Why clean energy is now expanding even when fossil fuels are cheap
washingtonpost.com
washingtonpost.com
Further, despite the green-energy rhetoric (which I'm largely supportive and in favour of, despite it being a bit disingenuous sometimes), renewable subsidies are huge, or at least have been as of late.
Further we're seeing wall street come in with securitisation of renewables, making it a bit easier for renewable companies to finance everything. At the end of the day, you can't be disruptive without capital in a capital-intensive (energy in general, including renewables, have large startup costs) industry. Securitisation allows relatively new entrants like solar city raise financing essentially by factoring 20 years of utility bills, without having to sell out the company.
Beyond that, renewables are still tiny and if they weren't growing like they do, it'd be pretty strange tbh.
And lastly... they're really getting cheap, and at some point there's a threshold moment you cross.
relative to what? Fossil fuels in the US still get huge subsidies.
And then, even with the lower taxes and larger subsidies, many places have to put price controls on the sale price of renewable energy like setting the production price on residential solar to the retail price instead of the wholesale price.
http://www.theguardian.com/environment/2015/nov/12/uk-breaks...
'A spokesman for the Department of Energy and Climate Change said: “We are committed to meeting our decarbonisation targets – we’ve made record investments in renewables and are focusing on lower-carbon secure energy sources, such as nuclear and shale gas. However this will not happen overnight - oil and gas will continue to play a role so we can ensure hardworking families and businesses have access to secure, affordable energy.”'
But if you Google the actual change being discussed:
"Effective tax rates on production from older oil and gas fields will be reduced from 80pc to 75pc immediately, and backdated to january, while on newer fields it will be cut from 60pc to 50pc, Oil & Gas UK, the industry body said. The changes serve to entirely reverse the tax grab on the sector in the Chancellor's 2011 budget."
Or to put it another way, the UK taxes newer oil fields as 50%, which is a horrible subsidy compared to how they taxed it two years before that, but no change from how they taxed it before that. And in general the UK has (even after the change) some of the highest taxes on petroleum production in Europe.
Question: If the UK has above average tax rates, does that mean it has no subsidy at all? Or is there some "natural" tax rate and any deviation from that is a subsidy? Does it even make sense to call the way you set the amount of money you take from someone a "subsidy"?
So...what's the "market rate" for taxes on a new well in the UK's territorial waters in the North Sea? Given that the UK has a monopoly on allowing wells to be drilled in that area, isn't the market rate whatever the UK says it is, and thus there is always zero subsidy by definition?
Or should we compare to what other countries charge for other wells in other areas? Should we adjust for, eg, the difficulty of drilling in the North Sea compared to, eg, off the coast of Brazil and if so, how? Should we only compare to EU countries, or only to rich countries, or do we compare to everyone? And if, as is the case, the UK has relatively high taxes compared to others, in what way would it be accurate to call it a subsidy?
"On March 13, 2013, Terry M. Dinan, senior advisor at the Congressional Budget Office, testified before the Subcommittee on Energy of the Committee on Science, Space, and Technology in the U.S. House of Representatives that federal energy tax subsidies would cost $16.4 billion that fiscal year, broken down as follows:
Renewable energy: $7.3 billion (45 percent) Energy efficiency: $4.8 billion (29 percent) Fossil fuels: $3.2 billion (20 percent) Nuclear energy: $1.1 billion (7 percent)"
(If you add in more items than the CBO does, you'll get different numbers, but this rapidly gets problematic. For example, in the US, R&D spending is not taxed, and can be deducted from gross revenue before calculating a tax bill. For some people, that means that the US subsidizes R&D for fossil fuel research, but since the US subsidies all R&D, I don't feel like this qualifies as a specific subsidy to fossil fuels. If you disagree, then renewable and fosssil fuel subsidies start to look more even, but nuclear subsidies dwarf both of them.)
Fact is, actual direct subsidies for fossil are quite low, they range in the billions. i.e. say the costs of oil businesses to produce and sell oil profitably is $100 per barrel, but they receive $10 from the government per barrel and sell at $90, that's a pre-tax or 'direct' subsidy. That's usually what we talk about when we talk about subsidies, a company receiving extra money, financial support.
This ranges in the hundreds of billions worldwide, which is a fraction of a percent of the world economy. Significant, yes, but not in the grander context.
Then there's post-tax subsidies, these range in the trillions. They're not actually money received by oil companies, and therefore it's misleading to the 'everyday man' to talk about subsidies because that's what the everyday man thinks about when he hears the word 'subsidy'.
