For capitalists and entrepreneurs, new energy marks the greatest economic opportunity in a generation. As we’ve mentioned before, any discussion of energy must begin with demand. How much do we currently consume and how much more will we need over the next 50 years? The Economist acknowledges this, as we have, by quantifying all types of energy in terawatts (TW).

The market for energy is huge. At present, the world’s population consumes about 15 terawatts of power. (A terawatt is 1,000 gigawatts, and a gigawatt is the capacity of the largest sort of coal-fired power station.) That translates into a business worth $6 trillion a year—about a tenth of the world’s economic output—according to John Doerr, a venture capitalist who is heavily involved in the industry. And by 2050, power consumption is likely to have risen to 30 terawatts.

In short, we’ll need to double our energy capacity in less than 50 years, and that takes into account generous estimates of efficiency and conservation. With gasoline topping $4.10 per gallon nationally (we’ve seen $5.20/gal in Santa Monica for premium), it creates a world of opportunity for alternatives, especially plug-in hybrids and electrics. They can turn the world on its head.

Plug-in cars, for example, could be fueled with electricity at a price equivalent to 25 cents a litre of petrol. That could shake up the oil, carmaking and electricity industries all in one go.

It’s clear that government has gotten us into this mess. By artificially keeping the price of oil low through political “persuasion” (read: the U.S. military) and oil-industry subsidies, while caving on efficiency standards, the U.S. government allowed and even encouraged this energy crisis to materialize. Perhaps now we can let the market do its thing and level the playing field for cleaner alternatives.

Some people complain that many existing forms of renewable energy rely on subsidies or other forms of special treatment for their viability. On the surface, that is true. Look beneath, though, and the whole energy sector is riddled with subsidies, both explicit and hidden, and costs that are not properly accounted for. Drawing on the work of people like Boyden Gray, a former White House counsel, James Woolsey [former CIA director] estimates that American oil companies receive preferential treatment from their government worth more than $250 billion a year. And the Intergovernmental Panel on Climate Change (IPCC), a United Nations-appointed group of scientific experts, reckons that fossil fuels should carry a tax of $20-50 for every tonne of carbon dioxide they generate in order to pay for the environmental effects of burning them.

Others [government programs], such as a requirement that a certain proportion of electricity be derived from non-fossil-fuel sources, make no attempt to pick particular technological winners. They merely act to stimulate innovation by guaranteeing a market to things that actually work.

If the world were rational, all of these measures would be swept away and replaced by a proper tax on carbon—as is starting to happen in Europe, where the price arrived at by the cap-and-trade system being introduced is close to the IPCC’s recommendation.

There are lots of terawatts to play for and lots of money to be made. And if the planet happens to be saved on the way, that is all to the good.

Wind

Wind power is the most promising and economical form of renewable energy in the short term. It’s primary shortcoming is delivery. People don’t tend to live where it’s windy enough to support a wind farm. This will require an infrastructure shift from AC to DC power lines, which lose less energy when traveling long distances, such as across an ocean floor.

But wind power is no illusion. World capacity is growing at 30% a year and will exceed 100 gigawatts this year. Victor Abate, General Electric’s vice-president of renewables, is so convinced that by 2012 half of the new generating capacity built in America will be wind-powered that he is basing his business plan on that assumption.

Wind also makes much more sense from an investment and ROI perspective, especially as efficiency and reliability increase.

Wind farms can be built piecemeal, unlike most power stations. A half-finished coal-fired or nuclear power plant is a useless waste of money, but a half-finished wind farm is simply a wind farm half the size originally intended—and one that has been providing revenue since the first turbine was completed.

According to Mr Abate, when GE entered the turbine business in 2002 the average turbine was out of commission 15% of the time. Now its downtime is less than 3%. As a result, the cost of the energy cranked out by these turbines has come down to about 8 cents a kilowatt-hour (kWh) and is still falling. That makes wind power competitive with electricity generated by burning natural gas. Coal power is still cheaper, at about 5 cents a kWh. But according to a study by the Massachusetts Institute of Technology (MIT), that would rise to 8 cents if the CO2 from coal-fired power stations had to be captured and stored underground (see article)—or, for that matter, if a carbon tax of $30 a tonne were imposed.

Solar

The solar solution is more long term. It’s currently much more expensive than wind, and it can’t be deployed on the same scale. The potential for technological breakthroughs, however, is much more promising.

According to Cambridge Energy Research Associates (CERA), an American consultancy run by Daniel Yergin, a kWh of photovoltaic electricity cost 50 cents in 1995. That had fallen to 20 cents in 2005 and is still dropping.

The engineers clearly think they can deliver the technology. But can the technology deliver the power? A back-of-the-envelope calculation suggests that it can. Two years ago a task force put together by the governors of America’s western states identified 200 gigawatts-worth of prime sites for solar-thermal power within their territory (meaning places that had enough reliable sunshine, were close to transmission lines and were not environmentally or politically sensitive). That is equivalent to 20% of America’s existing electricity-generation capacity: not a bad start.

There are several types of solar. The most common converts light to electricity through photovoltaic cells. Another focuses heat energy to generate steam and run a turbine.

The most intriguing technology of all, though, belongs to SUNRGI, a firm based in Los Angeles. This uses mirrors to concentrate sunlight, but focuses it on a solar cell rather than a boiler. The system is said to turn 37% of the light into electricity. In April the firm claimed it would be able to produce electricity for the magic figure of 5 cents a kWh.

