Those who advocate
for a complete shift to renewables often state that it would be possible if
only the political will to fund the transition were available. In fact, funding
programmes have been introduced in many jurisdictions, often on a very large scale.
Capital grants and long term Feed-In Tariff (FIT) contracts have been
introduced in many European countries and in other regions. Feed-In Tariffs,
which typically offer a twenty year guaranteed income stream in order to
overcome the investment risk, have often been the economic tool of choice. Some
of these have been very generous, and the subsidy regimes have driven large
investments in renewables for many years. The costs have been in the
hundreds of billions of dollars, with projections for many times that much in
the future, both for generation capacity and for the necessary infrastructure
to service it:
In 2005, VC investment in
clean tech measured in the hundreds of millions of dollars. The following year,
it ballooned to $1.75 billion, according to the National Venture Capital
Association. By 2008….it had leaped to $4.1 billion. And the [US] federal
government followed. Through a mix of loans, subsidies, and tax breaks, it
directed roughly $44.5 billion into the sector between late 2009 and late 2011.
Avarice, altruism, and policy had aligned to fuel a spectacular boom….
I….Investors were drawn to
clean tech by the same factors that had led them to the web, says Ricardo
Reyes, vice president of communications at Tesla Motors. "You look at all
disruptive technology in general, and there are some things that are common
across the board," Reyes says. "A new technology is introduced in a
staid industry where things are being done in a sort of cookie-cutter
way." Just as the Internet transformed the media landscape and iTunes
killed the record store, Silicon Valley electric car factories and solar
companies were going to remake the energy sector. That was the theory, anyway.
With the much of
the risk safely lodged elsewhere, at least apparently, a sense that one could
not lose became increasingly entrenched. This is dangerous, because this is the
psychological underpinning of a speculative mania. When investors begin to throw
money at something regardless of cost, believing that the investment can only
go up, a self-reinforcing spiral leading into an epidemic of poor decision
making tends to be the result. The sector over-reaches itself and the boom ends
in bust, trashing the economic reputation of the sector for many years.
Productive
capacity that had been built out in order to service the
artificially-stimulated demand is then abandoned, often without having
recovered its costs. Demand suffers an undershoot as the stimulus is withdrawn,
typically for long enough that productive capacity has degraded to unusability
before demand can recover. In this way, bubbles encourage the conversion of
capital to waste.
Bubbles are
inherently self-limiting and do not require a trigger to burst. They simply
reach the maximum expansion, run out funds to tap to keep the expansion going,
and implode. In the case of cleantech, the day of reckoning has been aggravated
by lack of infrastructure, specifically grid capacity, as we have see above. Projects
in some jurisdictions were facing years or more of delay for want of the
physical ability to move the power from where it was proposed to be generated
to where it could possibly be used.
For instance, the
available grid capacity in Ontario (Canada) was oversubscribed in the launch
period the the FIT programme. Ambitious grid expansion plans are planned, but
over a period of decades. Even if we were not facing financial crisis, the
financing for specific projects would have long since disappeared before the
projects could expect to receive at FIT contract. Similarly in Europe, the grid
connections necessary to build out off-shore wind on a large scale simply do
not exist, and cannot be brought into existence in less than several decades
time. Time is a major factor for high tech investors
used to a rapid, or even explosive pace of development:
There was an additional factor
at work: impatience. Venture capitalists tend to work on three- to five-year
horizons. As they were quickly finding out, energy companies don’t operate on
those timelines. Consider a recent analysis by Matthew Nordan, a venture
capitalist who specializes in energy and environmental technology. Of all the
energy startups that received their first VC funds between 1995 and 2007, only
1.8 percent achieved what he calls "unambiguous success," meaning an
initial public offering on a major exchange. The average time from founding to
IPO was 8.3 years. "If you’re signing up to build a clean-tech
winner," Nordan wrote in a blog post, "reserve a decade of your
life."
