As I write this, I am in Washington DC for work (not politics). A fascinating city.

I am an Abraham Lincoln admirer. Seeing his memorial was humbling and awe-inspiring. I spent half an hour standing in silence thinking about how Lincoln ground it out for all those years in a cycle of trying, trying, and trying again until he became President when the country needed him the very most. Some people figured he was a hayseed, until they understood they were in the process of seeing greatness revealed.

Also epic was the realization that I was unknowingly standing on the spot that MLK gave the ‘I have a dream’ speech in 1963. I felt this odd feeling, looking out on the reflecting pool, and when I looked down I saw this:

Things like this tend to make a person reflect and consider how major events turn in the world.

I am pretty sure that Benjamin Netanyahu is staying at the hotel opposite me, given the obvious and unsubtle security, the (probably) Mossad dudes patrolling the sidewalks in the evening, and the protestors that show up at the civilized 6:45 pm for 7 pm start of the evening protest shift. The shift shuts down promptly at 10pm, and everyone appears to say ‘goodnight Sam’ and ‘goodnight Ralph’ and then goes back home to put their feet up on the settee after a hard evenings’ work. I guess this is all pretty normal for DC but it feels surreal to me.

Watching the Trump admin in action in the first couple of weeks has been whiplash-inducing. He is governing like a man who was targeted for assassination twice might be expected to. DOGE has fanned out and about the city, working a 17 x 7 schedule. The 6-sigma team is causing hue and cry everywhere it goes.

Misdirection abounds as the true centre of gravity of the government’s efforts to put sunlight on everything seems to be at least partially obscured by the massive amount of concurrent action being taken with Treasury, USAID, Medicaid, the FBI, the CIA, and a litany of other investigations into the obviously staggering amount of money spent here in DC on some very crazy things. The world is spinning here and it has been a real experience feeling this vibe at the epicentre.

Canada has figured out that doing something about fentanyl is actually a real thing for the Trump administration. So is dealing with Chinese trans-national organized crime and Khalistani trans-national organized crime. And the links to Mexican organized crime are many. And Canada’s politicians (at least some of them…) are also caught up in this story, having been implicated in some ways by foreign interference led by Chinese, Indian, Khalistani, and other interests. I would bet my paycheck that the US intelligence apparatus knows more about what goes on in Canada than any Canadian citizen will ever have a right to, given the lack of transparency that we get from our ‘leaders’.

But all of this is not what I came to write on today. Today, we are talking about climate-related financial disclosures.

Task Force on Climate Disclosures

Sometimes, it’s worth taking a spin back through history. And in this case, we find our lad Mark Carney, in 2015, starting the Task Force on Climate Disclosures with our other lad Mike Bloomberg. This was a Financial Stability Board-led initiative to embed climate-related disclosures

The Financial Stability Board (FSB) created the TCFD to develop recommendations on the types of information that companies should disclose to support investors, lenders, and insurance underwriters in appropriately assessing and pricing a specific set of risks—risks related to climate change.

The Financial Stability Board is an unexciting, uninspiring organization that bores people to death with its web site so they will have difficulty understanding its mandate. Apparently.

But let us courageously press on.

The FSB includes as its members:

• International Monetary Fund

• World Bank

• Bank for International Settlements

• Organization for Economic Cooperation and Development (OECD)

• European Central Bank

• European Banking Supervision

• European Commission

• Basel Committee on Banking Supervision

• International Association of Insurance Supervisors

• International Organization of Securities Commissions

• International Accounting Standards Board (IASB)

• Committee on the Global Financial System

• Committee on Payments and Market Infrastructures (CPMI)

So that’s kind of the whole money gang, right there. Insurance, banking, markets, policy, central bankers, the whole nine yards’ worth.

So to run it back: Mark Carney, while he was chair of the Financial Stability Board, decided that he was going to give Mikey B a call and set up an institution to embed climate reporting into basically everything, including markets, insurance, banking, and supranational financial organizations.

The International Financial Reporting Standards Foundation and International Sustainability Standards Board - The Final Boss

It is worth digging around on this site. It is an interesting read.

IFRS - International Sustainability Standards Board

The same organization that runs the ISSB and promulgates climate-related disclosures that are focused on shutting down oil and gas is funded by some surprising sources, and others that will be very unsurprising:

• Suncor (guys, really?)

