Citibanker: the age of renewables is here

Kathryn Ryan’s interview earlier this week with Michael Eckhart, Managing Director and Global Head of Environmental Finance and Sustainability at the giant investment bank Citigroup was arresting. He was in New Zealand as a keynote speaker at the Wind Energy Conference and Ryan asked him about a recent report from Citi, Energy Darwinism: The Evolution of the Energy Industry, which claimed the world is entering the age of renewable energy and explored the consequences for generators, utilities, consumers and fossil fuel exporters. There’s a good exposition of the report on this blog post.

Eckhart explained the three big costs in producing electricity – the fuel, paying off the loan for the plant, and operational maintenance. In the case of coal and natural gas generation all three costs are involved and there’s no way of knowing what the cost of the fuel will be in the future. With wind and other renewables “there is no fuel cost at all: none”. Once the loan for the plant is paid off there are no further costs other than operational.

Ryan asked why investment in renewables is dropping as the costs are coming down. Eckhart in reply spoke of an anomaly:

“We had a very successful industry emerging coming out of the United States, Europe … manufacturing these solar cells, these solar panels, and  along  came China, and China just produces things at a lower cost and China made a priority – this became a priority industry under the government of China … and they came out with panels costing half as much.”

Investors in Western companies consequently took a hit and investors in the new Chinese companies did very well “and it’s all a big mix now”. The surviving Western companies are still there and very successful though many companies have closed. The industry has a new profile. Japan and the Middle East are also now part of the picture. The industry is evolving all the time.

Ryan then mentioned the difficulties wind energy is facing in the US with the emergence of cheap shale gas and the withdrawal of subsidies leading to a real hit to investment.

In response, Eckhart spoke in general terms of the world being 40 years into a 100-year transition to clean energy. Renewable energy is on a large scale around the world. “It’s a 250 billion dollar per year industry – that’s how much capital’s being invested in it”.  It’s a big industry competing with conventional power “better and better all the time”. In the US right now low-cost natural gas is gaining some share against renewables, but that’s not going to be a long-term trend. He spoke of the big forcing functions like climate change, environmental protection, human safety and stabilisation of energy costs. He stressed that stabilisation is one aspect of renewable energy that is often overlooked. Once a wind or solar project is built and financed the cost of its electricity is fixed for the life of the plant. Stabilisation of energy costs is important for countries.

When Ryan pressed the question of subsidies for wind and the pressure they are coming under in some countries Eckhart replied that subsidies are better seen as incentives, or compensation for public benefit. Non-pollution from renewables is a public benefit. But there’s nothing in the market to pay for that.

Solar presently counts for a quarter of a percent of the US electricity supply. How, asked Ryan, do you get a big transition moving from that small base?

Eckhart instanced Bill Gates making a fortune from the point when PCs were at only two percent of the computing power in the world. It’s the future that matters. He distinguished the three layers of the industry. First, the technology and manufacturing companies who produce the equipment to harvest the natural energy. Second, the developers, owners and operators of the renewable power plants. Third the utilities that buy that electricity to sell it to us. The profitability of the manufacturing layer might for the present be bad because of the Chinese dominance of the space. However the drop in prices has benefited the developers who are buying the panels and putting them to service. That’s where the fortunes are currently being made. The utilities have been taken somewhat by surprise and are still figuring out how this impacts their business.

Market adjustment is called for. Those who adjust fastest are going to benefit. Those who stand still might be impacted negatively. The world is changing. We are in a century of massive technology innovation and adoption.

I appreciated Eckhart’s forthrightness, all the more because of the investment banking environment from which it comes. But the question the interview left me pondering was whether the forcing function of climate change that Eckhart refers to will be felt strongly enough to speed up the process that he sees as inexorably under way. Forty years into a hundred-year transition doesn’t sound far enough from a climate change perspective. Our own government is happy enough to look forward to fully renewable energy in the long run, but only after as much profit as possible is taken from fossil fuels. The remaining sixty years of Eckhart’s hundred need to be condensed to thirty before we can safely take heart from the kind of analysis he makes.

