193. The Seven Deadly Sins of the Energy Transition

With Laurent Segolen from London and Gerard Reed from Berlin. This is Redefining Energy. Today on Redefining Energy. This is a super special show for the end of the summer. Ciao. What are we going to talk about? We're going to talk about the seven deadly sins of the energy world. And in order to do so, we need to bring our blue flame thinker, our friend, colleague from Canada, Michael Barnard. Welcome, welcome. I'm so glad to be here, as always. I know coined the term seven scene. It's Pope Gregory or something in the sixth century. But we have decided and I don't know who because we were kind of exchanging during the summer and that just popped up. The seven scenes of the energy transition. It must have been me because I'm the creative one. Just let you know. So it must have been me. That's sure. It was not me. I certainly remember it being Gerard who was pushing for it. Okay. Happily receiving. Oh yeah. It was somebody else that came up with the idea, but it was very good. The seven sins are. Michael, I'd just like to say assertions that I have personal and extensive experience with, all of them are completely true. The list is greed, gluttony, sloth, pride, lust, wrath, angel and envy. Okay, I know you were educated in the seminar, but how does it translate for investment? For investment. What we have to think about is the sins are the things which we're really subject to, which aren't good for us or good for others around us. And so in the energy world, as we consider the exemplars of sloth or greed, what we have to say is if the analogy fits, then it's going to be hobbling your investments. Well said, Michael. Well said. Greet Hoki, Richard. So what are they, please? Number one, number two. Number three. As we go through these for greed, we have carbon capture and sequestration and direct air capture, avarice and pipelines for gluttony. Nothing fits gluttony better than hydrogen, the calorie bomb energy carrier. For sloth, it's nuclear and small modular reactors. And then there's pride. This is fusion hurous with a torus. It's very interesting research, but it has nothing to do with the energy transition or decarbonization for lust biofuels everywhere. The drop in siren sock. It's a nice idea that we don't have to replace the engines or the vehicles, but while we need biofuels for the really hard to decarbonize segments, we're just going to electrify everything else then there's rap. This one leans into the United States right now, canceling offshore wind. It's reprise of rage against the turbines. And then finally envy the greenhole cosplay of the past five years of ESG reporting. As somebody said, I've got a guy in the sub basement who fills in those forms for us. So that's the list. Well, listen, why don't we start with greed, which I think I'd better describe as subsidy mining in a lab coat. You might call it carbon capture and direct air capture, but for me it's subsidy mining. No, no, it's regulatory capture, not carbon. Because they capture more subsidies than CO2. I have to say, the entire Climeworks scandal where they can't actually get it to work and it's such a tiny amount of expected targets. What they found is they're actually going to be capturing and sequestering less CO2 than it's costing to capture and sequester the CO. In terms of emissions, it's just a dead end. While 420 parts per million is really problematic from a global warming perspective, it's really also engineering problematic. It's trying to strain a drop of urine out of an Olympic sized swimming pool. You just have to accept that that's going to be hard. Michael, what I'll add on to this and I'd like to hear your thought on it. I mean here we are during this podcast and Germany is bringing in carbon capture regulations. We will need some carbon capture. It will pencil out in some places, like where there is a industrial source of pure ish carbon of CO2 at reasonable pressures that can just be put into a sequestration site which is effectively underneath that site, that's probably going to be a cheap way to do it. If we think of electrified cement for example, or using the sublime process, the electrochemical process which produces a fairly pure stream of CO2 and it's beside the ocean and there's a pipeline leading to offshore sequestration that actually pencils out in terms of being fairly low cost, low carbon cement. Unless you have a sequestration site directly under the facility or your seashore and you can put it in a pipeline offshore, it just gets more and more expensive and less and less likely. And at the end of the day it's just cost. Except when you do the end soil recovery which has been going pretty good. Oxy is the big specialist of that. But otherwise it's just basically you ask the taxpayer to capture the carbon and that's pretty much it. Well, listen I love that. But on that note, it needs to bring us to the next one, which is gluttony. I just love it. Three kilowatt hours to make one kilowatt hour. And I know you two guys love this topic. Yeah, it's hydrogen. There's a lot of technical conversation around hydrogen, and I'm not a technical guy, I'm a trader. So what I do know, and I have checked on ChatGPT and so on, is basically $1 per kilo of hydrogen equal $50 per barrel of oil in term of energy content. You can go and say, no, no, it's not 50, it's 48.9. But I make it 50 because that's easier. So you've got those guys, they say, oh, that's great, we've got