Energy Transition will Fail, it's about Capacity Factors
Struthers Report V29 # 9.1
Most investors including fund managers and main stream analysts are being fooled by the transition to renewable energy. It is no where near what they believe. To make my point a report from the well respected EIA is making the rounds that says renewable s will be 1/3 of electricity generation by 2024.
Here is a chart from an EIA 2022 report on electrical generation by technology.
Now, I will say this information is quite accurate and true, but here is the thing and it is a very very big thing.
The graph is based on installed capacity and expected installed capacity. However, it does not consider the capacity factors. Nothing generates power at 100% of the capacity. Nuclear is the highest around 95% because it is too costly to shut down so they keep them running. Coal and oil are up around 85% to 90% because they keep them running for base load. Natural Gas is only around 35% to 40% because it is used as swing production. They turn on the gas turbines when demand is high, usually through the day and then shut them off when demand drops at night.
The chart above shows solar with the strongest capacity growth. This is the worst possible choice based on capacity factors. To be clear, the solar capacity factor is the ratio of the actual power produced by a solar system in a particular period of time to the maximum possible power that can be produced by the system. The typical values of the solar capacity factor are between 10% and 25%. The solar utility power plant tries to utilize the best locations, capacity factor is around 24.5%.
So the real power output from solar will only be about 1/4 shown on the above graph. Wind is a bit better with land based wind capacity factors in the U.S. ranging from 24% to 56% and averages of 36.6%. Offshore winds are generally stronger than on land, and capacity factors are higher on average (expected to reach 51% by 2022 for new projects), but offshore wind farms are more expensive to build and maintain. I went into more detail at substack on wind capacity factors here.
The other worrisome sector of renewable s is hydro, because it's capacity factor is falling, due to drought conditions in various parts of the world. The same EIA report says, capacity factor of global hydropower has been in decline over the past decade, falling from an average of 38% in 1990-2016 to about 36% in 2020-2022. Add to the fact that the EIA chart shows hydro installed capacity declining and continuing to decline. We should not expect any help from hydro.
If the coal and natural gas installed capacity declines as they predict, we are in big trouble because the solar and wind replacing it has way lower capacity factors. Sure we might be installing lots of it, but it is not outputting near as much electricity.
This is one of the reasons I am bullish on oil&gas. Whatever transition attempt is made to renewable s, governments and the investment community will screw it up. A lot of investment money has fled fossil fuels in a believe the sector will decline at the expense of renewable s. The reality is going to be much different.
When oil last bottomed, the end of June, it was reported on July 3rd that Hedge funds and other market speculators had sold the equivalent of 64 million barrels in WTI and ICE Brent futures and options contracts, with net positioning in crude oil falling to its lowest level since CFTC started to track this data back in 2013. The number of oil rigs in the US has dropped for 10 consecutive weeks. Total rig count fell to 675 down from 756 a year ago. The low oil price and lack of investment is having an effect.
I am very bullish on oil&gas because this transition to electric will be screwed up big time and we will certainly have energy shortages, both fossil fuels and electricity. Here is the latest gasoline inventories and we are dropping below last years low levels (shown in the 5 year high and low range). Will low supply cause price increases later this summer/fall? Hope for no Gulf hurricanes.
For example a new report released July 19 for Canada electricity needs. The report, “Project of the Century: a Blueprint for Growing Canada’s Clean Electricity Supply—And Fast,” suggests electricity demand is forecast to double by 2050, which would necessitate supply growing “an astounding two to three times today’s volume.”
“To put this into perspective, the country would need to grow its annual electricity investments by 2.5 times and devote more than half of Canada’s current annual infrastructure investment to electricity alone every year over the next quarter-century. Accelerating toward net-zero by 2035 would also cause massive immediate increases to the power bills of individual consumers,” says Mr. Neudorf an Alberta political minister.
“According to this report, the cost to Canadians of a net-zero grid by 2035 is well over one trillion dollars.”
The report indicates that Canada, which has more than 100 power plants of at least 250 MW—each big enough to supply a city of 180,000—would need 220 to 340 of them to meet the Liberal government’s goal of net zero. Imagine every dam, turbine, nuclear plant and solar panel across Canada – and then picture a couple more next to them. Two more James Bays in Quebec. Two more Point Lepreaus in New Brunswick. Two more Niagara Falls in Ontario, etc.
