Yves here. We’ve featured many posts and links on the raw materials demands of the hoped-for uptake of green energy, how some critical ones appear to be in inadequate supply, and how in most cases mining and refining them also has significant environmental costs. So we are now seeing the predictable result of an unplanned transition: price is becoming a rationing device.
By Irina Slav, a writer for Oilprice.com with over a decade of experience writing on the oil and gas industry. Originally published at OilPrice
- Wind and solar stocks are declining due to higher costs of raw materials and slow supply response.
- EV chargers and copper mining, critical for the energy transition, face demand uncertainties and reluctance in investment.
- Despite government subsidies, renewable energy sectors struggle with high costs and interest rates, indicating a slower and more expensive transition than anticipated.
Wind power stocks are tanking. So are solar power stocks. Germany’s government just agreed to underwrite a 15-billion-euro bailout for Siemens Energy after its wind power subsidiary booked massive losses.
The list could continue. The movers and shakers in the energy space are finding it increasingly hard to move and shake. It was easy to anticipate this development, yet, many choose to ignore the signs, and now the sector may suffer more before the growing pains ease.
One common theme in the wind, solar, and EV space is the theme of rising costs. This was perhaps the easiest development to anticipate in the progress of the energy transition. After all, everyone was forecasting a massive surge in the demand for various raw materials and technology to enable that transition.
There is one guaranteed thing that happens when demand for something rises: prices also rise before the supply response kicks in. This is a universal truth for all industries and there was no reason to expect that the transition industry would be an exception.
Indeed, demand for raw materials necessary for solar panels, wind turbines, and EV batteries rose, but supply was slow to catch up, which led to higher prices. For a while, many pretended this was not the case, possibly hoping the cost inflation would blow over before investors noticed it.
Denmark’s Orsted, which suffered some of the worst market cap losses in the transition space, just this June published an upbeat outlook for the year and the medium term, expecting strong capacity additions growth and a return on capital employed rate of an average 14% for the period 2023 to 2030.
The same month the head of the company complained loudly about the rising costs of building offshore wind in Britain and asked for more subsidies. Five months later, Orsted had booked $4 billion in impairment charges from its U.S. business and had canceled two offshore projects there. CEO Mads Nipper called the situation in wind power “a perfect storm”.
Many have blamed the higher costs on the legacy of the pandemic lockdowns—broken supply chains, delays, and other obstacles to the smooth movement of goods and materials. Yet when it comes to the transition, the current state of affairs is more likely part of the same vicious circle that is holding back the EV revolution that fans of Tesla keep predicting.
This circle is best illustrated in the case of EV chargers. Since range anxiety is one of the biggest concerns of prospective buyers, there must be enough chargers for this anxiety to subside. But charger companies wouldn’t build chargers unless they are certain there will be enough EVs on the roads to make these chargers profitable.
The situation is similar in copper mining—perhaps the most fundamental industry for the energy transition. After all, the transition is conceived of as a shift to almost full electrification and you cannot have electrification without a lot of copper. Instead, copper miners are reluctant to splurge on new exploration. Miners don’t have enough certainty about future demand, despite all the upbeat forecasts. Whatever market prices show, if the transition gains momentum as planned, the copper shortage will only be a matter of time.
Another obstacle is demand. There seemed to be an assumption among transition planners that demand would be given; but it hasn’t been.
EV makers now find themselves revising their plans as demand falls short of targets. In June, forecasts for Germany were that demand for solar installations would surge by double digits in 2023. Two months later, an inverter maker warned that demand had actually dropped in the third quarter, and the outlook for Q4 was not particularly encouraging. In wind, projects are being canceled because project leaders are asking for much higher prices than previously agreed with funding governments.
Many are blaming higher interest rates for the cost inflation that sank their shares. But interest rates are something that all industries have to deal with, and those other industries don’t have the privilege of counting on generous government subsidies. Yet wind, solar, and EVs can’t take off even with those subsidies.
This puts the future of the transition in a new perspective: something that many observers foresaw but were dismissed as climate deniers. The transition will be neither as fast nor as smooth—or as cheap—as initially expected. It will take a long time; it will be uneven, and it will be expensive.
“There’s this notion that it is going to be a linear energy transition,” Daniel Yergin, S&P Global vice chairman and a veteran energy chronicler, told the Wall Street Journal. “It’s going to unfold in different ways in different parts of the world.”
