Oracle series #2: Vishal Shah aka Deutsche Bank

One of the more absurd phenomena in energy discussions is the reverence accorded to Wallstreet. If an investment bank says something nice about renewables this is treated as uniquely credible message. That it is often people with left wing sympathies who do this, makes the phenomenon even more absurd. This is how the process works. Bankers write non-peer-reviewed report on something. Then copy-pasters in environmental/renewables media credulously repeat what was said (minus conflicts of interests statements) without ever linking to the original report. Here is a recent example from UBS and Citigroup (also in Guardian). If you read the report there is not much. Strong claims are backed up mainly by hot air and some comparisons are so absurd as to be comical. For example, one talking point was that electric vehicle is already cost competitive  with a conventional car. What was not highlighted by the bankers, was that their “conventional car” was Audi A7, “an Audi limo for those who like to drive as well as waft about in luxury”

In recent years some of these reports have been written by Vishal Shah for the Deutsche Bank. He has told us, for example, how “solar will Dominate World Energy Supply in Just 15 Years” or in 2014 how second solar gold-rush was imminent.  Both reports had “important conflict disclosures” and readers were encouraged to read them elsewhere. (They disclose important financial stakes in companies whose stocks they recommend.)

But who is Vishal Shah? Googling him reveals that before being hired by Deutsche he contributed to the success of Lehman Brothers (and Barclays). Being a financial analyst he has left behind a trail of recommendations which help us to understand how clear his crystal ball actually is.

• In 2008 Shah predicted that polysilicon prices will increase by another 20%. As if on cue, prices collapsed.
  
• He promoted Evergreen solar stocks. The company promptly drifted to bankruptcy.
• He has been cheerleading First solar, whose stock collapsed.
• He has also been cheerleading Suntech Power, which (this is getting boring isn’t it?) went bankrupt.
• When the second gold rush was supposed to begin, solar stocks proceeded to drop substantially.

His ranking among the analysts is less than stellar. Poor guy. I don’t in fact think that Shah is worse than other analysts. He has the misfortune to work in a field that has been a lousy investment. He came to my sights only because he happens to generate very visible nonsense on a topic that I follow rather closely. It is a cause for concern when people base their faith on fighting complex long term challenges such as climate change on analysts whose work is, after all, about selling financial instruments during the next quarter. These people do not have a special crystal ball that makes them any wiser than random person from the street.

Oracle series #1: Lester Brown

People making very certain predictions on things where some uncertainty is called for annoy me.  The fact that these predictions are very often wrong is not the main problem. Rather it is the use of these “predictions” as a political tool and the stubborn unwillingness to learn from experience and reflect on past failures. For some people I suspect the goal is not the reasonable discussion of how things might play out in the real world, but rather selling something… sometimes products, but also comfort and encouragement to support group identity. Sadly this process often acts as a substitute for addressing issues in the real world. Fantasies about the future are being used as an “alternative” that gives supposedly responsible people the right to oppose policy options that actually could make a difference. Since I might return to this theme in the future, I name this as a part of the “Oracle series”.

To illustrate what I mean, let us first study the statements made by Lester Brown from the Earth Policy Institute (also founder of Worldwatch). He has been around for quite some time and his comments on environment and development presumably provide a rather representative snapshot of (american) liberal conventional wisdom during past decades. Today Lester Brown tells us how renewable revolution has arrived.  Fossil fuels and nuclear are apparently doomed, but I have a feeling I have heard similar stories before. Here is a sample from Worldwatch institute two decades ago:

“Christopher Flavin and Nicholas Lenssen, authors of  Power Surge, write that recent developments point to a new kind of energy system: in Europe and the United States, wind power  is now often less expensive than coal; ” Worldwatch Institute 1994

Similar claim is done again and again for decades and strangely people always seem to get surprised when costs escalate and installation rates collapse when subsidies are removed. In 2001 Brown wrote a book “Eco-economy”. I found the book somewhat interesting when it discussed things that had already happened, but less so when it proceeded to future babble. I give some examples below. First on the salvation we will soon enjoy due to the things Brown likes:

