Ramez Naam discusses his recent article "The Third Phase of Clean Energy Will Be the Most Disruptive Yet" with guest host, Nori Head of Product, Michael Leggett. We dig into the economics of clean energy, and how that could be a boon to carbon removal. http://rameznaam.com/2019/04/02/the-third-phase-of-clean-energy-will-be-the-most-disruptive-yet/ https://twitter.com/ramez https://www.carbontracker.org
Full Transcript
Ross Kenyon: Hello and welcome to Carbon Removal Newsroom. I am Ross Kenyon, lead strategist with the Nori Carbon Removal Marketplace. Today, again, well, it’s basically just one day. We have Ramez Naam.
Unknown speaker: You’re not supposed to let them know.
Ross Kenyon: Yeah, I’m breaking the fourth wall. Sorry.
Unknown speaker: This is just a podcast.
Ross Kenyon: Yeah, Ramez Naam is still in the office here. Author, futurist, and Nori advisor Michael Leggett is Nori’s head of product. Mez had a great article come out, an additional one that is a little newer than the other one that we wanted to talk about. Michael, introduce us.
Michael Leggett: Yeah. Well, thanks for coming in again. Sorry. We left the room and walked back. No. So you wrote recently about how clean energy has four different phases of development and that solar and wind and batteries that are about to enter the third phase and that you expect it to be the most disruptive yet. Can you tell us a little bit about these four phases and why do you think the third phase is going to be the most disruptive?
Ramez Naam: Yeah, thanks. So I think this is just a conceptual framework that I come up with that maps to what I’m seeing. Basically, there’s four phases. Phase one, most of history, renewables were entirely policy dependent. They depended on subsidies. Phase two, they started in some places in the world to get competitive for building new power. Solar and wind, sometimes cheaper to build than to build new coal or gas. Phase three is when they’re disruptive to existing power. Coal and gas. And phase four is when they get slowed by headwinds that happen when you get really high penetrations.
So phase one was the entire history of the world. From the 1980s until basically 2015, there was almost no place on Earth where new renewables without subsidies could out-compete building new coal or gas plants. And the world Mostly Europe spent a couple hundred billion dollars subsidizing solar and wind. And you see people who criticize Europe and say, you spent all this money and you got so little. And it looks like we got little. By 1995, solar was only 1%. of global electricity, wind, maybe 4%. So objectively, we got nothing, right?
But that’s the wrong axis. The axis of deployment is not the most important one. The axis of price, it turns out, is the most important one. Because what happened is that those subsidies from Germany and other countries, and some in the US, brought down the cost of solar and wind by a factor of 10. So then in 2015, for the first time, maybe a few years earlier in the case of wind, you have solar and wind coming in these auctions. The world moves from a feed-in tariff model to an auction model.
There’s competitive auctions and the low bidder generally wins. And you have solar and wind just coming in with prices at auction, even if there’s not subsidies that are cheaper than coal or gas. And of course, this happens in different parts of the world at different times. It depends upon what your local price is for coal and gas. It depends upon how sunny you are and how windy you are. We saw this in Europe. In Europe, European countries subsidized solar and wind a ton, but by 2010, they were all getting tired of the subsidies of the heavy and heavier bill slowing down, and solar was flatlining.
Well, guess what? Water is now exploding again in Spain and Italy. Why? Because now you’ve got solar bids in Spain that are like 25%, 30% cheaper than the bids to build new coal without subsidies. So that’s phase two, that these technologies, when they’re head-to-head with coal and gas for a new power win. And then the crazy thing is that there’s a phase three. And phase three is the most insane thing. I didn’t think phase three would ever happen a few years ago, and now it is. Phase three is when it’s cheaper to build new solar or new wind or new energy storage in some cases, or it’ll happen in EVs too, new electric vehicles.
Than it is to leave your existing fossil fuel infrastructure still running.
Unknown speaker: And the first sign of this- It’s cheaper to build something new than it is to leave the old thing running.
Ramez Naam: That’s the idea.
Unknown speaker: Wow.
