The Biden administration’s bold plan is for 100% U.S. carbon-free energy by 2035. This is just one of a cascade of voluntary pledges and plans globally for a rapid transition to 100% carbon-free, mostly renewable energy.
This is more than empty talk. Bankers and asset managers are mobilizing trillions of dollars of capital to be invested in renewable transformation and sustainable development conditioned by environmental and social governance (ESG) pledges.
In mid-April, JPMorgan Chase, Citi, and Bank of America each made investment pledges of trillions. Similarly, 14 money management firms with almost $5 trillion in assets, including State St. Global Advisors, the world’s third-largest, announced support in April for the Net-Zero Managers Initiative. They pledge to set investment targets for reaching net-zero emissions by 2050 or sooner.
"Climate change and inequality are two of the critical issues of our time, and these new efforts will help create sustainable economic development that leads to a greener planet and critical investments in underserved communities," according to JPMorgan CEO Jamie Dimon.
How the global outlook has changed in ten years. Jaime Dimon’s sentiments seem closer to a statement by Occupy Wall Street in 2011 than a statement by a world-leading investment banker.
Profit and reality-driven global shift
A global shift in capital investment is, of course, reality-driven and profit-driven. Reality is a response to three basic forces.
First, is emerging economic recovery from a global pandemic, led by Biden’s American Rescue and Infrastructure Plans. The watchwords are “go big” to help ignite sustainable global growth. Trillions are to be spent strategically and fairly to create millions of jobs through green infrastructure projects from renewables, transmission systems and energy storage, high-speed rail, high-speed Internet, clean water, worker retraining, income support measures. Elections do have consequences.
Joe Biden rapidly emerges as more of an epochal Franklin Roosevelt transformational figure responding to clear emergencies than a cautious, incremental manager. In response, the Republican Party offers little but denunciations of “socialism” and defenses of hamburgers supposedly threatened by an imagined Green New Deal instead of presenting a real Republican market-based climate plan.
Second, is the fact that much of the current and projected increases in global growth is from developing markets. JPMorgan in its Long Term Capital Market Assumptions (LTCMA) 2021 addressing investment to mitigate climate change concludes: “... We see a positive economic outcome in aggregate from more sustainable investment. Indeed, for some nations and regions, investment in greening the economy could be both a politically expedient and a growth-enhancing means of deploying fiscal stimulus.”
It’s important to understand that the trillions of dollars of investment in renewable energy transformation is productive and job-creating investment. JPMorgan estimates only a 1% reduction in global GPD by using just the “sticks” of taxes and regulation to shift costs onto the private sector as opposed to government subsidy and investment carrots.
This is a small price to pay for avoiding global ecological catastrophe by preventing temperature increases above 2 degrees Centigrade. This supposed 1% decrease in global GDP without government subsidy can of course vanish into the noise of global economic and political dynamics and unanticipated changes with much more consequence such as the current global pandemic.
Third, is the absolute necessity to quickly slash carbon dioxide emissions to prevent self-destructive economic collapse. The enormous fires from California to Australia to Siberia, combined with epochal floods, droughts, rising sea levels and super storms have made it clear that business as usual will mean an end to business.
Political and technical problems
There are two clear problems, one political and one technical, we must face that go beyond the provision of trillions in investment capital for quick a net-zero global transformation.
Politically, it’s important to recognize that the political influence of increasingly uncompetitive and ecologically destructive industries like coal can far outweigh their economic significance. The word in coal country carried, for example, by the Oil City News in February 2021 is that “The reality of a permanently shrinking Powder River Basin coal industry came into sharper focus on Tuesday with Arch Resources announcing it is speeding up preparations to close its Coal Creek mine.”
Similar contractions, shutdowns, bankruptcies and layoffs afflict not just coal, but the fracking industry for oil and natural gas, tar sands development, and high-cost oil and natural gas development. The well count does not lie. The EIA attributes a steady oil decline “mostly because of lower oil prices.”
Polluting fossil fuels are now or will soon be unable to compete with renewable energy with both zero fuel costs and declining capital costs. It’s simply bad business to invest trillions in fossil fuel infrastructure and power plants that are highly likely, sooner or later, to become stranded assets.
The movement by six European-based oil and gas majors, Royal Dutch Shell, Total, Eni, Epinor, BP, Repsol into renewables is expanding rapidly. A total of over 230 gigawatts in renewable power, with an investment of $500 billion or more, is already in the development pipeline for these formerly just mega-polluting fossil fuel companies. This shift is much more than greenwashing.
