Business & Economics

We Need Cheap Energy To Build the Future

Civilization and progress depend on inexpensive energy

We can’t avoid the fact that whatever future we want to build will require cheap energy and lots of it. Image Credit: Anton Petrus/Getty Images

Russia’s invasion of Ukraine has led to a massive spike in energy costs, which has helped demonstrate a basic truth we’ve been struggling to avoid: Civilization requires cheap energy.

No, seriously: All of our existing politics is based on avoiding this unavoidable fact. Consider British Prime Minister Rishi Sunak’s first act on coming into office, which was to reimpose a ban on fracking. This ban is based on the assumption that Britain has no need for a domestic energy supply—even as Vladimir Putin uses the prospect of cutting off Russian natural gas to threaten Ukraine’s European allies.

Do we really want to find out what an energy-starved economy would look like? Because in Germany, we’re getting our first previews.

The Deindustrialization of Germany

Russia’s war against Ukraine is the trigger that could lead to the deindustrialization of Germany, one of the world’s original and greatest industrial economies. An article from the Economist describes it:

German industry’s biggest problem is the spiraling cost of energy. The electricity price for next year has already increased 15-fold, and the price of gas ten-fold, says the BDI [the Federation of German Industries]. In July industry consumed 21% less gas than in the same month last year. That is not because companies used energy more efficiently. Rather, the fall was due to a “dramatic” reduction in output. …

Another recent survey, by the BDI, of 600 medium-sized companies found that almost one in ten interrupted or reduced output because of high input costs. More than nine in ten said that rocketing prices of energy and raw materials is a big or existential challenge. One in five is thinking about transferring part or all of their production to another country. Two-fifths said investments in greener production methods will have to wait.

Bigger energy-intensive business such as chemicals or steel face a similar predicament. … Stefan Kooths of the Kiel institute forewarns that “an economic avalanche is rolling towards Germany.”

But the recent price spike is just the trigger. The underlying cause is Germany’s long-running war on energy.

Under the political influence of the Green Party, Germany has pursued a policy called Energiewende (“energy transformation”) intended to eliminate the use of fossil fuels. So far, it has replaced only a fraction of Germany’s energy with wind and solar power, but it has managed to replace coal with natural gas, which is largely imported from Russia. Now that those supplies are at risk, Germany is scrambling to temporarily bring back coal, after having wrecked the industry.

Energiewende has achieved a massive growth in renewable energy infrastructure, but at a much higher cost than traditional energy sources. Why? Because wind and sunshine are intermittent, particularly in Germany’s cloudy, northern climate. So a system of wind and solar power has to be built on top of the old system of fossil fuels, which remains in place as a backup for when renewables don’t have enough output. The result is that Germany has to spend a lot of extra money building two parallel energy infrastructures that are both operating at low capacity.

An analysis in the magazine of the Institute of Electrical and Electronics Engineers described this in terms of each system’s “capacity factor”—how much of their generating capacity they are actually using:

The new system, using intermittent power from wind and solar, accounted for 110 [gigawatts], nearly 50% of all installed capacity in 2019, but operated with a capacity factor of just 20%. (That included a mere 10% for solar, which is hardly surprising, given that large parts of [Germany] are as cloudy as Seattle.) The old system stood alongside it, almost intact, retaining nearly 85% of net generating capacity in 2019. Germany needs to keep the old system in order to meet demand on cloudy and calm days and to produce nearly half of total demand. In consequence, the capacity factor of this sector is also low.

It costs Germany a great deal to maintain such an excess of installed power. The average cost of electricity for German households has doubled since 2000. By 2019, households had to pay 34 U.S. cents per kilowatt-hour, compared to 22 cents per kilowatt-hour in France and 13 cents in the United States.

And note that this was from 2020, before the extra shock of Russia’s war.

At the same time, Energiewende has also targeted Germany’s nuclear power plants, slating all of them for phase-out. This might seem nonsensical if the goal is to fight global warming by reducing carbon dioxide emissions, a policy that would suggest building more nuclear plants. But opposition to nuclear power was one of the primary, original goals of the Green Party when it was formed in 1980, before global warming came to prominence as an issue. It is part of the party’s political DNA and a key psychological block for its supporters. (See an amusing history of this as reflected in the evolving lyrics of a song by the German electronic music group Kraftwerk.) As Environment Ministry spokesman Michael Shroeren put it, “I have fought for almost 50 years to phase out nuclear power. Now, just before the last ones go off the grid, I’m not going to let them steal my success.”

To get an idea of how deeply committed the Greens are to this program, they have even opposed funding research into fusion energy, which doesn’t raise the same concerns about radiation and nuclear waste. It is as if deindustrialization, rather than being an unintended consequence of their cause, is their cause. This is no surprise for a movement that echoes a long tradition of German agrarian Romanticism.