• The European Climate Foundation (which I’ve written on before)

• Robert Bosch GmBH (chemicals, as I recall)

• Canada overall is the largest funding provider

From the horse’s mouth:

The ISSB builds on the work of market-led investor-focused reporting initiatives, including the Climate Disclosure Standards Board (CDSB), the Task Force for Climate-related Financial Disclosures (TCFD), the Value Reporting Foundation’s Integrated Reporting Framework and industry-based SASB Standards, as well as the World Economic Forum’s Stakeholder Capitalism Metrics.

If you visit the Climate Disclosure Standards Board’s site, here, you will perhaps notice one Paul Simpson, who is the founder of the Carbon Disclosure Project, of which David Zaruk has written a recent series on his excellent Substack THE FIREBREAK.

Paul Simpson managed to get the Government Services Agency to partner with the Carbon Disclosure Project to pressure federal contractors to report their carbon emissions. This makes CDP’s grading scheme pretty much federal law, with no involvement from Congress necessary. Fun stuff.

Here is Part 1 for your reading enjoyment. Mr. Simpson has quite the climate grift going. The whole series is a worthy read.

THE FIREBREAK

Climate Disclosure and Investor Opportunism

Imagine the backroom of a smoky restaurant in the Manhattan financial district in 1999. A group of investment fund managers gathered to celebrate the end of a successful trading day over a fine brandy. The conversation drifted to how they could take advantage of the evolutions in the business environment…

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a year ago · 4 likes · David Zaruk

I have previously mentioned the Climate Action Playbook, which Catherine McKenna and Laurence Tubiana (of the European Climate Foundation, interesting to look at funding partners and explore…) wrote together.

2024 Must Be the Year for Exponential Climate Action | TIME

One quote:

Phasing out fossil fuels requires massively scaling up the capital available to build renewable energy systems and support countries in the Global South to achieve a fair and just transition. The exponential action requires capital measured in trillions, not billions. This is why finance must be the focus this year including at COP29 in Azerbaijan and why immediately reorienting our global financial architecture towards climate prosperity and debt sustainability and de-risking blended finance models to leverage private capital is imperative.

We also need new sources of climate finance. This is especially critical for climate vulnerable countries who have done the least to cause climate change and are paying the steepest price. France, Kenya and Barbados are leading the way with a new international taskforce on taxation for development and climate action that will examine levies on maritime shipping, aviation, fossil fuel trade, and financial transactions, and extreme wealth. These measures could help provide much needed capital and ensure that those most responsible for climate change finally contribute their fair share.

And another:

In 2024, we need to stitch together and level up the climate ambition of the range of subnational actors that are critical to delivering on country-based climate commitments. Businesses, financial institutions, cities and regions each play a critical role. The UN’s “Integrity Matters” report, released in 2022, defined what it takes to make credible net zero commitments, including verifiable transition plans that reduce emissions and move money to clean energy. Thanks to work by civil society and initiatives like the Bloomberg-Macron Net Zero Data Public Utility, large companies and financial institutions can be held accountable for their net zero pledges. The UN’s new TaskForce on Net Zero policy, announced at COP 28 will help accelerate the shift that is already underway to move from voluntary net zero initiatives to regulated requirements.

If you don’t read carefully, it’s quite possible to miss things. My translation is as follows:

This is the strategic playbook for climate action. I will translate.

1. 'Managed phase out of the use and production of fossil fuels'

Translation: Central planning of energy. Expect hiccups, incompetence, and strategic weakening as Western governments trip over themselves while BRICS aligned countries watch it happen with glee and developing countries rightly ignore the eco-colonialism the West is trying to impose on them through policy-induced energy poverty. OPEC will not play ball.

2. 'Ensure a just and equitable transition'

Translation: Central planning of oil and gas labor, which will weaken the industry. This will prove unwise, since oil and gas will be with us for years to come, for all the uses it is currently in. Many people who want to see progress (including me) agree this will be the case. The industry is already seeing shortages of geos, technical people, and skilled labor.

3. 'Reorient global financial architecture' and 'global carbon taxation regime'

Translation: Weaponized finance, through sustainability regs, ESG disclosures, CBAMs, subsidies, and forced capital allocation. Things will get a LOT more expensive for just about everyone.

