The parallel realities of the energy world

The idea of parallel realities is certainly a fascinating one. For many, it is a purely hypothetical concept or, at most, a purely scientific one. But it appears that we are, in fact, living in parallel realities right now. It is a question of choice which one to inhabit.

A recent report, for instance, said the adoption of electric cars in Europe could well overtake internal combustion engine car purchases in just three years. The authors of the report cited things like a greater variety of models, tighter emission standards and other efforts by governments to encourage people to switch to EVs as basis for the prediction.

Lower EV costs were also cited as one of the chief reasons drivers were willing to make the switch, with the report making a point of noting that some EVs were already cheaper than ICE cars on a lifetime basis and upfront costs were also falling constantly. It’s a pretty picture of clear skies and clean air. But this picture belongs in a reality that is not exactly the same as the material reality most of us inhabit.

The report was based on a survey among 14,000 new car buyers across the seven largest car markets in Europe, including the UK, France, Germany, the Netherlands, Italy, Spain, and Poland. It was also commissioned by group called the Platform for Electromobility.

The Platform for Electromobility describes itself in the following way: “Our members are committed to promote electromobility and strive to collectively develop solutions to electrify European transport, and to promote those solutions to the EU institutions and Member States.” You could hardly expect a pessimistic EV report from such a devoted organisation.

The report, as already said, is new. But warnings that lithium, cobalt, nickel and other metal and mineral prices essential for EV production are rising have been around for a while now. And they are only going to multiply precisely because of such predictions as the ones made in the Platform for Electromobility report. After all, demand projections for commodities are based on demand projections for the products made from these commodities. They are also based on supply projections. Which brings me to oil.

OPEC’s spare production capacity is dwindling. The warnings are coming from analysts, OPEC itself and even the International Energy Agency. What this means is that there’s an upper limit to how much oil OPEC — and its partners in OPEC+ — could bring into the market if demand continues to increase, and this upper limit is within sight and approaching fast.

The people inhabiting the reality where EV sales overtake ICE car sales in three years would shrug it off. After all, who cares about oil production if most of us drive EVs powered by wind and solar? The problem is irrelevant in that reality. Sadly, until sound proof of the existence of that reality in a material universe appears, it is confined to the minds of its inhabitants while their bodies are forced to inhabit the reality of a world as dependent on oil as it was five years ago and about to experience short supply.

Leaving aside the philosophical discussion of what reality actually is and whether it is or isn’t always confined to our minds, the two realities are, while not mutually exclusive, on a collision course.

The mass adoption of EVs would greatly reduce oil demand, which is one of its purposes. But if this mass adoption does not materialise, demand for oil will only strengthen because — and this cannot be stressed enough — the global human population is growing and so is wealth, even though unevenly distributed. A bigger population means bigger energy and transport needs. These are plain facts and because you cannot really argue with facts so plain, they simply get ignored.

But let’s look at renewables. The IEA reported last month that “Renewable electricity growth is accelerating faster than ever worldwide, supporting the emergence of the new global energy economy.” it went on to add that:

By 2026, global renewable electricity capacity is forecast to rise more than 60% from 2020 levels to over 4 800 GW – equivalent to the current total global power capacity of fossil fuels and nuclear combined. Renewables are set to account for almost 95% of the increase in global power capacity through 2026, with solar PV alone providing more than half. The amount of renewable capacity added over the period of 2021 to 2026 is expected to be 50% higher than from 2015 to 2020. This is driven by stronger support from government policies and more ambitious clean energy goals announced before and during the COP26 Climate Change Conference.

At the same time, the Wall Street Journal reported in late 2021 that “Inflation Adds to Cost of Clean Energy Transition.” Few things are simpler to grasp than the fact that when there is a short supply of something, the prices of things made from that something will rise in tune with the rising price of the thing itself, in this case various raw materials but also transport costs and manufacturing costs, too, because energy prices are rising, because, well, oil and gas supply is tighter than many assumed it would be at this point in time.

“Over the past 10 years there have been three certainties in life: death, taxes and lower prices for solar panels,” said Nick Parsons, head of research at Switzerland-based investment firm ThomasLloyd Group. “It’s not so evident that is the case today,” the WSJ report said.

