Audioblog 12: The Five Superheroes of the Transition

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Hello, I'm Michael Liebreich, and this is Cleaning Up. Welcome to the second part of my two parter, exploring the bull and bear cases for the net zero transition. In part one last week, I laid out the bear case, highlighting the five horsemen of the transition that will make achieving net zero difficult, perhaps impossible. By way of reminder, these were: the poor economics of clean solutions beyond wind, solar and batteries; the inadequacy of our current electrical grid; soaring demand for critical minerals; political and social inertia; and predatory delay by powerful players who are going to lose out from the transition. I finished that episode by noting that the five horsemen of the transition were not necessarily showstoppers. Each of them might be overcome with the right leadership, focus, innovation and resources and turned into no more than the five speed bumps. And now it's time to present the bull case: five forces even more powerful than the five horsemen, which give cause for optimism. Get ready to meet the five superheroes of the net zero transition. This week's episode is based on the second of a pair of essays I wrote for Bloomberg NEF, the first of which appeared last September and the second in February this year. As always, my gratitude goes to my former colleagues for letting me release this audio adaptation.

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Cleaning Up is brought to you by our lead supporter, Capricorn Investment Group, the Liebreich Foundation, the Gilardini Foundation, and EcoPragma Capital.

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So let's get started and say hello to the five superheroes of the transition. Superhero 1 is exponential growth. 20 years ago, in 2004, it took an entire year to install a single gigawatt of solar photovoltaics. By 2010 a gigawatt was being installed every month. By 2016 it was a gigawatt every week. Last year, for the first time, we saw single days on which a gigawatt of solar federal tax was installed. During that period, cumulative solar photovoltaic installations have doubled 10 times. And it's doublings that drive down costs. Solar photovoltaics have been delivering a learning rate of around 25% per doubling for the past five decades, chopping the cost of modules from $106 per watt of capacity in 1975 to 13 cents per watt in November 2023 (that's according to Bloomberg NEF's Solar Price Index) and that's a reduction by a factor of 820. The wind sector has doubled 6 times over the past 20 years, relatively staid, but only by comparison with solar photovoltaics. In 2004, 8 gigawatts of wind power were installed in 2023, the figure was around 110 gigawatts, including 12 gigawatts of offshore wind. Wind's costs, too, have plummeted from 12 cents per kilowatt-hour for the best projects 20 years ago to around 2 cents per kilowatt-hour for onshore wind, and 5 cents per kilowatt-hour for offshore. As a result of these dramatic cost reductions, wind and solar together now make up the fastest growing source of electricity in history. 20 years ago, they accounted for less than 1% of global power. 10 years ago, the figure edged up to 3%. By the end of last year, it had surged to 15%. The growth of nuclear in the 1980s is often held up as the fastest growing source of clean energy. Not even close. In its best year, nuclear power output increased by 230 terawatt-hours, adding 2.6% to the global electricity supply. But last year, enough new wind and solar capacity was installed to deliver an expected 800 terawatt-hours per year, which would fulfil 2.8% of what is now 3 times more global power demand. And, unlike nuclear power after the 1980s, the rate of adding wind and solar - the second derivative - is clearly continuing to accelerate. In 2004, the largest operating wind turbine had a capacity of 2.5 megawatts. 10 years ago, it was 8 megawatts. Today, it's 15 megawatts. The next generation wind platform, being developed principally in China, will deliver more than 20 megawatts per turbine. In solar manufacturing capacity, which was around 1.5 gigawatts in 2004 and 48 gigawatts at the end of 2014, is expected to pass the terawatt mark by 2025. At the COP 28 meeting in Dubai, the world agreed to triple installed renewables by 2030. But you know what? In its latest Renewables Report, the International Energy Agency forecasts that achieving 2.5 times would not even require new policies. The same thing has been happening for batteries; they have in fact been racing through the doublings even faster than solar: 5 of them in the last 8 years. In 2015, some 36 gigawatt-hours of lithium-ion batteries were produced. Last year, the total was around 1 terawatt-hour. Over the past decade, cell costs have come down from $1,000 to just $72 per kilowatt hour. And at the same time, energy density has doubled, and degradation per cycle has halved. We're also seeing new battery chemistries such as ion-air and sodium-ion that promise to be even cheaper than lithium-ion. Now, before you reach for your keyboard to object that no physical technology can exhibit exponential growth, it can only follow a logistic S-curve with eventual saturation, please