Energy transition at a glance

While the Energy Transition is driven by new technologies, the pace of the transition will be influenced by consumer choices and government policies. Understanding the Energy Transition is key to making good choices and enacting sound policy, especially now that Canada is committed to decarbonization goals under the Paris Climate Accord. Get it right, and the Canadian and provincial economies can be stronger and more competitive in the low-carbon future. Get it wrong, and Canada can damage both its economy and its climate mitigation efforts.

Energy writer Markham Hislop takes Resource Works on a six-part journey of understanding. This is the first part

Saudi Energy Minister Khalid Al-Falih told an international energy conference in Houston recently that the world’s leading oil producer expects the cost of clean energy technologies like solar power and electric vehicles to continue dropping and their marketshare to continue rising.

He also acknowledged that “energy transformations are complex phenomena that take considerable time to unfold.” Last summer, Royal Dutch Shell CEO Ben Van Beurden gave a speech to the Norwegian Parliament in which he echoed Al-Falih, talking about the challenges of meeting a rapidly rising global energy demand while reducing greenhouse gas emissions. “So the energy transition is likely to play out in a different way in different places…The pace of the transition will differ too. In some places it will be relatively fast, in others relatively slow.”

When Big Oil accepts the idea that fossil fuels will one day be replaced by clean energy, it’s safe to say that the energy transition has arrived.

Count Canadian politicians among the converted. Natural Resources Minister Jim Carr says the Trudeau Liberals explicitly based their energy and climate policies upon the energy transition worldview, pointing to the Prime Minister’s comments at a 2016 Vancouver clean tech conference as proof: “[W]e must continue to generate wealth from our abundant natural resources to fund this transition to a low-carbon economy,” Trudeau told the audience. “The choice between pipelines and wind turbines is a false one. We need both to reach our goal.”

Shannon Phillips, Alberta environment minister, says Rachel Notley’s NDP government based its Climate Leadership Plan upon the twin principles of decarbonizing the provincial oil and gas sector, especially oil sands bitumen, and beginning the transition to clean energy (a goal of 30% renewable electricity generation by 2030). But the Alberta oil sands account for 9.3% of Canadian greenhouse gas (GHG) emissions

British Columbia is in a unique position because Vancouver is the epicentre of the national environmental movement and the energy transition has been accepted for years (unlike Alberta, where conservative politicians still question global warming science), clean hydro power makes up almost 100% of provincial electricity, and the temperate climate of the lower mainland and Vancouver Island mean consumers spend less on energy than Canadians east of the Rockies.

At the same time, Premier Christy Clark has signed on to the Trans Mountain Expansion pipeline and is promoting a huge build-out of the LNG industry.

How fast can the Energy Transition take place?

Vaclav Smil, a University of Winnipeg professor and the pre-eminent scholar on energy transitions, argues that transforming an energy system is a very slow, laborious process.

Modern citizens are accustomed to thinking in “Internet time” and assuming that technical change occurs at the speed of Moore’s Law (the number of components on a computer microchip will double every 18 months, an annual growth rate of 46%). Energy systems, however, change at a rate of two to three percent a year. “Change at the rate of energy systems means doubling efficiencies, or halving the costs, in 35 years — a vastly longer timespan,” says Smil.

For example, battery storage for power grids is improving at the rate of three percent a year, according to Tim Grejik, an analyst with Navigant Research of Denver. There are occasional “step changes” in battery technology but they don’t really affect the annual average rate of improvement. And changing too fast can lead to big mistakes. ”This is the electrical grid, one of the largest synchronized manmade machines in history. Everything needs to work together.

That's why it might feel frustrating and utilities might look like they're in the way of progress, but really they're the shepherds of the way forward,” said Grejik. A slow, incremental approach is best, he argues: “It'll look like a great leap forward 20 or 25 years from now, but over time it'll just be steady incremental improvements with a punctuation mark here or there.”

Imagine applying the example of battery storage and power grids to the global economy.