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This article really just amounts to throwing a lot of random factoids at a wall, its not an argument.
There has been a very substantial rise in costs in renewables, in particular wind. Like all capital intensive investments, new energy infrastructure has been hit very hard by high interest rates. High interest rates make it tougher for ‘new’ infrastructure to compete with legacy infrastructure, this has always been the case. There are also well publicized bottlenecks in specific items (not in minerals, as the article implies). There is a shortage of the specialist ships required for offshore windfarms and there are bottlenecks in nacelle manufacture. Solar, despite constant dropping prices is hitting obstacles in gaining connection approvals which is linked to delays with wind – in most grids there is an ‘ideal’ balance of wind plus solar capacity (usually about 2:1 or 3:1), and at the moment there is too much solar in the balance in many of the most important grid networks. This has led to a reluctance for many grid operators to permit more solar connections until the rest of the ‘balance’ catches up. A further issue is that massive investments in wind/solar capacity in China (which is not constrained by high interest rates) is soaking up a lot of supply which was anticipated to hit the market. The other issue is that solar has hit the level in many markets where it is cannibalizing its own demand – coal and nuclear is protected in many power markets by base price guarantees, while new renewable sources have to compete among themselves and (usually) gas and hydro generation. In effect, solar is a victim of its own spectacular success and has to wait for grid design, market design, and storage to catch up if everyone is to take advantage of its super cheap electricity.
The drop in EV sales is a myth – its been widely written about in the US media (not so much elsewhere), probably because of special pleading by the motor industry which is desperate to prolong its existing ICE production lines as they are more profitable the longer they can keep them running. Its not actually true – the IAE doesn’t believe it and nor do other independent analysts. What we are seeing is a drop off in high end EV’s (probably due to market saturation), with a lagging supply of EV’s at the lower end of the market, the one where carmakers are reluctant to go because of low profit margins but where the highest demand lies.
> . . . a lagging supply of EV’s at the lower end of the market, the one where carmakers are reluctant to go because of low profit margins but where the highest demand lies.
Seems illogical to me. Were there high demand, profit margins would increase without raising prices as moar volume of sales would pay for the tooling faster and a factory could run an extra shift.
To me, there is one major flaw with EVs. They burn like a blow torch when things go wrong, so I will never ever park one of those in my garage. Anecdotally, I have read about landlords demanding the same of their tenants, so no underground parking for those that would aspire to a low end EV.
What I do see, is that when one goes to a city like Ottawa Ontario, PMC heaven in Canada, a fair amount of virtue signalers in Teslas, and an occasional Ford Mach E but not much else as far as EVs go.
When the Nissan Leaf first came out I went to find out price and availability, so off to the dealer. Well, i was never given a sign on the dotted line price but they did demand my name, address, phone number and other bits of info before never giving me a price, so fuck off to them. The sales guy was embarrassed at the idiocy of corporate demands. It was a fishing expedition, with the Leaf as a lure. Repeat that with customer after customer and soon you have no customers.
“After adjusting for inflation, major US utilities spent 2.6 cents/kWh on electricity delivery in 2010, using 2020 dollars, and spending on delivery was 4.3 cents/kWh in 2020, while utility spending on power production decreased from 6.8 cents/kWh in 2010 to 4.6 cents/kWh in 2020, the EIA said.” from hasty Google search
while PlutoniumKun writes
solar is a victim of its own spectacular success and has to wait for grid design, market design, and storage to catch up
Wind and solar are intermittent electricity sources. If the production coincides with prior consumption, the additional costs of the power grid is modest, and when it does not, the costs explode and THEY EASILY EXCEED THE GENERATION COST. And then we have storage issue. I guess, the simplest/cheapest long term storage is a coal fired power station with a coal pile, especially if you just need to refurbish an existing facility that is on the grid. If you want to compensate for wind not blowing through an entire season (as it happened previous year in Europe) on Sun not rising high for the entire winter, the only reasonable storage is hydro, a coal pile or some such. Batteries may tide you through the daily demand cycle, but if you want more, the cost is fantastic.
OTH, solar costs were dropping briskly until trade wars with China started.
My modest conclusion is that at this stage of technology, it is much more cost effective to decrease carbon emission without aiming for “carbon neutrality”, and that for carbon neutrality, without new nuclear capacity the costs are totally unacceptable for countries were the power demand is growing, India and the rest of developing world.
