Adolescence for renewables, retirement for oil

The metaphor is the organizing device, and the setup matters: renewables are not failing, they are growing up. They have just had a growth spurt, adding as much clean generation to the US grid in five years as in the previous ten, driven by buyers racing an expected expiry of federal tax credits that was then extended for over ten years. They are now a large enough share of US generation that their behavior has system-wide consequences, which he illustrates with the wind belt of the Great Plains, where wind’s share is high enough to produce frequent periods of excess supply and an increasing incidence of negative prices. Notably, intermittency is not his worry. He is confident that emerging storage can manage the variability of wind and solar without wrecking the cost of energy, with gas turbines backstopping in the meantime, and he points back to his own earlier writing rather than arguing that case here.

The problems he does worry about are four, and his claim is that each is individually survivable and collectively a drag. The first is the cost of capital: because their fuel is free, wind and solar must finance most of their lifetime spending before generating anything, which makes them far more sensitive to interest rates than a gas plant that spends most of its money over time on fuel and operations, and much more so than an existing plant whose capital is already sunk. A generation of developers has never worked outside near-zero rates. The second is profitability, and it splits in three. Western turbine manufacturers competed margins down while spending heavily on ever larger machines, leaving too little to absorb inflation and supply chain trouble, and turbine prices are now rising, which he reads as the big three tacitly easing off on price competition. Solar manufacturing sits almost entirely in China, where profitability has been distorted by government intervention and, on accounts he calls credible, by forced labor, and building an alternative chain elsewhere would probably raise panel costs at least at first. US solar project owners, meanwhile, have systematically overestimated how much energy their projects would generate, which he reads as evidence that solar energy has been systematically underpriced and that developers will have to raise prices as they absorb the lesson. Offshore wind, he adds, has all of these problems at least twice over.

The third and fourth problems are about space rather than money. Interconnection has become slow and expensive enough to be a cost line in its own right, with far more capacity queued than the grid currently carries, and while regulators have moved to reform the queues, his point is that the only real fix for grid capacity is more grid. The fourth is that local governments are turning against these projects. Where developers once found willing landowners and towns happy to trade a changed skyline for tax revenue, siting ordinances are spreading, and the academic estimate he cites of what a national spread would do to developable land is the one he treats as a shot across the bow. Wind draws more restrictions than solar, which he suspects is because turbines are visible from much further away and have been built for longer.

Put together, he argues, these are not speedbumps. His test is to ask whether anyone seriously expects a return to zero interest rates, to untroubled dependence on Chinese manufacturing, to spare transmission capacity, or to rural communities welcoming development, and his answer to all four is no. Hence the conclusion he is most insistent about: it is wrong to call wind and solar mature and shift all effort to deployment, because getting them back onto a falling cost curve now requires fundamental improvement in manufacturing and performance. He states his own position plainly alongside it, as pro-renewables and separately a convert to nuclear power.

The oil half is short and he flags it as preliminary. Retirement does not mean shutdown. Gasoline demand is probably past its peak in the largest markets and diesel will follow more slowly, but jet fuel will last much longer and the non-fuel products that come out of a barrel will be needed regardless. The difficulty is that refineries can be tuned within limits but cannot simply dial up the fractions that survive, so the industry faces falling aggregate demand and a need for major capital investment to change its product mix at the same time.