Because that’s more or less the plan: Decarbonize the world’s energy system by shifting from fossil fuels to electricity (with a nod to existing low or no carbon systems). The International Energy Agency says this is one of the top priorities of global nations, which will need to invest $44 trillion in energy supply and another $23 trillion in energy efficiency through 2040 just to meet current policy goals. And the investment will be needed during a time when Asia, particularly China and India, are pushing ahead with rapid economic development that will drive energy demand growth up by 37 percent by 2035.

If energy transitions occur slowly, as Prof. Smil says, then imagine the challenge of transitioning the global economy during rapid growth using clean energy technologies that are uncompetitive,

immature, or still in the laboratory. No wonder Bill Gates thinks the world needs an “energy miracle.” And no wonder the G7 countries set 2100 as the end date for the decarbonizing process.

How do we know the global economy has begun an energy transition?

This is a common question. And a common criticism from fossil fuel proponents. Electric cars and solar panels and wind turbines have been around for decades. How do we know Tesla isn’t a flash in the pan? How do we know that wind farms won’t be dismantled after subsidies run out? Why is this time different?

I first encountered similar questions during my graduate thesis research 30 years ago, writing about the transition from horse-drawn technology to power-farming in Saskatchewan before the Great Depression. The letters to the editor sections of the Prairie farm press were full of vigorous debate about what tractors and combines meant for Prairie farms. Critics of the new technology worried that slick salesmen would con farmers into buying unreliable machinery, bankrupting the typical 160-acre wheat operation. Sometimes the critics were right. But by 1930 power-farming was firmly established in Saskatchewan agriculture and only a few years after World War II horses were rarely seen working in the fields.

Why? Falling machinery prices and rising value. Consumers understand how lower prices stimulate demand - ask any grocery shopper with a handful of coupons. But rising value is a bit trickier. Take the iPhone. Prior to 2007, when Apple introduced its revolutionary smartphone, cell phones were mostly the standard cheap models that cost around $100 or maybe a Blackberry for a few hundred more. You could make a call and do a few simple functions, like text or use a calculator, or email securely. The iPhone, by contrast, was a mini-computer that happened to make phone calls. Sure it cost $800, but thanks to free or cheap apps the iPhone could do thousands of things. And replace a variety of stand alone devices like cameras, alarm clocks, and GPS. Smartphones offered consumers a huge increase in value for an acceptable increase in cost. Now everyone has one: last year over 1.5 billion smartphones were sold worldwide, according to technology research firm Gartner.

As a rule of thumb, clean energy technologies do not provide smartphone-like value to consumers, businesses, or industry. And they’re more expensive. Sometimes much more expensive, two or three times the cost of existing energy technologies. But they do offer some value.

For instance, one of the reasons governments want wind and solar power to replace coal plants is that particulates and other emissions harm human health, which drives up healthcare costs, some of which they pay for. Reducing health expenditures represents value to hard-pressed finance ministers.

One more example: Last year I was interviewing Rudy Garza, VP of communications for CPS Energy, the municipally-owned utility for San Antonio, Texas. We were discussing why CPS was replacing ageing coal plants with natural gas combined cycle facilities and wind turbines. Garza told me that gas and wind were competitive with coal, but had one additional advantage: no fuel costs. Or, as accountants like to say, no variable just capital costs. Being able to calculate long-term generation costs gave CPS a competitive advantage, one that might not be obvious.

That additional value can be key to the adoption of clean energy technologies.

Markham’s model of technology diffusion

When reporting on and writing about clean energy technologies, I use the simple model developed all those years ago for my thesis.

Step #1 - Identify accelerators to diffusion

Accelerators speed up diffusion. Does the new technology solve a problem? Does it provide more value? Is it “cool,” like the Tesla Model S? Is it subsidized and supported by government policy, like wind and solar energy in the United States? Is capital (especially large amounts of capital) being spent on research and development?

Step #2 - Identify constraints to diffusion

Constraints slow down diffusion. Is the new technology expensive? Does it perform poorly compared to the competition? Are consumers aware of the technology?