The truth is that starting a
company on the supply side of the energy business requires an investment in
heavy industry that the VC firms didn’t fully reckon with. The only way to find
out if a new idea in this sector will work at scale is to build a factory and
see what happens. Ethan Zindler, head of policy analysis for Bloomberg New
Energy Finance, says the VC community simply assumed that the formula for
success in the Internet world would translate to the clean-tech arena.
"What a lot of them didn’t bargain for, and, frankly, didn’t really
understand," he says, "is that it’s almost never going to be five
guys in a garage. You need a heck of a lot of money to prove that you can do
your technology at scale."
The bubble is now
bursting, especially for solar, which had benefited from the largest subsidies,
but increasingly for wind as well. Investments in renewable energy companies,
formerly seen as a no-lose bet, have often been failing to live up to
expectations, to put it mildly. Early entrants did very well, but late comers are the
empty bag holders, as with any structure grounded in ponzi dynamics:
Renewable energy is the
future, say environmentalists. But for green and ethical investors it has
turned into a nightmare, with makers of wind and solar power systems among the
worst-performing stocks in recent years. Take Vestas, the Danish wind turbine
maker. Early investors enjoyed sparkling returns, with shares leaping from 34
Danish kroner in 2003 to 698 in 2008 – a 20-fold rise. But since then, beset by
the loss of government subsidies, cost overruns, production delays and
competition from China, the price has collapsed. Today it is trading at 35 kroner
– so someone investing in 2008 will have lost nearly 95% of their money. In
August Vestas revealed it had slumped into losses and shed another 1,400 jobs,
bringing total redundancies for the year to more than 3,700. It had planned to
construct a plant at Sheerness docks in Kent to supply turbines for expected
deep-water North Sea wind farms, but this was axed in June.
Solar panel manufacturers have
also burnt a hole in investors' pockets. Look at SunTech, the world's biggest
maker of PV (photovoltaic) panels, based in Wuxi, China. Its private equity
backers (notably Goldman Sachs) made a fortune when it listed on the New York
Stock Exchange in 2005, making well over 10 times their original investment. So
did the people who bought at the initial share launch, with the shares shooting
from $20 to $79 in late 2007. And today? They are changing hands at just 92
cents. First Solar, another one-time darling of Nasdaq, collapsed from $308 in
April 2008 to $23 last week. Solar is an industry awash with overcapacity in
China, falling prices and declining government subsidies.
Solar is
particularly expensive in comparison with currently available alternatives. Grid
parity - cost competitiveness with other sources - is a distant dream, hence the requirement for
disproportionately large subsidies:
"Today, you’d need to
charge $375 per megawatt hour to justify investment in new solar
equipment—nearly four times the average US retail price of electricity,"
writes Catherine Wood of AllianceBernstein….And these calculations don’t
include the cost of backup power or energy storage to supply power when the sun
isn’t shining. A backup power system or battery would add roughly 25% to the
electricity price required to justify new investment in solar power.
"Finally, these
calculations ignore the cost of the real estate upon which a solar panel sits,
because most smaller scale installations are on a rooftop that would otherwise
go unused. For utility-scale installations, however, ignoring real estate costs
is not fair. The cost basis for what will be the largest utility-scale solar
power installation in Japan more than doubles if you take into account the
value of the real estate that the solar panels will occupy.
China has made a
very large investment in renewables and energy storage technologies, and their
productive capacity has expanded so quickly that companies in other countries
have struggled to compete, particularly in photovoltaics. The sharp fall in
panel prices has been very hard on non-Chinese solar manufacturer, dropping
capacity significantly. The Chinese developmental state has been building out
infrastructure of all kinds for many years, hence this determined move is no
exception. Subsidies at the national level were vastly larger than those given
by western states, and a national feed-in tariff was introduced. Additional
support was given at the provincial and local levels in the form of tax
incentives and access to real estate at subsidized cost.
China in recent years
established global dominance in renewable energy, its solar panel and wind
turbine factories forcing many foreign rivals out of business and its policy
makers hailed by environmentalists around the world as visionaries.