What are these subsidies? Well say there's smog from cars that run on oil, and smog causes cancer and cancer causes healthcare costs and lost labor force due to death. Put a price on that, and you have a cost of oil that society has to pay for, that isn't priced into oil. You can price it in through tariffs and taxes and such, not doing so means oil companies generate costs onto society that they're not having to pay for. And if you add it all up, it's trillions of dollars, and that's when you get to the oft-cited 'subsidy figure' of $5 trillion from an IMF study. This isn't money these companies are receiving, it's money they're not being forced to pay up.
Now you can think what you want. I'm of the opinion these externalities should be priced in, and paid for by oil companies (and indirectly by the customers, who will change behaviour as fossil becomes more expensive, which changes investments geared towards renewable). Regardless, I don't think it makes sense to talk about a 'subsidy', unless you're having a chat with policy makers or economists. But in every day conversations with people, people don't use the word subsidy this way.
Either way, that's just a side note. The main point is this, it's obvious that fossil subsidies are substantial, but how big are they relatively to renewable? A fair way to compare is to look at the amount of subsidy per unit of energy. And they're gigantic for renewables.
For example: http://www.forbes.com/sites/timworstall/2013/11/13/renewable...
Regardless of whether those numbers are exactly right, most studies confirm this disparity, hell if you follow the industry you'll find virtually all CEOs of all solar companies talk openly about this. e.g. the SolarCity CEO has a couple of entrepreneurship videos on youtube speaking to uni students about this. And that's fine, understandable and acceptable. It's obvious the world won't sustain itself without renewables, it's also obvious we have to hit some harsh deadlines, and that we couldn't let the market create the financial incentives by itself to get the hundreds of billions of investments necessary to get a renewable industry running that has a chance of success. I support the ridiculously high subsidies, it's the only way we'll get there.
Yes there's a lot of spending on renewables and they are building a lot of capacity, but that overlooks actual generation.
"Overall, the addition of 121 gigawatts of solar and wind globally (also a record) means that roughly half of new electricity generating capacity installed last year was in these two technologies."
Also, Biomass = 1.7%
Its highly likely that the investments that happened in 2015 were planned before, when the the prices were higher.
Under such a policy, the average consumer of fuel will break even on the tax regardless.
Google "carbon fee and dividend" or see this (http://www.skepticalscience.com/CCL-pushing-for-US-fee-and-d...) for more.
[1] https://en.wikipedia.org/wiki/Short_(finance)#Short_selling_...
* If I have a position, I'll want to convince everyone that I'm right because it'll make me right (if everyone thinks energy stocks are worthless, they will be.) That's why most people with lots of skin in the game, long or short, are very happy to publicly argue that their bet is correct.
* Someone very risk-averse can think, correctly, that he's likely right, but loathe the 10% probability to lose money. Conversely, someone can be near-addicted to gambling and make bets based on very little, or someone can just be wrong regardless of their risk preference.
Overall, a random commenter's arguments seem more interesting to me than their claim to have bet on being right, even if I trust this really hard to verify claim.
TLDR; Talk is cheap, and people are much more careful with their wallets than their mouths (or keyboards).
Your second point is much more solid. I'd like to see more empirical data regarding people's risk preference across different contexts and magnitudes. Seems like an interesting topic.
But I agree that in hindsight, I did not phrase my original comment to convey the above, I ended up conveying what you refuted...
A carbon tax would force additional costs on energy companies, who are already scrambling to lay people off in the face of low oil prices. Some would probably be hired back into the renewables/green sector, but it would probably have the net affect of getting a substantial number of people laid off. No politician wants unemployment to increase in their voter base.
If enacted at the federal level, it would increase the price of all forms of energy. The average consumer, who sees the low price of oil as a small silver lining on a large post-recessionary cloud, would be loathe to pay more and would blame the government for trying to take away the one "advantage" they've recently received. No politician wants unhappy voters blaming them for higher gas prices and electricity bills.
Not to mention the enormous and protracted legal battle that big oil and coal companies would be sure to wage against a federal carbon tax.
The only thing that will get enough of the population concerned about unsustainable carbon emissions is when they see the things closest to them - food, water, housing, clothing - decline in quality or increase in price due clearly and demonstrably to carbon emissions. They need to believe that carbon emissions are the fundamental, undeniable cause of rising sea levels, a decimation of crops or livestock due to strange weather patterns, an increase in natural disasters, etc. Nobody cares about an intangible and "scientifically debatable" issue like global warming due to carbon emission until their house is underwater, especially when pollution is great for the economy in the short term.
The aim is exactly for no one to work for greenhouse gas-producing energy companies, when there are no more greenhouse gases.
Also, they successfully and gradually implemented serious taxes on oil in Europe during the post-oil crisis period, when people had gotten used to high prices. It can be done.