hydrogen at $8 per kilo. I say, okay, fine, so $8 per kilo, you're trying to sell a barrel of oil at $400 per barrel. The market price is 60. Just tell me who's going to pay the 340 of difference? And they're like, ugh, it's just too expensive, period. It is, once again, regulatory capture. The nice thing about hydrogen is while a lot of people invested in the narrative about hydrogen, it was based upon fallacious assumptions that green hydrogen would be cheap. If hydrogen could be delivered at a buck a kilogram, that would work out. But what happened was in the 2010s, people said, how cheap does hydrogen have to be in order to be used? And then they invented a bunch of ways to make it seem like it could get there. They were invested in the $1 per kilogram of hydrogen, and instead of saying, well, we can't get there, it's never going to get there. Which I luckily did the math and figured out then they wouldn't have actually spent the last five or ten years trying to make hydrogen into something that it's not an energy carrier. Well said, well said, Michael and Laurent. I've got a bit of numbers which are funny, you know. In Australia, they had booked two years ago, 5 gigawatt for electrolyzers, out of which they will get zero. And now those 5 gigawatts had been moving to AI and data centers. They had project in Australia, Gladstone, fortescue In Germany, ArcelorMittal canceled. E on canceled. In the US, BP, Exxon canceled their indulgent project. Air Products canceled and the CEO had to be fired. ThyssenKrupp, Nucera, all projects abandoned. Repsol. It goes on and on and on and on. Whatever the money Throws at it. People just won't do it. So for me, you know, it's dead. And we can see that with the major industrial players that were supposed to be the demand areas. Stellantis walked away from its hydrogen sprinter vans. It's now saying battery electric for the entire range. Airbus walked away from its hydrogen aviation efforts. What we're seeing is that everybody who's been attempting to make hydrogen work as an energy carrier on the demand side is discovering it doesn't. There are probably as many hydrogen bus fleets that are not being used as being in case, you know, another case point. Lower Saxony's passenger train organization famously ignored the neighboring province's assessment that hydrogen trains would be three times as much as battery plus overhead hybrid systems, and bought 14 hydrogen trains for Alstom. Well, only four of them are in operation now. Alstom can't get new fuel cells from Cummins, who took over the hydrogen fuel cell manufacturer. Great, guys. So then I want to talk about sloth and actually it's one of my favorite topics because it's always in time and always in budget. And that of course is nuclear. So where do we start there, guys? I want to start with 2029. The first SMR is meant to be online. What do you think? Will it be on in 2029? Or it'll be 2039 or 49? Will it be on budget or not? Well, pick the project you're referring to. So which one? The one in Ontario? The one in Ontario? Yeah, yeah, the one in Ontario. Well, SMRs are interesting. The premise of small modular reactors is that the problem with nuclear was big reactors. And that's why they went over budget and stuff. And instead what we're going to do is build small modular reactors as much as factories as possible and kind of churn them out like cracker jack boxes. But it's been very funny to watch. Small modular reactors were in many cases posited to be 20 to 70 megawatts in capacity. And all of those have fallen by the wayside. Now, a small modular reactor is 300 megawatts. And 300 megawatts is a hard to call particularly small. It's a third the size of the typical gigawatt scale, 1B at 300 megawatts. It's a multibillion dollar construction project. Regardless, it's not something you manufacture and deliver. And three, a big part of the small modular reactors theory was Wright's law. Every time you double production of something in a manufacturer, manufactured object, for more complex objects like fuel cells, it might be 10% for solar panels and batteries, it's about 20%. Well, when you get to the 300 megawatt nuclear reactor, you're just not going to be doing that many of them. A, it's more of a custom engineering project, B, so you're not getting the economies, the experience curve and you're just not going to do that many. So you're just not getting the doublings very much. So it loses out time and time again. Still didn't answer the question though. 2029, will they do it? It's a Canadian project. Are you going to back your fellow countrymen? It's, it's true. I, I have been to that site, Bruce Nichol and I will say that it is a wonderful jobs program for the 12000 person that the nuclear site is in. It is not going to be benefiting Ontario's electrical generation. If it's in up and running by 2035, I'll be surprised. Oh they haven't. I love it. I love it. Laurent, give me a number. Give me a year. They don't have construction yet. They will put it out. I really wonder about the cost because the all in cost of new nuclear is already $200 per megawatt hour and those guys might be even more expensive. 