39 thoughts on “Citibanker: the age of renewables is here”

  1. My solar panels are the best investment I have made. It cost $10,000 and I no longer have to pay $2000 a year for electricity which represents a 20% return and because no money changes hands it is tax free.
    At the risk of being boring NZ should do the same thing with transport. If we use our abundant renewable energy for transport we would not have to import oil. The Greens understand it but why does our money driven National party not get it. . I live in hopes that we will make the changes soon.

    1. Do your solar panels make enough electricity in winter to cook your breakfast and your evening meal? Most countries have a double-peak usage profile, one at about 8 am, then high demand through to a taller second peak about 7 pm, with about half peak or less through the night. But domestic use is mostly in the evening. Solar production is a bell shaped curve (weather permitting), and in winter it has a skinnier base and the peak is only about half as tall as in summer. Midday for home use you could heat your hot water, or preheat your house if the insulation is good, but your solar output will be least in winter when you need that most. If you have an electric car you could charge it, but during the day you’re more likely to be out using it. Unless you have your own batteries, you’ll still be reliant on the grid for most of your own use. The higher the percentage of houses trying to all sell to the grid at midday and buy from the grid in the evening, the lower the value of PV will be. New Zealand can’t export surplus to other countries or states, as happens in Europe and the US, and while our hydro is a good buffer, it’s not a panacea. Hydro storage capacity is only about ten percent of annual production, so most gas and coal is burnt in winter, when the lakes are low. Wind is a better seasonal match than PV- it would be doing OK right now, cranking out the power in miserable weather while the hydro dams fill up. As the climate gets crankier, we might need more dams to store water for irrigation and domestic use, with electricity generation having to go to the back of the queue. Solution? Put two 800 MW reactors in Northland, for baseload, ( as the NZED projected in 1970 ), and use hydro and wind to cover variable demand. By the time they get through permitting we’ll need them.

      1. “Do your solar panels make enough electricity in winter to cook your breakfast and your evening meal?” The grid is still there. This investment in domestic PV slashes demand by this home from the grid, and can generate to the grid. As demand from the grid is lower generation is cut, and the fist in line is the highest marginal cost generator. Unless you are in a drought that will be a fossil fuel one.
        Why you want to introduce the long term cost and inflexibility of nuclear to NZ I do not know.

      2. “As the climate gets crankier, we might need more dams to store water for irrigation and domestic use, with electricity generation having to go to the back of the queue”

        I asked Dr Jim Salinger this very (or very similar question) at a recent meeting i.e. what is the prognosis for the South Island lakes? He advised that NIWA have been looking at this very question and the current opinion is that inflows will be about the same.

      3. Your case on nuclear sounds like a compelling argument.

        With respect to distributed generation small scale generators like me would just love an affordable onsite solution to storing the excess energy of summer for winter use. In fact solutions based on heat pumps are in use – freezing and thawing water in Finland, storing heat in the ground, I’ve read of examples from USA. A while back I noted a competition for solutions for residential solar cooking in the morning and evening – molten salts were among the proposals – but I do not know the outcome, if any.

        When it comes to cooking and using machinery it helps to be at home, or wherever the PV system is, during the day and reserve most of the cooking for midday as is done in India, even with meals delivered each day from home to office, and large solar powered kitchens where a heap of people have to be fed. It’s a different lifestyle that is better for health anyway – meals on wheels delivers cooked meals for noon consumption but my mother could not change the habit of a lifetime. Nor had my youngest brother realised that his late night cookups were costing when the same at noon was free (OK paid in advance!) – if one does not use all the stove at once and is patient enough to take longer with a lower heat than full – dice the spuds too.. The microwave is more efficient than a stove as well – breakfast after nine if heat is needed..

        If anyone wants a pretty good projection of what a PV system will deliver year round just try this calculator . My system is tracking a little above though it was lower than predicted this last January. You need to enter address, type of installation, tracking or fixed, pitch and azimuth if fixed, price per kWh from utility and press the result button for a monthly breakdown. Press buttons labelled i for explanations and assumptions.

        1. I think Hagen’s PV setup in Waitati does roughly double in the longest-day month compared to the shortest – his windmill partly balances that.( Dunedin is supposed to average about 180 hours sunshine in January versus 100 in July – New York is 150/300! )
          These are figures for CO2 per kWhr by country from the IPCC.