Ramez Naam: And that sounds insane, right?
Unknown speaker: Yeah.
Ramez Naam: So the first real indicator of this was in January of last year, NextEra CEO, Jim Robo, NextEra is a big renewables developer and they also own Florida Power and Light, so a big utility. And their CEO said, hey, by the early 2020s, it’s going to be cheaper for us to build new solar and wind than to leave our existing coal plants running. He said early 2020s. Okay. It didn’t take till the early 2020s because then in October, In October, you have a utility in northern Indiana called NIPSCO, and this is in a place that is currently 65% coal-powered, is what NIPSCO is.
It’s in an area that has mediocre sun for the US, definitely not like Arizona or Nevada or even Texas, it’s Indiana. And it has pretty good wind, but not as good as the Great Plains or anything. And they put out their five-year, their IRP, their five-year resource planning document, And it says that on the basis of cost, the cheapest thing they can do, they can save their customers $4 billion if they go from being 65% coal-powered in 2018 to being 15% coal-powered In 2023, which is now four years from now.
And their plan, their cheapest plan does not call for any new natural gas. It calls for all of that reduction in coal to be offset, not offset, but to be replaced by solar, wind, batteries, and flexible demand. That’s insane. Now, this is still a slightly subsidized price, but the federal subsidies, the solar and wind ITC and PTC, are actually ramping down at this time. So it’s actually not even very subsidized.
Michael Leggett: So as the subsidies are ramping down, that’s still... Yeah.
Ramez Naam: And by 2028, no coal whatsoever. And in fact, they would go to no coal whatsoever, but they’re just nervous to do that by 2023. That would be the cheaper option, but they’re nervous about running the grid. They have to learn how to figure it out, how to do that. And then, last month in March of 2019, Florida Power & Light says it’s gonna replace two aging natural gas plants with the world’s largest battery. And then you have at the same time, you have Carbon Tracker that is a think tank that puts out these reports.
They’ve been writing reports since 2017 saying something similar to NextEra’s CEO, saying that by the early Early 2020s, basically everywhere on Earth, but first they put out reports in the US saying that by the early 2020s, it’ll be cheaper to build new solar than to operate existing coal plants, cheaper to build new wind in windy states than to operate existing coal plants, and then they put out Reports about India saying basically we’ve hit that point now. In India, the cheapest bids for solar are cheaper than the operating cost of about half the country’s coal plants.
And then most importantly about China. China is not as sunny as India. China really, in renewables, while they’re the biggest renewables market in the world, they’re not as sunny or windy as either India or the US, at least not close to the cities on the coast. But even in China, Carbon Tractor finds that by By 2021, new wind will be cheaper than keeping existing coal plants operating on average. And by 2025, new solar will be cheaper than the operating cost of coal. And natural gas is also expensive. Outside of the US and the Middle East, natural gas is expensive.
It’s definitely cheaper than those things there. Now, okay, so people are like, well, Carbon Tracker, they are really motivated. Maybe they’re not fully balanced. Maybe they’re doing some advocacy here. Sure. But then about two weeks ago, McKinsey It puts out its report, its global energy perspective 2019, that finds more or less the same thing. They rate, what year will building new solar or new wind be cheaper than operating existing coal or gas by countries around the world. And in India, they find that new solar is cheaper than operating gas basically now, and it will be cheaper than coal in the next few years, on average, of existing coal.
In China, it all happened You know, between 2020 and 2030 in the US, in California, in the sunny parts of the US, it happens all by 2025. So this is McKinsey. These are like global consultants. They’re not environmentalists. They’re saying the same thing. Yeah, so why did it... It took from, you know, 1980 to 2015 to go from phase one, entirely subsidy dependent, to phase two, where they could win for a new... Power on cost. Why did it happen so quickly that we entered into phase three? It’s because the cost difference between building a new plant and operating a plant is only like a factor of two or three, you know?
A third or a half of the cost of electricity from a coal or gas or coal plant is the operating cost.
Unknown speaker: Interesting.
Ramez Naam: Two thirds of the cost of a natural gas...