It's going to be in for a rude awakening in a few years when it tries that, because by then EVs will almost achieve critical mass, and once it tries to raise the prices, the EV sales will only accelerate. This is even more true for solar power, as I think we've already passed critical mass and there's no stopping its growth.
"Because fossil fuels won't always be cheap, and will be gone in a couple hundred years"
It seems pretty obvious that renewable energy is going to be the way of the future, so of course there will be large investments in it.
This really isn't surprising either, because "clean energy" doesn't usually pollute the air (as the article pointed out).
If you want to help create software to make clean power cheaper, you should join us -- we're hiring: http://genability.com/careers/work_with_us.html
Oil is getting cheaper because the House of Saud is attempting to drive out frackers in the US. Jokes on them though: That oil is always going to be profitable around $50-60/barrel. Once the Sauds lower production to raise the price of oil back up, frackers will fire right back up. It'll take 12-18 months, but it'll still happen. Almost no one burns petroleum for electricity mind you (nat gas, yes, but not oil) except Hawaii and parts of Alaska, and they're moving as fast as possible to renewables because of price spikes that occur occasionally.
So you're going to see this seesaw effect. Oil shoots up, more oil comes onto the market, oil goes back down, etc.
Renewables. Oh how I love me some renewables. There's this legislation, the production tax credit [1]. It generously subsidizes the installation of renewables in the US. There's always been this quagmire though, as Congress would only extend it 1 year at a time (hard to plan capital expenditures worth billions when the legislation you're relying on is always up in the air).
But things changed in December of last year. At the end of 2015, in a landmark deal, Congress extended it for 5 years, and in return, the US lifted export restrictions on crude oil. That means that solar and wind is going to roll out faster than ever. Natural gas will push out the remaining 30% of coal fired generation in the US, and wind and solar will fill the gaps (this is good; natural gas is cleaner, and produces much less CO2 per MWH produced). As more wind and solar comes online, along with utility scale battery storage, we'll reduce our reliance on natural gas (protip: don't invest long-term in generators who own substantial nat gas generation assets).
China is deploying wind at an astonishing rate, faster than even nuclear [2]. They're heavily subsidizing electric vehicles now as well [3]. The price of coal is plummeting (which is good!) [4]. The best case scenario is whatever is left of it is left in the ground.
If you can afford it, elect to get renewables from your utility. The premium should be ~1-3 cents/kwh. If you can afford to get an electric car, and it makes sense for your lifestyle, do so. If it doesn't, use a carshare program.
Collective effort can change the status quo.
[1] http://energy.gov/savings/renewable-electricity-production-t...
[2] http://www.earth-policy.org/data_highlights/2015/highlights5...
[3] http://www.ibtimes.com/chinese-consumers-bought-nearly-300-m...
The reason the Saudis are trying to drive the frackers out of business is because the Saudis no longer believe that we're going to get all the oil out of the ground before clean energy takes over. Previously they were fine cutting their own production in order to maintain a particular price because they were certain that eventually ALL of the oil in Saudi Arabia would get sold on the global market. If that took 100 years, that actually was even better for them. If you believed in peak oil, then being the last one standing with reserves actually would be awesome.
With clean energy beating projections it looks like we're not going to burn every drop of oil in the Earth. Given that, the Saudis are no longer patient. If they hold back their reserves to maintain a particular price it's very possible we'll get off oil before we run out of oil. Thus the Saudis would have left money on the table if they didn't shift strategy.
It seems like their new strategy is to extract every dollar they can for their oil reserves. In the short term that means fighting off the frackers, but the broader picture looks like a race to the bottom for all oil producers.
The good news is I don't think we're going to burn all the oil on Earth. The bad news is low oil will slow down the rollout of clean energy because it makes ROI worse.
There is only a tiny bit of competition between renewables and oil. In the U.S. less than 1% of electricity is generated from oil. Oil is used as a transportation fuel and electric vehicle sales have stagnated. (few EVs were sold in 2015 than in 2014 in the U.S. http://insideevs.com/december-2015-plug-electric-vehicle-sal...)
I'd say electric vehicles reaching maturity is a far bigger concern to them then renewables.
I completely disagree. I think it will speed it up! One of the largest expenses for clear energy is ... energy!
To make the devices, mine the metal, manufacture, ship etc. So when oil prices are low is the best time to make as much as possible, since your expenses are low.
Then when prices go back up you have some equipment already installed and making you money.
The Wikipedia article on this subject is all over the map:
https://en.wikipedia.org/wiki/Energy_subsidies
The problem is that low fossil fuel prices support people of low income. And if (say) you and I are roughly in the same income band, your spending on alts effectively subsidized my use of fossil through demand reduction.
