“Wake” is a weekly foreign policy broadcast produced by Talk Media News and hosted by Luke Vargas from our studio at U.N. Headquarters in New York.
The following is a complete transcript of Episode Five, “How Cheap Renewable Energy can Change the World.”
Luke Vargas: Read up on solar energy prices and you’ll find a headline proclaiming record low rates for power generation. Renewable energy prices are becoming competitive with fossil fuels. On a given day, Germany generates most of its power from renewables. China is mass producing affordable solar panels, while American engineers and entrepreneurs dream up radical new technologies.
How is cheap renewable energy changing the world? How could it reshape America?
We’re taking on those questions next on Wake.
Thanks for tuning in. We’re coming to you today from U.N. Headquarters in New York, and to help us answer some big questions about renewable energy we’ve brought together two experts with very different backgrounds.
To discuss about the economics of renewable energy, the global and domestic investment landscape is Ethan Zindler, Head of the Americas division at Bloomberg New Energy Finance. Ethan, welcome to the show.
Ethan Zindler: Thanks for having me.
Luke Vargas: And joining us from Cambridge, Massachusetts to help us consider the science behind renewable energy technology is Mara Prentiss, professor of physics at Harvard University, and author of the 2015 book, “Energy Revolution: The Physics and the Promise of Efficient Technology.” Mara, welcome.
Mara Prentiss: Hi there.
Luke Vargas: Mara, I want to start with you. In your book you zoomed out on U.S. history and looked at the way we’ve generated electricity and how it’s changed through the centuries. Give us a quick recap of that history and where we find ourselves now –
Mara Prentiss: Well there’s a famous quote from a Saudi oil minister who said that the Stone Age didn’t end because they ran out of rocks. And I think that that’s a reasonable context to think about energy, that sometimes we make changes not because we run out of the source that we have, but because we decide something else is better.
So at the beginning of the universe, which is to say roughly the founding of Harvard, the major source of energy was burning wood. And in the U.S. that remained true until coal began to become important. As coal rose we reached a point where we got 80 percent of our energy from burning coal.
And then the coal began to drop off and oil and natural gas began to rise.
So in the beginning we were basically 100 percent wood, that was followed by being dominated by coal, and we’re now in an era where we have a mixture of energy sources.
I think that this diversified era is going to remain for the foreseeable future.
Luke Vargas: Ethan, Mara says that in terms of our overall energy reliance, we’re in that diversified era, with a lot of energy sources, including renewables, in competition with one another. Could you describe the current price landscape for us.
If you’re a big city looking to add new electricity capacity, what’s the menu look like?
Ethan Zindler: Well, I would say just to follow up on Mara’s comments that when you reach an era of greater diversity, you also reach an era of greater choices for consumers. And that, in turn, is ultimately a good thing, because you have more technologies competing against one another and really compelling each other to drive their costs down.
So we’ve seen costs for solar drop by over 80 percent over the last four or five years. Wind costs have also come down very substantially.
So you’re seeing an era where renewable technologies that frankly a decade ago many would easily have dismissed as being non-cost competitive are now very much in the game in a number of markets.
Certainly not everywhere, not all the time, but we’re definitely in an era of great, great competition and I would say the optimistic view is that it’s the consumer – whether it’s a municipality buying power or a company buying power or just you or me buying power at home – will ultimately be the beneficiary of that competition.
Luke Vargas: Ethan, Walk us through the energy investment landscape. Where are investment dollars going these days? Are they pouring into renewables? Is there still a lot of money going into new fossil fuel capacity? How do those two targets of investment, how do they compare to one another?
Ethan Zindler: To call either clean or zero-carbon energy ‘alternative energy’ is now fundamentally a misnomer.
If you look at the bulk of the capital – a majority of the money that got invested into projects that actually generate power – the majority of the capital is not going into fossil fuel projects, but into renewables projects, to a lesser degree, a much lesser degree, into large hydro projects, but also nuclear projects as well.
So there’s nothing really alternative about zero-carbon energy such as wind and solar.