Total of France plans to be a global renewable leader with 100 gigawatts of renewable generation by 2030. BP plans to develop 20 gigawatts (GW) of renewable energy capacity by 2025, and 50 GW by 2030. Eni plans 25 GW by 2035 and 55 GW by 2050. Epinor plans 16 GW by 2035. Repsol plans 15 GW by 2030. Repsol is a participant in floating wind farm development, WindFloatAtlantic, using enormous 8.4 megawatt Vesta turbines, the world’s largest.
Shell, without specific renewable targets, has a three-pillar plan for transforming the company. The Growth pillar includes power, hydrogen, biofuels, power for electric vehicles, nature-based solutions, and carbon capture and storage (CCS). Shell is also embracing using offsets, for example, tree planting, for the emissions from the products it sells. Such efforts may or may not have real ecological value. Planting billions of trees on deforested land can be effective. Payments for doing what was already happening are not.
In contrast to the European majors, U.S. companies like ExxonMobil and Chevron and Chinese companies like Sinopec and CNOOC are moving slowly or not at all from fossil fuels. In Oct. 2020, ExxonMobil CEO Darren Woods dismissed climate change threats to his industry stating there would be “an ongoing need for the products we produced.”
Politically, a key part of the renewable transformation must mean adequate unemployment support, comprehensive retraining and rehiring of fossil fuel workers in renewable industries, Green Bank investment in renewable development in fossil fuel areas like the Powder River Basin, fair treatment for stranded assets to encourage fossil fuel companies and investors to stop production and change direction, regulatory mandates that require yearly increases in renewables and decreases in fossil fuels combined with Green Bank investment and retraining.
Politically, the last thing we need now is a carbon tax that increases the prices at the pump. Instead, our money is much better spent today on building the electric or hydrogen-powered car charging infrastructure and tax credits for zero-emissions vehicles that slash fuel costs to a $1.00 per gallon equivalent or less. Ford is launching in May its electric F-150 flagship pickup that’s faster, more powerful and cheaper to run than its gas-powered precursors.
The political elides into the technical
Accepting as a given that some fifty trillion, or more, will be invested globally as Morgan Stanley estimates for a global efficient renewable transformation, a number of questions arise.
How do we design and implement such a transformation? It is technically feasible to supply all needed power largely through desert-based solar PV systems on a relatively modest piece of desert land, say about a 70 mile by 70-mile square of desert land, less than 5,000 square miles to power the U.S. when combined with requisite energy storage systems using flow batteries made from common materials (not rare earth like lithium and cobalt) and providing power through a national network of high voltage DC lines (HVDC).
Using the centralized solar continental model, Nevada could power the U.S. and Mexico; the Sahara, Europe; the Gobi, China; a bit of the Outback near Alice Springs, Australia, and so on. These continental-scale grids could be networked together for a renewably powered planet. A similar design could provide enormous power from offshore wind. Problem solved?
In reality, mega technics, as we will see, need not and likely will not be the model for an efficient renewable future. Further, a global renewable transformation must address issues of social and ecological justice.
Are we building a civilization for the benefit of a handful of billionaires on the path to becoming trillionaires? Do we aspire for a future where most of the earth’s 9 billion people live as contingent workers to further enrich the trillionaires in a society subject to constant cyber monitoring to protect the power and the wealth of the oligarchs?
Principles for a global renewable energy transformation
Energy users must become energy owners of the renewable and energy efficiency infrastructure. People become more than customers. They are owners as well. This is one of the opportunities presented by distributed renewable development.
Community solar, community wind, community green hydrogen, community storage and transmission projects can and should become a significant sector of our renewable energy future.
On a city, town or neighborhood basis, future financial arrangements can be crafted that local energy users can have an equity interest in the renewable infrastructure. Trillions of dollars in renewable physical plants become broadly distributed among energy users organized into cooperatives, associations, municipal power companies. A very different future can be crafted by making sufficient capital available.
Right now, I build 150kw AC ground mount systems, producing around 300,000 kWh a year. The power is either sold to the utility or to community solar members who receive a 10 to 15% benefit. A discount is helpful. But this is not ownership. I will still own and control the system. Ownership and asset building can mean, in this case, after-tax equity is exhausted in year six the sale of some or all of the system to the organized community solar members. The loan is financed by the stream of income from the project which will lead to ownership as well as the existing power discount.
The current distributed energy model
The future distributed energy model being put into operation is based on large asset holder owned and controlled Town, City or institutional micro-grids.
The micro-grid is based on an area receiving electric service provided by one or more utility distribution feeder lines from a utility substation. A micro-grid has significant renewable energy and storage resources within the micro-grid that normally operates within the normal grid system. The grid supplies a fraction of energy and storage needs at peak demand for the micro-grid. At times, the micro-grid feeds excess power from its renewables and storage back into the grid system.