And without acceptable costs, it just will not happen
“‘ideal’ balance of wind plus solar capacity (usually about 2:1 or 3:1)”
PK, would you please explain what factors lie behind an “ideal” balance?
A bit of anecdotal evidence – we have just sold out EV and bought a hybrid. The reason for that is that in my rural neighbourhood (western Scotland) there are not enough fast chargers to make longish day trips feasible. The first time we took the car for a service we had to turn back because two possible chargers were both out of service. Other trips have been done on our nerves, hoping that we will be able to charge up on the way. We have also come across quite a few cases of people being marooned because of some incompatibility between either their payment method or their car, and the charging machine. As the article points out, chargers (fast ones, anyway) are too few (and too unreliable), so – Catch 22. There also needs to be just one kind of charging plug and compatible and universal payment services, to equate to putting petrol into an ICE.
the EV push should have been focused first on urban buses and local delivery trucks, not passenger cars (until tech improved).
to get the most bang out of a battery/infrastructure, that means being on the road as much as possible. that is not a passenger car from a US household who can afford a $50,000 Tesla.
China is pushing EV passenger cars as a matter of industrial policy (see BYD now selling more cars im China than VW), not as a matter of first/foremost reducing CO2
The EV as a urban delivery vehicle is not practical due to the weight restrictions and by-law regulations in the most of the North of America. For tens of millions of small commercial vehicle operators the most important factor is the payload capacity available to stay within the the local by law and road regulation limits. The EV does not offer any better payload capacity due to the weight of the battery. A hint to the vehicle manufactures, bring a better payload capacity vehicle to the market and you get instantly millions of new customers lining up and willing to pay up for the extra pounds/kilos available.
“The EV does not offer any better payload capacity due to the weight of the battery.”
That’s true, but increased payload is not the purpose of using EVs as delivery vehicles. Reduced CO2 emissions is the purpose. And whether or not the approach succeeds depends on the types of deliveries being made.
If you’re delivering small packages to a whole lot of different stops (like a mail truck does), EVs would save a lot of fuel by avoiding idling losses and reclaiming braking losses through regenerative braking. For mid-sized loads delivered to fewer stops (like grocery supply trucks), idling and braking are reduced, and the benefits would be less. And for a single large load hauled hundreds of miles, where there is essentially zero idling and braking, the idea of using EVs is stupid.
But Louis Fyne definitely has a point about most EVs not being fully utilized. If I bought an EV with a 250-mile range, I’d probably use that full range a dozen times per year. On the remaining 500+ trips, I wouldn’t even need 25 miles of capability. For the vast majority of my trips, the giant battery would be overkill. A whole lot of cost and weight hauled around for no purpose. From a total cost and environmental protection standpoint, it would make more sense to use a plug-in hybrid with 10% as much battery.
Payload capacity equals profit for the small commercial vehicle operators in the dense urban setting. CO2 is kind of irrelevant. One could talk to the sales reps of any commercial vehicle dealer who need to figure out customer specs, how to squeeze a 4500 lbs load into 3700 lbs payload capacity truck and be legal within that particular urban setting. If such EV vehicle is available on the market – it would sell on the spot for a hefty premium. Customers want payload capacity and a willing to pay for it. The low payload capacity vehicles are not practical in urban areas. It feels like the possible path to the adoption of the EV vehicles is to make them practical.
That should be easily to solve. Batter capacity for single-day urban use could be reasonable (traffic, loading/unloading, actually you could charge during loading/unloading for larger customers). And local laws could make a weight allowance for batteries, EVs pollute less after all.
I have been involved in the mining industry, in corporate planning, as a consultant and an investor for over 40 years. The notion that you can affect a major shift in supply in under a decade is simply delusional. Many of the big ore bodies (notably in copper, such as Kennicott in UT) are well past their expected life. We are mining much lower grade ores and have not found a major new ore body since the Grasberg, which is also past its peak production. Staying with copper, the theory is that there should be another Grasberg sized reserve in the Indonesian region, yet despite all the searching it has yet to be found.
The implications of lower ore grades are higher processing costs and much greater environmental damage (larger tailings piles, by-products, energy use, etc.).
Even if a new major ore body is found they typically take close to 10-years to bring into production. The big miners also typically require a protracted price signal before they will invest in a major new ore body.
