Renewables come of age

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Renewables come of age

A report by the IPCC out this week tells us we are pretty much doomed unless we change our lifestyles drastically now. The pivot towards renewables was already gaining momentum. In fact, our planet must become carbon neutral by 2050. Is that realistic?

Another warning from the “experts”

Last night (11 October), NEX Exchange hosted an important Master Investor event in the City of London entitled Investing into alternative energy at which I was privileged to be a panel member.

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This was timely. On Monday (08 October), the committee of climate scientists that makes up the International Panel on Climate Change (IPCC), under the auspices of the UN, published a new report that traumatised the mainstream media – led by the Guardian and the BBC. (The Daily Telegraph hardly commented on the IPCC report at all).

The report says that, contrary to the Paris Climate Accord of 2015 – to which 175 countries signed up – the maximum temperature that planet Earth should not exceed without risking catastrophic sea level rise and mass extinction is not two degrees Celsius above the supposed pre-industrial temperature[i]. It is one point five degrees. The world has already increased in temperature by one degree Celsius since the threshold, so we’ve only got one half of one degree to play for. You have been warned.

In my view this report makes the efforts of major governments to draw up emissions reduction programmes based on the Paris Accord of December 2015 more difficult. We knew that Mr Trump had trashed the Paris Accord in his inimitable way – and the new prospective president of Brazil, Jair Bolsinaro (the Tropical Trump) – a man who believes that by beating gay children you will make them straight – is set to bin the Paris Accord if he is elected on 28 October. Now, all governments that have planned for the Paris Accord – most notably countries such as the UK and New Zealand which have drastically reduced emissions already – have to recalibrate.

The BBC unleashed a torrent of “experts” to tell us how we should all become vegan, travel only by bicycle, buy our clothes at charity shops, turn down the heating and holiday at home. No wonder the red lights started flashing in Middle England. To be fair to the BBC’s excellent Science Correspondent, David Shukman, even he looked pained.

What we all have to do pronto!

Apparently, we’ve all got to give up our gas boilers. Then we’ve got to replace all petrol and diesel cars, buses and trucks with electric vehicles. That is on the cards but it will require a massive increase in electricity production – not all of which will be from renewables – but the IPCC report doesn’t offer a solution to that. We’ve got to give up our habit of jumping on aeroplanes. Most of all we should renounce the use of coal in the generation of electricity.

Please let me be clear: I am not questioning the basic tenets of the “standard” model of climate change – though I have written before why we should be sceptical about the accuracy of the climate models that scientists use. But, if I could, I would put a few questions to the IPCC and its champions.

If your objective is to change people’s behaviour – is it really effective to try to scare the daylights out of everybody? If we stop eating meat and indeed become vegan and then stop drinking milk – what will become of the cows? Can we eat them in a special one-year-long meat-fest? And what will the dairy farmers do? I get that we can stop using petrol cars and transition to EVs – but that will require a massive increase in electricity production well beyond current projections.


It is unlikely that all of that increased production could come from renewables, as I shall explain. Governments would have to plan for this kind of economic transition. It’s no good just parroting the cliché that people have choices.

The rise and rise of renewables

That said – I am hugely enthusiastic about renewable energy. Electricity generation using solar panels, wind power, heat pumps and so on is the most rapidly growing industry on the planet. But until very recently renewable energy was thought to be much more expensive than conventional power generation from hydrocarbons – and much less reliable. Solar only works when the sun shines and the sun doesn’t shine in Britain in the winter when electricity demand is at its peak. The wind normally blows in winter in the British Isles; but there are calm days as well: wind is intermittent (an engineer’s term for unreliable).

Renewable energy was initially propelled by generous government subsidy regimes which distorted the energy markets in the cause of reducing carbon emissions. The public at large is on-side – so long as it doesn’t hit their pockets. But then big business wised up. I wrote an article for the March 2017 edition of Master Investor Magazine in which I explained how the oil majors are piling into renewable energy. The big news of the last 18 months or so is that the cost of producing electricity with renewables has been falling such that some renewables are now competing with conventional power generation without subsidy.

Last night the CEO of PowerHouse Energy (LON:PHE), Keith Allaun, emphasised that there is no single magic bullet to solve the huge problem that is climate change. PHE’s technology can turn waste plastic – even plastics which cannot be recycled – into hydrogen which could then be used to run zero-emission hydrogen fuel cell vehicles. Climate change and the problem of plastics in our oceans are intimately connected.