In all, we’ve tracked about $300 billion per year over the last several years being invested into what we define as ‘clean energy technologies,’ and that does include wind, it does include solar, it also includes things like biomass, biofuels and technologies that enable efficiency, what we call Energy Smart Technologies like smart meters and other things. It does not include large hydro projects, it does not include natural gas, so it’s a pretty narrow definition and we’re talking about a good chunk of money.
Again, somewhere in the neighborhood of about $300 billion a year now that we’re tracking. And since our firm’s been around, which has been about a dozen years for Bloomberg New Energy Finance, we’ve tracked over $2.5 trillion that’s been invested in this clean energy sector, so it’s very much moved in the mainstream at this point.
Luke Vargas: Mara, there seem to be two trends in renewable investment. On one hand we’ve got sprawling projects like the Gemini Wind Farm, which according to news reports has just come online today off the coast of the Netherlands, the second-largest wind farm in the world. And on the other side you’ve got micro projects scaled down to the individual household.
Are all renewable energy sources created equal? Or are some better suited for macro vs. micro installation?
Mara Prentiss: Well that’s a great question and I would divide it into three different questions: one is the science is the engineering, and two is one for Ethan, which is cost and price, which are not necessarily the same thing.
So going with the engineering first, in the case of wind it’s the same as real estate: it’s all about location, location, location.
For wind power the power scales as the third power of the wind. In other words, if you double the wind speed you get eight times as much power. You also get more power if you make a bigger turbine and if you put it on a higher tower. So for the case of wind what you want to do is put huge turbines on top of big towers in very windy places. And people know that and that’s exactly what they’re doing, and that’s great.
For solar the situation is more complicated. The difference in solar energy between a place with good solar like Phoenix or Miami and places with less good solar like Boston or Seattle is about a factor of two. So if you have the same solar cell in Miami you get on average about twice as much power as I get in Boston.
And two is a big deal, but it’s not eight. So there isn’t a huge difference in location for solar. And in terms of size, you just get more solar as you double the number of panels you get double the amount of energy. So there isn’t a big scaling factor there either.
For price you do do better in large industrial ones than small residential ones by about a factor of two, but on the other hand there are lots of other reasons for making choices, so I don’t think that that’s dominant. And in fact what’s happening is the mixture of both. So the market is doing what the engineering suggests is the right thing.
Luke Vargas: Ethan, what say you? When you survey recent renewable energy investment in the U.S., do you think money has generally been going to the right projects – projects that pay off over their lifetime? And does there continue to be a risk that flashy projects win out over sensible projects?
Ethan Zindler: It’s a good question, but ultimately I think the good news for the world is we’ve reached an era where if you’re building a relatively bog-standard wind farm using equipment from a respectable manufacturer such as General Electric or Denmark’s Vestas, or if you’re building a solar project using conventional silicon solar panels that are produced by one of the major manufacturers, from the financing perspective these projects are viewed as relatively low-risk so long as the person that’s building the project has a nice long contract to sell the power at some reasonable price.
So investors are definitely getting more comfortable with simple, bog-standard-type, cookie-cutter, relatively speaking, projects.
There continue to be opportunities, and of course risk involved, in investing in newer technologies. And I really do put those kinds of technologies and companies in a different category. Those companies will be very important going forward, sort of thinking about changing the world and moving the ball forward in terms of dropping costs, but it’s a different enterprise in terms of the investor outlook.
And the good news is that the vast majority of capital that gets invested in clean energy these days does go into simple projects, mainly because investors know that they’re going to earn a reasonable rate of return over time on those projects.
Mara Prentiss: I think that’s absolutely true. The difference in profit is going to depend on what the future price of fossil fuels are. The difference is that you make a big investment in capital with one of the renewable sources and then pay nothing for fuel.
Whereas if you have a fossil fuel project, you pay both capital expense and a fuel cost. So figuring out what you’re going to win depends on the future price of fossil fuel.
And that’s where price and cost also matter. If you include costs associated with burning fuel that are not in the price, then that changes the picture as well.
Luke Vargas: Ethan, during a recent TESLA earnings call, Elon Musk seemed to complain about the federal subsidies that he receives. I want to play some clips of that call. And I apologize, we tried to clean up the sound but it’s a little hard to hear:
“Over the years there’s always been all these sorts of irritating articles that they Tesla survives because of, like, government subsidies and tax credits. It’s driving me crazy.”