300, 400 if somebody's willing to pay five times market price. That's good. Now what I'm fascinated is not that Gtachi or Rolls Royce and by the way these are mostly submarine design which have been kind of reshuffled. It's all those startups, NuScale, Kairos X Energy, Terrestrial lead, cold Oklo, Ultra safe nuclear. Okay, so I guess the others are not on and on and on and I see Breakthrough OpenAI, Amazon throwing a lot of money at those guys. That's fascinating. The US venture capital industry has become a great way for people to get rich without having to deliver anything. If you can get funding, the Wall street guys make money, the venture capitalists, maybe they make money. It doesn't seem to matter that much. But if you can get a big VC like breakthrough to put $500 million into your fund, you can coast for years on that without delivering anything. That leads us to pride. And the way I would describe Pride is we will bottle the sun. We will go back to the source of all energy. What's that? Fusion. I'm going to say I agree with that premise. We are going to bottle the sun, we're going to work off fusion energy, but we're going to position the fusion energy at a Safe distance from anything about 93 million miles. And we're going to make sure its gravitational pull keeps us at a safe distance in kind of the Goldilocks zone for our planet, so that enough energy hits to warm us out of glaciation, but not bake us like Mercury. We're going to capture that fusion energy. I think that's what we'll do. But yes, we are going to depend on fusion energy. No, but again, I mean here, if I look at the Startups, Helion Energy $500 million Raise backed by Sam Altman Commonwealth Fusion 2 billion General Fusion Vancouver 20 million Tokamak Energy Oxfordshire 172 million Zap Energy 330 million Renaissance Fusion Microfusion TAE Technology 1.2 I mean this is absolutely phenomenal. And the Disgrace is the Iter project in France, which is, what is it like 30 years late, 20 times of. Our budget, I think it's up to 80 billion. And I looked into it a couple of years ago because here's its target for success for 2040. The target for success is to maintain fusion for 5 minutes with thermal net energy delivery. But the thermal net energy delivery, if you actually bolted a generation device onto that, it would actually get down to the amount of energy required to run the process is equivalent to the amount of electricity you get back out of it. So that's their target for sustained fusion, five minutes with no electricity net delivered. All these breakthroughs, you hear about fusion and look into them, nobody's actually doing fusion yet. We've just gotten to the point where really hard, weird engineering problems are being exposed. We are so far from doing that. I always like to say there is a place for fusion energy. We will require it in spaceships past the orbit of Jupiter sometime in the next 200 years. I'm glad that research departments are investigating it and that money is being spent on research, but it has nothing, nothing to do with the energy transition. Great. Well, enough brings us on to last and what we really want to talk about here is what we describe as the drop in fantasies for every engine. Biofuels. So where do we start, guys? That all biofuels started 25 years ago. First you have two big biofuels. You've got sugar based ethanol, which is in Brazil and it's relatively cheap. But then you get corn based ethanol, which is an absolute disaster. Half of the acreage for corn in the US go into biofuels. And of course it was designed at a moment where the US was importing a lot of oil and they were peak oil and they thought oil would go to 300 and of course big agro was there and so we'd get a solution with corn based ethanol and that created a constituency. Plus, as you know, the first round of the US election is in Iowa. So Iowa is big on the biofuels and that system has fossilized itself. Now in Europe, I think at some points they say okay, stop the blending and still today it's designed for a barrel of oil at $150 per barrel and because oil is much cheaper but basically you have to force it into the system through blending mandates. Michael, I am actually a strong advocate of biofuels for SAF and maritime fuels without getting into that, that subject deeply, but I just have to say that some of the first generation biofuel stuff has led to a lot of negative press which doesn't hold up when we look start looking at second generation biofuels and third generation biofuels. We're now at a point where we can dual crop. We can take the corn husks and the corn stalks and feed them into the biofuel processing and get ethanol out of there or methanol and we can feed the corn into the food system. It turns an agricultural waste into a valuable product. Similarly, we can take the corn stalks and put them through biodigesters and create biomethane for manufacturing of methanol or long duration energy storage and a couple of other things. You know, we've got uses there. I think that demonization of biofuels as an agricultural food displacer don't stand up to scrutiny. I think Europe is far too precious on the subject. It's just calories, whether they are consumed by animals, humans or motors. And we need calories of some sort and we need liquid fuels of some sort in the future. But imagining that we're going to run our trains on them or trucks or cars, well that's nonsense. All ground transportation electrified direct here with batteries. So Michael, I certainly agree with you and I'm not going to add anything to that, but I will. What I do really want to talk about is rats and in particular I really want to talk about the wrath of Mr. Trump. So what's he got to do with our space? It's what we call the culture war at sea. Offshore wind and we just had a