• “We are learning that western industrial development model is not viable for China, simply because there are not enough resources for it work.” : I guess we are still learning…
• “Among countries, Denmark is the eco-economy leader.” : Meanwhile on planet Earth in the “Living planet 2014” report WWF ranked danish ecological footprint as the 4th highest in the world after Kuwait, Qatar, and United Arab Emirates.
• “Wind-generated electricity, which is likely to be the lowest cost source of energy, will be used to electrolyze water, producing hydrogen.“,”In some locations, wind is already cheaper than oil or gas-fired power. “Really? When? The cost Brown gives for 2001 is not different (after correcting for inflation) in a meaningful way from one EIA gives today for wind turbines in optimal locations.
• “Hydrogen generators will start to replace oil refineries. The wind turbine will replace both the coal mine and the oil well.” : Right…didn’t happen.
• “World coal use is already being phased out, dropping 7 percent since peaking in 1996.“, “… (Dick Cheney) plan centered on expanding production of fossil fuels… It emphasized the role of coal, but the authors were apparently unaware that world’s coal use peaked in 1996…China… has reduced its coal use by an estimated 14 percent since 1996.” : China’s coal use just keeps peaking. It is peaking also today. (Who knows, maybe it has peaked, but historical records do indicate that caution is warranted before making bold claims.)
  

  Yep, China had that coal thing all figured out. Such an inspiring example.

• “The world energy economy is on the edge of a major transformation.“: Already then?
• “The signs of restructuring the global energy economy are unmistakable. Events are moving far faster than would have been expected even a few years ago…” The speed of the revolution sure makes one dizzy, doesn’t it? Decade after decade. #sarcasm
• “…Shell hydrogen and DaimlerChrysler reached an agreement in 1999 with the government of Iceland to make that country the world’s first hydrogen powered economy“: What happened to this? Well, it was always on a very small scale (three busses) and hydrogen production apparently collapsed when a fertilizer factory was shut down in 2004. Scheme gave (thanks to Brown et al.) Iceland some positive publicity, but even the remaining small scale scheme collapsed during financial crisis. Oil use in Iceland hasn’t been reduced.
  

  That prediction aged well.

• “Even the oil companies are now beginning to recognize that the time has come for an energy transition. After years of denying any link between fossil fuel burning and climate change, John Browne, the chief executive officer of British Petroleum (BP) announced his new position in a historic speech at Stanford University in May..In February 1999, ARCO chief executive Michael Bowlin said at an energy conference in Houston, Texas, that the beginning of the end of the age of oil was in sight. He went to discuss the need to shift from carbon-based energy economy to a hydrogen-based one“: Always cite fossil fuel producers as especially credible sources on fossil fuels and renewables.Today the former Shell chairman does the trick. #sarcasm
• “DaimlerChrysler plans to market fuel cell-powered cars by 2003. Ford, Toyota, and Honda will probably not be far behind.“: This didn’t happen. They apparently did have a fuel-cell vehicle (Mercedes-Benz B-Class F-CELL) in small scale production in 2009. This was supposed to be mass-produced in 2015, but never was because of low sales. Now there is a new cycle of hype promising things will change in 2017.
• “Natural gas: the transition fuel…distribution system…is also expanding, setting the stage for eventual switch to a hydrogen economy.” Could you be a bit more specific on the timing? Worldwatch Institute (and many others) have had this same narrative since early 90’s (at least) and there has been precisely no progress on this since. Only thing that has materialized is the increase in gas burning.
• “Natural gas companies are well positioned to be leaders in building the solar/hydrogen economy.”: They are quite lovely aren’t they? #sarcasm
• “In the United States, Enron, a Texas-based natural gas company that in recent years has become a global energy company, is also keenly aware of the part it can play in the transition to the new energy economy. In recent years, it has purchased two wind companies, which gives it the capacity to exploit the vast wind resources of Texas, This abundance of wind to generate hydrogen gives Enron the option of one day feeding the hydrogen into same distribution network of pipelines that it now uses the distribute natural gas in the Northeast and Midwest…“: Wow!
  

  Enron’s Ken Lay on his way to plan global hydrogen economy (December 2001).

• “If the goal is to expand wind electric generation fast enough to accelerate the phaseout of coal, it would mean extraordinarily rapid growth in wind energy. Is such growth possible? Yes. The growth in the internet provides a model.” Seriously? Some deep thinking here. Since bits in a computer can be copied quickly same can be done with everything else. Apparently there are limits to exponential growth only for things Brown doesn’t like.
• “…China, which abruptly cut its coal subsidies from $750 million in 1993 to $240 million in 1995. In addition, China has introduced a tax in high sulfur coals. China’s largest cities– with some of the worst air pollution in the world, largely due to burning coal– are even banning coal use…In  addition, China is subsidizing an ambitious plan to develop its wind resources, generating electricity to reduce further its reliance on coal. In effect, it is shifting subsidies from coal to wind.“: Where does this narrative of China as an environmental champion actually come from? China banning coal in 2001? I guess it is still doing that.