That claim has yet to be put to the test, and should be viewed with some scepticism until it has been. But it is a good indication of the way the field is going. Solar power now seems to be roughly where wind was a decade ago. At the moment it contributes a mere 0.01% to the world’s output of electricity, but just over a decade of 50% annual growth would bring that to 1%, which is where wind is at the moment.

Biofuels

The days of ethanol and biodiesel from corn and soy (food crops) respectively are numbered. Second-generation biofuels from cellulosic and other technologies will provide significant sources of transportation fuels…for all of those that aren’t pure electric. We’re now seeing the marriage of biotech and energy.

Biofuels, once seen as a cross between eccentric greenwash and a politically acceptable way of subsidising farmers, are now poised to become big business. The list of things that need to be done to create a proper biofuel industry is a long one. New crops, tailored to fuel rather than food production, have to be created. Ways of converting those crops into feedstock have to be developed. That feedstock has then to be turned into something that people want to buy, at a price they can afford.

All parts of this chain are currently the subjects of avid research and development. Some biofuels were already competitive with oil products even at 2006 oil prices. The R&D effort will bring more of them into line, as will any long-term rise in the price of crude oil. As far as the crops themselves are concerned, there are three runners at the starting gate: grasses, trees and algae.

Electric Cars

Many will argue that the “hydrogen economy” was a huge distraction. There’s nothing like a technology that’s always five years away to keep everyone placated. Many of us saw the writing on the wall. Hydrogen is not an energy source but rather a carrier. You have to expend energy to capture hydrogen. The only non-fossil-fuel way is through electrolysis aka electricity from wind or solar. Why not skip the middle man (hydrogen) and go right to a battery? That’s precisely where we’re headed.

Gerbrand Ceder, a battery scientist at MIT, reckons that if the first 50km of an average car’s daily range were provided by batteries rather than petrol, annual petrol consumption would be halved. Given that the electrical equivalent of a litre of petrol costs about 25 cents, that is an attractive reduction.

Even energy from a coal-fired station is less polluting than the serial explosions that drive an internal-combustion engine. If the energy comes from a source such as wind or nuclear, the gain is enormous.

The big problem, aside from battery technology, is the aging power grid. Not only will we need more capacity, but it will have to get smart. Done correctly, plug-in hybrids can become a backup energy source during peak hours of consumption. In other words, your car could capture energy at night when rates are low and sell it back to the grid at a profit when rates are high.

At the moment, the grid would be unable to cope if a large number of commuters arriving home plugged in their cars more or less simultaneously to recharge them. Yet if those same cars were recharged at three o’clock in the morning, when demand is low, it would benefit both consumer (who would get cheap power) and producer (who would be able to sell otherwise wasted electricity). Such cars might even act as micro-peakers—reservoirs of electrical energy that a power company could draw on if a car were not on the road. Managing plug-ins will be the smart grid’s killer application.

Nuclear

As we argued in Nuclear Re-Branding, environmentalists need to get realistic and look at the numbers. If we’re going to solve climate change without returning to the stone ages, nuclear must play a role. After we exhaust all of the renewable sources, which provide a mere one percent of the world’s energy today, every TW of nuclear displaces one TW of coal. It’s as simple as that. The Economist acknowledges the same “image problem” inherent to nuclear power.

The followers of Rachel Carson and the Club of Rome in the 1960s and 1970s had not heard of the greenhouse effect, but today’s greens have. And they know that nuclear reactors are the one proven way to make carbon-dioxide-free electricity in large and reliable quantities that does not depend (as hydroelectric and geothermal energy do) on the luck of the geographical draw. What a dilemma for a thoughtful tree-hugger.

Fortunately, there is a new generation that will help make many of these decisions based on facts not fear.

Given the widespread concern about nuclear energy, how can that be done? Partly, the answer comes, by shifting priorities (for today’s youth, climate change is what global nuclear warfare was for the baby-boomers). Partly by the fading of memories: the accident at Three Mile Island, which ended America’s nuclear dreams, took place nearly three decades ago, and even the Soviet disaster at Chernobyl is more than two decades past. And partly by redefining “cheap”. The Electric Power Research Institute, an American industry body, puts the cost of nuclear electricity at 6.5 cents a kWh. Not cheaper than coal’s 5 cents, but cheaper than coal that has had a price put on its carbon emissions.

None of these ideas deals with the question of nuclear waste. But that is largely a political problem, not a technical one. Though it sounds like a cop-out, the best answer really is to bury the stuff for the time being. That should be done in places where it can easily be recovered for reprocessing one day when technology has caught up. But it is also worth noting that buried, unprocessed waste cannot be used to make bombs.

Conclusion

The report wraps up with an acknowledgment that making predictions is difficult…especially about the future. It also touches on a few forms of energy that aren’t likely to play a part.

The report has ignored some technologies because they will not get anywhere. Fusion, that favourite of fantasists, is 30 years away, as it always has been and probably always will be. Giant satellites collecting sunlight and beaming the energy to Earth as microwaves are an idea of heroic proportions, but enough sunlight gets through the atmosphere to make them irrelevant. Other technologies may make a contribution, but only on a small scale. The idea of floating platforms that capture wave energy is technically feasible, but it seems more trouble than building wind turbines. Tidal power works but, even more than hydro, it depends on geography. And the idea of liberating hydro from geography with small, free-standing turbines may have local applications, but maintaining such turbines is far more trouble than taking a spanner to a windmill.

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