“Here’s what those fools don’t realize: what matters is whether we have a relative advantage in the market. In effect, the incentives give us a relative disadvantage.”
“Tesla has succeeded in spite of the incentives, not because of them.”
I don’t want to focus on electric cars, but I think his frustration with the negative public perception associated with subsidies is actually relevant to renewable energy investment more broadly.
So what about subsidies, Ethan? Are they still needed for different forms of renewable energy, or are we rapidly getting to place where can we start to let these industries – be it solar or wind power – stand on their own?
Ethan Zindler: It still depends where you are in the world. Around the world they have been holding what they call tenders, which are essentially auctions, where they invite power generators to come in and bid to build projects and sell the power at the lowest possible price. And we’ve seen both wind and solar projects win those auctions. Which means, essentially, that they’ve proven that they can be the lowest-cost provider without subsidies, for both technologies.
In the U.S. right now, wind is probably got a bit of a lower so-called levelized cost…
Mara Prentiss: It does…
Ethan Zindler: …and so in places like West Texas and Oklahoma where there’s incredible wind you are seeing projects that are economically viable without the tax credit, but really it does depend on what part of the country you’re talking about.
In the case of electric vehicles, let’s be clear: for the most part, for most consumers right now, an electric vehicle purchase is not strictly an economic decision. There is a tax credit that the federal government makes available, and when you factor that in it can make these cars make economic sense for consumers. But without that, in many and most cases, it’s not entirely an economic decision.
And I will caveat that by saying I’m a very happy driver of a Nissan Leaf, which is an electric vehicle.
I would argue that as a product, electric cars are actually superior to internal combustion engine cars, they drive better, they drive quieter, they don’t break down as much, there are less moving parts. There are a lot of things that will make consumers choose to go electric when given the opportunity. But let’s be clear, right now thanks to battery prices, it’s hard for most consumers to justify making that decision, especially since gas prices are lower than they used to be.
So I think it’s worth at least mentioning that in the context of Tesla. Tesla will continue to have demand for their project, in part because many consumers just think it’s a great vehicle, and they’re probably right, but that’s not entirely based on economics.
Luke Vargas: Mara, by way of a response to that, I wanted to call up a clip from last week’s show in which we looked at oil prices, and one of our panelists, Morgan Downey, had a remark about electric vehicles and I want to play a clip of what he had to say:
“Electricity is coal, nuclear, natural gas – all these very cheap fuels – including a little bit of wind and a little bit of hydro.”
“If you’re buying a Tesla today, effectively you’re making the statement that you want to burn coal in the U.S., and pretty much in many other countries around the world.”
Mara, what do you make of that argument? I think it’s easy to get excited about flashy new consumer products, especially ones that are marketed as green, but is it important to remind ourselves that the less sexy question of electricity generation is really what matters behind the scenes?
Mara Prentiss: The statement is completely wrong for the following reason.
I can put solar panels on the roof of my garage and that is sufficient to power two Teslas. So I could elect to buy my Teslas and my solar panels and not add to coal burning at all.
Furthermore, one of the things electric cars do and solar panels do is change the relationship between consumers and producers. We used to be power companies and consumers. And now that’s flipping around and mixing.
If I choose to plug in my Tesla at night, I can use the battery power from my Tesla to power my house and then charge it up later. So I have local storage, I have local production and coal hasn’t even been touched.
So I think we have to change the whole idea of how we relate to energy producers and say we’re not just consumers, we’re part of a whole network, and that things flow back and forth. And so the idea that if you buy a Tesla we are promoting coal just isn’t true.
But it is true that if you plug your Tesla into a plug from a coal-powered plant, you aren’t necessarily helping emissions at all. But just choose a different plug, would be my suggestion.
Ethan Zindler: The other thing I would argue, and I would generally agree with what Mara had to say, although I would say that it’s challenging for many people to be able to afford a PV system, a solar system that could indeed truly power their house and their car. But that aside, it’s certainly doable.
