The Energy Transition’s Third Act: Crisis

The Energy Transition has Entered its Third Act: Crisis

In a good, but flawed paper from Bloomberg NEF, we can see the rapidly increasing permanence of the transition from thermal (extracted fossil plus nuclear) fuel energy, to renewable manufactured energy (wind/solar/EVs/storage).

The graphics are excellent: such as here for the change in US power capacity:

And here on the impact on the US CO2 emissions as a result (see also this piece on this wherein you can also revisit quadratic equations!)


And via BNEF again  here is the global picture of how wind/solar growth will alter the structure of world energy:
Which countries reach 50% of energy via wind/solar quickest? Germany 2022, UK (!) 2025, Australia (!!) 2029 – and last place beyond 2050 ? the US. Proud energy laggard.

However – it is intriguing that BNEF choose to headline all this by saying it is due to the powers of capitalism: “The market triumph of renewable energy marks the biggest victory yet in the fight against global warming. Solar and wind are proliferating not because of moral do-gooders but because they’re now the most profitable part of the power business in most of the world”.

The same argument has been applied to the other branch of the energy transition, electric vehicles (EVs), now that VW, GM, BMW have joined the switch to electric along with Tesla and Chinese leader BYD.

We are drawn to this argument in one sense because it does signal a shift to the dawning realisation that capital is now flowing quickly to a new, high-growth, efficient energy source. But has it got causation in the right direction? Did capitalism force this change, or is it now reacting to it?

Energy Transition as Drama

This energy transition might be thought of a classic four act drama: Set-up, Conflict, Crisis and Climax.

The Set-up: as BNEF note, in 2010, when renewables were dismissed by the coal (and other fossil fuel) industry as irrelevant, we have our protagonist (wind/solar) plus antagonist (coal /fossil fuels) clearly established.

By 2015 coal was humbled and wind/solar no longer dismissed – so to Act 2, a conflict emerges as wind/solar and EVs start to dominate marginal energy growth, forcing other dominant sectors such as electric power utilities and OPEC to confront peaks (and even declines) in demand.

Closing in on 2020, we are entering Act 3, Crisis: wherein the two now large energy systems collide on a global scale: both well-funded, supported and effective in producing giant swathes of global energy.

Before 2025 we will likely enter Act 4, the Climax, the vast reshaping of the energy order: fossil fuel firms restyling to handle declining markets, wind/solar/EVs and energy services proliferating. Is all this due to capitalism?

First, a definition: “Capitalism refers to an economic system in which a society’s means of production are held by private individuals or organizations, not the government, and where products, prices, and the distribution of goods are determined mainly by competition in a free market”.(Merriam-Webster) – well maybe, but if so that purest form is working only in part today.

Thankfully we do indeed have major corporations just getting on with the job and turning toward new energy growth: VW’s pivot to EVs, GE’s ramp up of wind turbines, and NextEra transforming itself into a wind/solar utility behemoth (market cap > $110B)

There is no doubt therefore that as we enter Act 3 wind/solar and EVs have added global capitalism to the protagonist camp: a powerful ally, and one which is shifting the pace of change at over $250-300bn pa, on the scale of the incumbent industry.

But the main forces of this transition have been in place much longer, and are constantly re-inventing and reinforcing themselves: policy, technology and transforming events.

First, policy mattered for wind and solar in the set up phase: Germany’s Energiewende promoted wind/solar to avoid issues with nuclear and coal-dependence, China’s NEA annual targets were driven by energy security and health scares, the Paris COP 21 declaration in 2015 formalised a (nearly) global consensus of the growing evidence of fossil-fuel impact on climate. This policy DNA will continue into the next phase as activism combines with capitalism.

But perhaps technology has been the most formidable force especially via its militant wing, maths: wind/solar and EVs are scalable manufactured forms of energy. They relentlessly obey non-linear S curves and so like smart phones or flat-screen TVs they are barely noticeable, then suddenly everywhere (just ask the coal industry).

They are the first ever form of commercial-scale energy to adhere to fast learning curves, and their speed of change is only getting started – see the maps of US capacity earlier; they grow like a good virus. (more here on the one equation that describes this that no-one uses

Finally the incumbent industry is more prone to Black Swan events: it emits by-products that cause major air quality and climactic problems which increasingly impact most of the world’s growing, urban population; and it requires a highly-concentrated supply chain to be competitive: hence one-off problems have huge repercussions: smog, Iran, Chernobyl, Iraq, Macondo, Fukishima, Katrina, diesel-gate, Iran again, Dorian, Saudi drone attacks.

In addition, being mature, and shackled by the laws of thermodynamics, it is vulnerable to all sorts of technology and policy break-throughs: Elon Musk, PV panel prices, offshore wind-turbines, battery storage, off-grid systems, demand management, carbon-pricing, plastics taxation, and so on …

Whilst incumbents (antagonists) may delay some of these, they cannot delay them all and most definitely not the largest ones. A bet on the incumbent industry today is to short a belief in humanity’s desire for invention and self-preservation.

So a new climate- and energy-aware generation is seeing clearly the future that awaits them if we do not re-boot the energy system rapidly, and in its entirety. Social license Black Swans are flocking.

Capitalism for sure is a powerful addition to the new energy protagonist team, but far from the strongest member: there are deeper long-term forces: survival instincts, mathematical efficiency and the growing frailty of thermal fuel’s inequitable and centralised energy system.

This fourth act climax will lead to a much larger work which starts with the end of the problematic thermal age, as it cedes to a far longer era of a globally dispersed, scalable manufactured energy, far freer of drama and intrigue.

And for the incumbents this final act will in hindsight have the essence of classic tragedy: inevitability.


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