The truth about renewable energy that never goes away

My colleague, Neil Collins, used these pages two weeks ago to point out that the British renewable energy industry had recently written to the government to ask for new subsidies to fund their work. This shouldn’t really be a surprise: governments of every oil producing nation have subsidised energy producers through the ages. North Sea oil and gas was built on a tax regime that made sure that the energy companies were well rewarded for producing the oil that belonged to the Crown.

So the renewables industry is treading a well-worn path when it asks for favourable treatment alongside blood-curdling predictions about what might happen if its demands are not met. The request usually works too: we can be sure that the citizens of Aberdeen continue to sleep securely in their beds safe in the knowledge that their expertise will be needed for years, if not decades, ahead.

However, the renewables industry faces a few new hurdles that it hasn’t faced before. Every oil man knows that his fate is always partly dependent on what OPEC and the White House decides – separately or together – to do about the oil price. Today it sits at around $80 a barrel which is close to a perfect price: everyone makes money; no one makes too much money; shareholders get their dividends but companies can reinvest. This is clearly not the case for the wind and solar business where their source of energy is, of course, absolutely free.

But that is as good as it gets. Renewable energy has been hammered since the end of the pandemic by inflation in every part of the supply chain. Rises in interest rates have restricted the ability of major renewable projects to raise debt and have squeezed their margins whenever they have been able to get financing.

It is not as bad as it was: nickel – which is absolutely vital in the manufacture of lithium-ion batteries used in electric vehicles – is no longer trading at $50,000 a tonne as it was at the beginning of 2022 but its still trading at double its pre-pandemic price. Steel is trading at $3700 a tonne which is reasonable enough but in September 2021, steel reached $6000 a tonne and the effects of that are still working their way through the system. (Javier Blas at Bloomberg and Ed Conway at Sky News, both geniuses, are the experts on metals and raw materials – how they are mined, marketed, priced, used, bought, recycled – by the way.)

The Chinese are also back in business post pandemic as they continue to play both sides of the climate change coin, building renewable plants of spectacular scale alongside new coal-fired plants. Other nations are also beginning to wake up to their renewable potential: for example, Morocco and Egypt have vast areas of uninhabitable land that can produce steady, reliable power for their increasing populations as well as this year’s potential fuel of choice, Green Hydrogen. Clearly then, this means more competition which means greater stress on already stretched supply chains.

So these are tougher days for a sector that fully expected costs to carry on falling as the industry expanded. That was naive – since the start of the industrial revolution, when has that ever happened? But there’s truth about renewable energy that never goes away: maybe there is cost inflation in the sector; maybe the sector needs some help from government but because the source of energy is free, the technology is simple, the equipment lasts a long time and it is easy to maintain, it’s always going to be the cheapest form of energy – on a day-to-day basis at the very least – that we can get.

Just as importantly, we are beginning to see changes in battery storage technology (critical for overcoming intermittency in renewable power) which is now improving with every month that passes. If that innovation continues, and there’s no reason to doubt that it will, we can see, perhaps, that the holy grail of a fully renewable grid is now a tiny pinprick of light at the end of the tunnel. It may be a pinprick but it is light and we are moving towards it. To make that journey faster, surely a few subsidies would be worth it?

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