          Note that France, despite having not too much hydro, has half the emissions intensity for power of New Zealand. Sweden and Switzerland, which like us use hydro for about half their juice, are way lower yet. Countries that have installed a lot of wind or PV, like Germany, Denmark, Spain and Portugal, still make a lot of smoke. ( We could match Norway if we towed the country a thousand miles south, dammed every river, and built a powerline to Australia to export our surpluses.)
          Here are figures for the Canadian Provinces. Again, hydro rules, but half-nuclear Ontario is pretty good.

    1. I did a bit of site work related to a nuclear proposal in Northland back in the seventies. The site of interest was South Head Kaipara harbour because the powerful currents had something of interest relating to cooling. My job was keeping an eye on instrumentation and diagnosing from readouts the kind of repairs needed thus saving on extra diving and lost data. I knew nothing of the background John ONeil has just revealed.

  2. ‘In 1976, the Royal Commission on Nuclear Power Generation in New Zealand was set up to inquire further into the question. Its 1978 report said that there was no immediate need for New Zealand to embark upon a nuclear power program, but suggested that early in the 21st Century “a significant nuclear programme should be economically possible.”
    A power source that can crank out full power ninety percent of the time, with over half of shutdowns scheduled a year in advance for low demand periods, is ‘inflexible’? One with no guarantee of being on at any given time, and with seasonal production directly inverse to demand anywhere where heating is needed more than air conditioning, isn’t ‘flexible’, it forces the rest of the grid to be flexible to accommodate it. It takes the existing variability of demand and multiplies it. We need something to do the heavy lifting in winter, when demand is highest and hydro most constrained, not the exact opposite. A couple of gigawatts of geothermal would do the same job, if that much capacity is available. Failing that, a huge pumped storage scheme like Lake Onslow might be able to take over from Huntly and all the gas turbines, but it would take years to fill the reservoir, and it’s a long way from the major demand in the North Island. Or just keep burning gas.

    1. For the moment though, installing PV makes perfect sense. And every Kwh not going down the hydro schemes will allow us to hopefully go into the dry periods with a greater reserve of stored water in the lakes. Geo-Thermal should also be able to be scaled up further.

      I also believe that we will need to adopt a more intelligent way of using electricity. And once we actually have smart appliances connected to smart meters even freezers and fridges can be engineered to adapt their daily rhythm of power demand to the availability curve by having internal capacity to store ‘cold’.

    2. “In 1976, the Royal Commission on Nuclear Power Generation in New Zealand blah blah blah” Does it not strike you as telling that you had to go back over 35 years to find a report that suggested that nuclear power may be good for NZ ‘early in the 21st century’
      Wind in the UK generates about 85% of the time, and we do not put them on ridge tops in the roaring 40s so I would not be surprised if the average turbine % time generating in NZ were higher still. Add more wind turbines and higher marginal cost generation (pretty much all of the time fossil fuel generation) is displaced. Add even more and the generation of the next highest marginal cost generator (hydro) will be displaced. Any risk of significant hydro spill and the resulting bounty of cheap power will attract new industry and/or changed patterns of use. Low marginal costs are also a boon to the existing and emerging energy store options, buy low and sell high. All this can be achieved the same way that the existing onshore wind turbines have been deployed and financed, from as small a step as one turbine at a time built using nothing more fancy than a big construction crane. Compare that with the current headache of Finland’s new overdue and over budget nuclear reactor.

  3. Nuclear power is proposed by some as a possibility as baseload to balance intermittent sources. But this is expensive power to build and dispose of waste, and is always on isn’t it? So therefore this is not flexible or cost effective in dealing with intermittent sources.

    Conventional nuclear has also still got safety concerns particularly relevant to NZ. Given NZ relies almost totally on agricultural exports, wine exports, timber and tourism, a contamination scare would be an economic killer lasting a generation. Ask the Ukraine what happened to their agricultural export industry, it took a beating.

    Possibly thorium as it’s safer, however this is still somewhat new technology and not widespread. China is building a couple of reactors to be online in about three years and this will be interesting.

    1. Nuclear is not a good choice to balance intermittent renewables such as wind and solar. Nuclear is either on or off, which is why the French export their nuclear to the Swiss at night, who pump water up hills and sell the hydro back to the euro grid during the day.