4. 'Accelerate the shift from voluntary net zero initiatives to regulated net zero requirements'

Translation: Imposition of supranational regulations over top of formerly sovereign governments. Think International Energy Agency (IEA), IPCC, World Economic Forum, United Nations, and other supranational orgs layering policies one on top of the other to guide all of us to a utopic green energy future where families live in 500 sf apartments, eat what they're told, and have movement severely limited. Guaranteed there will be poor (or no) consideration of the economic impacts of these regulations and policies which will be enacted by unelected leaders. Developing nations will be blocked from development by elites. Already happening.

5. 'Citizen groups challenging their governments and fossil fuel companies through climate litigation.'

Translation: Lawfare. Lots of it. It's already happening, and precedents have already been set in Dutch and other courts. 'Citizen groups' is a euphemism for groups funded by influence money. If you follow the trail, it leads to donor-controlled funds that go up again to supranational organizations and some people with tremendous amounts of money who made their fortunes in fields unrelated to their current desire to expertly re-jig the world's energy system.

I have never seen so many openly stated euphemisms in one post. This is the pathway to a post-national dystopia.

Climate-related disclosures are not benign. They are more strings in a net that is being closed to reduce energy availability in the West, and they need to be addressed in a meaningful, persistent way until they are put back into proper perspective.

The Scouring of the Shire

This is where Frodo, Sam, Merry, and Pippin come into the story.

“It was nightfall when, wet and tired, the travelers came at last to the Brandywine, and they found the way barred.”

The Shire had been changed somewhat, through the efforts of Saruman to ruin it.

“What can I do? You know how I went for a Sheriff seven year ago, before any of this began. Gave me a chance of walking around the country and seeing folk, and hearing the news, and knowing where the good beer was. But now it’s different.”
“But you can give it up, stop Sheriffing, if it has stopped being a respectable job,” said Sam.
“We’re not allowed to,” said Robin.
“If I hear ‘not allowed’ much oftener,” said Sam, “I’m going to get angry.”
“Can’t say I’d be sorry to see it,” said Robin, lowering his voice. “If we all got angry together something might be done.”

Well, yes. If we all get angry together, something very definitely can be done. Things have become expensive, systems have become bureaucratic, just the ‘way it is’. Restricting energy has perhaps stopped being a respectable job. One can hope.

“I shan’t call it the end, until we’ve cleaned up the mess.”

And neither will I.

And so, the four hobbits roll on through the Shire until they get everyone riled up, and make a plan to pitch a final battle to get rid of the ruffians forever. Four small hobbits are enough to make a difference, and so are people who will get riled up to fix what needs fixing.

So, let us buck up and stop acting helpless.

Let Us Fix This One Thing…

There is a lot of good happening today in the energy space.

But all of that is easy pickings that feel good right away, in comparison to what we will face when we try to take back the proverbial Shire: regulations and financial reporting directives that are embedded in IFRS ISSB regulations. This extends out to Canadian Sustainability Standards Board work, and other OECD nations’ versions of these things.

I know a couple of people, but if anyone has a super direct in to the Trump admin, this is target #1 on the list to fix in energy and finance.

One man’s opinion. Let me know what you think in the comments.

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Last week I wrote that the price signal generated by Germany’s electricity market is enough to judge the system. I think that is true, since it reflects the totality of the influences. I cross-posted it on LinkedIn and got some interesting comments back that I think might be interesting to explore.

Something that really grinds my gears is that people have this ‘it is what it is’ attitude towards experts and extant systems, where they almost shrug their shoulders in regret that it can’t be changed.

Better, IMO, is an attitude of:

The policy is the policy until it is not the policy any more.

Experts are often not very expert.

An expert is an ordinary fellow from another town - Mark Twain

To wit: in 2008, Jim Cramer thought Bear Stearns was safe like mother’s arms. Jim is entitled to his opinion, but the market is going to do what the market is going to do. God have mercy on him if people took this as investment advice.

Merit Order Dispatch

Let’s start by summarizing Merit Order dispatch, as some may not be familiar with it. Thanks Copilot. It’s important to be polite to computers, you never know how things will go…

The **German Merit Order** is a pricing mechanism used in the electricity market to determine the price of electricity based on the **marginal cost** of production. Here's a simplified explanation:

1. **Marginal Cost**: This is the cost to produce one additional unit of electricity (usually measured in megawatt-hours, or MWh). It includes variable costs like fuel, but not fixed costs like infrastructure.

