Who needs Oil and Coal?

Essential for the Industrial Revolution but what about today?

Having a look at some of the oil exploration figures and pricing for electricity last weekend, I thought I might see how much the cost of oil might need to be before it is more economic to run cars and other transport on electricity. With the sun shining brightly and lots of electricity going into the grid from my PV panels, I started to think of how far away it might be before we are living in a very different world. A world as different as it was when my father was born into a world where private transport was by horse or walking, telephones were rarely in private homes and electricity was only just becoming commonplace for lighting.

As any reader (there are some of you) would know by now, I am firmly of the opinion that the most reliable and economic way to supply the energy needed for a fair and equitable world (this means a roughly even standard of energy consumption globally that matches the middle ranks of OECD countries) is to generate electricity from solar thermal power plants and also take advantage of geothermal energy sources. The impediments to these technologies are industrial inertia (because the dominant paradigm is to dig up and burn coal) and the relative cost differential for solar generated electricity vs fossil fuels.

The cost differential is often quoted as the reason for not building geothermal and solar thermal generation but is that still true? When will the equation change?

Some rough calculations suggest that an increase in oil prices of 50% will be enough to make it more economic to drive electrically powered cars in cities (practical issues of how to do this aside for the moment). That of course is likely to increase the cost of electricity and that would at first glance seem like it would work against the changeover to electric vehicles, however once you factor in the economics of renewable energy it is likely to result in a fairly stable price for electricity one the cost has reached somewhere around 30-40 cents per kWh. Around this point it is economically viable to provide electricity from thermal solar plants and geothermal sources from a cost of generation perspective.

Capital costs involved in is in the same order as coal fired power generation (once environmental costs are factored in)and “fuel” price will be very stable – unlike limited resources such as oil and to a lesser extent coal. That suggests that we are at a kind of tipping point where in only a few years the economics of energy will change – for the foreseeable future. When you combine this structural shift in energy provision with the changes that will come from mass production and economies of scale when electric vehicles will drop in price, improve performance and reliability and generally life will be more liveable (think of the reductions in noise, exhaust fumes, pollution haze in big cities and all the transport and refining of fuel oils). Of course the challenges are significant. Electricity distribution systems were built by organisations that believed that the generate and distribution models that they were part of were the only model that mattered. Transition to a flexible grid with multiple inputs of energy that are more variable and diverse will require a rethink of electricity pricing (is electricity consumed between 9PM and 6AM really worth only 9c a kWh compared to 21c during the day?) and supply policy. Storage of energy becomes far more important and awareness of what you consume might be a step above complaining about how much the electricity bill costs each quarter.

Another factor that is important is at least 30% savings on wasted energy through inefficient housing and appliances. Reduce the need to burn coal to generate electricity to heat an uninsulated house with a two bar radiator and the benefits start to multiply (it will take a decade or two for this to happen). There are many other examples of how we can use energy more effectively. There will still be a need for oil and coal but not as much of it and probably not anywhere as much for just burning to heat houses and move cars. I think the one inescapable feature of the near future is that our energy economy will be driven by electricity as the single most flexible and effective way to provide our private and public transport (air travel is an interesting exception, perhaps?), support our lifestyle ambitions (home entertainment and living) and power our productivity at work. Looking forward to seeing what really happens.

Eventually, it is most likely that the economics of renewable energy will be more in line with current energy costs. Economies of scale will drive that. Then there is the almost endless supply of renewable energy that will effectively avoid the cost escalation associated with increasingly scarce commodities.

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