stop. I know. I calculated my first S-curve for the replacement of cellulose packaging with oriented polypropylene nearly 40 years ago. It turned out that polypropylene was so much cheaper and better than cellulose that it kept creating new markets for itself and outstripped our forecasts by several orders of magnitude. The lesson I learned is that until you know the ultimate market size for a new technology, don't hang your hat on what I call "Saturation Theory". In 1993, a group of German utilities placed full page ads in German newspapers stating that, 'renewable energies like sun, water and wind will not be able to cover more than 4% of our power demand, even in the long term.' In 2023, renewables provided over 57% of German electricity. In 2017, a group of Norwegian academics wrote a paper entitled Limits to Growth in the Renewable Energy Sector (see - Limits to Growth, get it?) in which they predicted that global wind and solar capacity would saturate in 2030 at 1.7 terawatts. Just 6 years later, at the halfway mark of their forecast, the figure had already surpassed 2.1 terawatts, and by 2030 installations could well be 4 times higher than their saturation figure, and still growing. Saturation theory is systemically embedded in the models run by official energy forecasters, like the International Energy Agency, the US Energy Information Administration, and the Intergovernmental Panel on Climate Change, which is why their forecasts have repeatedly proven worthless. Deep in the small print, you'll find either explicit limits to the extent or growth of any resource, or floor prices below which cost curves are not allowed to fall. The developers of these models come up with all sorts of justifications for these manual limits, but the real reason is simple: if they didn't include them, solar, wind and batteries would dominate all scenarios. To an extent the modellers believe would be either implausible, or career-limiting, or both. The real world, however, doesn't care about such concerns. Industries can - and do - pass through singularities to become ubiquitous. There are no limits to learning curves. Doublings may slow as industries mature, but cost reductions never reach an endpoint. There is also no fundamental law in the Earth's crust of the critical minerals needed for the transition. Taken together, this means that there are no fundamental limits to the penetration of clean energy technologies into the world's energy system. Now, I'm the last person to claim we're headed to a world of 100% wind, water and solar, nuclear and geothermal power, bio-based solutions, carbon capture and storage, carbon removal; they will all play a role. I'm just saying that the growth of wind and solar is likely to look exponential for a long time to come.

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Superhero 2 is system solutions. Many people find it hard to accept the idea of a power system with cheap, abundant wind and solar batteries at its heart, citing the inability of batteries to cover periods over a day or so when wind and solar output fall away dramatically. The answer to variability, however, is not batteries. It's a system solution, a combination of demand-response interconnections, excess generating capacity, pumped storage, nuclear power, carbon capture and sequestration, hydrogen and biogas long duration storage, all integrated by means of an extensive grid, and managed using the latest digital technologies. Each of these constituent technologies is seeing remarkable growth and investment. And they're slowly being knitted together by successive iterations of regulation, making system solutions, the second superhero of the transition. The need to build a vast amount of new grid capacity - $21.4 trillion worth to get to net zero, according to Bloomberg NEF - was, of course, my second horsemen of the transition. There are however, 5 reasons to think it can be vanquished. First, there are no physical limits to the amount of transmission that can be built. Over the past 50 years, global power transmission capacity grew by a factor of 5. We can certainly grow the grid by another factor of 5 over coming decades. Even if we miss the near term targets for 2030. Second, technology. Digitization is already enabling us to get more from less in terms of grid capacity. HVDC technology is scaling rapidly, and superconductors will at some point do to conventional power cables what fibre optics did to conventional telephone cables. Third, price signals. As an example, in the UK, we have a single wholesale power price covering the whole country. When it's windy in the north, the forward price plummets. Companies like octopus tell their users to switch on their appliances. France buys power to import via the interconnector across the channel, and demand soars. But because there's inadequate north-south transmission capacity, with one hour to go, national grid has to pay gas and diesel generators in the south to fill the shortfall. It's madness. One solution lies in relentlessly driving through new transmission lines. The alternative, however, is to switch to locational-pricing, building transmission only where the economics makes sense. Power generators hate the idea. They like to be paid top dollar for