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Living in a Renewables Distortion Field

David Hone's picture
Chief Climate Change Adviser Shell International Ltd.

David Hone serves as the Chief Climate Change Advisor for Royal Dutch Shell. He combines his work with his responsibilities as a board member of the International Emissions Trading Association...

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One of the best books I have read in recent years is the Steve Jobs biography by Walter Isaacson. It’s also a great management book, although I don’t think that it was really intended for that purpose. In discussing Jobs’ approach to life and business management, Isaacson goes to some length to describe the concept of a Reality Distortion Field (RDF), a tool used on many occasions by Jobs to inspire progress and even bet the company on a given outcome. The RDF was said to be Steve Jobs’ ability to convince himself and others to believe almost anything with a mix of charm, charisma, bravado, hyperbole, marketing, appeasement and persistence. RDF was said to distort an audience’s sense of proportion and scales of difficulties and made them believe that the task at hand was possible. This also seems to be the case with a number of renewable energy, but most notably the Solar PV, advocates. 

The Talosians from Star Trek were the first aficionados of the RFD

The Talosians from Star Trek were the first aficionados of the RFD

It is always with interest that I open the periodic e-mail from fellow Australian Paul Gilding and read the latest post from him in The Cockatoo Chronicles. But this time, the full force of the Renewables Distortion Field hit me. Gilding claims that;

 I think it’s time to call it. Renewables and associated storage, transport and digital technologies are so rapidly disrupting whole industries’ business models they are pushing the fossil fuel industry towards inevitable collapse. Some of you will struggle with that statement. Most people accept the idea that fossil fuels are all powerful – that the industry controls governments and it will take many decades to force them out of our economy. Fortunately, the fossil fuel industry suffers the same delusion. In fact, probably the main benefit of the US shale gas and oil “revolution” is that it’s keeping the fossil fuel industry and it’s cheer squad distracted while renewables, electric cars and associated technologies build the momentum needed to make their takeover unstoppable – even by the most powerful industry in the world.

My immediate approach to dealing with a statement like this plays into the next paragraph by Gilding, where he says;

How could they miss something so profound? One thing I’ve learnt from decades inside boardrooms, is that, by and large, oil, coal and gas companies live in an analytical bubble, deluded about their immortality and firm in their beliefs that “renewables are decades away from competing” and “we are so cheap and dominant the economy depends on us” and “change will come, but not on my watch”. Dream on boys.

But the energy system is about numbers and analysis, like it or not. Perhaps Gilding needs to at least look in his own back yard before reaching out for global distortion. In a number of posts over the last year or two he was waxed lyrical about the disruption in Australia and consequent shift in its energy mix. Yet the latest International Energy Agency data on Australia shows that fossil fuel use is continuing to rise even as residential solar PV is becoming a domestic “must have”. There is no escaping these numbers!

Australia primary energy to 2012 

It is true that solar PV is starting to have an impact on the global energy mix and that at least in some countries the electricity utilities are playing catch-up. But the global shift will likely take decades, even at extraordinary rates of deployment by historical standards. The Shell Oceans scenario portrays such a shift, with solar deployment over the next 20 years bringing it to the level of the global coal industry in 1990 and then in the 30 years from 2030 to 2060 the rate of expansion far exceeds the rate of coal growth we have seen from 1990-2020 (see chart).

 Solar growth in Oceans

I would argue that this is a disruptive change, but it still takes all of this century to profoundly impact the energy mix. Even then, there remains a sizable oil, gas and coal industry, although not on the scale of today. Of course this is but one scenario for the course of the global energy system, but it at least aligns in concept with the aspirations of Paul Gilding. I don’t imagine he would be particularly impressed by our Mountains scenario!!

 Solar in Oceans

 

Many will of course argue that the proof of the RDF is in the Apple share price and its phenomenal success. But this didn’t come immediately. Apple and Jobs had more ups and downs than even the most ardent follower would wish for, with the company teetering on the brink more than once (read the Isaacson account). But it persisted and nearly forty years on it is a global behemoth. However, forty years isn’t exactly overnight and IT change seems to take place at about twice the rate of energy system change. Does that mean new energy companies won’t become global super-majors until much later this century?

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Wilmot McCutchen's picture
Wilmot McCutchen on Mar 22, 2014

Scalabiity of non-hydro renewables is the missing link.  Small bore solutions to the world’s expanding prosperity power demand have no chance of making a real difference in climate control.  People used to think a human could fly by flapping artificial wings.  The consensus view that renewables can rapidly scale from their present 6% to supplant coal is wrong too. 

Joris van Dorp's picture
Joris van Dorp on Mar 22, 2014

To expect global dominance of intermittent energy sources at any time is equal to expecting the global availability of permanent, extravagant subsidies to make it happen. The relevant question is who will be able and willing to pay for these subsidies?

