Tuesday, September 1, 2009

Scale of Replacing Fossil Fuels in Perspective

The physicist David MacKay has written an interesting piece on renewable energy completely replacing fossil fuels. The scale of the challenge is immense - but not insurmountable:

"Today, the average European consumes 120 kilowatt-hours per day. That’s more than double the world average, but lifestyle changes and determined switches to more efficient technologies for transport and heating might enable a modern European quality of life to be enjoyed for an energy cost close to the current world average, perhaps 60 kilowatt-hours per day a person.

What sort of building project is required to deliver that much energy?

For illustration, imagine getting one-third of that energy from wind, one-third from desert solar power and one-third from nuclear power.

If a country with the size and population of Britain — 61 million people — adopted that mix, the land area occupied by wind farms would be nearly 10 percent of the country, or roughly the size of Wales. The area occupied by desert solar power stations — in the case of Britain, they would have to be connected by long-distance power lines — would be five times the size of London. The 50 nuclear power stations required would occupy a more modest 50 square kilometers.

The effort required for a plan like that is very large, but imaginable. Countries that claim to be serious about creating an alternative energy future need to choose a plan, stop arguing and get building." (David MacKay/NYTimes)
This shift toward renewables on such a large scale will only take place if it there is an economic advantage in doing so. This will require a change in the time horizon energy investors seek. For example, most oil and gas investors look to have their initial investment repaid in under 12 years (see the PE ratios of top oil and gas producers).

The repayment time horizon for wind, solar, geothermal, nuclear and other sources of power tends to be much longer than that of fossil fuels.

There are many financial solutions to this timing disadvantage. One solution being used is for the government to step in on behalf of taxpayers and quicken the pace which investors get their money back. Such government spending is unsustainable.

Wind and other renewables have to compete without subsidies if they are to be scaled to the size David MacKay mentions. A shift to renewables on a MacKay scale may have to wait until fossil fuels production declines. Only then will high energy prices provide a sufficiently quick pace for renewable investors.
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