series of bad news for those poor horstead who really were the biggest European developer in the US they took 5 out of the 30 gigawatt of project and they had cancellation in New Jersey which cost them a lot of and now their Revolution project, which is 80% completed, has been stopped. They're trying to raise money, but the dilution is going to be phenomenal. So I'm just going to say one thing. Equinorstead. Very good, Laurent. Could happen, could happen. I'm going to lean into something else. I'm going to blame golfers. Basically. A lot of the rage against wind turbines comes down to golfers being pissed off at missing a putz or something goes on with golfers. Anyway, a lot of Trump's anger about wind turbines are that he was building another golf course in Scotland and at the same time a long way offshore there was supposed to be a wind farm going in and some golfers would be exposed on the tee to somewhere in the horizon a wind turbine blade or two. And this turned into a 14 years of Trump thinking wind turbines are the devil's pitchforks and fighting against them constantly. Trump doesn't care if what he says is true or not. He cares if he'll get hit a wedge that he's trying to communicate to for votes or for gain at the moment when he says something. So when he's attacking wind energy, he's feeding into the anti wind ragtag band of zealots in the United States and telling them what they want to hear. And he's also telling the people who are worried in the fossil fuel industry about displacement by renewables what they'd like to hear. Except that the fossil fuel industry doesn't want wind and solar to go away either. Many cases they're invested in them and they need electricity for operations of their facilities and they want cheap electricity and wind and solar provide that. So Trump is irrational on the subject, but he's feeding into the irrational leading United States. There's another view which I'd maybe like to talk about on offshore wind, which is just the economics of it. If I look at the United States, I go, why do you even need it? Does the United States, North America have so much low cost electricity as it is, whether it's from gas, wind or solar? Yeah, why do it? So that's my sort of thinking on that. And by the way, sorry if I was Trump as well, it's the easiest fight to pick is offshore wind because this all the players are farm. So it's a win win for them in every way. Right. It's not true though. So G.E. vernova has the wind farm in operation at offshore secondarily. Gerard, you're forgetting that the United States is finding impossible to build transmission. They've Got all that lovely wind in the prairies, but they can't get it to the coastlines. It's much easier to put a submarine of HVDC cable from 30 km offshore into New York than it is to get one from Iowa to New York. And that's a fair point. So you could also just say, well, let's just put a undersea cables right along the east coast and move electricity up. Right. But the U.S. you know as well as I do it's just very difficult to get anything done because it's all state level policies and you've got state interests that you know, not aligned with the state beside. And it's just really complex. After talking to Dzhokhar Shah a couple of years ago on a new into his role with the Department of Loans office for the US Department of Energy, my takeaway there was the United States has devolved the ability to say no down to the county level and often the individual and transmission is a victim of that. If I compare the North Sea where you have shallow waters, you have an existing oil supply chain and this is an energy pool region, people did not hesitate around the North Sea. And as Jarrah says, they've got so much options in the US that whatever push was extremely political and the moment the politics change. And I think that the European developers who went to North Sea did not fathom the difference in the mindset. So they went there, they said, okay, there's a, you know, CFD contract and we're going to do this. And. And they just saw that because people spoke English, they thought the same way. They didn't think the same way. So offshore in the US our heart is bleeding for Ofsted, but it's lost for our generation. Let's move to the last one. Envy. And actually really this is my pet hate, which is ESG bot ticking. And what you've seen in the last few years really is companies box ticking and chasing ratings and labels and telling the world that they're better than their competitors and their peers. And actually what you realize is, you know, is that real world decarbonization? I don't think so. Has it really improved the way businesses are governed? No. Has it really had a positive impact on society? Questionable. My exemplar for this was when ExxonMobil scored high on ESG rankings and Tesla didn't. There's a lot to say about where Tesla has gone and where Musk has gone. Labor practices weren't great, but this is the leading driver of electrification of transportation in the world. That created the industry as much as anything else. Tesla also does battery storage and it also does solar at residential, commercial and utility scale. It is a very virtuous company by most standards. And when it fails the ESG ranking, there's probably something wrong with the ESG ranking. Well, as you reminded at the beginning, the guy who said that was the CEO of Glencore, you know, esg, the guy ticking boxes in the sub basement, but yet created such a