Monday 29 May 2023
The largest dam removal project in US history is underway. Four dams along the Klamath River—which travels along the Oregon-California border before emptying out into the Pacific—will be taken down by the end of 2024. As part of the process, ownership of the dams was transferred in 2021 from PacificCorp (a subsidiary of Berkshire Hathaway) to a public non-profit, The Klamath River Renewal Corporation, which will now oversee deconstruction. The project is an occasion to reflect on a century’s worth of dam removal in the United States, and why the trend is accelerating.
Once the third largest salmon run in the US, the Klamath will be free again to host migratory fish; and if the experience in other removal projects around the country is any indication, the river-and-fish biosystem will bounce back faster than many expect. This was the case, for example, in the Penobscot River restoration project which quickly saw the return of bait fish, and the predatory fish which pursue them. To put it simply, the economic gains which can be achieved by dam removal now exceed the costs associated with maintaining old dams, despite their power output. This equation will obviously not hold true for many hydropower installations, especially the younger and larger dams. But US damming began early in our history in the colonial period; and the country, especially in New England, still bears the scars of thousands of tiny dams which offer no value at all, and act as impediments to local ecosystems.
Dam removal has been taking place slowly since the early 1900’s. But the pace has notably quickened this century. American Rivers tracks the annual list of removals, and offers up the following chart from their 2022 report:
In the same way that much of the US coal fleet reached retirement age at the start of this century—which opened the way for natural gas and then wind and solar—the costs associated with keeping old dams running just aren’t worth it. If inefficient dams are kept running those costs are of course passed on to electricity rate-payers, as will some of the costs of closure. But PacificCorp, like many other US utilities in recent years, has been undertaking a rapid transition from legacy generation to wind and solar. Indeed, PacificCorp has continually made public its analytical process, which employs Monte Carlo simulations to compare myriad generation mixes. And unsurprisingly, these old dams are just like the utility’s old coal assets: costing more money than they make.
One hesitates to put too much of a global spin on this trend, but deploying wind and solar is so much easier and less expensive than putting up a new dam, one wonders that the age of dam building in North America, at least, is well behind us. And that’s not to mention the public review process that would surely make it impossible now to build a large new dam in the US. Moreover, global hydropower has shown itself to be volatile and not very reliable in a time of climate change. California and also Brazil for example both suffered steep hydro generation losses the past few years due to drought. Indeed, offshore wind is probably cheaper to build now than a new mega-dam; and given wind supply in the ocean, even offshore wind is likely cheaper than trying to build new hydropower. This may also be true for a country like China, which also may have already seen the peak in mega-dam building.
Much of the big growth in global hydropower occurred both in the 20th century, and in the first ten years of this century. Starting abut ten years ago, however, around 2013, the pace of growth slowed and now we seem to be coming into a plateau, a little bit above 4000 TWh. Both Europe and the US have not seen hydropower grow in over a decade. So, to be sure, there will be new hydropower projects in the Non-OECD (Africa no doubt). But the speed of wind and solar is likely to head off what would have been a new round of dam building. Indeed, water conservation is probably a better goal now for most countries, and best to leave power generation to new technology.
Energy transitions are ultimately wealth creation events, because they are always driven by better, faster, and cheaper energy. If the new energy sources are not better and cheaper, you will not have an energy transition. Coal contained at least 3X if not 4X times the energy content of wood. Hence, the first energy transition. Oil contains “only” 50% more energy content than coal, but oil can be refined into products like jet fuel which are far more energy dense than crude oil itself. Combined with oil’s unique property as a liquid, we then had the second energy transition as versatile oil augmented coal, and eventually overtook coal as the number one energy source on the planet.
The current transition is no different. But the question is whether this will be a revolutionary transition, as when coal entirely replaced wood, or an additive transition, as when oil did not so much replace coal but ascended along side it. So far, this is very much an additive transition. Electricity, and everything we intend to do with it, is a terrific platform for decarbonization. The problem is that to displace many industrial processes with electricity gets complicated. Want to make steel? You’ll have to displace metallurgical coal and its high heat capability with hydrogen. But making that hydrogen through electrolysis and shipping it to a demand center involves many more steps than simply combusting metallurgical coal.
These hurdles will not stop the wealth creation affect, associated with our current transition however. Consider that the US will eventually run the majority of vehicles on electricity. Simply put, that means running the US vehicle fleet on half the energy required to run it on powerful, but highly wasteful petrol. The US currently consumes roughly 20 million barrels a day of petroleum (crude oil and natural gas liquids). Electrifying the country’s vehicle fleet would, again roughly, represent a halving of that demand. Based on an average oil price of $75/barrel that would sum to about $1.5 billion a day in savings or or nearly $550 billion a year. For comparison: the US Department of Transportation annual budget comes in around $250 billion a year. This is how energy transitions are wealth creation events, freeing up capital to be spent or invested elsewhere.
Your faithful correspondent recently gave a presentation on energy transition to a corporate board. One of the slides uses to depict the current transition is shown here. Let’s talk about it:
The overall vision that animates the current transition is one where we keep all the current attributes of modernity, while reducing carbon output towards zero. In the process, we will likely be successful in reintroducing nature to our cities, as we electrify all the buildings and the cars. The picture above, of a Los Angeles metro train traveling past a field of flowers, is the kind of portrait that appeals almost universally. And the good news is that it’s well within reach. The challenge is that a good portion of that vision relies on steel, concrete, and other materials that are made with processes which are not easily transformable to low carbon methods.