But now China’s strategy is in
disarray. Though worldwide demand for solar panels and wind turbines has grown
rapidly over the last five years, China’s manufacturing capacity has soared
even faster, creating enormous oversupply and a ferocious price war. The result
is a looming financial disaster, not only for manufacturers but for state-owned
banks that financed factories with approximately $18 billion in low-rate loans
and for municipal and provincial governments that provided loan guarantees and
sold manufacturers valuable land at deeply discounted prices.
China’s biggest solar panel
makers are suffering losses of up to $1 for every $3 of sales this year, as
panel prices have fallen by three-fourths since 2008. Even though the cost of
solar power has fallen, it still remains triple the price of coal-generated
power in China, requiring substantial subsidies through a tax imposed on
industrial users of electricity to cover the higher cost of renewable energy.
The outcome has left even the architects of China’s renewable energy strategy
feeling frustrated and eager to see many businesses shut down, so the most
efficient companies may be salvageable financially.
Even as costs fall
on a bursting bubble, renewables have not achieved grid parity. That quest has
been greatly aggravated, particularly in North America, by the shale gas
mirage, which promises so much gas for the
foreseeable future that it has crashed the price of gas in the meantime:
The price of natural gas
peaked at nearly $13 per thousand cubic feet in 2008. It now stands at around
$3. A decade ago, shale gas accounted for less than 2 percent of America’s
natural gas supply; it is now approaching one-third, and industry officials
predict that the total reserves will last a century. Because 24 percent of
electricity comes from power plants that run on natural gas, that has helped
keep costs down to just 10 cents per kilowatt-hour—and from a source that
creates only half the CO2 pollution of coal. Put all that together and you’ve
undone some of the financial models that say it makes sense to shift to wind
and solar. And in a time of economic uncertainty, the relatively modest carbon
footprint of natural gas gets close enough on the environmental front for a lot
of people to feel just fine turning up the air-conditioning.
Unconventional
fossil fuels (shale gas, coal bed methane, tight formation gas, shale oil and
oil-shale etc) are well entrenched in their own bubble, as we have repeatedly
documented at TAE (see for instance Shale Gas reality Begins to
Dawn and Unconventional
Oil is NOT a Game-Changer).
People are
currently believing the hype, and perception is what moves prices. The current
perception is of glut, when in fact the unconventional fossil fuel boom is
likely to be short-lived thanks to very low EROEI, a high capital requirement
and huge amounts of leverage. The artificially low price of natural gas is on
the verge of putting over-leveraged gas producers out of business en
masse, at which point the North America will be set up for a supply crunch
and price spike. By the time that scenario plays out, there will no longer be
the time or the money to shift back to investment in renewables.
Fracking is
getting underway in many other jurisdictions as well, and will very likely be
similarly disappointing. In Europe, the mirage offers the hope of gas independence
from Russia, but this potential is likely to be illusory. Ironically from an
environmental point of view, given that gas is perceived to be acceptable from
a carbon emission perspective, gas produced by fracking is very much more
carbon intensive than conventional production - likely worse than coal.
The boom and bust
dynamic is, for the time being, alive and well in the energy sector. Any part
of the real economy which has become heavily financialized will be subject to
the rapid speculative swings of finance. Such swings can devastate vital
economic sectors. The bust which is coming courtesy of the bursting the largest
financial bubble in human history will be one for the record books.
Austerity and the
Future of Renewable Energy Subsidies
The feed-In
tariffs that stimulated so much investment in renewable energy for sale to the
grid have been suffering cutbacks in many, if not most, jurisdictions that
introduced them. Solar tariffs in particular have been deemed too generous,
especially in an era of increasing austerity. We covered this dynamic at TAE
back in early 2011 in The
Receding Horizons of Renewable Energy.
The financial
benefit of a feed-in tariff accrues to a few relatively wealthy renewable
energy entrepreneurs, while the cost of the subsidy is borne by electricity
consumers. It will become increasingly difficult to justify high levels of
private payments as times get harder and electricity bills become less
affordable for the masses. The costs, for tariff payments, for back up
generation capacity, and for infrastructure build out, have escalated rapidly
on increasing installed capacity in early adopter countries. Cutting feed-in
tariffs, or whole programmes, is likely to become a means of scoring easy
political points once we move from general support for green initiatives
towards a greater focus on a shrinking economy. Environmental concern peaks
with the economy, in that people who do not have immediate worries of scarcity
place more importance on wider issues with a longer timeframe. Once an economy
is in contraction, however, societal discount rates skyrocket and the focus on
broader issues rapidly disappears. Considering what the future holds
economically, a loss of concern for the environment is sadly highly likely.