power, wherever it's generated and whether it's used or curtailed. But the analysis is clear: the more localised your pricing, the less transmission you need to build, and the lower the cost of getting to net zero. The fourth reason why the grid build out challenge is smaller than you might think is the changing location of power demand. Like it or not, deindustrialization is going to move demand to where the renewable energy is plentiful: the renewable superpowers - as I've called them - reducing the need for wires. The fifth and final reason for grid optimism is the electrification of land transport and space heating. Already, just over a decade since the launch of the Tesla S, nearly 1 new car in 5 globally is electric. All major car manufacturers have put electrification at the heart of their futures. Much was made last year of a supposed slowdown in EV demand, but I'm not seeing it. Global sales grew from 10.5 to 14 million, an increase of 33% and US sales, in fact, grew by 48%. Heat pumps too are flying off the shelves: sales in Europe grew 2.5 times between 2017 and 2022, in the US for the past 2 years, more heat pumps were sold than gas furnaces. Only the UK lags, installing just 55,000 heat pumps in 2023 against France's 600,000. Using an industrial heat pump, a factory can use a modest amount of power to upgrade its own waste heat back to the temperature needed for its processes, circularity of industrial heat. How cool is that? And here's how this helps the grid: EVs and heat pumps are the natural complementary technologies to wind and solar, in that their use can be time-shifted by a few hours or days to accommodate mismatches in supply and demand. Faced with a grid that's curtailed, instead of building costly and unpopular transmission lines, or running a hydrogen electrolyzer for a few hours a week and blending the exorbitantly expensive results into the gas grid for little value, let the power price drop locally and watch people rush out to buy EVs and heat pumps, even without subsidies. We have learned time and again over the past 20 years: price signals matter. Get them right, and things move much faster than you might expect.

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Superhero 3: great power competition. In 2018, I wrote a piece entitled "Beyond Three Thirds - the Road to Deep Decarbonisation". In it, I explained that the trends in renewable power, electric vehicles and energy efficiency would be sufficient to see emissions plateau, but driving them towards zero would require solutions for heat, industry, chemicals, aviation, shipping, steel, cement and agriculture, which soon began to be called the "hard-to-abate sectors". It is interesting rereading that piece to see that, while I was optimistic about new technologies, I couldn't say which ones would win. If you want to smile, read the section on hydrogen, which clearly predates the detailed work that resulted in the Hydrogen Ladder. In any case, today, there are no more hard-to-abate sectors. For even the most challenging industries, we now have line of sight to decarbonisation. In many cases, we are seeing not just pilots, but in steel, fertilisers, midstream oil and gas, shipping, even cement. Billions of dollars are being invested with a bit of help from supportive governments and programmes like the US Inflation Reduction Act. There are of course still substantial uncertainties in shipping. Battle lines are drawn between ammonia - toxic and dangerous -and methanol - easy to handle, but requires a carbon molecule. Primary steel has plumped for hydrogen, though direct electrical reduction biochar or carbon capture might ultimately prove cheaper. Green and Blue Hydrogen are fighting for the fertiliser sector, though biological and other novel approaches might eventually eat their lunch. For aviation, e-fuels have their fans but look like staying prohibitively expensive versus bio-based sustainable airline fuel - or SAF - possibly made with biogenic carbon but green hydrogen, so called power-and-bio-to-liquid or PBTL. And any of these approaches could be wrong-footed if carbon dioxide removal - that's CDR - can generate enough cheap permanent offsets. In many of the sectors, clean solutions are not projected to undercut their fossil based alternatives anytime soon, perhaps ever. They'll require a carbon price, but it's an affordable carbon price, one that we are wealthy enough to pay should we so decide. For even the most challenging sectors, we're now seeing more than one competing pathway viable at carbon prices in the range of $75 to $250 per tonne of carbon dioxide equivalent. This is a far cry from 2018 when it looked like they might need carbon prices of $500 or even $1,000 per tonne of carbon dioxide equivalent. And this is where great power rivalry comes in. We're in a new era of international competition between the US, China, Europe and emerging industrial powerhouses such as India, Brazil, Mexico and Turkey. The conditions are set for a race to own the net zero industries of the future, and no country can afford to fall behind for want to of a relatively modest carbon price. And this makes great power competition and the self-fueling momentum of the no-longer-hard-to-abate sectors the third superhero of the transition.