      Hydro and CCGT gas turbines balance wind and solar, although the recent power cut in Scotland that knocked out 10% of the country suggests that even this might not work that well.

        1. I doubt that nuclear will ever be an economic option for nz given that we have such a high percentage of hydro. This could increase further if Tiwai Pt closes and releases the Manapouri load to the consumer grid. This provides something like 15 to 20% of nz electricity. If this happens then NZ could be close to 100% renewable without building any new plant (I am hazarding a guess here)

          Furthermore, demand for electricity in NZ has been fairly flat for sometime now. Given that we are becoming a nation of bean counters and computer programmers, this might continue to be the case.

      1. More rubbish from andyS. The power outage in Northern Scotland was not due to problems with power balance but was due to a problem with a major transmission line:

        Energy company SSE has said the incident, one of the largest power cuts to hit Scotland, was most probably caused by lightning, a bird strike or debris hitting electricity lines

        Trust our notorious denier to try and blame the problem on renewables such as wind and solar power.

        1. So the problem was “most likely” caused by birds, a lightning strike, or debris

          Good that narrows it down a bit.

          I expect you will get back to me when you know what the actual cause was.

          Of course, outages from wind in the UK are covered by STOR (Short Term Operational Reserve) provided by arrays of diesel generators. Not very “green” are they?

          1. STOR are not added to the grid because of renewables. We have always had STOR and you probably have them in NZ too. For instance a hospital will have its own diesel generator set constantly hot and spinning (electrically, no diesel fuel) ready to cover any power cut. Many firms, water works utilities etc have these too. As these are already connected to the grid they could earn their keep by providing short notice and short term support to the grid, giving a larger generator more time to step in. They used to have a dial up modem connection, now they tend to have a broadband connection, giving a much faster response time. So fast that they can now respond as fast as frequency response contracts (industrial equivalents to your emersion heater ripple switch) and undercut these. The result, a sudden emergance of new STOR and the likes of Scotland Against Spin and andyS claiming this was in response to wind turbine deployment. Same old same old andyS.

            1. The ‘eureferendum’ website is your source! Really andyS, we know you can be a twit but this is like an OTT parody of a twit. As I pointed out to you above, these STOR generators can now have broadband connections to the grid operator letting them match existing frequency response contracts for speed of response and undercut them, therefore lots of new STOR emerging to displace the existing frequency response contracts. Only to do with wind power in the febrile imaginings of the swivel eyed loons and the likes of Scotland against Spin. Is it some sort of self destructive compulsion that drives you to cite the likes of Richard North? His record on climate science has not been good has it now andyS. You derided Ian Forester for noting the press release of THE ACTUAL GRID OPERATOR on what caused the Scottish power failure as ‘arm waving’ but once again you are flailing so wildly I am left picturing Magnus Pike on a high wire.

            2. Dear Mr Beaker
              I understand that you find the “EUReferendum” website offensive. (I am not sure why, since the articles are often well researched and Dr North is certainly no fan of UKIP)

              However, perhaps you can go through the well researched article I linked to and detail which of the presented facts are wrong.

              Simply referring me as a “parody of a twit” doesn’t really add much to the conversation.

            3. Dear Mr Beaker
              You claim that Dr Richard Norths blog is written “for twits by twits”

              Dr North has written several books on various topics that you can purchase from Amazon

              Dr North uses his real name in correspondence as opposed to those that use handles from the popular TV series The Muppets

              Like yourself, for example

            4. You don’t know my name isn’t Beaker do you. Have you been trawling around trying to find a Beaker in the UK telephone directories? I had better go ex-directory if you are going to start stalking me. If ‘Beaker’ is a pen name, do you think I have several others here, what do they call those again, sock puppets?
              As for Dr Richard North, he has ghost written a number of the Christopher Booker hissy fits in the Telegraph has he not. Not exactly the height of transparency by either of them.

            5. You don’t know my name isn’t Beaker do you. Have you been trawling around trying to find a Beaker in the UK telephone directories?

              I had no idea, I am sorry. I thought you really were called Mr Beaker.

              (* rolls eyes *)

      2. In the absence of any intermittent source like wind or solar, hydro and gas turbines also balance each other and the ever changing demand. Remember, changes in demand are far faster than any change in intermittant renewable output.
        And as ianF notes, the power cut in Scotland was nothing to do with renewables, not that that stopped Montford suggesting that it did. What does that suggest eh andyS?

