Stranded Trillions? A Note on RethinkX's Report on "The Great Stranding"

In recent years the RethinkX think tank has been the source of some of the more interesting analysis of the major problems facing the world today (energy, climate, food production)--its address of those issues theoretically rigorous, data-based, bold in its conclusions, and while not slighting the challenges and dangers the world faces, managing to offer intelligent arguments for something other than hopelessness in the face of exceedingly daunting difficulties and grave dangers. Where the climate-energy problem is concerned they see the solution lying in the falling price of renewable-supplied electricity, a pattern RethinkX's authors have compared to the falling price of computing power.

Recently the RethinkX team's Adam Dorr and Tony Seba have produced a report ("The Great Stranding: How Inaccurate Mainstream LCOE Estimates are Creating a Trillion-Dollar Bubble in Conventional Energy Assets") on one of the less obvious consequences of the kind of energy transition they anticipate--namely that new investment in older, conventional electricity generation in coal, gas, nuclear and hydro power will prove to be "stranded," unviable investment. This will be due not to changes in laws forcing "greener" energy on utilities, or government subsidies helping to make it happen, but rather the sheer market forces that have already made renewables cheaper than the older options, such that photovoltaic Solar and onshore Wind, in combination with likewise cheapening Battery backup ("SWB"), are well on their way not only to being the cheapest source of electricity around by 2030, but to providing electricity at "near-zero marginal cost." The result is that selling electricity provided by the other sources at anything approaching break-even cost, never mind a profit, becomes an increasingly rare occurrence, driving down the capacity usage of fossil fuels, nuclear and hydro-based generation to financially unviable levels, with coal's recent past the very near future of the rest. (America's dwindling, aging coal plant fleet, in spite of government solicitousness, and the improvement of the average by the shutting down of the least competitive, averaged a mere two-fifths utilization rate as of 2020, compared with two-thirds in 2010. As a result coal's share of American electricity production fell by half from 40 to just 20 percent. As RethinkX acknowledges cheap fracking-produced gas was the principal cause in coal's decline, but even cheaper SWB will be factoring more heavily in every case in the years to come.)

In spite of this recent history (to say nothing of the pressure on business from civil society to move toward zero-carbon operations) business is continuing to invest trillions in indifference not only to the ecological implications but the dollars-and-cents facts as RethinkX have reported them--implying enormous confidence in the enduring viability of those more conventional sources. One possible conclusion is that they know something the rest of us do not. The other is that they are profoundly misinformed and making a very, very big mistake. It is the latter conclusion that RethinkX draws, holding that the investment is being driven by deeply flawed studies from such institutions as the Energy Information Administration (EIA) that greatly exaggerate the likely capacity usage of all those traditional sources, and thus greatly understate the "Levelized Cost Of Electricity" (LCOE) that takes into account all the associated expenses divided per kilowatt-hour. To cite an obviously glaring example they presume an 85 percent capacity usage rate for coal all the way through 2060, a figure absolutely without basis in recent history--the average capacity usage just 56 percent in 2010-2019, 52 percent in 2015-2019, and 47.5 percent in 2019, the trend fairly consistently one of decline even before the exceptional year of 2020 dragged the figure down so much further in the way noted above. Using more realistic figures, which have electricity providers recouping their costs from far lower capacity usage--far fewer per-kilowatt hours sold--translates to a higher LCOE,with the real per-kilowatt hour LCOE of a coal plant established today not 7.6 cents as the EIA said, but 32.4 cents, over four times as much. Thus does it go with the other sources (gas, nuclear, hydro), with the gap only going up over time (with a coal-fired plant established in 2030 likely to have to sell its electricity at 65 cents per-kilowatt-hour).

Quite blunt about the ill-foundedness of the more commonly touted figures (a "dogma . . . promulgated by a small number of self-appointed authorities within the electric power sector . . . that confirms and amplifies a fixed set of thoughts, beliefs and biases" in favor of conventional energy sources and against renewables), the result has been a "financial bubble" in coal, gas, nuclear and hydro that the RethinkX authors compare to the subprime mortgage bubble. This is not least in regard to the risk that, after having made massive investments that were not just ecologically terrible but quite stupid from a business standpoint, the public will be called on to rescue the parties that made those investments at its expense in the same manner seen time and again these past four decades. (Dorr and Seba, of course, argue that any such bailout should be opposed, and in the meantime everyone doing what they can to minimize the danger of such an outcome--investors steering clear of such investment, and financial lenders and government overseers not enabling those who would make the investment anyway.)