The fossil fuel under the most immediate threat from energy transition, therefore, is oil. Coal and natural gas face a stiff challenge from renewables in power systems, but are still very protected in industrial uses. Accordingly, the current transition will contain both revolutionary but also additive characteristics. Oil in transportation is doomed. As are coal and natural gas in power. Given enough time, technological breakthroughs will eventually allow us to make steel and cement at scale with lower emissions, but that prospect frankly seems far away.
Despite these sectoral challenges, the distribution of cheaper energy has begun and we will not have to wait much longer before the deflationary-boom effects of declining energy expenditures promotes further growth. And the bulk of that growth will be covered by clean energy. So, if you were worried about a Jevon’s rebound effect, you can relax.
Fossil fuels are going to experience a last gasp rescue effort as they latch on to efficiency boosting technologies in their final years. Known as The Sailing Ship Effect—the great leap forward Clipper ships made during the advent of steamships—we are likely to see everything from super high-mileage petrol vehicles, to better efficiency in natural gas turbines. One area that could see competition is hydrogen production, where clean methods are very costly and require subsidies as they seek to replace traditional production via natural gas. But what if combined-cycle natural gas and carbon capture could deliver natural gas produced hydrogen at low cost, and with very low emissions?
Just such a claim is being made right now by a North Carolina based company, 8 Rivers. According to reports, 8 Rivers says it can capture 99% of the CO2 associated with the production of “blue” hydrogen. (If you don’t know your hydrogen production colors: gray = coal; blue = natural gas; and green = wind/solar or other renewables). The company was awarded a number of grants from the DOE in 2020, and was awarded further grants last year. While we don’t as yet have any cost claims from 8 Rivers, their process has garnered further investment from Korea’s SK Group. If however, this process was able to produce low carbon hydrogen at a competitive cost, it would be seriously disruptive to current efforts to jump-start green hydrogen with a generous subsidy per kg produced.
Something to remember is that fossil fuels from this point forward can’t compete so well on cost, but, they can compete by exploiting how embedded they are into global supply chains. The next unit of oil, coal, and natural gas is very easily obtained globally because we spent the past 150 years making sure they can be easily dispensed. All they require now are technology boosts to try and make them competitive, and if those happen we will indeed see at least a brief period of the sailing ship effect.
Could global solar capacity growth exceed even the wildest, high-case scenarios? Previously The Gregor Letter offered up the following fast case to the year 2030, which included some very aggressive buildout years from 2026 through 2029 in which annual additions exceed 400GW in each year, and even reach 500GW for two of those years, before a slowdown in 2030. Just to say: the pattern in solar deployment has been several ultra-strong years followed by a slow year. Ultimately, this projection gets the world to 4000GW by 2030.
But we are now getting new analysis based on much higher than expected solar deployment in China. BNEF is now saying that China’s stepped up pace will mean the world can reach 5300GW by 2030. If that happens, then global growth of clean power will definitely more than meet marginal total system growth and will bear down heavily on incumbent generation
The rise in China’s deployments means the world is on track to have a total of 5,300 gigawatts of capacity by 2030 — about the volume of solar that is required in scenarios under which global net zero targets are met. Other key sectors, including transportation and wind power remain behind track.
Is the strong acceleration of wind and solar deployment in Texas provoking a backlash? Texas is not just a national but a global leader in wind power. In 2022, the Lone Star State generated over 113 TWh of electricity from wind alone, basically matching Germany’s entire output of 117 TWh. If Texas was a country, only China and the US as a whole would exceed its wind output. But Texas is also now pursuing a rapid buildout of solar too. And after more than a decade buildouts, the backlash against new utility scale projects may have arrived. It’s ironic, frankly, given that all previous governors, starting with George Bush, praised and promoted Texas wind power. Boone Pickens, a colorful oil and gas man, also spent the last 20 years of his own life saying that “burning natural gas to create electricity is nuts” and he too advocated wind power. Well, we’ve just received data for Q1 2023 power markets here in the US, and yes, it does look like this could be another amazing year for combined wind and solar in Texas. Perhaps, a bit too amazing…
… because the leap forward you are seeing may have finally tipped the scales. The Wall Street Journal reported just last week that action against renewables is stirring in the Texas Statehouse:
For many Texas Republicans these days, renewable power is about as welcome as a porcupine at a nudist colony. In the state capitol in Austin, Republicans are targeting wind and solar power with a slate of bills that would clamp down on renewable projects by, among other things, adding additional environmental requirements and excluding them from a state tax break. Lt. Gov. Dan Patrick, who effectively controls the legislative agenda, has vowed that lawmakers won’t leave Austin this month without approving legislation that would spur the construction and maintenance of conventional power plants, calling renewable energy a “luxury.”
In the details of the story one finds, however, that a likely outcome is not quite so fearsome. For example, more power may be given to owners of adjacent land to voice opposition to projects. These and other measures could certainly slow deployment of future projects, but probably won’t affect the current pipeline. One area where the legislature may find it difficult to make headway is in their zeal to build more natural gas or coal plants. They can write whatever bills they want, in this regard. But the power industry is going to be very reluctant to build them without guarantees that the legislature will likely be unable to provide.
Dear Texas Legislature,
The US power industry no longer has much interest in building new conventional power. Wind, solar, and batteries are cheaper and we run sophisticated computer models that keep telling us not only to avoid building conventional power, but to shutter our existing plants. Sure, you can try to give us financial guarantees, but how can they compete with federal tax subsidies or cover the long-term risk of owning a newly built natural gas plant that has to endure for 25 years to create a financial return? Good luck, and perhaps try something else.
The Gregor Letter is a companion to TerraJoule Publishing, whose current release is Oil Fall. If you've not had a chance to read the Oil Fall series, the 2018 single title is newly packaged and now arrives with a final installment: the 2023 update, Electric Candyland. Just hit the picture below to be taken to the Gumroad storefront.