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Superhero 4: disappearing demand. The fourth superhero of the transition is the fact that achieving net zero will require a lot less in the way of minerals than we think. And they will be cheaper than we fear. The fivefold increase in demand for critical minerals from the energy sector was - you may recall - my third horsemen of the apocalypse. However, estimates of critical mineral demand from clean energy technologies have been very substantially overestimated. Even well constructed mainstream forecasts are missing the impacts on demand of technological improvements, material substitution, and critically, recycling. It is a truth universally acknowledged that only 5% of lithium-ion batteries are recycled with the rest going to landfill. It is however, false. It has been traced back to a report written in 2011 by Friends of the Earth, which divided volumes of collection by volumes of manufacturing at the time. But prior to the arrival of any EV batteries at the end of their life, collection rates for lithium-ion batteries were of course miniscule. However, as recycling expert Hans Eric Melin points out, EV batteries are packed with valuable materials. In fact, battery waste currently commands prices of $1,000 to $5,000 per tonne. By 2019, Melin was estimating that 59% of eligible end-of-life batteries were already being recycled. He thinks it's currently 90% and will in due course reach 99%. We are simply not going to send EV batteries to landfills any more than we do so with lead acid batteries. In addition to the collection rate, what is important is the recovery rate - that's the proportion of materials recovered for use. And, of course, in particular, the proportion of critical minerals. And here, the news is very good, with reports by incumbent materials companies and challenger startups like Redwood Materials have recovery rates of as much as 95%. And this is very significant. Suppose your battery has a lifespan of 15 years, and taken together collection and recovery rates exceed 90%. Then, as long as battery energy density improves by 10% every 15 years - and remember, it doubled in the last decade -your initial battery minerals will continue providing the same storage services forever. This is what circularity looks like. And it's not taken into account in any of the big energy and mineral demand models. In fact, most current EV lifetime carbon assessments do not include recycling at all. At the same time, the old adage in the commodities business is: "the cure for high prices is high prices." And it will apply to transition minerals every bit as much as it does to traditional metals. We're already seeing some of this in the prices of critical minerals, down by 80% from their highs two years ago, despite soaring demand. We're also seeing it in the regular announcements of new finds of lithium, copper and rare-earths, and perhaps more importantly, new ways of processing them electrochemically to exploit what would recently have been unprofitable or qualities. Just as all this is playing out, the transition will also be causing demand for resources from the fossil fuel industry to fall away. As explained by independent energy analyst Michael Barnard, the 15% of global energy use in oil and gas extraction and refinement: mostly gone. The 40% or so of blue water shipping that currently moves oil, gas and coal around the world: sold for salvage. 15% of shipping used to move iron ore: largely made redundant by low-carbon primary steel manufacture near to where the ore is mined. Hydrogen demand from hydrocracking to make petrol and diesel: gone. Oil and gas pipelines: recycled. Even cement and steel demand will start to shrink too in the end. After all, we've passed peak child and peak urban migration, and we will at some point pass peak population. But it's not just about physical stuff - it's also about people. For a century and a half, the fossil fuel and internal combustion-based vehicle industries have attracted the smartest scientists and engineers. They offered fascinating and socially valuable work, looked set for endless growth and paid the highest salaries around. Fast forward to today: global coal use plateaued over a decade ago; it's only a matter of time before its collapse in the developed world is mirrored in the developing world. Oil and gas are near their peak; in due course, they too will flip into long term and painful decline. And the world passed peak internal combustion vehicle sales in 2017. The number of students studying coal mining has already fallen off a cliff, and oil and gas is going the same way. According to Texas Tech Professor Lloyd Heinze, the number of undergraduates enrolling for the university's petroleum engineering courses are down 75% since 2014, and five years ago, Daimler Benz announced that for the first time since 1892, it would no longer be working on the next generation of internal combustion engines for its cars. All that talent is being freed up to study electrochemistry and batteries, composites material science, synthetic biology, precision fermentation, and of course, big data and machine learning, which hold the key to energy efficiency and improved asset utilisation. So when you hear macroeconomists claim that the transition to net zero will be inflationary, it may just be because they're not paying attention.