Another way to look at it - together, the gargantuan Churchill Falls, Robert-Bourassa and Bruce Nuclear generating stations account for 11 percent of Canadian electricity generation capacity. We would need at least another 18 of each. And that does not include new electrical plants to replace any current fossil fuel plants.
Do you really believe our Trudeau government can manage this or the same thing with the Biden Administration in the U.S.
Dr Patrick Moore is a true environmentalist, climate change realist, and co-founder of Greenpeace who left after its hijacking by the political left. An interview with him on you tube is fascinating and not what climate alarmists would expect to hear.
For a little of his background, especially for younger people that were not around in the Greenpeace hay day. He started to stop nuclear testing and that is how Greenpeace started and they won as the US stopped testing as a result of their demonstrations. Then they went on to stop French nuclear testing and this was at the height of the cold war and nuclear arms race. Next endeavour was save the whales in 1970s and by 1981 whale hunting was banned around the world. It was what made them famous. Next was damage to rivers and lakes from toxic waste as they plugged pipes into waters from factories.
The interview is just over an hour, but here is a short summary. He is not optimistic on the energy front. We could get 50% to 70% off fossil fuels if we went big time nuclear, but not on the current path. When all the money started coming in, politics and science was being confused. The consensus is that humans are causing global warming but he says that is not science. Scientific conclusions are not made by committees. There is no hard evidence that CO2 is causing warming. The alarmists are hyping things that cannot be seen (CO2). The other thing they focus on is remote, the coral reefs and polar bears, that nobody can see. Who goes there to observe them? A treaty was signed in 1973 to end all polar bear hunting. The polar bear population has actually increased 3 to 5 fold from then.
They only show pictures of the Arctic in the summer at it's maximum melt, but it still all freezes every winter. The increase in CO2 is the best thing that could happen for life on the planet. Remember all plant life thrives on CO2 and Moore says it is a net benefit for life on earth.
He says it is a myth that coral reefs will die with global warming, the biggest reefs are in the warmest oceans. Coral reefs will expand if there is more global warming. He says 80% of research money goes to Universities and if you are not on board with man made, CO2 climate change, you will not get funding. They always talk about extreme weather events, but that have been going on forever.
The Forest fires are mostly caused by humans and mismanagement. The number of people killed by extreme weather has gone down 98% in the last 100 hundred years on a per capita basis. Most deaths way back then were starvation form damage to crops.
He left green peace for 2 simple reasons, human beings are the enemies of the environment and Greenpeace was going after a world wide ban on chlorine with no science to back it. And it was just a fund raising gimic based on incorrect information. In his final analysis Greenpeace was hijacked by the political left and he could no longer work and support them.
The Large Migration will Increase Energy Use
One of many things overlooked in energy demand is the large migration to OECD countries from non OECD. Just 1 billion people in the world use 5 times the energy per ca-pita of the other 7 billion.
Massive migration will drive high energy demand. When the US moved families from Afghanistan, they increase their energy usage 70 times, a family from Ukraine to Europe increases their energy demand 4 times. On this migration point, a memo just came out from the Trudeau government that all Ukraines are welcome. So far 1.1 million applied with 800,000 approved at the time of this government memo. Our infrastructure is already collapsing under the weight of immigration. It is going to get a lot worse with more coming and so will the housing shortage. This government policy is nothing short of disaster. I don't begrudge immigrants but we have to build the infrastructure to support them.
Summary
A warm winter was the saviour last year and governments claimed it was their energy policy. What a joke. What will this winter bring? This whole 'Net Zero' narrative is just BS. No chance in hell that China and 3rd world developing countries will come on board. They are focused on energy security. Net Zero policy will likely cause the fossil fuelled baseline power to decline faster than the renewable s will come on stream, resulting in energy shortages. The other thing is that Net Zero will eventually fail politically because the people cannot live with the high energy prices that will result. This is already happening in Europe. Current politicians are fixated on this climate agenda and energy transition to green so they can line their pockets, enact new laws and have an excuse to raise taxes. Once you understand that is the real driver of their climate agenda, the BS makes more sense.
Prepare for energy shortages and keep your oil&gas stocks. Many are paying high dividends because they are out of favour.