The Transition

“Nature doesn’t ask your permission; She has nothing to do with your wishes, or whether you like her laws or dislike them. You are bound to accept her as she is, and consequently all her conclusions.”   Fyodor Dostoevsky

Once there was a Question

In 1992, in a popular US financial journal, the following question was posed, and a prize of $1,000 offered for the best answer:

“Today fossil fuels account for 85% of primary energy – what percentage will they account for in 25 years time, in 2017, and why?”

In addition, the journal offered a further prize of $5,000 to the most accurate answer, to be collected in June 2018 at a ceremony, should the contestant (and the journal) still be around.

The journal was still around in 2018 to honour its prize, as was the winning contestant.

In fact, she won both prizes.

The Answer

Here is a lightly edited summary of her original answer posted by the journal, in June 1992.

“I believe fossil fuels will still dominate the energy system, to more or less the same degree in 2017 – ie 85%

Why?

It is almost impossible for any other conceivable energy system to replace the current one to any significant level because it would have to satisfy the following requirements:

The basics – the absolute minimum requirements:
• It will need to be a established or near-established energy technology right now – already effective and proven at industrial scale, not just a laboratory idea.
• It will have to exhibit fast capacity growth (> 20%pa) over the 25 years to compete with the thermal system
• It will have to utilize as much of the existing energy system as possible – building out a parallel global infrastructure would not practical or economic
• It needs to be at least as economically effective as the current system, and preferably a lot cheaper
• It needs to provide technology solutions for all elements of the existing energy system: power, transport and heat management
• It needs to provide clearly superior solutions to the all of the fossil fuel system negative externalities: low efficiency, urban pollution, carbon emissions and geopolitical vulnerabilities

In addition, to provide further impetus for change, the new system will have to:

• Exhibit the potential for future cost / performance improvements far higher than the thermal system
• Be robust to competitive action from incumbent industries / governments or regions currently dominant in the thermal system
• Finally – and perhaps the largest challenge – be politically acceptable for regions and governments generally to allow fast adoption – ie provide employment and innovation opportunities that at least replace existing thermal ones with minimal investment or disruption as well as general environmental improvements

These criteria are not necessarily exhaustive, but they already provide an array of substantial barriers to any insurgent system. Others may arise.

And, even if such as system were to emerge say in a few years time, the underlying growth of global energy use at about 3% pa means that the new system would have to grow far quicker than this as a fraction of global energy to force the current system into negative growth or a “peak”.

None of this seems remotely likely.

As a statement of requirements to a prospective designer of a new energy system most of these conditions are obvious.

Even so, it should be clear that any new system would have to have a vast amount of capital, technology, resource, political support and employment and innovation potential behind it to achieve the majority of criteria – and perhaps still not meet the goal of a transition if the volatility of politics and policies weighed against it.

Failing any one of the base requirements would be highly problematic: failing two or more fatal.

If one proposed Nuclear to force fossil fuels backward for example, it fails on the growth and cost criteria already.

Even in Nuclear’s early growth phase in the 1980s it has still fallen short of the enhanced requirements on a global basis – which is likely why it is taking hold in certain countries such as France and Japan, but not generally.

I therefore expect future nuclear growth to remain flat: it’s unlikely to decline given the longevity of the installed base, but any upside remains remote.

Given the persistence of hydro and nuclear energy, there is limited upside for fossil fuels above 85%: but over a 25 year horizon, nothing is likely to eat into their dominant share. The upside is limited, as is the downside: I predict a constant 85% of the world energy system at least until 2017.

However, there is one caveat.

The only possible substitute on a material, global scale would be a totally different basis of energy production, not based on fuels at all, but on the nascent technologies of solar and wind power, aligned perhaps with massive electrification of the road transport system.

This would allow global energy production to access the vast potential of manufacturing learning curves on a global level, and pose a viable alternative to energise the installed infrastructure of transmission grids and passenger vehicles.

But as this would require investment equivalent to the thermal industry at least – $200-400bn per annum, beginning now, from a negligible level today – it is hence inconceivable.

Only a super-power such as the US, or perhaps China could even begin to consider such investment.

And absent a compelling reason to attempt a universal shift in energy structure, it is improbable either country will do so.

So, I stick by my prediction: 85% of primary energy from fossil fuels in 2017: there will never be better fuels for global energy. “

Most other entrants assumed fossil fuels would be far lower a percentage of the primary energy system by 2017, with nuclear, tidal, hydrogen and other technologies taking over.

