Climate policy rests, to no small extent, on computer models peering quite some way into the future, so there’s a certain irony that a number of renewable energy projects have come to grief because the parties concerned (1) failed to realize that the ultra-low interest rates of the last decade might be vulnerable to some mean reversion and (2) that inflation might one day tick up again.
Ørsted, the world’s biggest offshore-wind-farm developer, came out with a decent set of results on Thursday, which were well received by investors after some very hard times. Despite that, Ørsted CEO Mads Nipper has warned (although this should have come as no surprise to anyone paying attention) that higher interest rates will push up the price of renewable energy.
The Financial Times:
Renewable energy projects are sensitive to interest rates, which have been rising since 2021, because developers need to raise money to cover high upfront costs — particularly in the wind sector.
Energy consultancy Wood Mackenzie found in a recent report that a 2 percentage point rise in US interest rates could drive up the overall cost of a renewable energy project by 20 per cent.
Somewhat ironically, one of the factors likely to push up interest rates in the coming years is the massive cost of the energy “transition.” In some respects, consumers will be paying twice for this great leap backward.
Leap backward? Bit harsh?
Well, not necessarily. One of humanity’s achievements over the last couple of centuries has been the way in which we have lessened our dependence on the vagaries of the weather, an aspect of our progress that developing a dependence on wind will (partially) reverse.
The fact that wind is intermittent (it doesn’t always blow) is hardly a secret, and work on dealing with that problem continues, whether by improvements to energy storage or finding a way to maintain baseload capacity on an economically sustainable basis. Should these issues have been resolved before pouring billions into wind? Yes, but part of the essence of central planning is that C does not follow B does not follow A.
But surely the wind won’t die down for long periods?
We can’t be so sure. I’ve written in the past (please click on the link for more details) about a phenomenon known as Dunkelflaute, a German term that can be translated as “dark lull” or “dark doldrums.” This describes a weather pattern during which there is not a lot of sun and not a lot of wind. Meteorologists refer to this state of affairs as anticyclonic gloom, a magnificent term in its own right.
These doldrums can last a while, as I noted before. According to some analysis, once Germany achieves its goal of relying solely on renewables, the gap between supply and demand during the most extreme Dunkelflautes could be about ten gigawatts. That’s equal to about a dozen typical gas or nuclear plants.
And then there’s this: in a post on Substack the other day, Robert Bryce noted that the Energy Information Administration had published a report showing that U.S. wind energy production declined by 2.1 percent last year.
That’s not great, but, as Bryce points out, there’s an extra twist. The fall in wind production was despite an increase in capacity (of 6.2 GW). That does not look to me like the scorecard of an energy technology that is fit for purpose, even allowing for the fact that wind-turbine output is typically far below notional wind capacity.
Bryce turns to the IEA for an explanation, and finds this:
Lower wind speeds than normal affected wind generation in 2023, especially during the first half of the year when wind generation dropped by 14% compared with the same period in 2022.
Maybe just a bad year? Sure. But, to repeat myself, one of the hallmarks of our technological advance has been enabling us not to have to worry too much when the weather fails to do what is expected of it.
What’s more, as Bryce notes, “if climate change means we will face more extreme weather in the years ahead — hotter, colder, and/or more severe temperatures for extended periods,” it makes no sense (he puts it more colorfully than that) to make our electric grid dependent on the weather. But, he writes, “by lavishing staggering amounts of money on wind and solar energy, and in many cases, mandating wind and solar, that’s precisely what we are doing.”
Meanwhile, the billions of dollars of “investment” in wind keep pouring in. I put “investment” in scare quotes because that’s not really what it is. In a recent article on net zero I wrote this:
Much of the money to be invested [in getting to net zero] would be spent replacing assets that are performing well but, from a climate-policy perspective, are now viewed as flawed. Such “investments” are little more than spending on glorified repair work, some of it of rather shoddy quality: For example, wind is a less efficient source of energy than the fossil fuels it is meant to supersede.
Bryce asks us to imagine an alternative past in which instead of investing $300 billion or so in wind energy (that’s the figure spent in the U.S. between 2004 and 2022) we had invested in greenhouse-gas-emission-free (post-construction) nuclear energy:
Imagine if the U.S. had spent that same $300 billion on a weather-resilient form of generation, like, say, nuclear power. That’s relevant because Unit 4 at Plant Vogtle in Georgia came online on Monday. With that same $300 billion, the U.S. could have built 20, 30, or maybe even 40 GW of new nuclear reactors with a 92% capacity factor that wouldn’t rely on the whims of the wind.
Well, that would have taken common sense of a type rarely found in climate policy. It would also have taken an environmentalist movement that understood trade-offs.
Impossible dreams.