2. **Merit Order List**: Power plants submit bids based on their marginal costs. These bids are arranged in ascending order, meaning the cheapest plants are listed first.

3. **Electricity Pricing**: The price of electricity is set by the highest bid that is still needed to meet demand. This means that even if a plant bids lower, it gets paid the market price.

4. **Impact of Renewables**: Renewable energy sources like wind and solar have very low marginal costs (almost zero) because they don't need fuel. When there's a lot of renewable energy available, it pushes down the overall price of electricity.

5. **Volatility**: Prices can fluctuate significantly due to changes in demand, fuel prices, and the availability of renewable energy.

This system encourages efficiency and the use of low-cost energy sources, but it can also lead to price volatility and sometimes negative prices when there's too much supply

Comment #1 - ‘Do you understand what merit order dispatch means?’

Yessir.

Do you understand what merit order dispatch means? It means that natural gas is almost always the marginal fuel that sets the market price in almost all major electric markets in the world. It is because it is flexible and can be dispatched faster than other fuels.

This means that increasing natural gas is highly correlated with higher system costs for electricity.

We agree, my friend.

We agree that natgas-fired generation is almost always the marginal fuel because it is dispatchable, and we agree that it is flexible and can be quickly dispatched faster than other fuels. We have no quarrel.

***It almost sounds like natural gas fired power generation should be ranked quite highly in something called a ‘merit order’ since it always has to be part of how electricity generation is done to make the grid work. And coal too. But I digress…

And I know VRE advocates love this fact, because it means that natural gas fired generation can be used as a scapegoat for consumer electricity costs.

Comment #2: Gas is expensive, ‘The Gas Crisis’, and Prioritizing Zero Marginal Cost Electricity

The next two comments come from Stephan Jeznita. They are both insightful.

The first one:

Since electricity prices are set by merit order, the most expensive form of generation is setting the price, i.e., (currently) mostly natural gas. Gas prices have increased significantly over the last couple of years. We saw the impact right during the gas crisis, when power prices peaked dramatically in Germany and Europe, e.g., in August 2022 at 465 EUR/MWh. Since wind and solar are running almost at zero marginal costs, they will hardly ever be able drive the price in a merit order system.

Wind and solar have increased end consumer prices in a way that the cost of a distributed power grid are higher compared to a centralized one, and this cost needs to be borne by the end consumer. Also, EEG (CfD) subsidies are borne by the tax payer, which is not reflected in the electricity bill.

We start off the same, explaining (correctly) that the most expensive form of generation in the mix sets the price. What isn’t immediately clear is why things are so sensitive to the price of natgas. This is worth an aside to flesh out a scenario.

### Scenario:

- **Demand:** 50,000 MWh

- **Wind & Solar Contribution:** 20,000 MWh (because it's a very sunny and windy day)

- **Power Plants:**

- **Wind and Solar:** Marginal cost is close to zero.

- **Coal:** Marginal cost is €40 per MWh.

- **Natural Gas:** Marginal cost is €70 per MWh.

### Step-by-Step Process:

1. **Arrange Power Plants by Marginal Cost:**

- Wind and Solar: €0 per MWh (20,000 MWh)

- Coal: €40 per MWh (20,000 MWh)

- Natural Gas: €70 per MWh (10,000 MWh)

2. **Match Supply to Demand:**

- The first 20,000 MWh will come from Wind and Solar at €0 per MWh.

- The next 20,000 MWh will come from Coal at €40 per MWh.

- The remaining 10,000 MWh will come from Natural Gas at €70 per MWh.

3. **Determine the Market Price:**

- The market price is set by the highest bid that is still needed to meet demand, which is the Natural Gas plant at €70 per MWh.

### Outcome:

- Even though Wind and Solar provide their energy for almost free, and Coal is cheaper, the market price for all electricity is set at €70 per MWh due to the need for Natural Gas to meet the total demand.

- All suppliers, including Wind, Solar, and Coal, are paid €70 per MWh, which incentivizes investment in low-cost renewable energy.

This system ensures that the electricity supply is reliable while encouraging the use of low-cost and low-emission energy sources. However, the reliance on higher-cost natural gas means that the overall price remains relatively high when demand is greater than what renewables and cheaper sources can supply.