Fashionable Theory X technologies were also popular, such as Cold fusion.

Wind and solar were also included, but not as the main threats.

The fuels vs technology distinction she majored on was barely mentioned by anyone else.

The Winner’s Speech, June 2018

In 2018, being a minor celebrity then in the energy community, the journal invited the double-winning contestant to take her second cheque, and also make a presentation, in New York at the journal’s HQ.

She agreed to the obvious title:

“Today fossil fuels account for 85% of pimary energy – what percentage will they account for in 25 years time, in 2043, and why?”

This time she started with a cartoon.

“85% again,” she said, – and sat down.

The audience broke into laughter.

“But perhaps,” she said, standing back up, “doubling down is not the correct answer, especially as there are no more prizes.”

The audience laughed again.

What follows is a lightly-edited and annotated transcript of her speech, published that evening on the journal’s web-site:

“You’ll note I compare energy to computing. The timeline is a bit unfair to computing as Windows 3.1 and the Apple 2 were already in motion, but you get the idea. And as we’ll see it is not a trivial comparison.

More importantly, I placed a question mark on energy still being fossil fuel dominated by 2043.

So let me come clean.

I think the odds that the energy system in 2043 will still be dominated by fossil fuels are now very low.

So my short answer to tonight’s question is:

I believe fossil fuels will account for less than 50% of primary energy by 2043 – perhaps far less.

However – I owe you all a slightly longer answer too.

Here is how commentators such as BNEF predict the energy world developing, for at least the power market.

Note the profile from the 70s to just about now – as I noted in 1992, you can’t beat fossil fuels with another fuel.

Nuclear tried, but its costs, complexity and inflexibility (and dangerous externalities) make it a forever niche energy source. Same for hydro.

But around 2010 or so how you can see how the picture is just beginning to change – I’ve suggested just about now an era of manufactured energy may be about to begin.

That will be the theme of the rest of my talk: change. Especially at the margins.

These area plot charts are beloved by incumbent industries, because they show historical dominance.

But if you had looked just at changes across time, even in 1992 you can see that nuclear was beginning to contract, and coal and gas reassert themselves – as China and India began to industrialise, as we now know.

And you can see now at the edge of 2018 another wedge begin to emerge, quickly: manufactured energy via wind and solar technologies.

In my estimation, this chart will be the outlook for total primary energy by 2043 because wind/solar technology costs will fall faster than predicted here and innovation develop quicker.

This is a big call, but rather than go through my original analysis again (you can read it online), even though it is still the method I tend to use, let me approach this a slightly different way.

I suggested in my original prediction the notion of a grand designer of an alternative system, who had to live with a number of design constraints.

So – if a grand designer, or benevolent central planner (perhaps an oxymoron), were given infinite resources and money, and tasked to shift more than 50% of the existing fossil-fuel energy system to a totally different, better one in 25 years from today, how would they go about it?

Let’s also assume that the constraints I imposed are all wrapped into a Rule Zero.

Rule Zero is this: the new system cannot make people’s energy lives lower quality, more complicated or more expensive than the one they have now. People might accept this, but likely they will not – so that is your constraint.

The flat-line dominance of fossil fuel for decades is testament to this.

No appeals to a greater good of cleaner environment or easier access will force an energy system change in the near-term: only the hard numbers of better quality, lower costs and more innovation.

People’s use of power, transport and heating management must seamlessly improve; they will not tolerate increased energy costs or inconvenience – but they will move toward a clearly better system if it exists.

The energy you provide must therefore be immediately less costly, better quality and more convenient or innovative for a timely transition.

What does the designer conclude, given that she knows for the last 25 years plus fossil fuels have dominated energy?

Here, I think, would be her five-point plan, assuming Rule Zero:

1. Do not look for a better fuel (that way lies madness) but use the existing energy infrastructure as much as possible – make the new energy system based on technology. There are no better energy fuels than fossil-based ones: one hundred years of dominance proves the point. But make sure the new technology uses the existing grids and plug points and roads as much as possible: there is no time to build a parallel infrastructure – that would fall foul of Rule Zero.

2. Focus on solar and wind technologies: Time is short: focus on the infinite, existing energy source that needs no mining or production and is universally available: the only one fitting this bill is solar and wind. (Do not get distracted on the other options such as tidal, geothermal, geo-engineering, hydrogen, cold fusion, and so on – they are either still in the lab, niche or contradict Rule Zero).

