By Angus McCrone,
Bloomberg New Energy Finance
If only I were a climate and clean energy skeptic.
Then I could stop wasting time worrying about the planet. Even if temperatures rise a little, crop yields would probably go up. Those of us in northern latitudes would spend fewer hours shivering, and waste less money on heating and woolly hats.
OK, I wasn’t being serious. But I would be the first to say that every important change needs skeptical enquiry, as well as advocacy – and what Bloomberg New Energy Finance calls the transition in energy and transport is no exception. A healthy debate means greater perspective all round and the speedier identification of mistakes and cul-de-sacs.
BNEF has itself often been skeptical. Our founder, Michael Liebreich, was an early and outspoken critic of overly generous feed-in tariffs in Europe, asking in August 2009 whether they were “a solution or a time-bomb?” A decade ago, we were critical of the sustainability of biofuels based on corn and palm oil. We have long been unconvinced by the economic case for carbon capture and storage and that for certain types of nuclear reactor. We still argue that small-scale solar is unnecessarily expensive in the U.S. and Japan.
However, “skeptics” has come to mean something more all-embracing in the areas of climate change and clean energy – namely those that see the whole effort to curb climate change and develop clean energy as a historical wrong-turning. Some go so far as to say it is the biggest conspiracy of all time. Many of them argue that decarbonization and investment in renewables hit the living standards of the poor, by forcing them to pay more than they need to for energy.
I am skeptical of climate change and clean energy skeptics, for three reasons. Their rhetoric tends to be overheated. They are often behind the curve with their facts and figures. And some of them are strangely relaxed about risk. For instance, the poor would be the most calamitous losers if climate disruption proved to be worse than they predict. That could be directly, via famine in heavily populated developing countries, or indirectly via mass migration and conflict.
“Get the facts straight”
That is the sub-headline on the website of Bjorn Lomborg, the Danish author and arguably the world’s best known skeptic of investment in wind and solar and of some climate policies. Lomborg spoke at BNEF’s Future of Energy Summit in New York in 2011, cutting an unconventional figure in black T-shirt amid the ranks of clean energy types in anonymous office attire. His argument then was that wind and solar were extremely expensive, and investment in them made almost no impact on global emissions.
He is still beating much the same drum. In a New York Post article on October 27 this year, Lomborg wrote: “Despite having excellent PR, green energy remains expensive and inefficient compared to fossil fuels. The International Energy Agency finds that this year, more than $115 billion will be spent on subsidies just for uncompetitive solar and wind, meeting less than 1% of global energy needs. It is electorally implausible for nations to live up to their Paris promises: doing so requires ever more expensive subsidies, along with slowing growth by reducing use of cheaper energy sources.”
To that, I would reply first of all that solar and wind are not contenders in the wider energy market, only in electricity. In that, the IEA said this month that they contributed 5% of total world generation in 2016. Second, the competitiveness point is far down the road to being addressed. BNEF’s research shows that global average levelized costs of electricity for photovoltaics have fallen by 73% since 2009, and those for onshore wind by 30%.
Figure 1: Global benchmark levelized cost of electricity for solar and wind, $ per MWh
Source: Bloomberg New Energy Finance
Lomborg’s argument assumes there has been up to now, and will be in the future, little or no cost improvement in wind and solar compared to the period when most of the subsidy costs he mentions were set in stone. However, the projects that got peak subsidy in places like Germany, Spain, Italy and the U.K. will reach the end of their price-supported period during the late 2020s and 2030s. Renewable energy subsidies paid out will fade from then, not increase inexorably, as he suggests.
In another New York Post article, on October 12, Lomborg wrote that, in a Chilean newspaper, he had “quoted UN findings on how little the Paris climate treaty would achieve and argued that vast investment in green energy research and development is a better policy.” Lomborg’s office told BNEF that focus areas would include “smart grids, storage, clean coal, solar, wind, advanced nuclear, hydrogen and fuel cell technologies.”
That is the motto on the website of the Heartland Institute, a think-tank based in Arlington Heights, Illinois. Heartland says that it gathered “the country’s best energy policy experts, as well as key players in the industry, at the JW Marriott Hotel in Houston, Texas on Thursday, November 9, 2017, for its America First Energy Conference.” The conference website lists its sponsors – 19 in number and including bodies such as the Australian Taxpayers Alliance and the Ayn Rand Institute, but with no sign of any major energy company or investment manager among them.
