There are several headlines today that speak to one of the most pressing issues that we have with the pace of energy transition – the competition for renewable power and the likely inability of the industry to keep up with the competing needs, let alone do so without significant power cost inflation.
- Amazon and Other Tech Giants Race to Buy Up Renewable Energy
- Electric Vehicles Seen Reaching Sales Supremacy by 2033, Faster Than Expected
- Greener oil or green industry? Gridlock puts Norway in a bind
Amazon and most other public companies are trying to “green” their story and on paper, there is one easy way to do that which is to ensure that all of your electric power is renewable. Our home electric plans in Houston offer renewable-based power at a slight premium and this option is becoming more widespread every day. Where it fails is when companies make decisions, make them public, and then start a bidding war for what is essentially a scarce resource. There is not enough renewable power today to meet the needs of every manufacturer and retailer that would like to have renewable power and, if we believe the EV penetration headline above, power demand is likely to grow more quickly than it has in the past with all of that incremental demand looking for renewables.
The Norway example is timely and relevant – already there is competition for the scarce power resource and the energy sector is competing with the manufacturing sector for the incremental megawatt. The question is being raised as to whether it makes sense to help the fossil fuel industry lower its carbon footprint by depriving other industries of renewable power or inflating power prices. We would argue that the fossil fuel industry can address its carbon footprint through larger scale (and therefore more economic) CCS, while any industry that depends only on electricity as a source of energy cannot. We expect that there will be an increasing global deficit in renewable power capacity relative to the desire to have it. In Europe the transparent carbon cost – see the exhibit below – if it were applied more broadly to more industries and smaller pools of CO2 – might help to encourage some of the right behavior as the energy sector might realize that using renewable power does not close enough of the carbon gap – pushing the CCS alternative. See today's daily for more.
Source: Bloomberg, C-MACC Analysis, June 2021
