Amory Lovins, the founder of the famous Rocky Mountain Institute in Colorado, has written a book in which he presents an energy future without coal, oil or nuclear power. Yet he insists his is not a green or left-wing vision. On the contrary, it will save money and create wealth. “The energy transformation is the greatest business opportunity of our time.”
I heard Amory Lovins present his vision of our energy future – which he calls Re-Inventing Fire – at a conference recently in Groningen. There could not have been a greater contrast between the factual, professorial style of the presentation and its fiery content. Here was a revolutionary armed with a Power Point.
Lovins’ down-to-earth approach makes his vision all the more credible of course. The audience in Groningen found themselves mesmerized by the little man with his big words. Could the United States – of all places – do without coal and oil (and for that matter, nuclear power) 40 years from now, yet be $5 trillion better off with a 158% bigger economy? And could this really be achieved without “new national taxes, subsidies or mandates”? For that was Lovins’ vision in a nutshell.
Imagine, he said, “Fuels without fear. No runaway climate change. No oil spills, dead coal miners, dirty air, devastated lands, lost wildlife. No energy poverty. No oil-fed wars, tyrannies or terrorists. Nothing to run out. Nothing to cut off. Nothing to worry about. Just energy abundance, benign and affordable, for all, for ever.”
Without fossil fuels most of us would quickly start to experience the struggle for survival that only the world’s poorest still suffer daily
Lovins’ vision is set out in a book published by his own Rocky Mountain Institute in 2011 and updated in 2013: Re-Inventing Fire – Bold Business Solutions for the New Energy Era. It is mostly written in a factual, densely footnoted style. While it is extremely ambitious in its prescriptions and solutions for our energy problems, it stresses above all the business and commercial opportunities provided by the transition to a new energy era. (Characteristically, the two forewords it contains are not written by environmentalists or visionaries but by executives from fossil fuel giant Shell and from nuclear giant Exelon. )
Lovins clearly is not a left-wing hater of the free market or a radical green opponent of fossil fuels. He fully acknowledges the incalculable benefits fossil fuels have bestowed on mankind: “ … for the more fortunate four billion [inhabitants of the earth], over the past two centuries fossil fuels have changed everything. Just as fire made us fully human and agriculture enabled cities and states, fossil fuels made us modern. They transformed energy from a preoccupation with personal scavenging to a ubiquitous commodity continuously delivered by extraordinary specialists, exotic techniques, unthinkably huge machines, the world’s largest corporations and the world’s vastest industry. That industry has become immeasurably skillful and powerful. … It is the foundation of our wealth, the bulwark of our might, the unseen metabolic engine of our modern life…. Without fossil fuels … most of us would quickly start to experience the struggle for survival that only the world’s poorest still suffer daily.”
Yet we have come to a point, says Lovins, where the costs associated with the use of fossil fuels (and nuclear power) are now outweighing the benefits. Fossil fuels cause pollution and climate change, and they lead to instability and insecurity. “This magic elixir that has so enriched and extended the lives of billons has also begun to make our lives more fearful, insecure, costly, destructive and dangerous … Its wealth and power buy politicians and dictate to governments. It drives many of the world’s rivalries, corruptions, despotisms and wars. It is changing the composition of our planet’s atmosphere faster than at any time in the past 60 million years.”
Pollution and climate change are well-known arguments against fossil fuels, but security of supply is becoming an increasingly powerful argument as well, says Lovins. “The easy oil is rapidly dwindling and concentrating in fewer countries; the easy coal has only decades left. The huge deposits of US natural gas trapped in dense shales now starting to be exploited are contained in bubbles finer than a human hair. As economists (and some geologists) start to understand how oil-reserve data were widely misinterpreted or misreported, opinions of fossil-fuel abundance are shifting.”
The “fossil fuel party”, Lovins concludes, “is drawing to a close.”
Business for profit
Lovins points out that coal and oil may seem cheap, but their “low price covers just a fraction of the total costs society actually pays to mine and burn fossil fuels.” Thus, for example, US military expenditures for Persian Gulf forces total roughly $1.5 trillion a year – “far more than our total energy bill. This hidden surcharge, paid not at the pump but through business risks, taxes and deficits, exceeds the per-gallon US price of gasoline.”
