From Green Cash to Green Crash

The pop you hear was a California renewable energy dream

Photo by Derek Sutton on Unsplash

I am pretty convinced that we will move rapidly to a clean energy transition this summer and fall, particularly on the west coast of the US. A transition, that is, to reverse with a gear-stripping screech. The consumers (and voters) will not be pleased.

            For the past two decades, the energy policymakers of California and the Pacific Northwest have sped along with the carelessness of rich kids who could count on family money when bank accounts ran low. In their case the “family money” was the network of power dams, transmission wires, and gas pipelines filled by some unattractive people in flyover country.

            When the electricity supplied by their coddled and subsidized solar panels and wind turbines flickered and died, the slack would be taken up instantly by hydro and gas turbines, along with coal plants in forgettable area codes. The gas and coal would all be shut down soon enough, they told themselves and their voters. And hydro is emissions-free, so that’s OK.

            Someday, there would be lots of magic cheap batteries to make up for the intermittent nature of ‘renewables’. That might also be the day their weight-loss diets finally showed some results.

            Yet for all the west coast greens’ love of nature, they could not be bothered to consider the hydrological history of where they lived. Much of the heavily populated parts of the American west is, naturally, desert. That’s why there’s so much “great weather” in Southern California and most of the other western states.

            But the rivers behind that huge inheritance of dams and canals are drying up. Even if mankind stopped using fossil fuels and traveled only in Teslas or on bicycles, the re-desertification of the American West would almost certainly continue for decades, or even centuries.

According to the geological record, that has happened repeatedly over the millennia.  At this point, the dams are only saving enough water for get-out-of-town money, not eternal wealth.

            The farmers and real estate promoters have no choice but to find a lot of wetter land somewhere else. Before then, the decline in western water resources is already leading to a less reliable electric grid. Water is now conserved for drinking, washing and irrigation by reducing the flow through hydro turbines.

            But, but, but….the renewables-connected batteries! Where are they? Oh, well, there have been…delays… complications…Right at the moment, taking into account off-line projects, the California grid operator can call on about 2,700 MW of battery “capacity”, a bit more than the 2,200 MW available from the Diablo Canyon nuclear power plant.

            And the batteries’ stored power can be drawn down for a total of about four hours before being recharged. Diablo Canyon, by way of contrast, has a service history of over 90% availability.

            For further context, the California state grid operator found supplies for a peak demand last September of 43,982 MW, pretty close to the “reliable” peak capacity today of a bit over 46,000 MW. So when Diablo Canyon is required to retire in 2024 (they found it was built on a fault line), California has a problem. Especially since its hydro power supply will be “down rated” due to emptying reservoirs.

            Why not build more batteries? Well, they were ahead of you there. But the trend lately has been for new battery installations to be put off, not accelerated. For example, in April a 537 MW battery energy storage system planned for use in the Los Angeles basin area was canceled by the developer due to “force majeure” events.

            Not to prejudice the litigation over this contract, the developer was probably very sorry, since the millions in planning and permitting costs will be flushed or would be if there were enough water. The problem apparently was not only the cruel “supply chain”, but extraordinary increases in materials costs, given unexpectedly tight supplies of lithium, nickel, copper, and so on.     

            Really, no one could have foreseen that.  No one, that is, who had been cut off from access to mining and smelting capacity statistics, or newspaper accounts of future metal demand, or who was unaware that lots of other people in the world had the same renewables-battery idea, and that it takes at least ten or fifteen years to build a new mine.

            This is all very disappointing for everyone who cares about reducing carbon emissions in California. Guess they have to get along with natural gas fired power for a few more years.

            Oops! What if the oil and gas drillers in flyover country have already been told by lenders, investors, regulators and national politicians that there was no future in fossil fuels? OK, the redneck drillers agreed, we won’t expand our industry. We’ll just pay down debt and give capital back to the lenders and shareholders.

            So, according to BTU Analytics, “[Southern California} will be vulnerable to blowout (gas) pricing episodes in the Summer of 2022 if further supply disruptions or spikes in demand occur.” High gas prices translate directly to high power bills. Think politicians—-any in sight—- will be blamed?

            No, wait! The White House has changed its mind! Turn the drilling back up to 11—- we need you for a couple of more years after all. Never mind what Special Envoy John Kerry said at that climate conference in Glasgow. That was last year. This year we need to win some elections with lower power prices.

            Oh, fine, we’ll drill some more. Or we would if the Federal regulators made it possible to build new gas pipelines anywhere in the US, let alone in litigation-happy California. Doesn’t matter—- you have all those wind turbines and solar panels, right?

            It’s not right to say there will be no winners from the over-reliance on ready access to cheap renewable energy. The producers of standby diesel generators, such as Generac, Kohler and Cummins are making a recession-defying fortune.

            Generac, is a more or less pure-play standby generator manufacturer, disclosed in May that its management believed “consolidated revenues” would increase by 36% to 40%, on which the company would earn adjusted EBITDA margins of 21.5% to 22.5%.

            That is not an investment recommendation—- investors may have efficiently discounted those numbers. But try and get a standby generator installed at the last minute in California.

            Of course, once you have your high-carbon-emissions diesel standby generator, you need refills of diesel fuel.  Good luck, since there’s talk about diesel rationing later this summer, assuming the government has a good plan for that contingency.

            All this takes me back to old times. Not in the rolling greenery of the Napa Valley, or the picturesque streets of San Francisco. No, I think of the brown haze of Baghdad back in 2003, when the grid would wink off, and the diesel generators (for people with guns or money) would growl into service. You could hardly hear yourself think. On the other hand, the sound of nearby Kalashnikovs would be muffled.

            Kind of like LA in a few months, maybe.