But here’s another report, this one from Carbon Tracker from April 2021. Titled Solar and wind can meet world energy demand 100 times over, the report praises the low cost of wind and solar energy that will make them the dominant source of energy in the not too distant future.

Solar and wind are inexhaustible sources of energy, unlike coal, oil and gas, and at current growth rates will push fossil fuels out of the electricity sector by the mid-2030s. By 2050 they could power the world, displacing fossil fuels entirely and producing cheap, clean energy to support new technologies such as electric vehicles and green hydrogen, the report says.

Its lead author adds “We are entering a new epoch, comparable to the industrial revolution. Energy will tumble in price and become available to millions more, particularly in low-income countries. Geopolitics will be transformed as nations are freed from expensive imports of coal, oil and gas. Clean renewables will fight catastrophic climate change and free the planet from deadly pollution.”

Fast forward to January 2022 and this Financial Times report, titled US solar energy boom ‘stuck’ as industry confronts obstacles. The obstacles range from higher commodity prices to the supply chain disruptions that have turned into one of the most annoying phrases of the pandemic era but also into a major unforeseen consequence of globalisation. Let me throw in a warning from Vestas about the possibility it would have to raise the prices of its turbine because — yes, you guessed it — raw material prices are rising.

Again, the two realities are at odds. On the one hand, the IEA and Carbon Tracker, as well as many others in the green camp, appear to be convinced that the cost of wind and solar has only one way to go and this is down, which would motivate more additions to capacity. On the other hand, the solar and wind industries themselves are getting increasingly worried about their profitability prospects amid the raw material price rally, among other things such as intensifying competition and government intentions here and there to stop funding so much of this capacity.

The longer these two realities stay disconnected, the worse the outlook for both their populations. The longer those in decision-making power continue to deny lower wind power output (as well as seasonally inconstant solar power output) last year contributed significantly to the energy crunch in Europe, the more money will be poured into yet more wind and solar power, although there’s talk about battery storage as well now. And the idea that battery storage can help is plainly ridiculous, as explained in this here tweet by Bjorn Lomborg.

But let’s say we embrace the renewable power reality, we build more wind turbines to catch more wind (which they don’t as one reader noted here, since wind “production” is not exactly an on-demand service), and more solar farms to catch more sun, and we build gigawatt upon gigawatt of battery storage, to make energy supply more reliable.

This would mean substantially increased demand for copper, nickel, polysilicon, rare earths, manganese, and lithium, and with the mining industry already troubled by things like natural mine depletion and increasingly stringent environmental regulations (which are something certainly positive) prices will go higher.

When I say ‘prices will go higher’, I don’t just mean prices for wind turbines or solar panels. I mean prices for everything from metals to doughnuts because energy will become more expensive. Every productive human activity requires a certain input of energy and the more expensive the energy input becomes, the more expensive the output from the activity would be.

In this scenario, five years from now if not sooner a lot of people will be wondering what happened and where we went wrong. A lot of these people may be living below the poverty line, too, as big industrial companies shrink under unbearable carbon credit — and green certification — costs and those millions of jobs in wind and solar never materialise because they cannot ever materialise.

If we choose instead to stick to what I’d call material reality, we might decide to take a break from the “More wind! More solar!” quest and think about what we can do to reduce the risks of blackouts, grid failures, and millions new poor as we try to reduce our planetary pollution output.

Optimistically, we might try and encourage people in the biggest energy-consuming nations to try and consume less, challenging as that may be. We might try and teach them to not throw out so much food and generally consume less. We might — and I realise this is an outrageous idea — criminalise planned obsolescence, so our appliances and gadgets last longer and we reduce our use of natural resources, which would automatically reduce our emissions footprint. We might try and come up with other little ideas like this to become less of a burden on the planet.

Realistically, the above has little chance for success. After all, demonstrating ESG credentials is all very good but businesses still want to make a profit and the bigger, the better. So we might just accept we’ve reached the point of no return. Acceptance is, after all, the final stage of the grieving process. On the bright side, with our demise, oceans will clear, forests will grow and Earth will become the paradise it was before we came up with the steam engine.