We can boil this down to a compact equation:

Shortsighted Energy Policy x Bad Market Design = ‘Gas Crisis’

The reader can easily draw their own conclusions here. Given our current political climate in the West, the absurdity of these outcomes seems like something that politicians really should care more about.

Coal fired generation has higher ‘merit order’ than natural gas fired generation, a very strange outcome for a country that so highly values decarbonization.

We can also figure out fairly intuitively that without storage, coal and natural gas will always be required somewhere in the mix, but the incentives for capital deployment will tend towards renewables. In the long run, this will lead to increasing volatility, complex grid operations, and escalating risk of problems compounding in the system.

Natural gas fired generation, producing the marginal electron here, is concurrently saving the day and an object of hatred.

Comment #3: Merit Order Dispatch is non-ideological, doesn’t dictate final bills, and investors need other sweeteners to build VRE

This comment, again from Stephan Jeznita, is very insightful.

Merit Order is not an ideological tool, but a widely used economic dispatch mechanism to determine wholesale electricity prices in real time or day-ahead.
Consumer Prices are driven by a mix of wholesale prices, policy instruments (subsidies, CfDs), and grid fees, so it’s correct that merit order alone doesn’t dictate final bills.

Merit order addresses short-run dispatch and marginal cost; investors rely on additional revenue streams to ensure long-run viability.

Hence, the merit-order principle is not a “red herring” but one piece of a more complex puzzle. If the question is “How is the wholesale price set at any given moment?” - merit order is key. If the question is “Why do I pay X cents per kWh on my home electricity bill?” - we need to look beyond just the marginal generator, accounting for taxes, grid costs, and subsidies.

I called Merit Order a red herring because I have seen people use it to explain that VRE is the best, cheapest, and so on.

I very much agree with Jeznita that Merit Order is a piece of a more complex puzzle. However, I still hold that the overall German market design is ideologically driven.

How complex is the puzzle?

Pretty complicated, and becoming more so. This article from Clean Energy Wire does a good job walking through how the German system to support renewables buildouts has changed over time. It’s a nuanced piece, very much worth the read whatever your angle. The summary of policy and regulatory changes over time is well done.

Some realpolitik is making its way into German energy policy:

Following a power market reform earlier this year, the European Union requires that, from 1 January 2027, new state-backed support mechanisms to promote wind, solar, geothermal, hydro and nuclear power need to include a repayment clause to avoid possible over-funding.

At times when expensive fossil power plants make it into the wholesale electricity market, they set the price for all producers (following the merit order principle). This means operators with low running costs (i.e. renewables) can make huge unexpected revenues, also referred to as "windfall profits".

A clawback clause would set a ceiling on the amount of money new renewable installations can make if they receive state support, and any profits beyond this ceiling have to be returned to the state. New contracts following Germany's Renewable Energy Act (EEG) support model, which include only a guaranteed feed-in tariff but have no cap, will no longer be allowed.

Germany realizes the issue. It is capping profit, ‘avoiding price gouging’, which will tend to restrict VRE buildout. This will serve as a counterbalance to the merit order weirdness, but not totally, I fear. And unintended consequences abound.

The Bottom Line

The questions Jeznita identified are the correct ones:

If the question is “How is the wholesale price set at any given moment?” - merit order is key.

If the question is “Why do I pay X cents per kWh on my home electricity bill?” - we need to look beyond just the marginal generator, accounting for taxes, grid costs, and subsidies.

Spot on. And I think German (and increasingly European…) electricity consumers are starting to work through the accounting on taxes, grid costs, subsidies, CfDs, and the rest of it. This was the point of my last article.

Back of the Envelope

Matt Quist

·

January 13, 2025

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Politicians have made the average citizen in the EU care about their energy costs in a way that hasn’t happened before. I would wager that the increasing attention being generated in the European public is probably going to result in massive continued market adjustments and that there will be increased focus on assessing the value of firm generation to economic stability and to national security across Europe.

Would love to hear your thoughts in the comments. You are a champ for reading this far, thanks for taking the time to engage!