If grid voltage and frequency drop, to avoid a blackout, substation breakers will separate the micro-grid from the larger grid system. The power and storage resources within the micro-grid take over. After a brief flicker or outage, the micro-grid comes back online to provide some, but not all, of power demand based on the predetermined design of building breaker circuits to maintain key electric services.
Micro-grid economics and purchase
Currently, the micro-grid economic model being pursued by large asset owners like BlackRock, electrical contractors like Schneider electric and renewable and storage developers is to offer “free” renewable and storage construction for a Town or institutional micro-grid in exchange for a long term contract with the Town or institution to buy power from the renewable system. The rates are set below that of the existing fossil fuel-based electric utility systems. The system will be owned by the asset owner and operated by the electrical and renewable developers.
A better path for pursuing ecological and social justice is simply to structure financing for the Town to take ownership of the micro-grid when tax equity is exhausted in the U.S. with funding provided by Green Banks or Community Development Financial Institutions (CDFIs) or by government revenue bonds using the stream of cash from the micro-grid operation. This is applicable, as well, to purchases with tax leverage. Energy user ownership provides real control and equity and a share of the surpluses or profits.
Meanwhile, BlackRock has a fine ROI from six years combining the investment tax credit (ITC), MACRS depreciation, and power sales. Schneider does well building and operating the system. Everyone is a winner.
Additional renewable income streams
New streams of income are emerging for renewable energy, storage, green hydrogen, carbon displacement, carbon capture and storage that will properly value-efficient renewables. These include Sustainability Credits (SCs) reflecting the ecological value of carbon dioxide displacement by renewables and efficiency that I am working on.
Sustainability Credits are based on the ecological value of the displacement of a metric ton of carbon dioxide equal to $100 a metric ton as determined by the U.S. National Academy of Sciences (NSA). SCs to be monetized on the books of Green banks as paid in capital and as cash to be used for investment in more renewables. The current global 34 billion tons (gigatons) of carbon dioxide emissions can, in effect, be mined, to help finance the trillions in renewable energy investment based on the power of banks to loan ten dollars for each dollar of their own assets.
Long and short term renewable energy dynamics
Global renewable energy development must address both long and short-term energy flows. Winter heating needs can peak when winter solar output is minimized. Long-term seasonal storage can be based on thermal storage in rock and underground water. In the short term, there will be the need, for example, for large amounts of peak load current for an electrical vehicle fast charging that could quickly require thousands of megawatts. Storage and green hydrogen needs to be designed to help meet these needs, as well as other high-demand electrified processes such as electric arc steel production.
A green hydrogen system works typically from power generated by a solar or wind farm fed to electrolyzers that splits water into oxygen and hydrogen. The hydrogen stored to be used to quickly generate large amounts of power through combustion turbines. If the combustion turbine has a sealed system using the separated oxygen and hydrogen from electrolysis, the only waste products are heat and water vapor with none of the NOX produced from the nitrogen in the air.
We are in the midst of an epochal global renewable energy transformation. The consequences will have enormous political, economic and social influence. Many trillions of dollars will be invested with the potential to transform not just the shape of energy technology, but patterns of ownership and the distribution of wealth, defining ecological and social justice, creating jobs for displaced fossil fuel workers and their communities.
The choices we face in the renewable energy turn are more than technical. We have the ability to shape the dynamics of a sustainable ecological civilization emerging from the fossil fuel era. Issues of justice and fairness, of good and stable jobs, are on the table and inseparable from the swift and effective construction of the global efficient renewable energy systems. A renewable energy transformation is a healing response to civilizational excess.
These are questions not just for engineers, but for all of us who have a fundamental stake in the shape of things to come. $ trillions of renewable energy and storage investments are underway. Investment bankers, renewable developers, asset holders will profit handsomely. To what extent in the forthcoming age of sustainable ecological prosperity, of economic growth resulting in ecological improvement, will wealth and power be distributed fairly? Can capitalist creative destruction lead to ecological and social justice?
Making the solar Investment Tax Credit refundable in cash for those without a tax appetite, providing equity for community renewable developers is a good start. Everything need not be owned by Larry Fink, Jeff Bezos, and Elon Musk. We can choose instead strong democracy, justice and fairness. Roy Morrison builds solar farms. His latest book, forthcoming, is The Green Republic.
JPMorgan on Environmental & Social Governance.
Declining Well Count. U.S. Energy Information Administration.
European Majors Move into Renewables: Power Engineering April 1, 2021 “Oil and Gas Majors Focus on Renewable Energy, Hydrogen and carbon Capture” by Aaron Larson.
Earth Summit 2021: Global funds sign on to turn trillions of dollars of investments into muscle to push for action to avert climate change.