The energy problem

Energy accounts for about 75 percent of total global greenhouse gas emissions. The sector includes electric power generation, transport (including aviation), fossil fuel processing and the heating and lighting of buildings. Energy is still the main cause of emissions by far – much greater than agriculture, land use and waste management.

And are we ever going to be able to get all our energy from renewables? As I wrote last year it turns out that even the most respected supporters of the “standard” model of climate change doubt it.

David JC MacKay, who was Professor of Engineering at Cambridge and Chief Scientific Advisor to the UK Department of Energy and Climate Change 2009-14, wrote: The climate change problem is principally an energy problem[ii]. This was in his seminal book Sustainable Energy without the Hot Air which Bill Gates described as one of the best books on energy ever written. Sadly, Professor MacKay died of cancer aged just 48 in April 2016, but his work on the technical realities of renewables is still unsurpassed.

Professor MacKay contrasted two views. “Every 40 minutes, enough solar energy reaches the Earth’s surface to power the entire planet for a year.” And then: “There simply isn’t enough renewable energy to replace fossil fuels.” Which statement is correct? Could they both be true?

Theoretically, if you could cover an area the size of Germany with solar panels you could generate enough electricity to sustain the entire European Union. Some advocates have actually proposed that a gargantuan solar array be built in the Sahara – in Algeria or Libya. Of course, there would be massive technical challenges as well as political ones – in present circumstances it would probably be blown up by Islamist extremists.

One might also ask if there is enough wind power to power a modern economy. In his book, Professor MacKay gives a thorough and critical analysis of the feasibility of a post-fossil fuel world from the perspective, not of an economist, but that of a physicist and engineer to answer the question: Is there, using today’s technology, enough renewable energy available to eliminate fossil fuels altogether?

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His book is crammed with fascinating calculations, tables and graphics. If you don’t fancy working your way through 350 pages of rigorous analysis, and if you have an hour to spare, there is a video of Professor MacKay summarising his findings to an American academic audience in Harvard on YouTube. Engineers amongst my readers will find this fascinating.

Professor MacKay shows that if you wanted to power the UK with wind alone, assuming current levels of consumption, you would need an averagely sized 2MW wind turbine for every 700 people. Given the population density of the UK (250 persons per square kilometre) that would require one large wind turbine per 1,000 square metres. So quite apart from the issue of installation costs and payback periods, there would be quite a lot of very unhappy members of the not-in-my-backyard brigade.

By comparison, the Sizewell B nuclear power plant in Suffolk has a power output of 400 times that of a typical wind turbine array in terms of kilowatt hours (kWh) generated per square metre occupied. And it is much more reliable.

Solar panels produce about twice as much electricity per square metre occupied as wind turbines. But, using similar calculations, Professor MacKay showed that if you wanted to power the whole of the UK by solar power alone, about 20-25 percent of the entire land mass would have to be covered by photovoltaic (PV) panels. That’s not going to happen. Apart from anything else, we are going to need that land to grow food – and trees.

As for biofuels, Professor MacKay worked out that if you planted the entire UK with biofuels, it would still not produce enough energy to power the country at current consumption levels.

Some people hope that technology will make renewables massively more efficient. But the maximum theoretical efficiency of a PV fuel cell is 31 percent. We are currently already operating at over 20 percent. So we should not imagine that further improvements in technology will help us very much.

That doesn’t mean that as a result of economies of scale and better production technology, PV panels will not become much cheaper in the future. Batteries will get lighter and heat pumps (which are reverse refrigerators) have some way to go in efficiency. But there will never be enough solar panels or wind turbines to meet all of our needs: unless we drastically reduce our energy consumption to near pre-industrial levels.

Types of renewables

There are solar panels – more correctly PV arrays – and wind turbines, which can be on-shore, off-shore or located way out in the oceans in deep water. Both of these are now familiar in the UK and indeed worldwide, having been rolled out in massive capacity over the last ten years. And they are creating huge numbers of jobs. According to the Environmental Defence Fund, solar and wind power generators are creating 112 jobs in the USA for every one new coal worker. (President Trump might want to reflect on that).