The more general point is that if you’re a U.S. consumer these days and you simply, on average, are plugging in to charge up your car, you’re going to get charged up from a grid that is overall much cleaner than it was just a decade ago.
Over the eight years of the Obama administration we did see power sector emissions, CO2 emissions drop by 23 percent. We went from a grid that was about 50 percent from coal about ten years ago to about 30 percent from coal now. We saw natural gas, which has about half the emissions of coal, rise substantially to about a third of our power generation. We saw wind and solar that was basically just about zero generation a decade ago go to about eight percent.
And so we have been rapidly cleaning our grid anyway, so if you’re an average American consumer getting juice off that grid, you’re getting a cleaner electron on average now than you would have 10 years ago.
Mara Prentiss: I completely agree with all that, but another way to put scale onto it is that the existing electric cars in the U.S. could be powered by one percent of the wind power in the state of Texas, and all of the light-duty vehicles in the United States could be powered by three times our current wind power.
So there’s more than enough renewables to do the entire job. There is no reason to go to coal, and as you point out, if you choose your random wall plug, it’s a lot better than it was for the reasons you said.
Luke Vargas: Ethan, as we look globally for examples about how the U.S. can forge ahead into the renewable era, are there models that we would be wise to follow? Is it trying to follow in the footsteps of Germany? Is it China where we’re sort of manufacturing renewable energy technology?
Or is the U.S. going to need to chart its own path in order to suit our particular needs and capitalize on our particular advantages? new path to suit our particular needs?
Ethan Zindler: I think there are lots of lessons to be learned from lots of countries, and I frankly can’t pick a one that I would say is the one that we should try to emulate, because even the countries that often get held up as examples as successes I would argue also have had some downsides. And that includes places like Germany and China, for instance, when it comes to the question of what the appropriate level of subsidization should be for renewables.
So I think we do have to plot our own course in many ways. And I think to some degree the U.S. has actually done that relatively successfully, which is frankly kind of incredible given that we’ve not really had an extremely clear national energy policy over the last who knows how long.
What we have is quite a few, a hodgepodge I would say, of state-level policies and various types of federal supports, many of which have short lifespans and expire or are renewed. But when you add them all together, it’s actually been quite successful, particularly when you pair it with the technology advances that we’ve seen for wind and solar, and of course, very importantly, the progress that we’ve seen in terms of extracting natural gas and the price of gas that we’ve seen over the last decade.
Luke Vargas: Mara, we’ve just a moment left, but I want to put this all together. A moment ago you said there’s “more than enough renewables to do the…job.” If I’m reading you correctly, you’re confident that renewable energy sources are enough to power the future. Am I reading you correctly?
Mara Prentiss: We get in the U.S. more than enough average energy to provide 100 percent of our energy requirements for the foreseeable future without difficulty.
Then the issue comes in with cost as I pointed out with the example of my house. I can power my house and my car with solar, but it depends on how much I’m willing to pay for it.
The issue is going to be how to balance cost, price and supply, and I think that that push and pull in both directions is going to be vital – we become supplies and consumers, we are more efficient, we use smart devices to balance where everything is – and I think those are the big changes in collectivity that are going to the make the difference in the future.
Ethan Zindler: If I could just add one last quick point, and definitely agreeing with Mara in terms of the availability of the resource, I think one thing that we’ve focused a lot on and that we think we’ll see more progress on is power storage. And we’ve seen costs for those batteries, lithium ion batteries in particular, come down very dramatically in the last five years.
We do project those costs will continue to go down, but that is going to be critical as you try to deal with the so-called intermittency issue posed by renewables.
Luke Vargas: Ethan Zindler, Head of the Americas division at Bloomberg New Energy Finance. Thank you.
Ethan Zindler: Thank you.
Luke Vargas: Mara Prentiss, professor of Physics at Harvard University, and author of the 2015 book, “Energy Revolution: The Physics and the Promise of Efficient Technology.” Thank you for being with us.
Mara Prentiss: Thank you.
Luke Vargas: If you like what you just heard leave us a review on iTunes or follow the program on Twitter @WakeOnAir.
I’m Luke Vargas, signing off. Join us again next week on Wake.