For better or worse, the much-advertised energy transition is moving ahead, not smoothly but rather in a rocky manner. The generation of wind and solar power and the transition to electric vehicles are all powering ahead with each experiencing its missteps.
In short, unlike assured by activists, politicians, media, and the industry, the replacement of fossil fuels energy is not as seamless as expected and more importantly, not as quick as planned and it is costlier.
For now, the energy transition is walking on crutches; the net-zero utopia is in danger as fast-paced consumers got squeezed out by higher prices which occurred on the back of rising interest rates and stubbornly high inflation. For Joe the Plumber, the day-to-day preoccupation is elsewhere; it is more about providing food and shelter to the family, rather than how to become a net CO2 consumer.
On the industrial side, things are about alike. The financial distress of consumers could render things even more unstable as companies like Tesla, Volkswagen, Ford, and GM (to name a few) are stuck up with unsold inventories. Some analysts predict that we are already close to the peak of EV adoption. It is estimated that the total addressable market is less than 15 % of the total fleet capacity while in the past it was above 60%.
On the upstream side of the clean energy production, things are not looking credibly good either. The Wind industry is in deep trouble. Technically speaking, many issues remain unaddressed and require costly repairs which in turn increases the project costs. In other words, facilities will not become profitable for years.
Here are a few classic examples of miscalculations done by experts. For instance, Siemens Energy, a major manufacturer of wind turbines, platforms, and other green technologies, has sought loan guarantees from the German government of up to €16 billion ($16.9 billion), as rising costs and supply chain issues have changed the economics of its major projects. Remember, SIE is already benefiting from generous subsidies and incentives. According to the economy minister, the government is prepared to support the company’s needs as a strategic asset. The minister says: “In terms of industrial policy, we are at a turning point, and it would be wrong to think that if you don’t face competition, we will benefit as an economy.”
The Danish wind developer Orsted is in a similar situation. After having received two rejections for higher subsidies, the company canceled two major offshore projects, i.e. Ocean Wind 1 and 2. This occurred after the company announced that it could not afford the undertaking on the back of impairments in the region of DKK 28.4 billion (the equivalent of about $4 billion). In a further clarification issued by the company, it admits having encountered adverse conditions related to supply chain delays, increased interest rates, and the lack of an OREC adjustment on Sunrise Wind.
BP and Equinor which are involved in the same U.S. Northeastern coast project announced impairments too, i.e. $540 million and $300 million, respectively.
OREC is a technical and financial jargon. OREC stands for Offshore Wind Renewable Energy Certificates, a classic green cost-shifting scheme in which local, state, or federal government pays wind developers an agreed-upon fee for each megawatt of power they build and deliver in and from a specific location. With skyping these subsidies, governments protect their citizens in the short-run as these fees were to end up on the utility bill rates paid by electricity consumers as part of an array of hidden charges. As there is no free lunch, consumers will have to face the reality at some point. With the present set-up and to make offshore wind workable, consumers have to assume it either through higher base prices or through higher taxes. Adding a few cents to a monthly electricity bill is not tricky; the consumer won’t notice it, most likely. Hence the issue is more of a political move. Skyping projects now occur most likely on the back political calculus, yet it will make the development more expensive in the future and delay the transition to clean energy a little more.
That wind projects have lost some of the flavor is evidenced by the lack of bidders in the most recent auctions: a lease sale for a project in the Gulf of Mexico (off New Orleans) attracted just a single bid and the project off the coast of Texas has become a cliff-hanger with no-bid at all.
For now, no one wants to admit offshore wind is not mature enough to push it out, or too costly to become economically a sound opportunity. The power delivered to the grid from offshore wind is expensive and without doubt ineffective. So, the question is: What is the next hype? Are we looking at the production of hydrogen or is going to be electricity storage? Again, both are costly too, but let’s guess which one is sexier.