Whereas citizens in most industrial countries pay taxes on oil to their governments, Americans pay their oil taxes to “suppliers, military contractors and foreign lenders”. At the same time, says Lovins, “the whole oil supply chain is astonishingly vulnerable”. One successful terrorist attack on key Saudi oil facilities ”could crash the global economy”. For coal mining and use, similar examples can be given. And this does not even include the extra costs associated with price volatility (the uncertainty of hydrocarbon prices).
But Lovins argues that switching to a system based on renewables and energy efficiency is cheaper even without counting those hidden costs. This surely has got to be the crux of his argument. That we can reduce pollution and risk by switching to alternative energies is not hard to believe – but that we can also “create wealth” in this way, is a much more unlikely proposition. Ultimately, those who defend the continued use of fossil fuels argue, not unreasonably, that industrial societies cannot be built on renewable energies unless they reduce their citizens’ standard of living drastically. They point to the massive increase in the use of oil and coal-fired power in emerging economies like China and India as a case in point.
Whereas citizens in most industrial countries pay taxes on oil to their governments, Americans pay their oil taxes to “suppliers, military contractors and foreign lenders”
Lovins’ vision is built around exactly this argument: switching to a fossil-fuel-free energy system, he says, will cost less. It will “create wealth”. For the United States alone, it would save $5 trillion by 2050.
And that’s not all: the transition, according to Lovins, will not need to be driven by government intervention, but will be led by “business for profit”. “Private enterprise”, “civil society” and “military innovation” (Lovins pays quite a lot of attention to the US military’s energy strategy) will together create the energy system of the future.
So how will this huge change be accomplished? This is what the book, Re-Inventing Fire, mainly sets out to describe. Lovins’ energy revolution contains two crucial steps: energy efficiency and renewable energy. “The new fire … combines two elements: it uses energy threefold more efficiently and by 2050 it gets three-fourths of that energy from diverse and mainly dispersed renewable sources.”
Lovins breaks down the energy transition in two main parts. “Reinventing fire”, he says, “means reinventing two stories, one of oil, and one of electricity, each of which puts two-fifths of fossil carbon in the air.”
Fortunately, the uses of oil and electricity are very concentrated: “three-quarters of oil runs transport, three-quarters of electricity runs buildings”. Thus, if you can change the way transport and buildings use energy, you have achieved most of your transition.
The way to go about this is to start with the basic design of vehicles and buildings. First, Lovins describes in detail how the use of energy by cars can be transformed. His main point is that two-thirds of the energy used to move a car is caused by weight. Unfortunately, cars have been getting heavier rather than lighter: “Our autos have suffered an epidemic of obesity. They have gained weight twice as fast as we have.”
However, with new, carbon-based materials, cars can be made stronger, safer – and “three times lighter”. This will make it possible to make engines smaller and thereby electrification more practical. According to Lovins, these new cars need two to three times less energy and can be built at the same cost but have far lower driving costs.
“The ability to make electricity has now become a scalable, mass-produced manufactured product”
Electric cars need energy of course, but Lovins adds that they “do not need to add burdens to the electricity system”. They can even add flexibility and storage if they are connected in smart ways to the grid and exchange information with smart buildings.
Building a cathedral
In the same way, the transformation of the electricity system needs to start with redesigning our buildings and manufacturing plants. Existing technologies can reduce energy consumption in buildings by a third. New “integrative design” can add another 16-31 percentage points of energy savings. As in the case of cars, transforming the way we build real estate can offer tremendous business opportunities, notes Lovins.
What electricity we need can be mainly supplied through renewable energies, with some natural gas and biofuels thrown in, Lovins and his team have calculated. “Solar and wind power are already cheaper than natural gas fired power in the US”, says Lovins. “Even today in the US companies will happily come to your house, install solar panels on your roof, ask for no down payment. Pretty soon they will give you cash back.”
He notes that since 2008 half of all electricity capacity added in the world has been renewable. In 2013, new solar power capacity will probably have surpassed new wind power capacity. Lovins points out that the reason solar and wind can be added “so incredibly fast” is that “the ability to make electricity has now become a scalable, mass-produced manufactured product. We used to think it takes ten years and billions of euros to build a power plant. It was like building a cathedral. But now during those 10 years you can each year build a plant which each year thereafter will produce enough solar cells which for the next few decades will each year produce as much electricity as your thermal power plant would have produced.”
