Feel the Power
Monday 12 July 2021
Growth of fossil fuels in global power generation is probably over. This doesn’t mean that coal-fired and natural gas-fired capacity won’t grow in some regions. Nor does it mean that fossil fuel driven power capacity is headed for imminent decline. But now that wind and solar are heading towards 10% of global generation, marginal growth is being steadily handed off to those two resources. And of course, storage is coming quickly up from behind: perfecting, balancing, and enhancing wind and solar wherever deployed. The trio are now fully capable of dominating the market.
The data comes from the just released BP Statistical Review, showing that combined wind and solar reached 9.12% of global generation last year. Let’s take a couple of different views of the data, so that we can more fully absorb the transition taking place. First, here is a non-zero scaled chart showing the details of last year’s configuration in which, out of a total 26,823.2 TWh generated, sources ex wind+solar provided 24,376 TWh, wind provided 1591.2 TWh, and solar provided 855.7 TWh. The chart is non-zero scaled intentionally in order to highlight the yearly changes in a discernible format.
Next we have the zero-scaled chart, or what one might call the skeptic’s preferred view. Ha. In this chart we display the full height of generation ex wind+solar, which visually reduces the contribution of wind+solar, making them seem impotent in the face of legacy generation. And that’s ok. We absolutely should face up to this reality, that 90% of the world’s power—save for nuclear, hydro, and some scant other renewables—remains problematic.
But the key point remains: when a new technology finally reaches, often after many years, a 5% share of any market then the incumbent technology is in peril. And how about 9.12%? Well, in every domain where combined wind+solar have reached such levels, so far, an iron wall has come down on the growth of all other sources.
While we want to be cautious of the pandemic year in any data series, it is perhaps revealing how strongly wind and solar grew despite the worldwide disruption to economic activity. Yes, 2020 depressed global power consumption, thus making wind+solar’s share greater. But look at 2019, when sources ex wind+solar were already flattening.
The progress of wind+solar in the global power system is perhaps the most important decarbonization trend to follow, because the project of electrification entirely depends on the speed at which this system is transformed. The basic climate proposition is to connect this system to all the devices (cars, buildings, industry, transit). The best outcome will be roughly symbiotic, with demand from all the devices driving further decarbonization of electricity. That wind and solar have now reached a nearly 10% share bodes well for the rest of the decade.
The first real decade of decarbonization is now behind us, making for a clean data series that can serve as a reliable baseline. One pitfall to watch out for as more observers arrive to assess the past decade will be the tendency to “drown” the progress of the past ten years with a previous decade, in order to portray progress as slow. A good example of this genre of analysis can be found in this 2018 piece at MIT Technology Review, At This Rate it’s Going to Take Nearly 400 Years to Transform the Energy System. The flaw in that piece is the key metric: the rate. If you drown recent deployment and growth rates with the tiny progress seen in the first decade of this century, well then yes, you will spit out hyperbolic conclusions about the futility of decarbonization.
This particular data fallacy is seen in many other domains. A Los Angeles Times report several years ago drew very negative conclusions about the progress of metro rail deployment and ridership by drowning the signal in decades of bus ridership data, which was recorded before the LA Metro had built a single line of transit rail. By failing to break out Metro’s rail system performance into its own series, the analytical approach terminated in futility.
The same error will be run against renewables. So just to remind, EV adoption, wind and solar deployment, coal retirements, energy efficiency gains, and battery storage all made statistically insignificant progress on a global basis prior to the year 2010. The proper way to run transition analysis today, therefore, is to use 2010 as the starting gate. It was not until after 2010 that US coal began its collapse, China EV adoption created a peak in ICE sales, and the learning curve really got to work on wind, solar, and especially offshore wind. Global coal consumption didn’t peak until 2013-2014. And global oil consumption, while continuing to advance, saw demand growth finally slow.
Now let’s consider the other side of the equation. With all the technology we need to push decarbonization to a more stepped-up rate; with the cost of wind, solar and now storage fully in the affordability zone; and given the high carrying costs and operational costs of fossil fuels; there is really no excuse for not capitalizing on these advantages. This current decade therefore should very much stand as a test for deployment, and energy transition overall. Let the games begin.
Inflationists are under renewed pressure as US treasury bond yields continue to fall. Global markets are starting to price in normal growth and have concluded that the inflation scare of this spring and summer probably helped form a near-term peak in yields. Dramatic falls in the price of lumber, and the rolling over from peak prices in an array of other commodities have added to the theme. To be sure, oil did make a new high on the back of OPEC disarray, but also backed off subsequently.