The Heartland website features an article dated November 18 by Paul Driessen, “a senior policy advisor with the Committee for a Constructive Tomorrow and Center for the Defense of Free Enterprise.” In it, he writes: “The supposed wind and solar alternatives involve massive land use, environmental, ecological, economic, and human health and welfare impacts. Based on my previous rough calculations, using wind power to replace all current U.S. electricity generation (3.5 billion megawatt-hours per year) … and charge batteries for seven windless days of backup power … would require some 14 million 1.8MW bird-killing turbines, each one 330 to 410 feet tall, across some 210 million acres (twice the size of California). The backup power would require some 700 billion 100kWh Tesla battery packs (also requiring vast acreage).”
I set about to do my own “rough calculation”. The Energy Information Administration, or EIA, says that the U.S. generated 4.1 billion MWh of utility-scale electricity in 2016, with wind accounting for 5.6% of that. If we take the average size of an onshore wind turbine in the U.S. in 2016 as 2.2MW, and average capacity factor in the U.S. for turbines being installed last year as 37%, according to our research, then you would need 575,000 turbines to generate all that electricity. That would cover 97,000 square kilometers, which is the equivalent of Indiana in area, or less than a quarter of California.
That is a big area, even if much less than Driessen estimated and not preventing farming activity around the machines. However, it is a meaningless calculation because no one is suggesting that all the generating capacity of the U.S. will be wind. BNEF’s New Energy Outlook forecast is bullish on wind (and solar), based on further, rapid cost reductions – but even it only projects that 16% of U.S. electricity in 2040 would come from onshore wind, with gas the largest generating source and solar the third-largest. Those wind farms would cover the equivalent of 4% of the land of California. Clients can view our 2040 forecasts on this link.
Another of the U.S.’s prominent skeptical voices is the Competitive Enterprise Institute, based in Washington DC, with Myron Ebell as its director of energy and environment. The soft-spoken Ebell was a guest speaker at BNEF’s Summit in New York in April this year. Memorably, he told 1,000 energy executives and investors in the Summit plenary that the “climate-industrial complex in the U.S. and Europe has a lot of power.”
On global temperatures, Ebell commented: “What we have seen is a very modest rate of warming….. I think most of the impacts have been fairly mild, and are likely to remain mild.” NASA figures show that there was a 0.8-degree Celsius increment in the 2012-2016 five-year-average global temperature compared to the 1951-1980 mean.
Whether that is “very modest” is a matter of opinion. But, with the CO2 content of the atmosphere now higher than at any time in the last 800,000 years according to the World Meteorological Organization, and increasing by 2.5 parts per million every year, and world population at 7.6 billion and rising, it would be a pure gamble to act on the basis that the effects will “remain mild.”
Figure 2: NASA global land-ocean temperature index, variation in degrees Celsius from 1951-1980 mean
Ebell’s colleague, Roger O’Neill, wrote in a blog post on September 17: “Australian Prime Minister Malcolm Turnbull is facing a strong push-back against his wildly unpopular renewable energy plan that has caused rolling black-outs due to lack of generation capacity. Former Prime Minister Tony Abbott, who is a member of Turnbull’s ruling coalition, is rallying support to abandon all government-funded renewable energy projects. The failed clean energy program has dramatically increased the cost of energy for all of Australia, particularly for those living in the south. Australia now has among the highest electric rates in the world.”
I spoke to BNEF’s head of Australia, Kobad Bhavnagri, to check out O’Neill’s statement. Bhavnagri tells me, first, that it is not Turnbull’s renewable energy plan but that of his predecessors; second, that the black-outs have mainly been caused by storms and poor planning; third, that the clean energy program is not the principal culprit for the swollen cost of electricity in Australia. He pointed me to a report by the Australian Competition and Consumer Commission, published in October, and to this conclusion by its chairman, Rod Sims: “The main reason customers’ electricity bills have gone up is due to higher network costs, a fact which is not widely recognized. To a lesser extent, increasing green costs and retailer costs also contributed.”
Add to that the way the country’s LNG boom was mismanaged, leading to a doubling of domestic gas prices, and the short-notice closure of 2,140MW of coal-fired plants. Clients can see our latest analysis of the Australian power market on this link.
“Common sense on climate change”
The U.K.’s best-known source of skepticism is the Global Warming Policy Foundation, chaired by Lord Nigel Lawson, who was Chancellor of the Exchequer under Prime Minister Margaret Thatcher from 1983 to 1989. Lawson said in a BBC radio interview in August this year that official figures showed that “during this past 10 years, if anything… average world temperature has slightly declined”. The NASA data, shown in the chart above, tell the opposite story.
The GWPF’s website promotes a book by Rupert Darwall, entitled Exposing the Totalitarian Roots of the Climate Industrial Complex. The blurb says: “Few know today that the Nazis were the first political party to champion wind power, Hitler calling wind the energy of the future.”
