Low-carbon power central to energy transition

Climate campaigners steadily push for clean, renewable energy sources to replace hydrocarbons. However, international consultants Wood Mackenzie view this push as overly simplistic, arguing it does not consider the complexities of energy supply and the uses of oil and gas that extend far beyond power generation.

“Perhaps most striking is the extraordinary contribution that oil and gas have made to energy supply and what a gargantuan task it will be to build a new low-carbon system in its place.”

The latest report from “WoodMac” lists several challenges for a future of low-carbon power.

For one, U.S. demand for electrical power is set to grow at least through the rest of this decade.

“What is exciting about this new growth is that it is a manifestation of the Fourth Industrial Revolution. Central to this is the explosive growth of data centres, the beating heart of the infrastructure supporting artificial intelligence (AI), cloud computing, digitalisation, and big data. Second is a new wave of cleantech, including the manufacturing of semiconductors, batteries, and renewable energy equipment. Third is the increasing electrification of the economy.”

Offshore wind’s power output has an energy efficiency of 92% compared with oil and gas, which, in use, deliver only 25% of their original energy content. But “what may impress is how long it will take for the cumulative output of wind to exceed that of oil and gas, despite this disparity in energy efficiency.”

Closer to home, questions have been raised in Canada about climate campaigners’ arguments that the costs of solar and wind power operations have steadily decreased and are now comparatively affordable.

The small-c conservative Fraser Institute notes that the G7 countries (including Canada) have pledged to triple renewable energy sources to ensure an “affordable” energy future.

“But while direct costs for wind and solar are dropping, they remain expensive due in part to the backup energy sources required when renewables are not available.

“Wind and solar energy are intermittent, meaning they aren’t consistently available, so we need an alternative power source when there’s no sunlight or wind, given the current limited ability to store energy from solar and wind.

“So we must maintain enough energy capacity in a parallel system, typically powered by natural gas. Constructing and maintaining a secondary energy source results in higher overall energy costs because two energy systems cost more than one. Therefore, when evaluating the costs of renewables, we must consider the costs of backup energy.

“Often, when proponents claim that wind and solar sources are cheaper than fossil fuels, they ignore these costs.”

The TD Bank adds: “Despite the improvement in the cost-competitiveness of renewable and storage technologies, the growth of low-carbon electricity supply is likely to increase electricity costs.

“According to estimates by the Alberta Electric System Operator, the load-adjusted generation costs in 2035 could be 56–66% higher in net-zero-by-2035 scenarios compared to a technology trajectory based on current policies.

“For Ontario, we estimate that replacing expiring gas-generator contracts with a combination of solar, wind, storage, and small modular reactors could increase the average generation cost by around 20% in 2035 compared to what it would be if the gas contracts were renewed and the current procurement plan for new resources proceeds as planned.”

The Fraser Institute also cites a 2021 study by University of Chicago economists showing that between 1990 and 2015, U.S. states that mandated minimum renewable power sources experienced significant electricity price increases after accounting for backup infrastructure and other costs.

“Specifically, in those states, electricity prices increased by an average of 11 per cent, costing consumers an additional $30 billion annually. The study also found that electricity prices grew more expensive over time, and by the twelfth year, electricity prices were 17 per cent higher (on average).”

“Europe is another case in point. Between 2006 and 2019, solar and wind sources went from representing around 5 per cent of Germany’s electricity generation to almost 30 per cent in 2019. During that same period, German households experienced an increase in electricity prices from 19.46 cents to 30.46 cents per kilowatt hour — a rise of more than 56 per cent. This surge in prices occurred before the war in Ukraine, which led to an unprecedented price spike in 2022.”

Meanwhile, in the U.S., a study published in Energy, a peer-reviewed energy and engineering journal, found that — after accounting for backup, energy storage, and associated indirect costs — solar power costs skyrocket from US$36 per megawatt hour (MWh) to as high as US$1,548, and wind generation costs increase from US$40 to up to US$504 per MWh.

We’re firmly in favour of advancing renewable energy sources, and the sooner, the better. But the cost estimates need to be true