3. Optimise wind and solar technologies quickly with billion of dollars: Spend hundreds of billion of dollars per year creating a cost-effective, convenient technology to convert solar and wind universal energy into power on Earth’s existing electricity grid to the point at which it is cheaper than fossil fuels. PV panels and wind turbines are good-enough technologies and concentrating on them and utilising manufacturing learning curves will bring dramatic improvements.

4. Use lithium-ion battery technology to leverage wind and solar capabilities: Lithium-ion batteries are a well-known and robust technology: invest hundreds of billions of dollars into the creation of larger, more efficient versions of these batteries to “time-shift” (store ) solar/wind energy when the sun doesn’t shine and the wind doesn’t blow, allowing them to dominate the existing electric grids.

5. In parallel use these larger lithium-ion batteries to electrify first road, then other transport: invest hundreds of billions of dollars in further adapting lithium-ion batteries to power all road transport vehicles as cost-effectively as today’s fuel-combustion engines, using the same vehicle shapes and road requirements. Then apply to all other forms of marine and air transport over time. First things first, you have limited time.

The result?

Let’s suppose this designer actually started this plan in 2010, anticipating such a challenge, how is she doing today in terms of converting the energy system by 2043? (Ok that’s maybe giving her 32 years rather than 25, but come on ..)

source: BNEF, World nuclear association

So- pretty good on the first two points – she has side-stepped using fuels like nuclear and gone straight for infinite and free wind and solar energy. Clever girl.

Somewhat amazingly, according to IRENA and BNEF she has in fact managed to generate global investment of over $200-250bn pa since 2010  years on wind/solar, and look at the technology capacity installed – over 1000GW, three times as much as nuclear in 10 years as it took in 50.

As skeptics may note actual generating power is only about the same as nuclear, but wind / solar have accomplished this in a fraction of the time – and are still growing quickly with costs still declining (contrast with nuclear).

Remember the plan: do not be an extracted fuel – that way lies madness.

Be a technology, that way lies learning curves and constant improvement.

Talking of which how are the costs of wind and solar doing ?

As you would expect, dropping fast – about 80% over the past 10 years for solar panels – that’s a halving of costs every 2-3 years, and it is still declining as quickly.

The cost of electricity plugged in to the grid from both wind and solar is now the same as that for existing coal and gas plants – and their costs continue to fall.

And what about those batteries we proposed to time-shift solar and wind on the grid.

They are declining in cost and increasing in capacity too – as predicted.

In fact this chart is similar for wind, solar and battery costs – any manufactured technology follows these laws – which is why she built them into her plan.

And is this showing through into actual on-the-ground power generation as we have predicted? Seems so … in California, the world’s 5th largest economy, home to 20% of the US population, 24% of its electricity may come from wind/solar in a matter of months.

(thanks to Gregor Macdonald for the chart)

And larger batteries have also now allowed electric road vehicles (EVs) to start to compete with fuel-combustion vehicles on cost and performance.

2018’s estimated global sales of EVs will be about 1.6-1.8million, or 2% global car sales, but growing at 60-70%pa, they deliver over 50% of global car sales growth.

If they keep this up for the next three years global EV sales will be almost 10% of the global car market by 2021, and provide all of the sales growth.

And remember – battery costs will continue to decline, and performance continue to improve.

Performance doesn’t stop when it reaches parity – it carries on into new innovations if it can.

Scalability: Wind / Solar’s Killer App

So our planner has not only chosen well in term of a technology that leverages an inexhaustible and free energy source (solar photons): she has chosen a technology that also scales (up and down) – yet another major factor that increases the benefits over and above the centralized and one-size (XL) thermal fuel model.

We are not used to this happening with a thermal system – the larger centralised plants and costs tend to remain static, with no access to manufacturing-style cost, performance and scalability benefits.

As energy becomes available at different scales from the kW to GW (a one million times difference) then energy leaps the species barrier not only from liquid fuels to electric technology (good) but centralized to more convenient usage (game over if you are a consumer).

For example: today you can fill your car with gasoline at a couple of local locations: tomorrow it’s everywhere, including wireless.

Today, you can power your house from the national grid, or tomorrow set up a personal micro-unit for the same price in your yard or basement, or choose to use a local unit bought by your community or apartment block.

Whatever the precise outcomes – the energy offer of the future is cheaper, more innovative and more scalable, and that is why the fossil fuel dominance will lose control.

And why the computer analogy in the cartoon was potentially an accurate model.

So let’s go back to the cartoon and update it.