Solution: Carbon tax with an income tax rebate
For now, carbon taxes appear to be profoundly politically infeasible.
* US shale oil producers * Iran * Russia * Clean energy
Roughly in that order.
Part of the reason why they did this was because there was a laundry list of groups Saudi could easily punish by dropping the price of oil.
Knocking the CAD:USD down to 2:1 might make it break-even profitable again.
Can't the Saudis in that case just boost production again after the frackers have sunk a lot into getting back online but before they have produced enough to make that back?
So essentially we're just waiting for US frackers, Iran, Russia and the Saudis to collude and all make a killing at the old prices? Or do you think the seesaw effect will just be the way things are? I have a hard time believing that.
The latter is far more likely than the former.
For a lot of renewable energy technologies, the biggest problem is operating at a large scale. It's fine to show something works in a lab, but will it work at 1,000x, or even 10^6x scale? You can't figure that out without building it at that scale, and you can't build it at that scale unless the probability of the investment paying off is high enough. In practice, having some confidence that you'll be somewhat price competitive through some mechanism (subsidies, favorable tax treatment etc.) over the long term.
All the technologies mentioned in this article are to a first approximation old, and are doing well because they've become cheaper. The real problem here is for next-generation technologies which need to be demonstrated at industrial scale.
It's really tricky to deal with the finances when capital costs are huge but operating costs are minimal. Once the plant is built, the low marginal cost of production drives prices down to levels that make roi complicated.
As an aside: someone in the oil industry once told me that to a first approximation the marginal cost of a product coming out of a refinery is inversely proportional to the mass in metal of that refinery. The bigger the refinery, the less it costs to produce once it's built.
If this is true, then demonstration-scale plants face an even bigger hurdle, because they're in a sort of valley of death of efficiency, not big enough to be cost competitive down the line, but too big to be a (relatively) low-risk investment.
The costs would be (first order) feedstock + O&M + capital amortized. For a chemical plant, the feedstock is irrelevant not because it's cheap compared to the value of the energy you get from burning it but because the difference in price between the product and feedstock swamps the O&M + capital costs. What bigger plants do is decrease O&M and decrease capital (per unit capacity), but they can do nothing to decrease the feedstock price...
If a barrel of oil is $50, a barrel of oil equivalent is 6.1 GJ, so if we translate to the weird US units we use it's just under 3 cents per kWh if conversion were 100%. In practice efficiency is closer to 45%, which I'll call half, so the 2x gets you to an absolute minimum cost of around 6 cents per kWh for oil electricity generation.
That's including no wear and tear, no capital costs, and no staff to keep an eye on things. This is the absolute thermodynamic floor on the cost of oil based electricity, with the plant size getting bigger at best driving the price to 6 cents as O&M and capital costs are driven to a smaller percentage of the total costs (i.e. O&M + fuel).
For comparison, look at figure 44 of this report:
http://energy.gov/sites/prod/files/2015/08/f25/2014-Wind-Tec...
and you can see that the median marginal cost (i.e. operations and maintenance) of wind power is ~0.8 cents per kWh ($8/MWh).
So I stand by my claim that the marginal cost of wind power is much lower than the marginal cost floor for oil base electricity. Chemicals just have a different first order approximation due to very different margins.
I know for me, swings in natural gas prices for heating is a real drag. One year I pay $500/mo, one year $150. Making a big capital investment with high fixed or financed cost would be awesome if I could do it.
That's impressive. Much of that is in China, which is adding capacity. The US and EU have about as much generating capacity as they need.
I'm convinced the only real problem here is keeping people happy in a really superficial way.
I can have some electricity from renewable sources and some electricity from your selection of thermal (coal, nat gas, nuke). This results into an energy mix, not a binary value of renewable-vs-thermal.
Even if a renewable sources are predictably intermittent, they can still play a positive role in an energy mix setting.
Furthermore, this role can be very valuable from an investment point. For example, one pays for installation of solar arrays and gets some electricity every day until its life cycle expires. It might not reach 100% of one's consumption - but there is some electricity every day. Compare this to constructing a thermal power plant - who knows what its operating costs will be 20 years down the line.
That simply isn't the reason that explains why renewables do well.
Further, renewables aren't pay-once, they're pay a lot once every 20 years or so, with various relatively low-cost maintenance fees on somewhat regular intervals, and probably a decent sized payment for a new inverter midway.
Russia and the Arabs are considered "the devil", so why give them money for stuff you can do yourself?
"But we're also outsourcing our food and tech production?!"
Yes but people to do cheap work are everywhere, if China stops "selling" cheap, we can go to the next country. Oil and Gas isn't everywhere and even if it was, it wouldn't be there forever.