Then there is hydroelectricity, which has actually been around since the 1920s and may be considered a mature technology. And then there is a host of renewable technologies which, thus far, have been marginal in contribution: geothermal, heat pumps, wave-power, tidal, underwater “windmills” – the economics of which are still questionable. By the way, all of the latter marginal technologies rely ultimately on the power of the sun. That gives engineers the notion that they may never be as efficient as PV panels.

Professor MacKay, who was a strict adherent of the “standard” model of climate change and who defended even some of the most catastrophist climate models as mathematically sound, concluded in his final interview with green guru Mark Lynas that the idea that we can simply live as we are and be powered entirely by renewables was “delusional”.

He did offer some positive concrete themes that we should pursue. He argued that all environmental policy should be “country-specific”. Britain is one of the darkest countries in the world – it is dark in winter and has a lot of cloud cover even in summer. Australia, by contrast, is one of the sunniest: the economics of solar power between the two countries differs.

There is still much room for improvement. You can have better storage solutions; you can focus on inter-connectors to other countries – meaning the UK could import solar energy from North Africa just as we currently import nuclear energy from France.

But, ultimately, we have to focus on carbon capture and storage (CCS), nuclear and low-carbon, low-cost solutions – which might include ultra-fuel-efficient aero engines now in prospect. Even smart meters which were supposed to force people to change their consumption patterns have been criticized of late[iii].

Professor MacKay’s final message was that we should plan for a diversified energy mix and that we should concentrate most of our resources on CCS. The best form of CCS is to plant trees. That is why deforestation in countries like Brazil and Indonesia should be tackled as a matter of urgency.

Investment opportunities in renewables

With a few exceptions such as Denmark’s Vestas Wind Systems A/S (CPH:VWS), the wind power turbine and solar panel manufacturers have had lacklustre share price performances over the last few years.

The problem is that generous government subsidy regimes are even more unreliable than the wind. In December 2015, George Osborne, then Chancellor, slashed the so-called solar feed-in tariff paid per solar panel fitted in the UK on hospital and school rooves and so on. (The feed-in tariff was originally devised by Ed Miliband, who, as Professor MacKay implies in the Mark Lynas video, overruled civil servants who advised against it).

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In the UK, PV arrays are displacing crops on first-rate agricultural land which could be given over to food production or indeed to vines – even though these arrays are only optimal in July, and produce virtually no power at all in December. I have seriously suggested that the land would be better used by planting vines. English wineries like Chapel Down are already producing effervescent wines which are beating those of Champagne – especially after the glorious summer of 2018. Their 2018 vintage promises to be the best ever.

Bio-energy

Biofuels will have a role to play in the battle against run-away global warming. But they are not without controversy. Some players in this emerging sector are already making money. Biomass is an industry term for producing energy by burning wood – which is how our ancestors kept warm in winter and cooked their food. But the term can be applied to burning any other type of organic matter.

Burning biomass, be it wood, peat (Scotland and Ireland) or cow dung (India), releases CO2 emissions. In fact, burning wood emits around a quarter more CO2 than burning coal. Nonetheless, the scientific establishment has categorised biomass as a renewable energy source under the EU and UN legal frameworks because wood and other plant fuels can be regrown (unlike coal). So long as a plant is growing it is taking CO2 out of the atmosphere. Every new crop absorbs the CO2 released by burning the last crop – so that, over time, using biofuels is carbon neutral. As a result, many coal-powered power stations have been converted from coal to biomass in our attempt to reduce carbon emissions.

As an energy source, biomass can either be used directly via combustion to produce heat, or indirectly after converting it to various forms of biofuel (of which bioethanol is the most common).

Quite a few different species of vegetation can be used to produce biofuels from well-known and familiar crops to exotics. In the UK, the main bio-crop is oilseed rape (known as colza in the USA and France). Sugar beet is widely cultivated in France, the USA and Russia. One tonne of sugar beet can make 108 litres of bioethanol, a fuel with a high energy density. Sugar cane, which is actually a type of grass, can produce even higher yields of bioethanol but can only be cultivated in tropical climates such as those of Brazil and Malaysia.


Jatropha is an oil-bearing crop that grows best in dry tropical regions at temperatures of 20-28 degrees Celsius. This crop has a projected yield in good soil quality of 1,600 litres of biodiesel per hectare per year. That is impressive, but to put this into perspective Professor MacKay calculated that if the whole of Africa were covered with Jatropha plantations (self-evidently impossible), the energy produced would be equivalent to only about one third of world oil consumption.