Ironically,
installing renewable generation under a feed-in tariff often does little or
nothing in terms of energy security for the person installing it. All power is
typically loaded on to the grid and paid for, and all power consumed is
purchased from the grid. Separate storage systems are often explicitly
disallowed, meaning the the owner of the renewable energy system is as
vulnerable to blackouts as anyone else. Generation installed in this way is
effectively a money generating system from the point of view of the installer,
rather than an energy generating system.
One group of
countries aggressively cutting renewable energy subsidies is the European
periphery. Both Greece and Spain, for instance, championed renewable energy
regardless of cost, but are now being forced to retreat from the sector. In
both countries, subsidy uptake exceeded expectations, hence the future costs
are projected to be far larger than had been anticipated.
In Greece, a lack of funding and a
substantial regulatory burden has delayed much of the mass of applications to
the point where they are unlikely ever to be built, but substantial
investments, mostly in wind power, have already been made and the projects
commissioned.
Since George Papandreou came
to power in the October 2009 elections in Greece, a central policy priority has
been the promotion of "green energy." As part of this policy, between
EUR 10-15 billion in renewable energy (RE) projects have been licensed. These
include large, industrial-scale wind and photovoltaic projects, as well as
smaller installations of up to 1-5 MW…
….Unfortunately, there has
been no prior control over either the number or location of the applications
permitted, nor has there been a cap on the energy generation capacity licensed.
As a result, investors have responded in far greater numbers than imagined.
The process has not been
without its political clientilism. In an effort to appease farmers, for
instance, the Ministry of Agriculture made extraordinary efforts to get farmers
to apply for RE production licenses, with many public assurances that their
applications would be approved. As a result, thousands of farmers responded,
with the result that the number of applications is at least double the original
forecast. These farmers already benefit excessively from EU Common Agricultural
Policy subsidies, and will soon increase their reliance on the state through
renewable energy generation.
Reliance on
payments from the state is not a good position to be in, in a country where the
economy is seizing up, as it currently is in Greece. Greece is experiencing a
liquidity crunch, and we covered what that really means several months ago at
TAE in Crashing
the Operating System - Liquidity Crunch In Practice. The power system is no
exception. Back in June, in the run-up to the general election, the financial
crisis became acute:
Greece’s debt crisis
threatened to turn into an energy crunch on Friday, with the power regulator
calling an emergency meeting next week to avert a collapse of the country’s
electricity and natural gas system. Regulator RAE called the emergency meeting
after receiving a letter from Greece’s natural gas company DEPA, dated May 31 and
seen by Reuters, threatening to cut supplies to electricity producers if they
failed to settle their arrears with the company….
….According to an energy
industry source who declined to be named, DEPA has no cash to settle gas supply
bills worth a total 120-million euros (US$148.4-million) with Italian gas firm
Eni , Turkey’s Botas and Russia’s Gazprom, which fall due this month. DEPA CEO
Haris Sahinis declined to comment on the company’s cash position but told
Reuters: "DEPA is taking every action to avoid owing anything to its
suppliers."
If DEPA cuts off supplies,
Greece’s independent power producers such as Elpedison, Mytilineos, Heron and
Corinth Power — which cover about 30 percent of the country’s power demand —
would be forced to stop operations. Greece’s grid operator ADMIE would then
have to proceed to rotating power cuts to avoid a general blackout, just as the
country’s summer tourism season, a rare foreign exchange earner for the
country’s uncompetitive economy, goes into full swing.
