New renewables are liberal coded 💅: part one - Equipment and infrastructure

Why renewables are inherently liberal and strengthening the role of liberalism globally

Decarbonised, digitalised, deregulated, distributed and democratised - the Ds of the energy transition. Most attention has been on the first, but in this three part series we want to dive into the latter ones, build on a previous blog and argue for the inherent liberalism of renewables.

In this context, we are largely talking about wind and solar coupled with battery storage which have been scaling in the last 20-odd years. Even the most incompetent communist dictators like Hoxha managed to build centralised hydro and biofuels have been burnt since the dawn of humanity. However, hydro doesn’t have much room to grow, and biofuels are just lame and do not scale.

Liberalism and its context

At its core, a liberal worldview centres around the individual, equality and democracy. In a perfect world, vulnerable individuals are not forgotten, markets do not fail, and negative externalities are priced.

Liberalism, as the opposite of fascism and communism, largely left them behind after the end of World War II and the Cold War. Liberalism is however challenged again with the rise of ultranationalist populists such as Putin, Trump, Netanyahu, Orban, and other morons.

Nevertheless, we see an unforeseen boost to liberalism: clean electricity for everyone driven by two hyper-capitalist actors - meteorology nerds at hedge funds and the Chinese manufacturing sector.

In this series of blogs, we want to illustrate their workings by looking at two markets operating at rather different levels. Here, we will examine infrastructure and the manufacturing of renewable energy equipment such as panels, turbines or batteries.

In the second part, we will look into weather-driven electricity traded in real time across vast distances. Finally, we will provide an outlook and discuss potential shortcomings.

1 | Infrastructure and equipment

To borrow from a previous post: Centrally controlled electricity supply is inefficient, and in the worst cases, leads to corrupt and ailing systems (e.g., South Africa and Eskom). Deregulation, liberalisation of markets and debundling of generation, grids and supply promised to add competition to reduce costs. Formerly inefficient captive utilities suddenly had to face an open electricity market and compete with other power plants.

Now, our system is increasingly defined by the following qualities:

• Distributed: To some extent, solar irradiation and wind are available everywhere. With distributed resources, you can have distributed generation. Even societies without fossil fuel reserves can rely on domestic production and moreover, individuals can go almost entirely off-grid with solar and storage. Smart meters add the final piece: the ability to communicate in real time with the market.

• Small and modular: Generation units are small and modular rather than the large power plants of the past. A panel is roughly 6-800W on around 2m². A home battery system with around 1.5m² stores 10-16kWhs. Now, wind turbines could be a few 100kW, but economics are definitely better the larger they are. Currently, onshore turbines being installed today are already in the 7-9MW range and absolutely massive. Anyway, all of these are comfortably smaller than the old school multi-hundred MW conventional power plants. Small Modular Reactors are often not yet small or modular, with only 2 in existence and a handful under construction - let’s see if the Chinese can finally pull it off.

• Simple: In addition to modularity, renewables are incredibly simple. Solar’s lack of moving parts make it fairly straightforward and this also holds true for batteries. Wind is actually becoming more difficult as larger turbines increase efficiency and offshore is a different beast entirely (and also has shown to be operationally much more difficult and degrade faster). But even mountain villages or tropical islands can ship in some panels and batteries, strap them to a donkey and install them with limited technical knowledge.

• Cheap and financeable: Given resources are distributed and units are simple, small and modular, this bodes well for mass manufacturing and installation en masse. This in turn means means a) there’s huge economies of scale bringing down costs, and b) a single unit is incredibly cheap. In effect, renewables are easily financed even for developing economies like Pakistan as shown by the growth of small scale systems in Asian or African countries such as Pakistan.

• Openly traded with little market power: So, renewables are modular and simple. The main market power China has over solar and batteries is their sheer scale of manufacturing and state support. While more complex wind technology remains strong in the US and Europe, China is also cracking that nut. While a large part of the world’s energy infrastructure will run on Chinese tech, ultimately anyone can manufacture solar panels and any panel sold and installed won’t stop working should China cut trade. Tension around critical minerals remains (such as REEs for magnets), however countries like the US are heavily subsidising the build up of mining and refining supply chains to break that last link. Despite some losses, metals are then mostly recyclable.

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Impact on affordability and climate

The qualities described above have led to mindboggling, ever-accelerating growth of renewables over the past few years. The impact should be self apparent: renewables are cheaper, renewables are cleaner.

Furthermore, electricity markets are increasingly driven by weather and these assets are also not dispatched by a captive utility, but by many players forecasting supply and demand and trading electricity. As with infrastructure and equipment, the produced electricity naturally also trades in a more liberalised market, which we will discuss in part two.