        1. The suggestion that the power cut arose as a result of failure of backup generation emanated from the Scotland Against Spin Facebook page

          It was just a theory based on several accounts that the cut coincided with a sudden drop in wind that wasn’t forecast.

          No one said definitively that this was the cause. I have yet to see a real explanation, other than the arm-waving ones given

  4. We don’t need conventional nuclear in Northland because we already have it and its called the Ngawha geothermal plant. It almost supplies the whole of Northland but is just going to be expanded so that we can export to Auckland. If we electrified the railway we could cut 100 trucks a day from making the long run North and South with supplies. (sorry to bang on again)

  5. ‘I doubt that nuclear will ever be an economic option for nz given that we have such a high percentage of hydro.’
    In the early seventies Switzerland, Austria and New Zealand all made between 75 and ninety percent of their power from hydro. Switzerland built five nuclear reactors, ran a referendum in 1979 which supported them by only 50.5%, and now produces 94 percent of its electricity from hydro and nuclear. Austria had a referendum in 1978 which came out 50.4% against nuclear, shuttered the reactor they’d already completed, and started building coal plants to replace it. New Zealand built Huntly.
    CO2 emissions per kWh from electricity for Switzerland are more than twenty times lower than for Austria or New Zealand. Scotland’s power generation emissions are currently about fifty times worse than Switzerland’s, but if the Salmond government’s ambitious targets are met, by 2030 they will only be seven times worse.
    ‘We don’t need conventional nuclear in Northland because we already have it and its called the Ngawha geothermal plant. It almost supplies the whole of Northland but is just going to be expanded so that we can export to Auckland.’
    Auckland uses 800,000 to about 1,600,000 MW ( the peak on winter evenings about 8pm ) so whatever Northland can spare of Ngawa’s 25 or so MW won’t make much difference. Incidentally, geothermal is like nuclear in a couple of ways. Continuous power output, rather low thermal efficiency ( only about 10 percent versus a current reactor’s 33% ), and a lifespan on the order of eighty years of so. Alpha decay of uranium 238 only gives about two percent as much energy as fission, and the half-life is about the same as the age of the earth – 4.5 billion years. So once you’ve leached the heat out of the rocks you drill down to, they won’t warm up again for thousands of years. That’s still a lot longer payback than 25-30 years projected for solar panels and wind turbines.

    1. You do of course need to check that you are comparing like with if not identical, at least in the same ball park. NZ does not (and likely will not in my preschoolers lifetime) have any interconnectors allowing its grid to trade electricity with any other nations of significant size. You have one to join your two small grids together, but connections to a variety of markets the size of France, Germany and Italy? No. Nuclear power loves interconnectors, and NZ is less likely to get them than a pair of nuclear reactors some time in the early part of the 21st C.
      As for comparing Switzerland with Scotland, again, you do need to be a little more cautious when contrasting emissions for instance, does Switzerland have a refinery as large as the Scottish one at Grangemouth, or for that matter does Switzerland have a refining sector as large as the single Grangemouth refinery?
      Do you see?

      1. The figures are only for electricity production – grams CO2 per kilowatt/hour. Scotland’s renewable plan is likewise heavily dependent on interconnectors, to trade surplus windpower with. ( It also relies on wave power and CCS, neither of which has been successfully demonstrated.)
        For comparisons with an isolated grid like New Zealand’s, you could look at Iceland, Chile (mostly ),Hawaii, Japan, South Korea and Taiwan. Chile is closest in population density.
        Barring Iceland ( population about 300,000 ) they’re all pretty reliant on coal and gas. Korea has a very vigorous nuclear programme, those of Japan and Taiwan are struggling politically, and Chile has expressed some interest.
        Hawaii has the highest electricity prices in the US, but has so far only managed to get about ten percent from renewables.