These producers use natural
gas, much of it supplied by DEPA, to produce about 70% of their electricity
output. Greece’s dominant electricity company PPC uses natural gas to a much
lesser extent than the other producers, but PPC’s coal and hydro units would
not be able to cover the shortfall. Power companies have failed to pay their
bills to DEPA because they, in turn, have not been reimbursed by LAGHE, a
state-run clearing account for the nation’s energy transactions.
In recent months RAE has
repeatedly urged the government to shore up the accounts of LAGHE, which is
sitting on a deficit of more than 300-million euros. The account went into
deficit because its receipts have not matched the generous subsidies it pays
out to renewable energy producers, particularly for solar panels. LAGHE’s
deficit deteriorated earlier this year when two electricity retailers, PPC’s
biggest rivals, went bust without honoring their obligations to the account,
leaving authorities scrambling to find cash….
….Greece could also boost the
LAGHE account by using about 100-million euros sitting in the accounts of the
two power retailers that went bust earlier this year, Zervos said. But energy
authorities have no access to that money because it has been frozen as part of
a criminal investigation into the bust. "It’s absolutely crazy. This is
money that power consumers paid into the energy system," the source said.
In a highly
interconnected system, the potential for knock-on effects is very significant.
The system is only as strong as its weakest link, and when there is little
money to go around to settle accounts, there are many weak links are exposed.
The risk is cascading system failure.
By September,
Greece was responding to the threat by, among other factors, axing the feed-in tariff
programme and targeting previously favoured renewable energy producers:
Greece, aiming to stave off a
fresh energy crisis, plans to support its main electricity market operator
through a temporary tax on renewable power producers and by extending an
emergency loan, a senior official said on Friday. Deputy energy minister
Asimakis Papageorgiou told Reuters that Greece's international lenders had
dropped their opposition to the loan plan [previously seen as illegal
state aid]in view of the country's critical energy situation.
The electricity system came
close to collapse in June when market operator LAGHE was overwhelmed by
subsidies it pays to green power producers as part of efforts to bolster solar
energy. LAGHE was already suffering in Greece's debt crisis as bills were left
unpaid by consumers protesting against the collection of an unpopular property
tax via the bills of PPC, the country's sole electricity retailer.
Papageorgiou also said that
Greece would unveil by the end of 2012 plans for a market-based retail
electricity network. He said PPC, due to be privatized under a massive
government sell-off plan to ease Greece's budget crisis, will probably spin off
some power stations and distribution lines to create one or two rival companies.
PPC itself would find a strategic partner.
The state-run Loans and
Consignments Fund, a key lifeline for the country's energy system, will give
LAGHE a one-year loan of 140 million euros ($180 million), Papageorgiou said.
"The troika (EU, IMF and ECB) approved it because they realized that these
actions are necessary for the market to survive and return to a normal
state," he said.
Earlier this year the fund
extended 100 million euros to state-owned natural gas supplier DEPA and another
110 million to dominant state-controlled utility PPC (DEHr.AT).
The temporary charge on
renewable energy producers was a further measure to plug LAGHE's deficit of
more than 300 million euros. "I'd call it a solidarity levy,"
Papageorgiou said. "It will be in force over a very specific period... and
set at such a level that will allow them to operate normally with satisfactory
returns."
Greece has slashed the
guaranteed feed-in prices it pays to some solar operators and is no longer
approving permits for their installation.
Greek consumers,
who can ill-afford to pay more for anything as unemployment skyrockets, are
being asked to cover a 19% hike in electricity prices. The power system framework
is a byzantine mess, and the last few years of attempted transition have added
enormously to the complexity of the predicament. It is unclear in what form the
system may ultimately survive, but in the meantime, the population is very
likely to have to get used to interruptible supply at best.