The bottom line is you could see this coming a mile away and it is very real.
One final point. The critical cost question for EVs is the cost of the batteries. About a year ago I did a back of the envelope calculation the showed that over 1/3 of the ten-year decline in battery costs for a Tesla was explained by metal price declines. If this has reversed fahgettaboutit.
This seems to be the point that Simon Michaux is making. Michaux’s background is also in mining.
Ugo Bardi wrote a very good book about the declining ore grades and the resultant increases in energy required to get the same amount of raw material out of the ore body, called “Extracted: How the Quest for Mineral Wealth Is Plundering the Planet”. As the ore body concentration falls off, the energy cost of extraction starts increasing exponentially to the point where it is simply no longer worth it to extract the resource such as copper.
We have been saved by the in real terms very controlled nature of oil costs (most of the extraction energy comes from diesel powered vehicles and equipment), we could get a collision between rising energy cost of extraction and rising costs of fossil fuels due to exhaustion. The resultant economic impacts will not be pretty.
long ago I came up with the parable of the bachelors fishtank. I knew a couple of what are now geezers in their early days in the ’70’s with fishtanks filled with their daily change. thinking back, that was a lot of change. After marriage these fishtanks content mysteriously disappeared and the distribution of the disappearance must have gone something like this…One handful
yielded mostly quarters, you throw back the pennies nickels, and dimes. Do this two or three times and it’s easy ten bucks…fast forward to the bottom of the tank some months later…pennies and nickles, but dimes are the target denomination, then you’re down to nickels and pennies…we’re at the dimes phase imo
There is also an assumption that renewables are eternal, yet real world lifetimes of solar in Texas (due to storms) is six to seven years. Everything, even renewables, has a lifetime and needs to be replaced, particularly if one is talking about century timescales.
Do the calculations of materials needed for the energy transition even account for replacement needs? or just assume perfect, zero cost, recycling?
As GG likes to say its going to be a bumpy ride.
Also the inverter for grid-tying is expensive and they have only moderate lifespans.
And if we ever suffer civilisation collapse, any survivors will be reduced to re-cycling or mining in refuse dumps, as all the easily mined ores have gone. Something the war-crazies in Washington should consider, although maybe they don’t care about their offspring.
although maybe they don’t care about their offspring.
Better they rule in hell than serve in heaven…
It was always a fantasy to expect that “the market” would ever facilitate an energy transition. It won’t, and everyone ought to have known it won’t.
Amen. Although I’m pretty sure those with wealth and power knew it was a farce. As to what they expect ten or twenty years from now is anybody’s guess.
We are barreling down the highway at 100mph and the driver bailed a long time ago. Not before leaving a brick on the gas pedal, of course.
Wind has vastly underestimated costs to sustain (maintain) generated output.
Until vast improvements in quality manufacture, materials, and controls that increase mean time between downtime (reliability) and decrease downtime (maintenance plans and programs) wind is likely to be uneconomical.
I suspect underwriting wind projects is plagued by under estimated operating expenses and over estimated available generation….
Pheeww! What a way to start the day. Really. Between possible WWIII and a spike in climate change, we are phukked.
Speaking of wind turbine supply bottlenecks I did see this bit of hopeful news: Iron nitride magnets to replace rare earth magnets for EVs (and wind?).
https://electrek.co/2023/11/08/gm-stellantis-invest-niron-magnetics-develop-rare-earth-free-ev-components/
In California PG&E just received approval for a massive 15% increase in electricity rates. Charging EVs will soon become unaffordable for many people, even if the vehicle prices moderate. People complain about $5 gasoline, but that price doesn’t increase at the rate electricity does, at least in California. It may make sense for people who have solar energy to purchase EVs, but for everyone else it makes little sense.
“massive 15% increase”—I can hear European readers laughing from here.
The average EV does about 3 miles per kWh. The highest mainland cost seems to be ~30¢ per kWh so that’s about 10 miles per dollar.
A typical ICE seems to do 32mpg and a gallon of gas costs ~$3.50 so that’s about 9 miles per dollar.
So you’re nearly right, except with war in the Middle East I wouldn’t count on gas staying cheap.
My thanks to NC for its willingness to be the skunk at the renewable energy picnic. Readers here may find a recent article by Seibert and Rees, Through the Eye of a Needle: An Eco-Heterodox Perspective on the Renewable Energy Transition useful for filling out more details complementary to the views given by Slav’s piece.