I cannot say whether Hitler did, or not. But what I do remember from my history books is that the German dictator championed autobahns and Volkswagen cars during the 1930s, and V2 rocket technology in the latter stages of the Second World War. No one is now suggesting that the world in 2017 should therefore abandon motorways, VWs and rockets.
In recent weeks, the GWPF has been having a go at offshore wind. A paper by Gordon Hughes, former professor of economics at Edinburgh University, examined the latest U.K. auctions, which saw record-low bids (as low as 57.50 pounds in 2012 prices per MWh, equivalent to $76.50 at current exchange rates) for projects to be built in the early 2020s. He concluded that the bids are no more than options and “these sites are very unlikely to be built.” The press release was entitled: “Forget the spin: offshore wind costs are not falling.”
In defense of the latter argument, GWPF issued a second release in early November, on the back of the announcement by Orsted (the renamed Dong Energy) that it had sold a 50% stake in the 659MW Walney Extension offshore wind project to two Danish pension funds for 2 billion pounds. The Foundation concluded: “The sale price implies a capital cost of 5-6 million pounds per megawatt installed, making it one of the most expensive wind farms for which there is public data. Such data call into question recent industry claims that costs have been falling.”
We would reply that the 2 billion pounds is the price paid by the pension funds for Orsted’s half-share. It is not the capital cost of the wind farm. For instance, Orsted will book a profit on the transaction in the current half year – it said on November 1 that “following the farm down of 50% of Walney Extension”, it was raising its guidance for 2017 earnings before interest, tax, depreciation and amortization by the Danish krone equivalent of 236 million pounds.
More importantly, whatever the precise cost per MW of Walney Extension, capex is only one part of the picture. Levelized costs per MWh of electricity produced can also fall because of more efficient operations and maintenance, and lower financing costs – both of which have been at play in Europe in recent years. Crucially, they also decline as a result of higher capacity factors (electricity produced in a year compared to nameplate capacity), coming from the use of bigger turbines and better control systems. Our research suggests that the capacity factor for the next round of U.K. offshore wind projects will be a previously unheard-of 50%, compared to about 40% for the country’s existing installed fleet.
BNEF’s own levelized cost of electricity model shows that offshore wind costs per MWh did increase between 2009 and the middle of 2012, as projects moved into deeper water and competition was slow to squeeze supply chain costs. However, dollar levelized costs then fell by 46% per MWh between mid-2012 and the first half of 2017. That change, by the way, is for projects financed in those time periods, not for projects merely announced then.
The offshore wind projects secured via auctions in the U.K., the Netherlands, Germany and Denmark for the early 2020s assume further cost reductions, plus – one suspects – an expectation on the part of developers that they will be able to bolster their rate of return by selling stakes later on at a profit to institutional investors. As Orsted has done with Walney Extension.
So there we have it: a whistle-stop tour of some of the world’s more prominent climate and clean energy skeptics. They do not all start from the same place – some are libertarian, some want to protect fossil fuel, some say climate change is a problem but wind and solar are not the answer. However, they generally end up by saying that their concern is for the economic interest of the ordinary person, or the poor.
This stance is exposed to the spectacularly falling costs of wind and solar. It also begs the question of whether, like investors in collateralized debt obligations pre-2007, skeptics are too relaxed about risk. Whether it is a 50% chance, or a 10% chance, or even a 1% chance, a violent lurch in temperatures or climate patterns would have severe effects on the poor and the ordinary person. It seems to me that the less faith skeptics put in climate models, the more – not the less – they should be thinking about the unknown, or ‘tail’, risks.
This article has taken the skeptics at their word on what motivates them: altruism. We can therefore discount the other possibility – that they are latter-day incarnations of Professor Quincy Adams Wagstaff.
Who is Professor Quincy Adams Wagstaff? He was the Groucho Marx character in the 1932 film Horse Feathers, who sung the memorable ditty: “I don’t know what they have to say. It makes no difference any way. Whatever it is, I’m against it!”
Postscript: The medieval castle
What is the connection between medieval castles and climate change skeptics? The answer is that both have multiple layers of defense. If they lose one, they fall back on another.
For a castle, the defenders had a moat, a drawbridge and portcullis, an outer wall, parapets and – most secure of all – a keep. For skeptics, the equivalents are these arguments:
- Climate change is not happening.
- It is happening, but it is not manmade.
- It is happening, and it is largely manmade, but it will stop.
- It is happening, it is largely manmade, it will not stop, but it is not doing any harm.
- It is happening, it is largely manmade, it will not stop, it is doing harm, but it is too expensive to do anything about it.
- Source: Illustration reproduced with the permission of Skiption Castle
(This article was corrected on December 1, 2017 to make clear that Bjorn Lomborg’s skepticism is towards certain climate policies rather than climate change science, and to include a reply from his office about possible targets for R&D spending.)