When feed-in
payments are cut, and windfall taxes imposed instead, those who took on loans
to build projects will not be able to service the debts they incurred. Their
eventual default will add to the illiquidity of the system. Further investments
in renewables will dry up on risk of so many kinds at once. A twenty year
guaranteed payment, meant to overcome that risk and stimulate investment, is a
promise too good to be true.When governments make reckless promises they cannot keep they will simply
repudiate the contracts unilaterally. There are no risk free
investments, but many people have acted as if there were and have structured
their investments, or even their lives, around promises destined to be broken:
The Spanish and Germans are
doing it. So are the French. The British might have to do it. Austerity-whacked
Europe is rolling back subsidies for renewable energy as economic sanity makes
a tentative comeback. Green energy is becoming unaffordable and may cost as
many jobs as it creates. But the real victims are the investors who bought into
the dream of endless, clean energy financed by the taxpayer. They forgot that
governments often change their minds….
….The austerity programs have
piled on additional difficulties in the form of subsidy reductions. No
government would announce "temporary" subsidies, for fear of scaring
off investment in renewable energy. Still, that's exactly what the subsidies
are turning out to be. Investors everywhere are going to get slaughtered as
debt-swamped governments trim or eliminate the freebies.
The renewable energy bubble
was inflated by government subsidies. Those same governments are now deflating
them. Turns out the subsidies were too good to be true.
In Spain,
renewable subsidies were generous and achieved a huge increase in installed
capacity, at a consumer cost of 6 billion euros a year by 2009 (compared to 5.6
billion in Germany where the economy is four times the size). Approximately
half the subsidies went to solar, which produced 2% of the power. However, when
financial crisis began to bite, cuts
were inevitable. Initially, tariffs on new projects were reduced 45%, and later a new
decree retroactively limited the number of production hours qualifying for
subsidies for existing projects with feed-in tariff contracts:
Spain's solar industry lobby
group, the Asociacion Empresarial Fotovoltaica, estimated that the second
decree would effectively reduce tariffs received by PV plants by 30 per cent,
forcing many of the PV companies to default on their debt. Infrastructure
Investor magazine called the second decree "the Christmas Eve
massacre."
Investment
began to dry up almost immediately on greatly increased
regulatory risk, and companies were left with no domestic market for their
products:
Spanish renewable-energy
companies that once got Europe’s biggest subsidies are deserting the nation
after the government shut off aid, pushing project developers and
equipment-makers to work abroad or perish. From wind-turbine maker Gamesa Corp.
Tecnologica SA (GAM) to solar park developer T-Solar Global SA, companies are
locked out of their home market for new business. These are the same suppliers
that spearheaded more than $69 billion of wind and solar projects since 2004
that today supply more than 50 percent of Spain’s power demand on the most
breezy and sunny days….
…."They destroyed the
Spanish market overnight with the moratorium," European Wind Energy
Association Chief Executive Officer Christian Kjaer said in an interview. "The
wider implication of this is that if Spanish politicians can do that, probably
most European politicians can do that."….
Industry Minister Jose Manuel
Soria, who is preparing a wholesale redesign of the pricing for Spain’s
regulated energy industry, described the January move as a "first
step." The nation’s energy regulator in March suggested scaling back
incentives for solar thermal plants. The government also may impose temporary
taxes or caps on renewable plants, Standard & Poor’s said in February….
….T-Solar, which became the
world’s biggest solar-farm operator by leveraging its Spanish business,
currently has more than 40 running in Spain, Italy and India. While it still
makes solar panels in Orense, Spain, they’re bound for Peru. "We have an
important pipeline of projects, and it’s 100 percent outside Spain right
now," T-Solar Managing Director Juan Laso, who also heads the country’s
photovoltaic power association, said in a telephone interview. "If you
take such a brutal measure, what you do is oblige the industry to move
out," he said of the January moratorium.
For the time
being, there are still other markets to be served, but as financial crisis
spreads, that will be less and less the case. Many other jurisdictions are
cutting, or contemplating cutting, subsidies. The remaining market is set to
shrink relentlessly, squeezing overcapacity of supply.
A Decentralized
Renewable Reality?
Renewable energy
is never going to be a strategy for continuing on our present expansionist
path. It is not a good fit for the central station model of modern power
systems, and threatens to destabilize them, limiting rather than extending our
ability to sustain business as usual. The current plans attempt to develop it
in the most technologically complex, capital and infrastructure dependent
manner, mostly dependent on government largesse that is about to disappear. It
is being deployed in a way that minimizes a low energy profit ratio, when that
ratio is already likely too low to sustain a society complex enough to produce
energy in this fashion.