Abstract:
We add to the emerging body of literature highlighting cracks in the foundation of the mainstream energy transition narrative. We offer a tripartite analysis that re-characterizes the climate crisis within its broader context of ecological overshoot, highlights numerous collectively fatal problems with so-called renewable energy technologies, and suggests alternative solutions that entail a contraction of the human enterprise. This analysis makes clear that the pat notion of “affordable clean energy” views the world through a narrow keyhole that is blind to innumerable economic, ecological, and social costs. These undesirable “externalities” can no longer be ignored. To achieve sustainability and salvage civilization, society must embark on a planned, cooperative descent from an extreme state of overshoot in just a decade or two. While it might be easier for the proverbial camel to pass through the eye of a needle than for global society to succeed in this endeavor, history is replete with stellar achievements that have arisen only from a dogged pursuit of the seemingly impossible.
This “eco-heterodox perspective” triggered a couple of lively rounds of comment and response, as well as an editorial intervention; links to these follow-up items are at the top of the page for the original Seibert & Rees article.
The following article by Ralph Nader in today’s Counterpunch magazine (https://www.counterpunch.org/2023/11/17/worries-from-a-major-auto-dealer-about-all-electric-cars/) adresses quite a few of the topics mentioned here. Unusually they come from an auto dealer with considerable experience. One quote stands out (BEV = Battery Operated Vehicles):
“Toyota believes “an extreme BEV mandate ignores the scarcity of minerals to make batteries, the high cost of BEVs, China’s dominance of the battery supply chain, the lack of charging infrastructure, and the reluctance of many consumers to buy a BEV.”
Instead, Toyota argues “for a portfolio approach that includes hybrids, plug-in hybrids, hydrogen fuel cells and BEVs. … this gives consumers a range of more affordable options to reduce carbon emissions.”
> One quote stands out . . .
Another deal breaker amongst many.
The challenge is if you design a vehicle that is either optimally efficient, or more sustainable, you have a lot of engineering to do and the customer probably doesn’t want it.
We’ve known how to make high efficiency diesel powered vehicles that can get 100 MPG since the 70s. The problem is, they look weird, are way too light to have good crash resistance, and they can’t haul stuff. You could definitely do some load shifting with vehicle designs that wouldn’t look too different from today’s models. For example, you use an ICE to charge the batteries for the electric motor, and you have a separate solar powered and battery reserve system for in board accessories. The low load and trickle charge for blue tooth and speakers and phone charging is handled by a system that has nothing to do with operating the vehicle. The ICE can be optimized for charging the batteries and would then use the existing fuel distribution infrastructure. You could charge the electric batteries separately. Having the ICE on board would let you reduce battery weight too. But now you’re talking about 3 different complex power systems that have to be designed and maintained on each vehicle. Those will be expensive to manufacture and keep up. You’ll see the same pressures that already exist ramp up and require those vehicles to become huge for the sake of profit and convenience.
The size + weight isn’t just a problem because of accident and other drivers having to deal with behemoths on the road. It’s an issue with roadway maintenance too. The currently available EV fleet has vehicles that range from 1500 kg to 3000 kg in weight. That puts the larger ones around 6000 lbs, at which point they become GVWR class 2 or 3. The extra wear and tear on roads and bridges from the increased weight adds to the problems of modern roadway design. And it’s not like we’re taxing people who drive these heavy vehicles more. So that will of course become another issue as the people who have the money to pay for the expensive vehicles get another subsidy from the local government who will keep repairing the roads that the heavier consumer vehicles break.
Whuch brings us all back to telling people no. The degrowth and down sizing type discussions on here boil down to telling people no, you can’t have that. Of course, no one trusts the people who are in charge to telling us plebes no, so here we are. We could probably set up a tax regime to handle some of these costs and issues. But if we charged everyone for what these vehicles really cost, then those people are going to want to trade in their car for a horse!
A quick reference to Jem Bendell’s “Breaking Together” would seem to be in order here. One conclusion from his treatise is that extractive economies are finished – they cannot survive due to the kinds of problems cited above. Societal collapse is baked in. There is little left for us to do other than accept and begin to prepare our local society (neighborhood, circle of friends, acquaintances) for a wholly different way of living; treating each other and nature as worthy of respect. The sooner the better.