As if to underscore the special pleading from those who can’t stop pushing the inflation alarm bell, this notably weak piece from Nouriel Roubini is worth reading. Rather than forming an argument, Roubini expects the reader to accept uncritically all his assertions about debt, stagflation, and an imminent crisis. But the past twenty years have undone many long held assumptions about deflation and inflation—and unsurprisingly, Roubini leaves all these not just unaddressed, but unmentioned. The retort to Roubini’s headline is straightforward: no, the conditions are not ripe for a repeat of 1970’s style stagflation. The world since the 1970’s has built out enormous volumes of infrastructure that serve a very sophisticated supply chain. Fertility rates in high birth domains have crashed (and continue to crash) while rates in low fertility domains like the OECD continue to languish at rock bottom levels. Technology has brought global labor into the marketplace while also obviating other jobs through automation. And of course much of the world is aging—not everywhere of course, but in the OECD and China in particular. These are the conditions that have driven disinflationary conditions for decades, and they are deepening, spreading and not abating!
Stock market indices continued to make new all time highs, frustrating the usual tribe of skeptics and crisis hunters. The market action is eerily similar to the period after the great recession, when all the legitimate reasons to worry and fret were still very near, even if they appeared in the rear-view mirror. A notable difference this time around, which may make conditions even more grueling for skeptics, is that a very significant capex cycle is underway in global energy and transportation. With the global vehicle manufacturing complex re-tooling, with the US about to embark on a two-chapter program of infrastructure spending, and with a decade long rollout of engineering and electronic equipment that will serve electrification, the downside looks more protected than ever.
But just to acknowledge, there will always be a crisis and another crisis after that, and so on. If you have a positive, constructive view of the next several years in the global economy (and you probably should) then here’s a disruption you can absolutely count on: asset prices getting ahead of themselves during a regime of great news, leading to a brutal shakeout and possibly even a mild 1-2 quarter recession. This could happen any time—this autumn, next summer, or perhaps right before the next US election. Note: analyst consensus earnings for 2022 have ticked up nearly every week this year, and are now at $213.76.
Global solar deployment soared to 126.73 GW last year, in line with expectations. The current outlook among most forecasters is that 2021 deployments will run somewhere between 140-150GW, which would represent a far smaller year-over-year rate of growth. That is pretty typical for the sector: leap years, followed by slower years. Accordingly, 2022 is shaping up to be a historic year. If, as predicted, China’s market is going to reach an astonishing 100 GW next year, then global solar will easily have its first 200 GW year of deployment. That is exciting, but scary for any form of power generation outside the sector.
Hydropower is getting squeezed in California as the mega-drought rolls on. Lakes across the West are falling to historically low levels, and according to the EIA, hydropower losses in the Golden State will be worse than during its last drought several years ago.
In the first four months of 2021, hydroelectric generation in California was 37% less than in the same four months in 2020 and 71% less than during those months in 2019. According to our Short-Term Energy Outlook, hydroelectric generation in California this year will be 19% less than last year, decreasing from 16.8 million megawatthours (MWh) in 2020 to 13.6 million MWh in 2021.
This of course means that despite all the new wind, solar, and storage being deployed, natural gas fired power generation will be called upon to fill the gap. The nexus of rising temperatures, lower hydropower output, rising demand for air conditioning, and thus a bigger call on existing fossil fuel power capacity is a kind of cascade that climate scientists have warned about for years. And even as we decarbonize the grid, temperature will drive increasing demand for air conditioning globally. It’s not a pretty picture.
The Global X Lithium and Battery ETF, LIT, made a new all time high as investors come to accept a long demand cycle lays ahead. The ETF came into early 2020 trading around $28 per share, fell to $18 at the start of the pandemic crisis, and last week closed at $78.19. It must be pointed out: we are only 6 months along, at best, from the time that OEMs like Ford, GM, and Volkswagen indicated they were going to pursue EV far more aggressively, and at a far more rapid pace. Stellantis, the holding company for Fiat, Chrysler, and Jeep brands, announced similar plans just last week. But what was the automakers first move, at the time of this announcement? Locking up lithium supply, of course.
—Gregor Macdonald, editor of The Gregor Letter, and Gregor.us
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 single title is available and you are strongly encouraged to read it. Just hit the picture below.