Renewable
electricity is not truly renewable, thanks to non-renewable integral
components. It can be deployed for a period of time in such a way as to cushion
the inevitable transition to a lower energy society. To do this, it makes sense
to capitalize on renewable energy's inherent advantages while minimizing its
disadvantages. Minimizing the infrastructure requirement, by producing power
adjacent to demand, and therefore moving power as little distance as possible,
will make the most of the energy profit ratio. The simplest strategy is
generally the most robust, but all the big plans for renewables have gone in
the opposite direction. In moving towards hugely complex mechanisms for
wheeling gargantuan quantities of power over long distances, we create a system
that is highly brittle and prone to cascading system failure.
In a period of
sharp economic contraction, we will not be able to afford expensive complexity.
Having set up a very vulnerable system, we are going to have to accept that the
the lights are not necessarily going to come on every time we flick a switch.
Our demand will be much lower for a while, as economic depression deepens, and
that may buy the system some time by lowering some of the stresses upon it. The
lack of investment will take its toll over time however.
While a grid can
function at some level even under very challenging conditions - witness India - it is living on
borrowed time. We would do well to learn from the actions, and daily
frustrations, of those who live under grid-challenged conditions, and do what
we can to build resilience at a community level. Governments and large
institutions will not be able to do this at a large scale, so we must act
locally.
As with many
aspects of society navigating a crunch period, decentralization can be the most
appropriate response. The difficulty is that there will be little time or money
to build micro-grids based on local generation. It may work in a few places
blessed with resources such as a local hydro station, but likely not elsewhere
in the time available. The next best solution will be minimizing demand in
advance, and obtaining back up generators and local storage capacity, as they
use in India and many other places with unstable grids. These are relatively
affordable and currently readily available solutions, but do require some
thought, such as fuel storage or determining which are essential loads that
should be connected to batteries and inverters with a limited capacity. Later
on, such solutions are much less likely to be available, so acting quickly is
important.
Minimizing demand
in a planned manner greatly reduces dependency, so that limited supply can
serve the most essential purposes. It is much better than reducing demand
haphazardly through deprivation in the depths of a crisis. Providing a storage
component can cover grid downtime, so that one no longer has to worry so much
when the power will be available, so long as it is there for some time each
day. Given that even degraded systems starved of investment for years can
deliver something, storage can provide a degree of peace of mind. It is
typically safer than storing generator fuel.
Some will be able
to install renewable generation, but it will not make sense to do this with
debt on the promise of a feed-in tariff contract that stands to be repudiated.
Those who can afford it will be those who can do it with no debt and no income
stream, in other words those who do it for the energy security rather than for
the money, and do not over-stretch themselves in the process. Sadly this will
be very few people. Pooling resources in order to act at a community scale can
increase the possibilities, although it may be difficult to convince enough
people to participate.
It is difficult to
say what power grids might look like following an economic depression, or what
it will be possible to restore in the years to come. The answers are likely to
vary widely with location and local circumstances. Depression years are very
hard on vital economic sectors such as energy supply. Falling demand undercuts
price support, and prices fall more quickly than the cost of production, so
that margins are brutally squeezed. Even as prices fall, purchasing power falls
faster, so that affordability gets worse. Consumers are squeezed, leading to
further demand destruction in a positive feedback loop.
Under these
circumstances, the energy sector is likely to be starved of investment for many
years. When the economy tries to recover, it is likely to find itself hitting a
hard ceiling at a much lower level of energy supply. With less energy
available, society will not be able to climb the heights of complexity again,
and therefore many former energy sources dependent on complex means of
production will not longer be available to simpler future societies. Widespread
electrification may well be a casualty of the complexity crash.
We are likely to
realize at that point just how unusual the era of high energy profit ratio
fossil fuels really was, and what incredible benefits we had in our hands.
Sadly we squandered much of this inheritance before realizing its unique and
irreplaceable value. The future will look very different.
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