Then some highlights on the stuff that Brown doesn’t like. Change to doomsday rhetoric is clear.

• “Perhaps the largest question hanging over the future of biotechnology is the possible long-term environmental and human health effects of using genetically modified crops.” Now it is 2015 and there has been a very large number of studies on environmental and health impacts. Still nothing to see here, but I haven’t heard Brown telling he got this wrong. Maybe he has? He seems very quiet on the issue. Maybe it is because he has actual education in agricultural sciences and knows at some level how embarrassing anti-GMO crusade is? One can always hope.
• “For the first time since China’s great famine claimed 30 million lives in 1959-1961, world population growth is being slowed by rising death rates…The two regions where death rates either are already rising or are likely to do so are sub-Saharan Africa and the Indian subcontinent…could slide into demographic black hole.“: Meanwhile on planet earth Indian life expectancy went from 61 to 68. I am too lazy to check the full data on sub-Saharan Africa, but the death rate for kids there has stubbornly become lower and life-expectancy has increased.
• “…HIV epidemic is the first to spiral out of control in developing countries… Barring a medical miracle, many African countries will lose a fifth or more of their adult population to AIDS by the end of this decade.“ No, HIV stabilized to about 35 million cases, new infections have declined by about 33% since 2001. AIDS related deaths declined by 30% from the 2005 peak. Situation is serious in many (especially) African countries, but the apocalypse Brown was expecting has not happened.
  

  No, HIV has stabilized.

IEA 2 degrees scenario: hidden in plain sight…on page 384

I glanced at the IEA report “Energy technology perspectives 2012”. (There is also a 2015 version, but I didn’t have access to that. Annoyingly IEA charges dearly for these reports so that even though they are commonly referred to in discussions, they are not widely available.) In their baseline 2DS scenario IEA estimates cumulative saving (savings in fuel minus investment costs) over 6DS scenario of 26 trillion US dollars by 2050. Interestingly enough they also have a “high” nuclear scenario where they tolerate more nuclear power than in the baseline. In this scenario the savings are largest, 27.9 trillion. Strangely enough this result was buried to the page 384 of the report. Wouldn’t it have been useful to highlight this since there are plenty of people and (believe it or not) politicians who don’t know this? After all this ignorance might make them promote policies that are counter productive in fighting climate change.

We can also look at the required investment level to follow the 2DS scenario. Here IEA assumes large cost reductions for renewable energy sources. This might or might not happen, but let us just accept this for now. I highlight some relevant numbers from the report in the following table.

Source	Investment 2030-2050 per year (billion)	Production 2050 (TWh)	TWh/billion
Nuclear	119	7918	66.5
Wind	167	6145	36.8
Solar	232	5988	25.8
Wind+solar	399	12133	30.4

 

As you can see, even though IEA has baked in massive cost reductions assumptions into solar and wind by 2050, they still deliver less than half as much electricity per investment than nuclear (for which IEA didn’t seem to assume learning effects). IEA 2DS baseline is not a cost minimizing scenario, but presumably reflects sufficiently conventional wisdom that authors believe is more palatable for IEA funders.

What would happen if we were to simply divert investments spent from more costly decarbonization options to nuclear? That 399 billion for wind and solar would then enable about 14000 TWh/year more carbon free electricity than the 2DS baseline. This would be enough to eliminate coal, coal+CCS, natural gas, natural gas+CCS, biomass+waste, and biomass+CCS from the electricity mix at 2050 with more than 1000 TWh left over. As these sources of electricity disappear, more than 100 billion a year is also saved in investment costs and lots more in fuel costs. Based on the difference between IEA 4DS and 2DS scenarios, I estimate around 20 trillion additional cumulative savings in fuel costs. Not bad, I would say given the speculative nature of CCS technology, environmental and social impacts of bioenergy schemes, and the need to decarbonize also other sectors than electricity production. (Incidentally, it tells something of the absurdity of current energy discussions, that many celebrate large investments as a good thing. It doesn’t seem to matter what the investment actually buys. More expensive the better, because that means more investment and larger business opportunities in “cleantech”.)

Do I think this will happen in the near future? Of course I don’t. If there would be a wartime-like urgency, who knows, but as it stands such scale up is not going to happen. However, even if unrealistic this option is MORE realistic than the renewables-only party line. It is more realistic economically, technically, and in terms of material limitations. Since it is not going to happen, (as I have said many times before) we can look forward to much more than 2 degrees warming.