Intermittent energy sources will not compete with fossil fuels until these fuels are depleted, even if the renewable energy was free, because the cost of the required auxiliary investment in transmission, storage and backup of intermittent renewables are themselves higher than the cost of the traditional energy system. A most recent new scientific confirmation of this can be found here, but the issue has been well researched for a long time of course.

http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2200572

If Mr. Hone does not understand this issue, I would be very glad to explain it. Or if he does understand it, I would much appreciate him to explain it to the audience that he has the power to reach, because ignorance of this situation is rampant. This ignorance poses a serious threat, because it can cause and is already causing a gross misallocation of funds in regard to meeting the climate change challenge, with highly predictable results.

Bob Meinetz's picture
Bob Meinetz on Mar 22, 2014

David, bravo on your analogy with Jobs and his RDF, it’s a phenomenon common to religions and cults as well.

An important difference which should be noted when making the Apple/renewables comparison is that Jobs and Apple did nothing which bumped up against physical and/or thermodynamic constraints. Renewables unfortunately do: there is a limited amount of energy available from solar irradiance and it’s only available at certain times. Thus, there is a minimum expense and environmental impact which will be required to make that energy capable of replacing fossil fuels.

In my opinion, that theoretical minimum cost is something which the public will never voluntarily support, and likely will not even be able to support.

Energy  for London's picture
Energy for London on Mar 23, 2014

Thanks for this article David – useful to have a stop sometimes and look at the big picture rather than just parts of it.

I would say however you are only considering how PV by itself will fare against more conventional fossil generation. It’s not really a competition of one technology against another. It’s about a shift to helping consumers realise the energy services that they desire.

PV should be – and is increasingly so – complemented with a range of other demand side measures, all of which will contribute to a transformation in the energy sector.

It’s not about comparing the generators with large scale thermal plant against PV. It’s about comparing the business models of the incumbents with their centralised thermal power stations pumping electricity down the grid to end consumers who have little choice in the matter, against new players in the market, who have to work with customers, and provide them with the range of solutions suited to their needs.

This could involve mixing PV with a broad range of energy efficiency solutions, heat and power storage, more efficient appliances, combined heat and power plant (both at the micro and local level), renewable district heating, smarter controls, smart meters, fuel cells, heat pumps, passive building standards and so on. It’s about new businesses coming forward with new commerical arrangements, using the smart grid, with better quality data to offer DSR services to consumers, ToU tariffs, purchasing power from them, or helping sell their output to a neighbour.

The global takeover may take as long as you say: but in cities, where in the west much of the energy consumption now takes place, I think we will see something quite different emerging over the next 10-15 years. 

 

Nathan Wilson's picture
Nathan Wilson on Mar 25, 2014

 It’s not really a competition of one technology against another.”

Of course it is.

It’s about a shift to helping consumers realise the energy services that they desire.”

This sounds good until one remembers that most people just want their energy to be cheap whenever they want energy.  Combine this with a large deployment of solar PV at northern latitudes, and you get a society that rejects expensive technologies like energy storage, and rejects realtime pricing schemes that make electricity most expensive when they want it most.  The result will be 20% renewables, and fossil fuel lock-in for the remaining 80%.  Compared to the 80% nuclear option, the renewable road leads to continued fossil fuel dominance.

Nathan Wilson's picture
Nathan Wilson on Mar 26, 2014

Both wind and solar are fast approaching price points so low that it begins to make sense to produce synthetic fuels.”

In most locations (except perhaps China and India), the cost gap remains large; anyway hydrogen and ammonia are really the only practical & sustainable syn-fuels (ie. synthetic hydrocarbons only make sense when supplied with CO2 from unsustainable fossil fuel combustion), and thus far, neither has achieved much acceptance.  These are big problems.

There are already electric cars with range above 1.600 km and batteries that weigh in at less than 25 kg.

Nothing like this is ready for mass market.  Wildly optimistic talk like this mainly serves to hurt acceptance of (technically realistic but none-the-less unpopular) alternatives like ammonia fuel, which results in continued fossil fuel dominance.

David Hone's picture
David Hone on Mar 27, 2014

Jens,

I didn’t say nor do I think that business as usual will continue for decades. What I said is that even with some heroic assumptions about solar deployment it will still take a very long time for large scale displacement of fossil fuels. The assumptions in the Oceans scenario about solar rollout far outsrip even the most optimistic forecasts around today, yet it takes the rest of this century for the change to fully take place.

David

Mike Barnard's picture
Mike Barnard on Mar 28, 2014

This is a useful, interesting and fairly accurate assessment. Any moderately close observer of the grid and generation technologies has to agree that they are enormous capital and operating investments built over many decades that will be slow to transform.

As with many things, however, the disruptive forces will be felt in different ways in different times, and inflection points are certainly coming sooner rather than later in many jurisdictions. This is reflective of the insights of Christiansen and Raynor in their key book, The Innovator’s Dilemma, and borne out by observations of failures of Silicon Valley energy plays.

My primary observation is that this article doesn’t address the merit order effect and its substantive challenge to fossil fuel generation today in many jurisdictions around the world. Generators in jurisdictions with more liberal energy markets — most of the United States, Australia, etc — must bid to set the market wholesale price of electricity during peak periods. Fossil fuel generation firms made the majority of their profits from peak periods with very high wholesale electricity costs. Renewables are the dominant force setting the market price in those jurisdictions now, and as they have virtually no operational expenses, they are setting the market price much lower than was historically the case. 

