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Wood Mac politically motivated price tag of $4.5Tn for renewables

There are so many people that just do not get climate change and though there are less who do not understand the benefits of renewables, there are lots and lots of those. There is the fossil fuel brigade who just want to confuse everyone and tell you the world can’t live without them, while other’s still say things like “renewables can’t do it all on its own, we need nuclear.”

People look for authoritative voices and in Wood Mackenzie and Bloomberg NEF we are supposed to have such voices, one a consulting group that is consulted by governments, electrical powerhouses and fossil fuel groups, each in good measure and the report Wood Mac has just put out this week on the costs for energy transition has simply betrayed everyone in the eco-system for the sake of profit.

It uses pseudo-science to try to con everyone that it will cost $4.5 trillion to convert in the next ten years to get a grid that is 100% renewable.

There are two dynamics going on here, Wood Mac is trying to preserve the interests of those who pay it the most money, and that’s oil and gas companies; secondly this is a plain and simple case of it being unable to see the Wood (sic) for the trees. In other words they do not understand how change occurs and how it is occurring right under its nose. It is basically resistant to it.

There are clues in how it has gone about this prediction. First it talks about what the cost of renewables will be, focusing on today’s technology, and not allowing for it to change – but it is already changing and it comes up with a price tag of $1.5 trillion in renewables, but then begins to add other things, like biomass (why -it still gives off carbon) and tries to make a case for keeping and extending nuclear.

Nuclear is a no-brainer. Burying depleted cores is a genuine nuisance, that the public will not put up with forever, but leaving those which are installed today and giving them a once over is fine, and even looking at building a fresh design would be fine – except that no such design could operate at scale inside ten years, and no-one is investing in any new designs, because nuclear today is clearly uneconomic. Rule 1, people do not invest in something that won’t make money – so don’t try to make them.

This is a simple case of Wood Mac having a vested interest in an existing nuclear industry. Wood Mac needs to understand that to be a genuine consultant, you have to create a vision of the future, and not kowtow to your customer base or regurgitate their logic. US Republicans have been talking about re-energizing nuclear with government money, but there is no time. That’s just a way of sending the wrong message to existing customers. That message is, “Don’t worry guys, we will lobby for you to have a future?” By the time a new nuclear industry can be created with US government money, the consequences of climate change will be abundantly clear and unavoidable. The report says it saves $500 billion in the total $4.5 trillion cost, so a rounding error at best.

The first big issue the report tackles is just how much renewable energy is really being used. Here it makes claims like “Today, no large and complex power system in the world operates with an average annual penetration of greater than 30% wind and solar.” And concludes there is no historical precedent and this is unchartered territory.

The UK last month had a minimum of 9.82% of renewables a maximum of 67.21% and an average of 32.26%. It is perhaps the best of any large, complex power system to date and it is already beyond the place that Wood Mac says is unachievable. But batteries have not really being installed in any anger, there are no grid facilities to allow Distributed Energy Resources to be sold to anyone other than the local distributors, and the National Grid talks about making experiments now, to create change in the ten year time frame to enable the shift to 60% renewables. And that’s without counting the 15.2% that currently comes from nuclear so 47.5% is non-carbon. National Grid sees its role as needing to keep up with the rate at which renewables will be embraced, not to prevent them being in the mix, as Wood Mac seems to think.

Today there is just one major VPP (virtual power plant) and yet there is the potential to build multiple national energy stores, which could front end DER in people’s homes, which would grow to include battery stores and not just solar panels and wind turbines. Yes they might also uses some gas, but not much.

It’s a very easy policy change to make it desirable or even mandatory for every green field building to have solar panels on it, with a battery, and put the cost into the price of the new home or factory, and to get the finance for that from home mortgages or other property investment. It would cost next to nothing, and while you’re at it, throw in a mandatory “heat exchanger” for new homes, and stop building gas boilers for heat in new builds (the Wood Mac report did not touch home heating).

These moves are government policy and cost nothing in themselves, and do two really important things. They create a marketplace for entrepreneurs to “play” with packages of funding for DER, and they push the cost into home debt, which is elastic.

Once we have these markets operating at volume, they would drive economies of scale through solar, battery technology and heat exchangers, making them “Replacement” technologies in existing homes, for whenever a boiler bursts.

We then can look to drive a tiered architecture through our grids. The puzzle is to solve the economic and policy moves that facilitate this, not to price it while the current policy is in place.

So the report talks about one of the big problems being curtailment – renewable energy is switched off at present when there is too much energy, because it is a lot easier to turn off a wind farm, than a Combined Cycle Gas Turbine or more to the point a coal or nuclear generation resource. The assumption is that this will always be the case throughout this report except where batteries are used. The impression this report gives is that even though renewables might be 30% for some of the time, due to curtailment, they are more likely to be closer to 10% on average. We know from the UK that this is not the case and that this all depends upon grid architecture and energy usage.