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The fifth and final superhero of the transition is an absolute zinger. It's the primary energy fallacy. The entire decarbonisation challenge is far smaller than is made out by its critics. The reason lies in the nature of primary energy demand, the metric that dominates public debate about the transition. The history of primary energy demand dates back to the 1970s when Western countries feared they would be starved of the raw energy needed by their economies, and began to cast around the world for energy resources to make sure they controlled a big enough proportion. The agency created to do this was, of course, the International Energy Agency, and their key metric was primary energy demand. You'll still find it called that in IEA reports today. Despite its name, however, primary energy demand is not in fact a measure of demand at all. Let's use an example. Say you light your hallway with a 75-watt incandescent light bulb, illuminated 2,000 hours a year and consuming 150 kilowatt-hours. Power it with electricity from a coal plant with 35% efficiency at 10% grid loss and you have created primary energy demand of 476 kilowatt-hours. You could, however, deliver the same amount of light with a single 10-watt LED bulb. Allow the same 10% grid loss and it uses just 22 kilowatt-hours. Run that LED on wind, solar or hydropower, and you have reduced your primary energy demand by 95% and eliminated its CO2 emissions with - crucially - no reduction in lighting use. Take a second example: switching from an internal combustion car to an electric car. Say your Volkswagen Golf is managing 40 miles per gallon - a pretty normal figure for real life usage. This translates to one kilowatt-hour per mile, or - after accounting for losses in extracting, refining and distributing your fuel - 1.2 kilowatt-hours per mile. In the equivalent electric Volkswagen ID3 - after adjusting for grid and charging losses - uses just 0.3 kilowatt-hours per mile. So, by switching, you have achieved a 75% reduction in primary energy demand, and opened up a route to eliminate 100% of emissions from driving with, again - crucially - no reduction in mobility. A third example: heating the average US home requires 57 million British thermal units per year. If you're heating with gas or oil, after adjusting for 15% upstream losses and 90% furnace efficiency, that converts into primary energy demand of 21 megawatt-hours per year. But if you switch to a heat pump, and you achieve a year round coefficient of performance of 4, allow 10% for grid losses, and your energy use is reduced to just 4.6 megawatt-hours per year. Powering that heat pump with clean electricity can reduce your primary energy demand by 78% and eliminate CO2 emissions and your contribution to methane leaks entirely, once again - crucially - with no reduction in comfort. See the pattern? The transition is not about replacing all of primary energy demand with something cleaner. It just needs to deliver the energy services, which is a vastly smaller quantum, in a clean way. Each year, Lawrence Livermore National Lab produces a wonderful Sankey diagram showing how the US has primary energy flows through its energy system. Fully 2/3 ends up as what it calls "rejected energy" - that's waste, the majority of it from fossil-fueled power stations and transportation, in other words, from burning stuff. And that's the exact same process as produces CO2 emission. Just 1/3 of the energy that goes into the US system ends up as the energy services that are actually used by American consumers and businesses. It's worth remembering this next time Bjorn Lomborg, Vaclav Smil, or Alex Epstein point out how renewable energy still meets just 5% of our energy needs based on international agency figures for primary energy demand. Of course, we want everyone in the world to have light mobility, heating and so on, but that does not mean that everyone needs to have incandescent light bulbs powered by coal fired power stations, petrol diesel cars or gas fired heating. It is energy services, not primary energy demand that fuels human progress. Each time anyone uses the IEA's primary energy demand data as a metric, intentionally or not, they are inflating the importance of fossil fuels. To be fair, the US Energy