It is another bold prediction from the RethinkX team--the more striking because so few are questioning that massive investment in these older electricity generation technologies we are seeing on financial (or for that matter, any other) grounds. Indeed, it can seem as if the mainstream of the business world, and the media prone to faithfully promulgate its prejudices; and RethinkX; are in two entirely different worlds. Which of these is living in the real one, which in the fantasy? As it happens, the former have been relentlessly biased in favor of fossil fuels and nuclear power, and ferociously hostile to renewables, with all the fury of established businesses (and their allies) looking at a potentially disruptive force--and consistently underestimated, and even strained to deny, the long-term improvement in the economic viability of renewables (something to remember when looking at today's headlines, with their clearly delighted expressions of a "comeback" for fossil fuels and nuclear as, overlooking the way inflation is affecting the price of everything, they gloat about the supposed end of an era of falling renewables prices).

For its part RethinkX has not been unknown to be overoptimistic about the rapidity of dramatic and potentially beneficent technological change as their earlier report on Transportation-as-a-Service makes clear. Still, in the case of self-driving cars RethinkX was wrong about a technology that was as yet poorly understood by its own developers (the potential of today's machine learning, running on today's computers, to acquire an imperfectly specified level of competence at driving), which necessarily made any extrapolations that much more tenuous. By contrast, when it makes comparisons between solar and coal, for example, it is discussing developments that have for the most already happened, not only in their view but the view of other, less audacious, observers as well. (Lazard's report of last October had unsubsidized utility-scale solar running approximately $30-$40 and wind $25-$50 per megawatt-hour, versus $45-$75 for combined cycle gas, $65-$150 for coal, and $130-$200 for nuclear.)

Once again, solar and wind are cheaper than the established sources, a cheapness sufficient that even with current storage costs added in (which may add a $20-$40 per hour additional cost), they are, and are likely to remain, a good deal cheaper than coal or nuclear generally, and even competitive with gas in many cases. Accordingly the question becomes how much more progress one can expect in further lowering solar, wind and battery costs. As it happened the drop in the median price of solar has slowed, gone from perhaps a fall of 13 percent per year in 2010-2015 to a fall of 7 percent per year in 2015-2020. The price of wind power was almost as brisk, some 6 percent a year in that same 5 year period. The fall in the price of energy storage capacity has been more impressive still, an 18 percent a year drop in 2015-2020. Were the next five years to see only half that rate of progress across the board we would still see a one-sixth drop in the price of solar, a one-seventh drop in the price of wind, and a better than one-third drop in the price of batteries, meaning that in 2025 we would start to find ourselves looking at solar and wind with storage prices beginning under the $40 per megawatt-hour mark in today's terms--cheaper than the low end for combined cycle gas. Were the rate of improvement for 2025–2030 to average just half of the already reduced rate of the preceding five years we would at the end of them see solar and wind 20–25 percent cheaper than they are today, and battery storage 50 percent cheaper, giving us battery-equipped solar-and-wind power for as little as $30 per megawatt-hour, and even at the high end of the price range ($60) compete with medium-priced gas at today's, and likely tomorrow's, rates. (And in the view of proponents like RethinkX there is plenty of reason to expect much, much better than that.)

The result is that unless per-kilowatt-hour progress in renewables and batteries abrupt comes to a halt in the next few years, or technologists dealing with the already very mature technologies of coal, gas, Generation II atomic power or hydro pull off a technical miracle (or rather, several of them), it would be very hard to picture RethinkX being very far off the mark in this case about not only solar but the SWB combination beating the competition on price by 2030 as they predict. Accordingly it seems to me RethinkX's prediction deserves far more attention, and far more respectful attention, than it has been accorded to date--and indeed, far more respect than most of the "experts" the media so relentlessly flatters and promotes even as they so consistently show themselves lacking in the competence that business and society alike so sorely need.