Renewables “On Fire”

The theme that renewable energy is cheaper than some kinds of fossil fuels keeps recurring. The Guardian reported last week that solar and wind are often cheaper than coal, noting that the cost of solar and wind have dropped 85% and 56% respectively over the last decade. Last fall, the IEA said Solar is now the cheapest electricity in history. In January 2021, the US EIA forecast that 84% of new capacity would be zero carbon. In fact, according to IRENA (the International Renewable Energy Association) global installs of renewables last year hit a record. And finally, in the 3rd episode of the Big Switch, University of Texas post doc researcher Dr. Joshua Rhodes talked about how Texas (home of big oil!) now deploys the largest wind generation fleet in the United States.

The energy industry is building zero carbon capacity, and this will be a key factor in the effort to decarbonize global supply chains. Should we expect to see the entire grid become zero carbon? That’s probably unrealistic, for now.

For starters, there will always be a need for a reliable energy source that can be turned off and on at will. Large scale energy storage solutions, such as massive battery systems, will get us part of the way there. However, unless new technology, or new nuclear installs, bring us the instantaneous generation that fossil fuels offer it’s unlikely fossil fuels will go away completely. We will need fossil fuel or nuclear generation, and then appropriate abatement strategies.

In addition to the reliable energy source need, the grid itself is constructed around a paradigm of centralized generation, and then transmission to substations, and then homes. It’s a forward feed system that presumes we will truck fuel to generation sites, generate power, and then distribute the power forward for consumption. The impact of this is that generation tends to be placed close to consumption sites, in order to minimize transmission losses. But you can’t truck the wind, or the sun, to a convenient place to generate power. The other challenge is reverse flow. Feeding energy bi-directionally into the grid from what are today’s consumption sites creates a whole new set of problems. It’s likely the grid itself will need to be updated.


Why I am encouraged

“From January through November 2020, investors in mutual funds and ETFs invested $288 billion globally in sustainable assets, a 96% increase over the whole of 2019. I believe that this is the beginning of a long but rapidly accelerating transition – one that will unfold over many years and reshape asset prices of every type. We know that climate risk is investment risk. But we also believe the climate transition presents a historic investment opportunity.

2021 letter to CEOs, Larry Fink, Chairman and CEO BlackRock Investments, Jan 2021

There is no company or individual anywhere which will not be profoundly impacted by the transition to a net zero emissions economy.  Today, investors have finally gotten comfortable with that fact. The pace of sustainable investments has accelerated dramatically, and so has the pace of adoption of sustainable products.2020 hit multiple new records for global investment in energy transition, despite the existence of a global pandemic.  

For the first time ever, annual investment in decarbonization passed a half a trillion dollars as companies and governments put record sums of money into everything from renewable energy capacity ($303B) to electric vehicles and charge infrastructure ($139B), energy efficient heat pumps ($50B), storage technologies ($3B) and more. 

On June 10th, 2021, Bloomberg reported that a cumulative $3T in sustainable debt has been issued.  It had taken 12 years for the first trillion to be issued, two years for the second, and just 8 months for the third. This is significant because debt is typically used to finance infrastructure.

In 2019, $16B was invested in climate-tech companies, representing 6% of the VC pie that year and growing at an annual rate of 84%. $60B has been invested cumulative since 2013, growing 3,750% since then. Investors have been richly rewarded.  Today, there are 43 climate-tech unicorn companies.

Similarly, this month the number of passenger EVs on the road hit 12 million, globally.  1% of the vehicles on the roads on planet Earth are now electric.  70% of those vehicles were sold in the last three years.  EVs have hit the “hockey stick” curve, as the number of vehicles on the road is now doubling every 18 months.

Businesses in many markets are approaching the climate transition inflection point now.   Sustainability has become a business opportunity, and not just an ESG “speed-bump” that must be managed.

There is still much to be done. But what’s happening is encouraging.