Information Administration, BP's Statistical Review of World Energy - now curated by the Energy Institute - and a few others apply an adjustment to the output of wind, solar and hydropower to put them on a similar footing as thermal resources, the so-called "substitution method". It's better than nothing but still inadequate. The use of a single fiddle factor obscures, for instance, whether renewables are displacing efficient or inefficient alternative sources of power. Worse than that, though, it maintains the primacy in people's minds of increasing energy supply over efficiently meeting real demand. The Japanese have a word - Mottainai - for the reverence that should be paid to efficiency and the sadness caused by waste. This should be our guide as we build the energy system of the future. A system that makes use of every last unit of energy from the resources we extract, as well as every last unit of exergy, which we met in my Bloomberg NEF essay last year on the electrification of heat, and it's audio adaptation, Cleaning Up audioblog 10. We need to be identifying the energy services needed to power the global economy and figuring out how to deliver them in the cheapest, cleanest and most reliable way. Whether primary energy demand increases or decreases, irrespective of how it's defined, is simply not a matter of any importance. So there you have it, the five superheroes of the transition, the five megatrends that will help get the world to net zero: exponential growth, system solutions, great power rivalry, disappearing demand, and the primary energy fallacy. While the five horsemen are knotty problems of the here and now, the five superheroes are powerful long term trends, which gives them the advantage. There is in fact, a sixth superhero, or rather, a superpower that lies within all of us. I believe society has reached a tipping point beyond which it is unthinkable not to deal with climate change, pollution and environmental degradation. In the same way that there came a point when discharging untreated sewage into the street or smoking in public buildings became unacceptable, it is becoming unacceptable to burn fossil fuels. The generation that regarded it as normal, irreplaceable, even a kind of birthright is losing its place at the head of the table and being replaced by a generation that is in no doubt about the need to stop burning stuff. That may not make the technical challenges any easier, but it creates a vicious circle between the inevitability of the transition, the attraction of talent, the tipping of the balance of risk in favour of net zero solutions, and progress towards net zero. And that leaves just one question, particularly in the light of last year as deeply troubling temperature anomalies. Will we get there in time? Thank you for listening.

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As always, we'll put links in the show notes to resources mentioned during the episode. So that is part two of my two-part essay for Bloomberg NEF, on which this audio blog is based, entitled Net Zero will be Harder than you Think - and Easier. Part Two: Easier; the latest International Energy Agency Renewables Report 2023; Limits to Growth in the Renewable Energy Sector, Hansen and Narbel, 2016; my March 2018 essay for Bloomberg NEF on hard-to-abate sectors entitled Beyond Three Thirds -  The Road to Deep Decarbonisation; the esearch review by Hans Eric Melin on behalf of the Swedish Energy Agency, which should have killed the myth back in 2019 that only 5% of lithium-ion batteries are recycled; Michael Bernard's analysis of the proportion of global shipping linked to the fossil fuel industry; the Lawrence Livermore National Lab's famous Sankey diagram for US energy consumption in 2022, showing how much is wasted; and finally, for those who missed it, the first part of the two part essay for Bloomberg NEF, on which this pair of audioblogs is based, entitled Net Zero Will be Harder than you Think - and Easier. Part One: Harder; as well as last week's audio adaptation of it, Cleaning Up Audioblog 11, in which we met the five horsemen.

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Cleaning Up is brought to you by our lead supporter, Capricorn Investment Group, the Liebreich Foundation, the Gilardini Foundation and EcoPragma Capital