Unknown speaker: Parts over the lifetime of the coal?
Ramez Naam: Over the lifetime, yeah. And natural gas, it’s mostly fuel cost, actually. And natural gas is still the cheapest thing in the US. So solar and wind dropped by a factor of 10 to get from phase one, policy dependent, to phase two, where they were competitive for new power, that policy. Then they dropped another factor of two or three around the world to get to where they’re cheaper than the operating cost. Of existing coal and gas. And so, everybody tracks, you know, how fast are solar and wind growing, and wind growth around the world has been slowed down.
And solar growth around the world looks to be slowing a little bit. But that growth happened at a time When it’s mostly been just dependent upon policy, but we’re entering this whole new phase where it’s just, man, it’ll save us money to build solar and wind and turn off this existing stuff. So how fast will it grow then? I don’t know. It’s not going to be constrained by policy. It’s the calm before the storm.
Michael Leggett: I think it’s the calm before the storm. Exactly.
Ramez Naam: We’re entering a super disruptive phase.
Michael Leggett: Interesting. How does this... So these four phases of things are entirely subsidy dependent and then able to Yeah. Even if we covered the earth and trees and the biological ways of removing carbon to deal with climate change are not sufficient and that we have to actually invent technology to pull out the emissions we’ve put up there. So how do you think these other technologies are in these phases and what lessons do you have from these phases do you think for those other technologies?
Ramez Naam: I think the lesson overall is that the way that policy has its biggest impact is by driving these technologies down in cost. By scaling them, investing R&D dollars, and creating a market for these for solar, wind, batteries, whatever, that allows the people developing them to make money, which allows them to innovate, and allows them to reinvest R&D dollars. So that’s the key lesson for policy, is it’s not about what you do to your own country, The policy benefits are externalized. It’s all about lowering the cost. And so the next place, I think, is transport.
We see now the cost per mile of electric vehicles is on a par or maybe cheaper than gasoline vehicles. And that’s just going to keep happening. And when we get there for trucks, which might be next year, there’s only 15 million semis in the US. There’s 260 million passenger cars, 15 million semis. If those trucking companies think it’s cheaper to switch to electric semis, they’re going to do it.
Michael Leggett: Yeah, I also think like the whole... the angle around transportation also with like self-driving and how that can be a lot more efficient as well. And actually, you can start to maybe produce fewer vehicles if they’re running more. I mean, there’s all kinds of interesting shifts that can happen.
Ramez Naam: And we’ll compare more on cost too. When you’re hailing an Uber, like if one of them is gonna be a quarter of the cost is electric and autonomous, you’re gonna take it, right? And then I think it’s the same thing for industry. And then for carbon removal, maybe. I mean, I think the fact that electricity is going to get so cheap is good because that’s one of the inputs to the cost of carbon capture. And it’s clean.
Unknown speaker: Like you’re burning gas to remove gas.
Ramez Naam: Yeah, that’s true. Yeah. So it gives me hope.
Ross Kenyon: Yeah. Interesting. Well, do you want to make a prediction we can later hold against you for phase four? Yeah.
Ramez Naam: Phase four is when, like with renewables, we really do have challenges getting to 100%. So phase four is when you have so much solar and wind, they’re lowering the wholesale price of electricity at the hours they’re producing, you’re trying to deal with intermittency problems that are hard, like not even Hourly storage, but shifting energy from summer to winter in Europe and stuff like that. And that kicks in, depending on how big a grid you have, when you’re at like 70% penetration, something like that. So we’re still a little ways from kicking into phase four, but it’s real.
We have to figure out how to close the last 10, 20, 30% of electricity emissions, how to make that be carbon free, and that’s a hard problem. People are working on it.
Ross Kenyon: Well, we’ll have you back sometime to discuss that in more detail, I am sure. Thank you, Ramez Naam, for being with us. And Michael Leggett, thank you for guest hosting this for us. Yeah, this was fun. Thanks, guys. Yeah. If you like the show, as always, please like, subscribe, rate and review it on iTunes, and tell your friends. So thank you so much.
