Energy transitions: A simple model to help us think about fossil fuels vs. renewables

Thinking – and debating – global energy transitions in terms of time, cost, and complexity

What the world desperately needs now is not love, as the old pop song has it, but a simple framework within which to understand the ferocious political struggle between fossil fuels and renewable energy technologies.

energy transition

Microgrids Navigant Research photo.

So much of the public debate in the United States and Canada involves energy in one form or fashion, especially if you consider climate change to be fundamentally an energy issue, as I do. Renewables boosters, like Prof. Mark Jacobsen, think we can “decarbonize” the global economy within ridiculously short timeframes that don’t even pass the sniff test. Fossil fuels defenders pooh pooh climate change, cite the “moral case” for hydrocarbons, and push back vociferously against public policy promoting renewable energy.

How does the average reader make sense of this chaos?

One voice stands out from the crowd with a clear vision of how energy transitions happen and how long they take.

energy transition

Prof. Vaclav Smil, University of Manitoba.

Vaclav Smil is Bill Gates’ favorite author (and mine on energy topics) and a distinguished scholar who has written dozens of books about energy. I’m going to borrow generously from Prof. Smil to propose a model based on three simple concepts: Time, cost, and complexity.

Energy transitions and Time

Smil’s approach is fundamentally historical. Energy sources and technologies (e.g. wood, coal, oil, natural gas) are adopted because they offer some advantage over the dominant energy sources and technologies, they compete for a period of time (usually 50 to 60 years), then if the new is cheaper and better than the old, the new wins.

The key here is that the transition from old to new takes a long time. And the greater the scale and complexity, the longer it can take. Coal may have taken 50 years to displace wood in the American economy in the 19th century, but imagine how much longer that transition took for the global economy, given some developing countries still rely heavily on wood as a fuel source.

In the Internet Age, we think everything happens in Internet time. Smil cautions against that view.

“Too many modern observers have become misled by the example of electronics, in which advances have followed Moore’s law — the now 50-year-old prediction that the number of components on a microchip will double every 18 months,” he wrote in a column published in American Energy News.

“Moore’s Law means performance doubles in a year and a half. Change at the rate of energy systems [around 3% a year] means doubling efficiencies, or halving the costs, in 35 years — a vastly longer timespan.”

Energy Transitions and Cost

One of the reasons new technologies take decades to diffuse through an economy is they generally cost more at the outset. As the new technology competes in the marketplace it becomes better and cheaper.

Cost is not just about the new technology being less expensive. Typically, it also adds more value.

When tractors began to displace horses on North American farms during the 1920s, other considerations besides cost per acre of plowing a field or threshing a bushel of grain played a role. For instance, farm boys back from the Great War were exposed to automobiles, tanks, planes – all manner of mechanization – and many were keen to leave behind the horse culture of their parents, to be seen by their rural peers as “modern.” Young farmers were ambitious and wanted to expand their operations – they could farm 320 acres with a tractor and combine compared to 160 with horses.

energy transitionThe idea of value instead of straight cost is useful to keep in mind when we think about why people buy new technologies.

Thanks to Everett Rogers we understand that Innovators (who make up just over two per cent of the population), will pay more for a new technology because they place a very high value on novelty and innovation. This is why Innovators will pay two or three times as much for an electric vehicle or rooftop solar panels as other adopters.

Early Adopters are willing to play a smaller price premium than Innovators and require more value for their investment.

As costs drop and value increases, more and more people will adopt the new technology, which travels up the technology diffusion bell curve through Early Majority, Late Majority, and Laggards until the new technology becomes dominant.

Energy Transitions and Complexity

“Ultimately mass adoption of renewable energy would re­ quire a fundamental reshaping of our modern energy infrastructure,” Smil wrote in a 2014 Scientific American article. He could have added, And every human activity that relies upon energy.

A utility executive used this analogy in an interview to explain the changes required of electrical utilities. Remember 30 years ago when all anyone had was a landline telephone? That simple system evolved into the complex and technically sophisticated telecommunications network capable of handling cell service, VOIP, landlines – basically every type of communications device you can imagine plus Internet service and television.

Now imagine building out utility “smart grids” that handle every conceivable type of power generation – hydro, nuclear, utility-scale and rooftop solar, utility-scale and micro-wind, geothermal and on and on. All the while maintaining reliability and low prices. No wonder ERCOT, the organization that runs 85 per cent of Texas’ power grid, warned last year that “retirement of a large portion of controllable [i.e. coal] generation capacity, combined with addition of a large amount of generation from intermittent solar and wind sources, could affect reliability of all generation resources as the system works together to maintain a balanced grid.”

Energy is even more basic to the economy and our day to day lives than telecommunications, so now imagine electrifying every single sector of the economy, from powering cars to heating and cooling residential and commercial buildings to, well, everything. What does all that extra demand do to ERCOT’s power grid? Probably bad things if the transition is rushed.

Now imagine that process of electrification playing out around the globe, especially in huge countries like China and India, which are frantically developing their economies and adding hundreds of millions of people to their middle classes.

The complexity of the energy transition is challenging at the state, provincial, or national level in North America, but truly mind boggling at the global level.

Conclusion

Looking back on the history of new energy technologies, the winner is obvious. We understand why coal was a better energy source than wood, and oil is better than coal. But in the midst of the energy transition those advantages weren’t so obvious. The farm press of the 1920, for instance, is full of raucous debate over tractors and horses.

That’s where we find ourselves today: At the beginning of a historical process that threatens to reshape human civilization in so many ways we can’t imagine. Winners aren’t obvious. Nor are all the pitfalls and threats.

As we debate how to proceed with the 21st century energy transition, perhaps discourse will be a little less fractious if we think about the issue in terms of time, cost, and complexity.

My next column will try to make sense of the debate itself, who is winning and losing, and implications for public policy.

Posted in: Markham on Energy