The tide turns on the Grubble (without producing any tidal power)

Reuters had me coughing up coffee this morning with this story:

New clean energy investment slid by more than a fifth in developing countries last year due to a slowdown in China, while the amount of coal-fired power generation jumped to a new high, an annual survey showed on Monday.

It turns out that clean energy is something people only want when they can afford it. The latter being the prerequisite. The challenge being that many other things also become unaffordable when you have to pay high energy prices.

The net effect of this drop in clean energy investment?

Bloomberg New Energy Finance (BNEF) surveyed 104 emerging markets and found that developing nations were moving towards cleaner power sources, but not fast enough to limit carbon dioxide emissions or the effects of climate change.

New investment in wind, solar and other clean energy projects dropped to $133 billion last year from $169 billion a year earlier, mainly due to a slump in Chinese investment, the research showed.

So the Grubble is struggling on the clean energy creation front. This chart from the Financial Times has the data:

But German economist Hans-Werner Sinn followed up with another splutter-inducing set of claims about the demand side of clean energy:

Earlier this year, the physicist Christoph Buchal and I published a research paper showing that, in the context of Germany’s energy mix, an EV [electronic vehicle] emits a bit more CO2 than a modern diesel car, even though its battery offers drivers barely more than half the range of a tank of diesel.

And shortly thereafter, data published by Volkswagen confirmed that its e-Rabbit vehicle emits slightly more CO2 than its Rabbit Diesel within the German energy mix.

Now VW might now be the best source to quote when it comes to emissions…

But the data is mounting up elsewhere, as Sinn points out:

Adding further evidence, the Austrian think tank Joanneum Research has just published a large-scale study commissioned by the Austrian automobile association, ÖAMTC, and its German counterpart, ADAC, that also confirms those findings.

According to this study, a mid-sized electric passenger car in Germany must drive 219,000 kilometers before it starts outperforming the corresponding diesel car in terms of CO2 emissions. The problem, of course, is that passenger cars in Europe last for only 180,000 kilometers, on average. Worse, according to Joanneum, EV batteries don’t last long enough to achieve that distance in the first place.

In other words, the environmentally friendly nature of battery-powered stuff depends on what you count and how. The inevitable direction of any conversation about that topic devolves into predictions about future efficiency gains. As though those only apply to renewable energy and not to fossil fuels.

Now our energy editor and e-believer James Allen has already made his counterclaims known here. And Sinn’s articled is getting plenty of debunking. For example, Germany’s energy mix relies disproportionately on coal.

But my point today is that green energy tech is struggling to keep up with the fad it created. Rolling out vast amounts of green tech infrastructure before it’s effective is a bad idea. And developing nations know it.

What makes me laugh is China’s play on all this. This opening sentence from the FT says it all really: “The smoggy city of Baoding is known for two things: donkey burgers, and solar panels.”

A smoggy city that manufactures solar panels? Hmmm.

Here’s my narrative for what the Chinese did. They dramatically undercut the Western world’s green energy manufacturing base and continue to sell the gear to us. But they don’t buy their own stuff, because it makes no sense to use it.

The West gets expensive virtue signalling and China gets the money, the jobs, and the pollution, all thanks to cheap but polluting electricity to make it all possible.

For a while, that narrative worked nicely for China. But the FT profiled what happened next to one of the shining lights of Baoding:

The photographs in his office show Yingli in its glory days a decade ago. Sales were surging and the company spent millions sponsoring the 2010 and 2014 football World Cup tournaments.

Yingli was the world’s largest solar-panel maker in 2012 and 2013, exporting all over the globe and celebrated in China as a national champion. Its huge factory campus in Baoding still nods to that status, with a spacious museum dedicated to the company’s history as a solar pioneer.

Today Yingli is insolvent. It has been defaulting on debt payments since 2016, and in 2018 it was kicked off the New York Stock Exchange because its market capitalisation had sunk below the minimum $50m threshold.

Although Yingli still makes solar panels, its factories operate at a loss and the most valuable asset it has left is the land underneath them. Some question how Yingli is still operating. But analysts believe the political connections of its founder may have helped stave off creditors.

Yingli’s museum-worthy accomplishments are just one of many symbolic anecdotes in the FT’s long story. My colleague Kit Winder recently returned from China and you can hear his take on what’s going on here.

Eventually, all this sorts itself out. Environmentally friendly energy just makes sense. But only once it’s effective and efficient in so many different ways that no one economist or scientist can cover all the bases. All of that information being distilled into something called a price. And that price signalling when investment makes sense.

But without a market price, thanks to subsidies, the price lies and that misallocates capital. Which leads to crashes like Yingli’s.

Rolling out renewable energy before it became cost efficient will go down as an epic mistake.

As far as I’m concerned, energy efficiency gains are the low hanging fruit that environmentalists should be chasing. Turning off reefer containers unless they need cooling, moving electricity around the grid more dynamically, voltage optimisation, making distribution networks efficient, sharing cars, controlling lighting, charging people for the resources they use, decentralising power creation and plenty more such ideas.

And an unprecedented boom involving your next mobile phone is about to make all that possible. Are you ready to profit from it, or just benefit as a consumer?

Until next time,

Nick Hubble
Editor, Southbank Investment Research

Category: Energy

From time to time we may tell you about regulated products issued by Southbank Investment Research Limited. With these products your capital is at risk. You can lose some or all of your investment, so never risk more than you can afford to lose. Seek independent advice if you are unsure of the suitability of any investment. Southbank Investment Research Limited is authorised and regulated by the Financial Conduct Authority. FCA No 706697.

© 2020 Southbank Investment Research Ltd. Registered in England and Wales No 9539630. VAT No GB629 7287 94.
Registered Office: 2nd Floor, Crowne House, 56-58 Southwark Street, London, SE1 1UN.

Terms and conditions | Privacy Policy | Cookie Policy | FAQ | Contact Us | Top ↑