At the Investing into alternative energy event last night, Yatish Chouhan, Co-founder of Prem Biomass, a Jersey-based start-up, explained that Prem‘s plantations in Ghana can produce four crops a year of Napier grass which is turned into pellets to fuel electricity generators in a country where seven million people are without electricity. Prem will be conducting a funding round shortly and hopes to list on AIM within two years.

The drawback with biofuels is that large-scale biofuel production will require valuable land (and precious water) that could otherwise be given over to food production or left to revert to woodland – the ultimate carbon sink.

Listed companies which are already active in biofuels include Drax Group PLC (LON:DRX) which uses miscanthus grass to generate electricity in Cambridgeshire. Their shares are up 38 percent year-to-date. Albioma (EPA:ABIO) of France is a global leader in the conversion of biomass into biofuels. Their shares have not fared well this year. Another French company, Global Bioenergies SA (EPA:ALGBE), uses proprietary patented technology to produce a biofuel called isobutene out of sugar. Again, their shares are well down this year. The shares of German player CropEnergies AG (ETR:CE2) are also down this year.

Are we doomed?

In an article for the August 2017 edition of Master Investor Magazine I asked whether the inconvenient truth of climate change might turn out to be an opportunity for the human race to re-engineer our technology in a way that could accelerate human well-being further.

Controversially, some commentators speculate as to whether there could even be some advantages to a warmer, and greener, world. (I do admit: rising sea-levels are a worry – but there is huge progress in the field of flood defences). I suspect that, given the very low probability of reducing carbon emissions to zero by 2050, mankind will have to embrace some sophisticated adaptation strategies for living in a warmer world – and there are people already working on this.

Efficiency in power production is likely to improve but unless we re-configure our lifestyles we are likely to be subject to Jevons’ Paradox. This is that gains achieved by increased efficiency tend to be wiped out by increases in consumption. There are some low-tech solutions which could make a radical difference – such as better insulation for Britain’s notoriously draughty homes. Even just turning off electric appliances at the mains instead of leaving them on standby can significantly reduce power consumption.

I doubt that we are doomed. But the issue of climate change will haunt mankind at least until the end of this century and the alternative energy sector will continue to offer opportunities for canny investors.


[i] I have never seen any scientific case as to how the supposed pre-industrial ambient global temperature in 1800 was derived. If any readers can help – please email.

[ii] Sustainable Energy without the Hot Air, David JC MacKay, UIT Cambridge, 2009, page 16.

[iii] For six reasons why smart meters have failed, see: https://www.telegraph.co.uk/money/consumer-affairs/six-reasons-say-no-smart-meter

Comments (2)

  • Lawman says:

    Informative and balanced. As a lay person the only view I can express is that:
    .
    (1) probably there is a disastrous risk from climate change
    .
    (2) at present few take it seriously, and so the debate is dominated by ‘climate change deniers’ and extreme ‘snow flakes’. We need trusted scientists, engineers and governments to take an interest (we have plenty of the first two, few of the third)
    .
    (3) resolution will need international co-ordination and active sacrifice by countries such as China, India and the USA
    .
    (4) as with most people on the planet, the disaster change will have limited adverse effect in my lifetime; but I would like my grandchildren to survive.

  • Jane Ripley Neale says:

    I enjoyed the event last week, thankyou for hosting it so well.
    I recently heard that if all the heavy industry in the UK used current available energy efficiency measures, that would make enough saving to negate the need for Hinckley C power station.
    Unfortunately, standing beside a pile of insulation or a better engine lubricant doesn’t make for good PR pics of the PM shaking hands with Chinese investors and I do wonder if our current obsession with economic growth and returns is ultimately the driver for ecological collapse?
    Having said that, the system we have at the moment is all we have and with that in mind
    I started investing ethically just before the 08-09 crash. At that point, I was interested in avoiding negative issues such as arms and tobacco for eg, but as time went on I realised the potential for making my money help grow areas, as well as avoiding those less ethical ones.
    My other issue for avoiding certain companies is the potential for litigation now that our understanding of the environment/health is starting to be enshrined in legislation. I think the recent case of Monsanto illustrates that quite well, and I wonder if Bayer realised quite what they were taking on!
    Anyway, I’m probably rambling a bit, but it was nice to meet you last week!
    Jane

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