Conor O'Shea

The energy transition faces core structural issues that come from our whole way of thinking about energy, from energy infrastructure to energy markets and energy consumption habits being structured around the energy sources of the past (i.e. fossil fuels).

These structural issues can be best understood as problems of time, and can be summed up as 3 fundamental issues:

• Time of cost
• Time of need
• Time to catastrophe (or time to adoption)

Time of Cost

I’m using ‘time of cost’ to refer to the difference in time between the cost of energy production and seeing the return on that investment. The biggest cost of renewable energy sources is in their initial construction, the cost of maintenance is minimal by comparison and the fuel they use (the sun, or wind) is completely free. Whereas, the overall cost of fossil fuel production is more spread out, while the original generators do cost money and do have to be built, the fuel itself (coal, oil, gas etc.) is a major expense that is necessary across the entire lifetime of that generator. This cost of fossil fuels is a marginal (or variable) cost, and the cost of building the generators themselves is a fixed cost.

What that means is you can choose to burn or not burn coal, to buy or not buy gas, based on the current market prices for the fuel and for the energy it would produce. You can spend £50 on buying gas, and feel really confident about getting £70 back from selling energy because that’s what the relative prices of gas and energy are right now. You can feel confident about this return because the time between you having to spend that money and the time you would get more back, is very short, and because of this confidence you can be more confident in building the fossil fuel generator in the first place, because your overall risks are limited (if the prices aren’t right you don’t have to spend the money). This set-up doesn’t just decrease the downsides, but also increases the potential upside. The output of fossil fuel energy is variable, which means when the price is right you can start producing a lot more of it. Both of these factors together make investing in a fossil fuel plant quite attractive.

Renewable energy sources, by contrast, are stuck with their initial fixed costs and can’t be flexible with the market. It produces energy and has to sell it at whatever the market price for energy is, even when prices are negative (which is something I’ll talk more about in a later post). This uncertainty, only exacerbated by the volatile nature of energy prices, is not an exciting offer to investors, which makes it a lot harder to get investment into building renewable power sources and infrastructure. This is the problem of ‘time of cost’.  

Time of Need

By the problem of ‘time of need’ I’m referring to the mismatch in timing of the demand and supply of energy. People need energy at a specific time (in a particular place [or space]), which means that they need a supply of energy that can be deployed at that specific time (and place). Traditional fossil fuel energy sources are great at this, they come in easily transportable physical pockets of stored energy, that can be burned whenever and wherever the need arises. However, we can’t turn renewable energy generation on and off in the same way, we can’t (yet) control when and where the wind will blow or when the sun will shine. The supply of renewables is intermittent, it’s not on tap,  but our demand for it is not. This mismatch is a problem because it once again makes fossil fuels a more attractive option than renewable energy.

Time to Catastrophe

Time to catastrophe (or time to adoption to be a bit less apocalyptic about it) means the amount of time its going to take us to make this energy transition compared to the time we have before we create catastrophic climate conditions due to our fossil fuel emissions. This is problem of discount factors and political will, of externalities and economic incentives, of mitigation and adaption and of understanding the consequences of our actions in a chaotic system that offers no certainty about specifics but great confidence about the direction of travel.

It’s easy to think of the climate crisis as a cliff’s edge, that things are fine until we cross the line and then disaster strikes. But that isn’t correct. The first people to die because of climate change caused by fossil fuel emissions have already died. We are not dealing with a problem in the future, but a problem now that is getting worse. We are not dealing with a problem that will result in a few mortalities, but one that has the potential to cause the collapse of the world as we know it, and we’re running out of time.   

What about the solutions?

We’ve talked about the problems, and in the next few weeks I will be exploring the solutions. Or at least, what we are doing right now to try and solve these problems.

The purpose of this short series is to explore the ideas surrounding the major problems of the energy transition, and what people are doing to solve them at a conceptual level. I am not trying to evaluate how effective any of these solutions have proven to be thus far, or may prove to be in the future, how they have developed over time or comparing their effectiveness or costs to the continued use of fossil fuels. While those are all interesting and important areas to explore and discuss, I think it is important to start from a holistic perspective, to ground any further discussion in an understanding of the problems we face, and what we are doing about them.