Not all accelerators and constraints are created equal, so I list them in priority, strongest to the weakest. By the time I’ve identified all or most of the accelerators and constraints, interviewed experts about them, compiled whatever data is available, I have a pretty good idea about how fast the new technology is likely to be adopted.

Step #3 - Put the technology on the S-curve

All technologies follow some form of the S-curve. Technologies that diffuse more slowly have a more horizontal curve. Technologies that diffuse more quickly have a steeper, straighter curve.

What I’m looking for is one or two measurements of market penetration. For instance, in the United States electric vehicles now make up 1% of annual vehicle sales, but only .002% of the national auto fleet (measured since 2011 when the Chevy Volt and Nissan Leaf first hit the market). Those numbers put EVs right at the bottom of the S-curve, which suggests they still have many years of slow diffusion ahead of them.

Step #4 - Put the technology on Rogers’ diffusion bell curve

Everett Rogers was a pioneer of technology diffusion research. He created a bell curve (see figure ___) whose terms - Innovator, Early Adopter, etc. - will be familiar to many consumers.

The percentages tell us roughly how many consumers are in each category.

There are many characteristics of the various types of adopters, but I focus on one: how much of a price premium is that consumer willing to pay?

An innovator will pay a very high price premium, sometimes two or three times the cost of the old technology. I’m an Early Majority Adopter, meaning I will generally pay 10% to 30% more for the new technology. For instance, when my wife and I bought a flat screen TV 10 years ago, we chose the well-established plasma from a reputable brand (Panasonic) when it came on sale.

We paid more than for any TV we had purchased in the past, but thought we had done our homework and received good value.

Step #5 - The rule of thumb

Finally, how does the new technology compare to the rule of thumb, which is that new technologies take 50 years to progress from zero to 70 or 80 percent marketshare. Some technologies take a little less time and some take a little more time, but I’ve asked many economists and analysts and they agree 50 years is a reasonable average.

Now, imagine the number of technologies involved in transitioning from fossil fuels to clean energy. Is it thousands? Tens of thousands? Hundreds of thousands?

Whatever the number is, it’s very large. Primarily because we’re not only changing from one type of fuel (hydrocarbons) to another (electricity), we’re also changing all the technologies that burned the old fuels. Think of the many, many technologies involved in transportation and buildings and industry and power generation and agriculture and so on that must be re- engineered to a greater or lesser degree.

Many of the technologies are new and immature. Many are still in the laboratory and a decade away from being commercialized. Many haven’t even been thought of yet. Now imagine managing the complexity of the Energy Transition on the scale of the global economy.

Now imagine doing it while global energy demand - driven largely by rapid economic growth in Asia, led by China and India - soars 37% between now and 2040.

“If we’re talking about moving from one generation of battery to another generation of batteries, for example, that’s very distinct and manageable and study-able,” says Fred Beach, assistant director for energy & technology policy at the Energy Institute, University of Texas at Austin.

“But once we talk about concepts like a global energy transition, it becomes unbelievably complex and interlocks with many other things and many other drivers.”

COMPLETING THE ENERGY TRANSITION AROUND 2100 - MAYBE

In 2015, then Prime Minister Stephen Harper joined with other G7 leaders to pledge the end of fossil fuel use by 2100. Not surprisingly, environmental critics complained that 85 years was far too long - global warming had to be tamed in a few decades, not the better part of a century.

“There are reasons for cynicism: the long time frame means none of the politicians involved in the commitment will even be alive, let alone held accountable, for meeting the target in 2100; Canada and Japan watered down Germany’s proposal to end fossil fuel energy by 2050; and many governments, including Canada’s, haven’t met even their current weak commitments,” wrote David Suzuki in the Georgia Strait.

The more I report upon the development, diffusion, and adaptation of clean energy technologies - and the resilience of fossil fuel technologies - the more I’m convinced 2100 is a reasonable target. Perhaps even an optimistic target.

But as Suzuki said in his op-ed, at least Harper and his fellow leaders took “matters a step further by envisioning a fossil fuel–free future.”

That clean energy Utopia appears to be possible - and as the Energy Transition gathers steam, almost inevitable - but it will not happen quickly.