Here is the long answer summarized.

I believe energy will now rapidly digitize and leave the off-line mainframe of the thermal system quickly, certainly within the next 25 years.

I don’t suggest that we will consume energy via the smartphone: but our energy system will be controlled, monitored and developed by digital applications as most of our global energy moves away from the unconnected thermal system and on to the existing and new globally-available smart-grids being built world-wide.

Wind and solar are universal energies that any country can reproduce, and as their costs decline rapidly, scalable innovations will also offer new consumer applications.

They are not a fuel: they are a scalable, manufactured technology, using an infinite energy source already in place. Allied to large lithium-ion batteries they will quickly start to transform how we access, and think about, energy.

This is what differentiates this system from the fuels that have gone before.

The Central Designer

When I make this argument, people often ask if I actually believe there was a central designer (and can I meet her?).

Some people argue that this has been designed all along by specific actors: for example by China’s grand 5-year technology plans going back to 2000, or by Elon Musk’s Tesla, who at a stroke changed the perceptions of EVs, likely bringing their mainstream acceptance forward by a decade or more.

Others go more abstract and ideological: it is either yet another example of capital markets allocating money efficiently, or the foresight of certain central governments eg Germany in subsidizing early solar and wind that provided early investment confidence.

Even more conceptual is the notion that the ultimate designer is Nature herself: once we turned our heads upwards to the infinite energy source, rather then downwards to earthly fuels, we were inevitably going to have to switch – the laws of physics would take then us there.

We will all have our favorite explanation:

But there is no central designer.

As in US shale’s extraordinary growth from 2010 stemming from a mixture of markets, investment banking and technical entrepreneurship, I believe the wind, solar and battery growth came from all of the above routes.

However, knowing what we know now, China clearly has a major role in leading the next phase of energy development – energy manufacturing plays to its national strengths, and avoids the weakness of is previous dependence on fossil fuels importation.

China was still aiming to invest billions of dollars in coal mines only a decade ago – its shift has come about largely due to its terrible air quality, and economic vulnerability ie necessity, so this makes its intense leadership in PV panels, turbines and EVs a huge driving force of the new system development.

If you are looking for a central designer today, therefore, it’s likely to be male, and sitting in the Chinese energy planning department in Beijing.

This means China also likely has a 10 year start on the rest of the world in building the 21st century energy system: which is not something the rest of the world should take lightly in my view.

The Transition

This may not have a happy ending.

This is a large transition, and as it will touch many areas positively and negatively – it has to be thought through carefully, because it is very likely to happen, and happen very quickly.

That is the nature of the laws of manufacturing, and frankly, the inevitable outcome of us now being able to access free and inexhaustible universal energy at a vast industrial scale across the earth.

Such a large transition will need careful handling: China is already grappling with the requirements of losing over 2 million mining jobs over the next few years.

Germany may also have to deal with the impact of lower job numbers in automotive power-train manufacture in politically sensitive regions.

The US and Australia are already seeing the transition in highly ideological, political terms, with limited analysis of the economics involved.

The business winners and losers from this transition are also far from being decided – nations, regions, industrial sectors and various companies in various supply chains have a lot still to play for.

But those with high dependencies on the thermal system, and strongly resisting change are running the highest risks.

And low-cost universal energy for all may create monsters we have not yet dreamed of: computing progress gave us the internet, the internet gave us twitter and twitter gave us – a whole host of new issues.

Still, we should remain bold.

Because perhaps the only guaranteed winners are us, the global consumers, in deference to Rule Zero. And if we move even more quickly to the new technologies, perhaps the wilder climate implications of CO2 emissions can be side-stepped as well.

Add to that the far more immediate issue that 20% of the planet today still wakes up to no electric power or light.

So, with cautious regard, I believe we should embrace the designer’s plan and move toward energy as technology and away from energy as fuel.

And if we do, I am confident by 2043 we will be at least 50% energised by wind, solar, lithium-ion batteries and associated innovations of which today we have not yet imagined.

Thank you, and hope to see you again.”

Nature

In 2041 the journal, by now headquartered in Hong Kong, released her obituary.

Above her picture, and a couple of charts, its headline was just two words:

“Right Again” it said.

And beneath her picture was a quotation that she often used in her work:

“Nature doesn’t ask your permission; She has nothing to do with your wishes, or whether you like her laws or dislike them. You are bound to accept her as she is, and consequently all her conclusions.”

Fyodor Dostoevsky, Notes from Underground, 1864

 

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