Let’s Come Clean: The Renewable Energy Transition Will Be Expensive
The head of the International Energy Agency, Fatih Birol, has been claiming that Europe’s surging energy prices have nothing to do with the continent’s shift toward renewables. Last month, he said “It is inaccurate and unfair to explain these high energy prices as a result of clean energy transition policies.” The statement may be politically astute, especially as the IEA pushes governments to triple spending on clean energy in order to cut emissions, but it is also wrong. Much of Europe’s current energy squeeze can be traced to its rapid transition to renewables. In fact, economists at the University of Chicago recently found that higher renewable penetration drives up energy prices.
Environmentalists have been telling us that wind and solar mean cheaper, cleaner energy. They herald a future of electric vehicles quietly zipping around on electricity that created thousands of green jobs. If all of this is true, why are we suffering from a global energy crisis just months after adding record amounts of new renewable capacity?
The reality is that wind and solar are only cheap during the early stages of transition. Until now, renewables have been viable because of the massive base of fossil fuel generation that supplies most of our electricity needs and also stands in for intermittent wind and solar. But this changes as renewable penetration increases. Relying on more and more fossil fuels to shore up a growing share of intermittent renewables becomes increasingly costly and risky, as Europe is finding out. Then, moving to the next stage of the energy transition requires massive spending to get past using fossil fuels for baseload and balancing electricity. To be clear, these costs are justified, given that the costs of unabated climate change will be far higher. But continuing to push the false narrative of abundant and affordable clean energy is a huge political risk that will backfire when the public has to pony up for a bill they weren’t expecting.
On the surface, Europe’s woes are due to soaring natural gas prices as the global economy bounces back from the COVID-19 pandemic. But the underlying problem is that as countries like Germany and Britain have built out their wind and solar capacity, the energy supply becomes more unpredictable and variable, thus increasing reliance on gas to make up for when the wind doesn’t blow and the sun doesn’t shine. And gas prices are extremely volatile. After an entire summer of mild wind and gray skies, Europe has been caught on the back foot, forced to pay record prices for liquefied natural gas.
Getting past fossil fuels means finding ways of storing the excess electricity that’s generated when there’s too much wind and sun and releasing it later when there’s not enough. Right now, we can do this cheaply with pumped-storage hydro. But pumped-storage hydro only works in places with the right topography and water resources. Battery storage is often touted as another low-carbon solution that can address the intermittency problem of wind and solar. However, MIT researchers estimate that battery storage costs need to fall by 90% to replace fossil fuels, which few believe will happen in the next decade. Meanwhile, green hydrogen has also been attracting a lot of attention lately. Despite the hype, it is even further behind in development than battery storage and may only become cost-competitive in 2050. All of this means we will have to continue relying on gas while spending trillions to improve and deploy storage technologies.
To make matters worse, we are quickly using up the best locations for wind and solar. These are places near to existing transmission lines that receive strong and steady wind or sun. To build out more renewables, we will need to lay out thousands more miles of transmission lines to reach remote windy and sunny areas. Peter Fox-Penner, author of Power After Carbon, estimates that the United States’ transmission grid will need to expand by at least 50% in order to do this. This is a conservative projection, because the country will also need 90% more electricity by 2050 to electrify cars, factories, and home heating.
All of this new technology and infrastructure will have to be paid for by someone. While large companies and financiers can provide much of the upfront investment, public spending and higher energy bills will have to make up the rest. People need to be prepared for rising prices and mushrooming public debt; we already know what happens when they are caught off-guard. The Yellow Vest protests that erupted in 2018 over fuel tax hikes paralyzed France and continued for more than a year. And now, European leaders are frantically putting subsidies in place and firing up coal plants to prevent mass unrest.
Environmentalists, politicians, and regulators need to be honest about what it will take to avert the worst catastrophes of climate change: $30.3 trillion of investment in clean energy and infrastructure by 2030, according to the World Energy Outlook 2021. To move beyond fossil fuels, we cannot mislead the public about these costs. Telling them that a green future will come easy may get things going in the short-term, but will backfire as the world moves into the thornier stages of the transition. Our leaders must come clean about the challenges we face or risk pushback later when the world has even less time to lose.
Lucas Toh is an International Fellow in Columbia University’s Master of Public Administration program with a concentration in Energy and Environment. He serves on the board of the SIPA Energy Association.