Now we are beginning to see the results in practice: large-scale economic crisis.

Power and Horsepower

Why does civilization need cheap energy?

The question seems almost ridiculous, because the answer is so obvious. Most of what we want requires moving things or heating things. It requires melting steel in a furnace, or baking bricks, or moving the tools on an assembly line or moving the wheel of the trains and trucks that deliver those goods to their ultimate users.

All of that work has to be done with something more than the muscles of humans or animals. Think of a car that has 200 horsepower, typical for a mid-sized sedan. That measure indicates exactly what the words say: a quantity of energy roughly equivalent to the muscles of 200 horses. Every part of a wealthy, developed, industrialized society is moved and maintained by power on this scale, which can only be provided by artificial, man-made sources of power.

We need this energy for making things, but also for going places, and even for moving bits around on the internet. On the internet, we are moving electrons—and an awful lot of them. A study from 2016 found that the internet burns up 70 billion kilowatt-hours of electricity every year.

To be sure, some of that online activity is offset by energy savings elsewhere. Going to a meeting by videoconference, for example, uses less power than driving into the office. Then again, a lot of us spend time on the internet ordering goods which are then delivered to us, often from half a world away. And of course, you can’t eat bits and bytes. Making human life longer, better, more fulfilling and more comfortable will always require the creation and transportation of goods in physical form, which will always require huge amounts of energy.

The Great Stagnation

Yet recent talk about a “Great Stagnation” includes some intriguing speculation that reduced progress in recent decades reflects a stagnation in per capita energy use in the U.S. since 1970. Before that, we followed a “Henry Adams Curve” of steady 2% growth in per capita energy use, but then we leveled off. And as we focused on the efficiency in our energy use, we stopped focusing on technological progress in creating energy and finding new uses for it.

As Benjamin Reinhardt writes at Works in Progress:

The amount of energy we can access, how densely we can store it, and how quickly we can deploy it are the closest things to measures of our ability to manipulate the physical world. Energy creates a ceiling on what we can do—Leonardo da Vinci could never have implemented his famous helicopter designs with the energy technology available at the time. … To cap our energy ambitions is to commit to permanent scarcity. …

Regardless of whether you think we’re in a broader technological stagnation or not, energy, and therefore the upper bound on our ability to manipulate the universe, has stagnated.

Certainly, the various “renewable” technologies we have created are not up to the job of providing civilization with a flow of cheap energy, much less the old slogan Reinhardt invokes, in which electricity is “too cheap to meter.”

Aside from their cost of construction, again, renewable sources are intermittent, depending on variable conditions like wind and sunshine. To be fully reliable, energy has to work like the gas pedal on your car. When you need more power, you push the pedal down, the engine revs and the power is supplied on demand. To achieve this for industrial use and for the power grid, wind and solar have to be backed by a whole parallel energy infrastructure of fossil fuels or nuclear power, which can be revved up to meet demand. But as we see in Germany, this is enormously expensive.

Of course, countries that are not as committed to Germany’s Green Party dogmas can always build out nuclear power plants. In America, though, we have refused to do so for reasons very similar to those of the Greens: exaggerated fears, given credibility in the eyes of the public by rare accidents like Three Mile Island, Chernobyl and Fukushima. The result is that the newest nuclear power plant built in the U.S. came online in 2016, seven years ago. The second newest was in 1996, 27 years ago. The average age of a nuclear plant is 40 years.

But even nuclear energy is expensive. It requires exotic materials, structures overbuilt to withstand everything nature can throw at them, elaborate safety precautions—and a whole extra level of bureaucratic over-regulation. So to provide a cheap and reliable source of power, we are literally going to have to hit the gas pedal. We are going to have to embrace the use of fossil fuels.

Yet while most countries haven’t gone as far as Germany, all of our politics right now is designed around efforts to limit our supply of power and particularly our supply of fossil fuels. It is based on making energy more scarce and more expensive.

Energy Is the Future

There are those of us who are skeptical about claims of global warming. There are even more of us who are skeptical of the solutions provided to that supposed problem. The answer to global warming never seems to be to invent new technologies or build massive new sources of energy, but to cut back, to endure privation for the sake of the planet, to starve our civilization of energy.

We have to decide if our goal is to go back to some imagined pastoral paradise of the past—which never actually existed—or if our goal is to move on to the technological future we have imagined. If the goal is prosperity and creativity and building the future, we can find ways to do that which will solve our environmental problems or at least mitigate their effects.

But we can’t avoid the fact that whatever future we want to build will require cheap energy and lots of it.

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