        1. Grangemouth refinery also generates power to the grid as part of its operation – you see, simplistic comparisons don’t get us anywhere. Also, Scotland HAS interconnectors, being part of the UK grid it is connected to France and Holland. More and larger interconnectors planned.
          10% so far is not to be sniffed at, and Hawaii is continuing to add renewables.
          Korea has a big nuclear programme but it also has the state willingness (common in the past to France and Japan) to tip money into Grand Projects of huge benefit to pet contractors and massive liability to the state. Time for NZ to Think Even Bigger?
          Oh and Peru has invested massively in Hydro, selling power to its neighbours. Trouble is that a lot of its hydro resource is at risk from climate change, the retreat and loss of glaciers threatening the year round water feed. Wind turbines being added to the grid in lots of South America. More likely to follow.

          1. ‘Korea has a big nuclear programme but it also has the state willingness (common in the past to France and Japan) to tip money into Grand Projects of huge benefit to pet contractors and massive liability to the state.’
            Governments everywhere have built nearly all the hydro and nuclear capacity which now produces 12 percent of the world’s primary energy.( Some has been privatised since.) Burning coal, gas, oil, rubbish and plants makes 87 percent plus. Non combustion renewables – geothermal, wind and solar- less than one percent. Long after the de Gaulles and Francos, the Brezhnevs and Roosevelts and Muldoons, have been put safely underground, the dams and reactors built under their watch are still churning out power. That’s a liability? 35 billion tons of CO2 a year is a liability.

            1. You can add railways, motorways and war to your list of Hydro and nuclear. Yes nuclear is low carbon and the existing plants are welcome, Germany is being very foolish to precipitously shut down generators without a significant safety issue (greater than having it still there decommissioning but not generating). But that does not mean that now, lobbing cash at a big nuclear build is the sensible thing to do, particularly for NZ. France and Japan undeniably use their high speed rail projects as pork barrel politics, but if you infer from that that trains are bad you are being as big a twit as andyS. France has a very high penetration of nuclear in its generating mix, but that % is going down as they add lots of wind turbines. S. Korea is pumping lots of treasure into its nuclear build, and that is in no small part because it benefits some big and politically important businesses there.
              Now then, you have been round the houses a few times, do you still endorse NZ adding a pair of nuclear reactors to its generator mix?

            2. Nice of you to refer to me as a twit again Mr Beaker.
              Whilst you are making sneering content free swipes at me, maybe you could get back to me on the STOR questions that I raised.
              After all, I have to go to blogs like EURef to get information about this.
              Representatives of the wind industry just sneer and insult anyone that questions their “industry”
              So, Mr Beaker, why are large arrays of diesel generators being deployed across the UK, if not to pick up the short term fluctuations brought about by the inherent instability brought about by wind?

            3. andyS – “Whilst you are making sneering content free swipes at me, maybe you could get back to me on the STOR questions that I raised.” But if you actually read my ‘content free swipes’ as you call them, you will see that I explained (twice!) why the UK has seen a recent increase in STOR deployment. Try reading here and here
              So if you actually READ these comments, you will see that the UK expansion of STOR is because with the advent of broadband connection to the grid, they can react faster and displace frequency response curtailment from the market. There are more STOR because of improved IT (something you should comprehend!) not because of wind turbines.
              Now you don’t have to read my comments, its your choice after all, but if you don’t want to look like a twit it is best to read something before dismissing it as content free.

            4. I understand that STOR has been facilitated by improved it infrastructure and software, enabling us to create a “virtual power station” that can respond to short term fluctuations in the grid with a rapid response.

              This point was made in Dr Norths blog that I linked to.

              Due to the EU large combustion plant directive and other factors, the margin in the UK grid has been reduced to a critical level, prompting Ofgem and others to,warn of impending blackouts. North claims that this won’t now happen, because of STOR, although at great expense

              On the Natiomal Grid website (I don’t know if this is a reliable source) they claim that wind fleets can cut out with less than 15 minutes notice if the wind is too strong. This requires a rapid response from spinning reserve or STOR.

              Of course, we still have base load, follow on load and peak load to deal with, generally these are fairly deterministic, and easier to predict than wind fluctuations.

              Maybe you have other information that you can share with me.

            5. Beaker, I went back and read the linked comments you provided and I note that they start with a tirade of insults against me.

              You have to excuse me if I don’t filter out the small amount of technical detail that you provide as this is lost in the forest of content-free abuse.

              However, I duly note that diesel generators are being deployed because of broadband availability

              Can I expect to see an outbreak of diesel generators across NZ as “ultra-fast broadband” is rolled out?

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