Solar cells are scaling more quickly than cell phones at the moment., says Lovins. The global ability to produce solar cells is now about 75 GW a year.
As to the much-vaunted “backup capacity” of baseload power stations, Lovins notes that coal and nuclear power plants also fail unexpectedly sometimes. “But the grid routinely handles that kind of intermittence. In the same way it can handle forecastable variations of solar and wind power.”
According to Lovins, the National Renewable Energy Lab (NREL) in the US has done a very detailed analysis showing that with the help of good weather forecasting, demand response systems, distributed storage and integrated networks, it is possible to operate the grid with 80-90% of renewable energy.
Design and strategy
An important conclusion that Lovins has drawn from his research is that we need to look beyond the two traditional pillars of the energy transition: technological innovation and public policy. He notes that there are two other elements that may be even more important but do not get the same amount of attention, namely design and strategy. By design he means the design of buildings, materials and infrastructures. By strategy he refers to new business models and competitive strategies. “These four tools for energy transformation total far more than the sum of their parts. Together, they can create the greatest business opportunity of our time”.
Obviously, the new business models that are being developed will have a tremendous impact on the incumbent utilities and oil companies. He believes the “pace of surprises and disruptions is going to increase” in the coming years.
The oil companies “should be very uncomfortable right now with their strategic posture”
The business model of utilities will be turned completely upside down by the energy transition. “Traditionally utilities would build giant nuclear and coal-fired baseload power plants, then add more flexible, smaller gas-fired power plants and finally throw in some renewables and flexible demand systems. This order will increasingly be reversed: the utility of the future will first build renewable capacity and distributed storage and offer flexible demand, and will only then add gas-fired power and baseload capacity.” This will happen first in countries and States in the US that reward utilities for saving rather than selling energy, for example in States where “demand side resources are allowed bid into supply side auctions”. He gives the examples of an auction in which 94% was supplied by bids on the demand side.
As to the oil companies, they “should be very uncomfortable right now with their strategic posture”, says Lovins. “They are in a very long lead time, capital-intensive business with very high technical, geological and political risk. They are politically unpopular, they only own 6% of their asset base, which could be confiscated or taxed away any time, and they are being forced by governments into the most risky exploration & production plays at a time when their investors want less risks and more rewards. They are price takers in a volatile market. Most of their book values are based on their hydrocarbon reserves most of which cannot be burned, i.e. monetized.”
According to Lovins, the big oil companies are in many ways extremely capable. “We need their skills, in technology, organisation, and finance, their great cultural skills and huge cash flows.” But he says they should ask themselves what the assets are that would enable them to thrive in a new world”. Hydrocarbons, he notes, “may not be a featured of their business forever.” He points to the example of IBM, which has transformed itself from a computer manufacturer into a successful computer service company.
Lovins also discusses what barriers exist for the implementation of the energy transition and how the right policies could help bring those barriers down. He does not believe that, as many people like to argue, we should “keep all options open” and simultaneously pursue all low-carbon supply options. He says “it’s about choosing a system that can best exploit the full range of supply and demand side options in an integrated, least-cost fashion. Integration is the skill of a master chef, not a grocer’s buyer. And in the electricity sector, as in cooking, the best solution comes not from combining all the possible ingredients, but from an artful and harmonious combination of just the ones you need.” (The same goes for the transport sector.)
In the end, says Lovins,”the answer starts with a powerful vision”. Without “a clear goal in sight, chances are slim” that we will stumble on the right solutions. Implementation of the vision requires leadership. Policymakers must put in place the right incentives that will unleash private enterprise. And then, “once those incentives to choose sensibly exist, watch out! The powerful American engine of innovation … will shift into high gear. It will not only bring new technologies to market but also reshape our ideas of how we use energy.” The “most astonishing” results will occur when and where IT meets energy, says Lovins.
Lovins ends his book by insisting that his vision is “not a green or left-wing idea”. Whether you care most about profits, or national security, or climate and environment, what needs to be done, he says, is the same.
In Groningen this message was met with highly enthusiastic applause. To which Lovins typically reacted by muttering: “I am sure I said nothing controversial.”