So while in the UK there is almost no use of electrical energy in homes during the day, in the US the daytime use of air conditioning is a significant drain, and this daytime drain is going up in most of Europe as air conditioning becomes more common, as lifestyle choices change.

The idea of a distributed grid is that there would be storage in homes, and storage around each minigrid, and centralized storage for grid stability, and there needs to be a type of storage for summer to winter style holding.

Wood Mac has portrayed this simply as 24 hours storage, and yet we have never come across a storage type that was ever more than 8 to 12 hours, and if this was in layers, and used alongside summer to winter class storage (more on that later) and demand response systems, then the grid could suck more energy from 8 hour batteries, which once depleted could suck more from minigrid batteries which in turn could suck more from home DER batteries, as needed.

As a result Wood Mac says the US alone would need 900 GW of batteries estimated at 16.8 TWh costing $4 trillion. It is likely that this figure is artificially high to the tune of 4 X. However let’s work with it.

The Energy Information Administration reports that prices for grid scale batteries were around $400 per KWh back in 2017 prices. Interestingly Bloomberg reported in March that the Levelized cost of Electricity for large-scale lithium-ion battery projects had fallen by 35% in a year, so this should now be closer to $260 and falling.

So if you need 16.8 TWh, that’s 16,800,000,000 MWh, times $260, which is delivered evenly over a ten years period will cost around $2.2 trillion, starting at $436 billion in year one and falling, assuming a 20% annual fall in these costs. Given that this has not been scaled at all so far, that 20% reduction is fairly safe, and yet to get the Wood Mac calculations you have to assume just 5% per annum fall in this price to get anywhere close to its number and even then that only gets you to $3.5 trillion, not $4 trillion. In fact to get that number you have to assume there will never be another fall in the price of batteries. Insane eh?

Given that lithium ion sets the market price for all the other technologies – then Vanadium Flow and others have to work off “beating” that price to survive. If we then also look at molten salt, frozen air and hot rock technologies, to jointly solve complex chemical heat issues, the home heating and industrial heating issue, and also medium term storage, all of them will need to work at or close to that price too.

So what is clearly happening here is that Wood Mac feels it cannot “predict” price falls, or it simply does not want to. It just shrugs and says, “Hey if you want to do this in ten years just because the IPCC says so, then prices will never go down again. Even though the experience of the past 20 years in renewables is that they continue to fall every year by significant amounts and batteries even faster, driven in particular by EVs.

There is another issue here. As we said a policy change to promote DER, means that around 50% of this could be stimulated with a small amount of incentive. So half of all that initial surge in renewables power could be paid for by consumers all on the promise that they could get cheaper electricity going forwards. This would not serve the Wood Mac customers well, but it is what is happening around the world, so is likely to happen in the US.

But is would serve consumers, distributed solar, with grid scale wind and solar, would create cheaper power and eventually that will be pushed to the consumer. While much of this is currently being both curtailed and paid for, it means prices are still going up and US energy firms are blaming renewables incorrectly for being to blame in this. Wood Mac clearly goes along with that blame culture.

The next issue, says Wood Mac is transmission costs because the US currently needs another 200,000 miles of high-voltage transmission quite simply to shift renewable energy from where it is easy to produce to where it is needed. The means a doubling of transmission lines which will cost $700 billion to the total price of grid decarbonization. More DER means more of it is produced where it is needed, but let’s not quibble.

That transmission work is work which should have already been budgeted in the past, and should now definitely be budgeted for. But not delivered as old tried and true analog systems, but it needs to include state of the art digital transmission to support optimized, cloud AI controlled energy distribution.

All of this is to solve only the electrical system, and yet the US assumes that it will still have to solve the home and industrial heating systems and the shift to Electronic Vehicles, and yet a new grid which includes the addition of recharging points, and better distribution of energy across the country already solves that. And that sees consumers with a massive fall in transport energy prices, due to the cost of electricity versus petroleum, about 1 to 4.

So re-read the report and remember (as Wood Mac does not point out) that already the global energy market costs $1.8 trillion a year, and that energy generation and supply has $750 billion a year spent on it globally, and you realize this is not such a huge amount more than Wood Mac figures (revised by us) would require.

In essence the $1.5 trillion figure to build out renewables could come down to half that figure at $750 billion and over ten years that’s a seamless transition – as you retire coal and gas assets, you have paid off the debt on those, and can take more debt on the new assets financed naturally at around $75 billion a year. And remember that the battery is likely half the amount Wood Mac suggests also, and that the cost on the grid is probably more or less correct and this needs doing.

Throughout the report Wood Mac worries that the prices could go up not down (despite history telling us that is nonsense) and that nimbyism is inevitable and that there will be increases in consumer energy costs and a public backlash (which again we have shown is nonsense). Which serves only to highlight that Wood Mac cannot serve both the renewables industry and the oil and gas industry, because this report is biased in favor of retaining the status quo.

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