This has two results. The first is that the average wholesale price of electricity is dropping in those markets with higher penetrations of renewables, whether this is passed on to the consumer or not. It’s evidenced by the reality that states in the US with the highest penetrations of wind energy have the lowest increases in consumer electricity prices and a variety of studies on the topic.

The second is more germane to the this article. It directly reduces the profits of fossil fuel generators in those jurisdictions. This is directly causing business case challenges for these generation assets and leading to mothballing, significant shifts in operations and deferred or eliminated replacements and upgrades. 

If the companies can’t make a profit, they stop doing the business. In general, this is a very positive outcome of the merit order market force, although you likely wouldn’t hear coal plant operators extolling it as a virtue any more, quite the opposite in fact. This is highly disruptive and will lead to rapid changes, some of them with potential to destablize some grids. It’s a factor that grid strategists are thinking about, but the reality is that the same market force will create opportunities for new operating models that are profitable enough that while overall revenues and profits decline substantially, sufficient fossil fuel generation will remain intact to balance the grid appropriately.

This of course is just one of the factors leading to coal thermal plant assets not being the highlights of shareholder meetings in companies that hold those assets. 

 

 

Clayton Handleman's picture
Clayton Handleman on Apr 1, 2014

In 1990 the second largest computer company in the world was Digital Equipment Company the leader of the disruptive mini computer market.  By 1998 they had nearly dissppeared, and the smoldering hulk was purchased by the PC maker Compaq.  In 1990 anyone suggesting this fate was laughed out of the room. 

I think your analogy is off the mark.  The comparison is not which company but which industry.  Apple took a very long time to become dominant.  However the personal computer rose to dominance very quickly. 

People are not accustomed to thinking in terms of exponential growth.  Roughly 90% of it occurs in the final three doublings.  The solar industry has been doubling in cumulative production roughly every 3.5 years.  This will slow some but we are not far from the final 3 doublings.  This is why people get caught over an over again.  People think linearly.  The graph you have of the fossil fuel industry shows linear growth. 

I anticipate that solar and wind will reach 20% penetration, on an energy basis, in the US and Europe and then slow down the rate of growth dramatically until storage cost reduction catches up.  If industrialized regions add supergrids and smart grids this may increase to 40% or so.  Since storage is driven by the EV market, which will reach the tipping point in about 5 years due to battery price reductions , I think the speed at which we hit viable storage cost effectiveness will also surprise people.

Only time will tell but I anticipate a mostly renewable and possibly Nuclear infrastructure by 2050.

Exponential growth is driven in large part by diminishing costs and these growth curves offer a preview of what is coming.

Marcus Pun's picture
Marcus Pun on Apr 1, 2014

“People used to think a human could fly by flapping artificial wings.” A bunch of engineering students in Toronto did just that 4 years ago.

I remember in the 60’s when biochemistry was considered a rather dead end career too. Or that AIDS was a death sentence. Never tell a human being the word “no”.

Currently California gets about 5% of its energy from solar. A couple of years ago it was less than half that. From Dec 2012 to 14 months later, this past February, maximum solar output went from 1 GW to 4.1 GW.  Even today, with all the clouds and storms, max output is around 3.4GW.

As a state policy, PV makes a LOT fo sense given our water situation. It has also meant that mostly technical upgrades -control systems, automation etc. –  to the grid have been necessary, offestting some of the need to build new transmission lines.

I will bet you a dinner at any restaurant in San Francisco that by the end of 2016, barring recession, that maximum output will be significantly above 10 GW and that California will be getting more than 10% of it’s energy from solar. Mind you this is only what is available to CAL-ISO grid management. There’s probably a good half GWH that is generated each day that is off the grid – for home use, EV charging, farm use, industrial use as in the Budweiser plant near Fairfield, for grid supplementation, such as what many companies are doing around the state with parking lot and rooftop solar. What’s happening here and in other states is that we are in that middle third of the growth curve.  Renewables are already a larger part of the daily input, breaking 20% recently with a mix of solar thermal, PV, wind, biomass and geothermal.   Much larger than nuclear, although you can blame greed and incompetence on that one for the shutdown of San Onofre. My own estimate for end of 2016, 12 GW. Why?  Ever watch the parking lot at a solar install company? A couple of years ago about half a dozen vans at the Solar City in foster city. Today there’s more than 30 and it has spilled out onto the streets and some of the vehicles go home with the workers. That means the infrastructure for massive solar build out is pretty much here.

PV has already reached government buildings, schools and office complexes. 300 feet from me 1200 panels are going to be put up within a month for a max output of 300KW above the rooftop parking structure.  Depending on the season, that will be over 2 to 3MWH that will go directly to campus operations, from kitchens to the thousands of servers within. That’s is a Fortune 500 company decision based on dollars and cents. There will be many, many more of those in the next couple of years.

One fo the more interesting websites to check in on, http://www.caiso.com/outlook/SystemStatus.html

 

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