bureaucracy. It's absolutely insane, the bureaucracy that ESG has created. Of course, the European Commission has put some laws and laws and laws, and it's totally out of control. But anyway, I would say it should be ewp. Okay, we need electrician welders and plumbers, not ESG specialist EWP electricians, welders and plumbers. I like it. I will say that right now there's a lot of indicators that now that we're past the ESG bubble, real consideration for the right doing the right stuff is still proceeding because ESG was well intentioned. One of the exemplars is that despite Trump being in office and saying, drill, baby, drill, well, Wall street has cut funding for fossil fuels investments by 25%. There are many, many billions less flowing into the fossil fuel industry from investors than there were a year ago. You know, that's a very good sign. And I would say that right now there's a lot of green hushing going around. A lot of corporations are doing very good things in terms of decarbonizing their operations. It's just not being touted because it's not the time to tout that. They know the needle's going to swing on this. They know they need to do it, and they know that they're at risk globally, regardless of what the United States does. Big corporations have to operate around the world. And if the United States is this retrograde pool of polluted smoke and carbon dioxide emissions, that doesn't mean much if they also have to operate in China, Indonesia, Australia and Europe. Micah, what I'd like to add as well is going back to just me putting my economist hat on is what is esg? What was it about? Well, the E is environmental and the S is societal. And there's no doubt what we can say is that we have what's called externalities, which is that, know, economic life as we know it can have a negative impact on societies and environment. So being able to actually measure that and show that to investors makes a lot of sense to me. And again, you know, what we tend to do Is governments tend to often tax, you know, they'll tax pollution and stuff like that. That's how we generally deal with it. But giving that visibility is very important. But the G is very interesting for me because. And you gave the example of Tesla and Exxon. Well, Tesla did very bad on the G. Why? Because you could argue that the corporate governance is not good based on the way they're rated. On the other hand, I say, well, why would you invest in a badly government business in the first place? Because for me governance is also about management and leadership. Why would you do this? It's a key task of a fund manager is to invest in good businesses. But somehow this G got completely mixed up in and around good governments. It was mixed up in and around a move really in towards diversity and a whole pile of other areas that are actually not to do with good governance and leadership of business. And I think the G is the thing that's disappearing the E and the S. Most people across the world will say listen, yeah, we do have to. Take care of the E and the S. Yeah. And look, the G has been totally trampled by Silicon Valley. Now there's the God founders and you know, they have 10 votes per share and they had such a success over the past 15 years in term of wealth creation that nobody cares about governance anymore as long as the stock's going up. What I will say is in the United States there was a shareholders only governance model for a couple of decades in the 80s through the 2010s and that is starting to shift away. They've got B corps and other types of corps which allow fiduciary responsibility by the board and corporation not just to be to shareholders but to multiple stakeholders, including employees, including societies they live in and stuff. And so we are seeing a broadening of that stuff and we're seeing that the shareholder only rights United States are going away. There is a revolution going on there. So the United States is moving more towards what more what Europe is doing. And that's positive, I think. Agreed, Holding. Okay Gerard, can you summarize the seven sins of the energy transition before we wrap it up? I can indeed. Just to summarize greed, which is questionable. Carbon capture technologies. Gluttony for us is hydrogen sloth is in particular small modular reactors. But nuclear I could say in general, just because they have not been able to deliver on time or on budget over the last 20 years. Pride is all about taking that energy from the sun. And I think we're all clear in our heads that the best way to do this is with solar panels as opposed to fusion, which yeah, it's great to invest in science, but don't budget on miracles. Is the way we would conclude on that lust is that we're going to have biofuels everywhere. We do believe biofuels are very, very important. But the whole thing is let's keep them for the hard to electrify edges, not as a universal fix. And then we got wrath. And the wrath really is what's going on offshore wind. And then the final one is envy, which is esg box ticking, which I think we all hope changes in the next few years. In fact, I think we're all agreeing it's already is changing. Right? As you said, Michael, we definitely have a revolution in the whole area of governance and what's going on there. Okay, guys, was a pleasure talking to you. Have a good evening. Enjoy the rest of summer. Abu, thank you. Take care. Thank you for listening to Redefining Energy. 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