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Occasionally in business, situations arise that are so easy to solve, the solution can be elegantly presented on the back of an envelope. Frustratingly, many humans have an inborn distrust for apparently simplistic explanations. Usually, back of the envelope calculations create an allergic response. When senior people review a thing, they want to feel like it’s complicated enough to merit their review, I suppose.

Because of this, what normally ensues is request for way more complicated analysis. Sometimes the complicated analysis bears out the back of the envelope solution. Occasionally, the more sophisticated analysis uncovers an error.

Well, in the case of consumer electricity prices, the situation is actually much, much simpler: we don’t have to calculate anything. The helpful work of showing us electricitty market prices is already done.

Let’s use Germany as our example target today.

Germany Consumer Prices

German consumer electricity prices have gone up. This is indisputable, no matter who the enviro is who tells you that renewables are cheap.

What matters is the cost of the grid.

To complete the chart, power prices in 2023 and 2024 were 41.59 ct/kWh and 39.51 ct/kWh respectively. German household electricity prices have then more than doubled since 2006, increasing at a CAGR of about 4% per year.

This is not surprising, because Germany put a price cap on electricity. This, despite the knowledge that any student of any first-years Economics course would have that price caps generally reduce the supply of the thing being capped. I won’t explain why, because it is common knowledge.

Germany Grid Situation

I happen to love reading Mitch Rolling and Isaac Orr in their excellent Substack Energy Bad Boys. Their piece on the Energiewende of late was superb, so I’m going to borrow a few of the charts they used to make some points as our baseline.

Energy Bad Boys

Energiewende? More Like, Energieweimar

“Germany has become a country that many people abroad associate with hope.” – Angela Merkel. -Source: Quotes that didn’t age well…

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2 years ago · 134 likes · 35 comments · Isaac Orr and Mitch Rolling

First, up, electricity generation mix and how it’s changed over time.

Paying some close attention to this chart helps to understand that:

• Nuclear is down to zero.

• Coal is reduced.

• Germany is burning more wood lately.

• Gas-fired generation has expanded considerably.

• Germany is building a lot of Wind and Solar generation.

Next, let’s look at export power balances.

Straightforward with two points:

• Germany is now a net electricity importer, but formerly was an electricity exporter.

• Depending on other people who are generally also pushing hard to green their grids with intermittent sources of electricity is a dodgy bet. Hold this thought.

Germany - Implications

Germany has seriously modified its grid, reducing firm sources of electricity generation like nuclear and coal, and replacing them with a very, very large buildout of wind and solar facilities and some batteries. There are some laws that we can derive from this whole situation.

Law #1: Everyone Who Builds Something Wants a Return

The people who build wind and solar plants have a required return. This means that enormous Variably Itermittent Renewable Energy (VIRE) buildouts add significant costs for electricity consumers.

No one does anything for free.

This, and this alone, is why German household electrical prices are going up and to the right faster than inflation. The problem is compounded when costs are buried in taxes or other charges not related to electricity bills. The hiding doesn’t work though.

Voters aren’t dumb, they always know.

Law #2: Germany Gets Dunkelflautes, Literally ‘Dark Doldrums’

This is a very good piece on Dunkelflautes shared on LinkedIn that is worth referring to.

This is a rough situation: all the white below the line represents a period where the capacity factor for VIRE is below 10%. In those cases, batteries or backup are absolutely required.

Law #3: Zero x Infinity = Zero

As we saw in Law #2, the grid buildout can be as big as you want, but if it isn’t firmed with either batteries or backup generation, it won’t get ‘er done.

It doesn’t matter what the name plate says. It matters what is produced. You could have 700 GW of installed capacity by name plate, and if the wind doesn’t blow and the sun doesn’t shine, it will put out 0 GW of juice.

Simple, but important.

Law #4: Increased VIRE Penetration Into the Grid is Directly and Positively Related to Grid Tail Risk from Limit Cases

This one takes a little more work to unpack.

Where we have a lot of VIRE produced electricity, and where we have dependence on interconnects (it’s always sunny or windy somewhere, frens, right?), we are making some implicit trade-offs that most consumers really don’t want to have to care about. But care they will, when they are forced to ration electricity, or go to warming centres, or ask for relief on their electricity bills.

This bit relies on the Swiss Cheese model of risk management, where we usually think of layering on pieces of swiss cheese in succession to ensure that risks can’t get through any more holes.

In this case, what is being done is actually removing several pieces of cheese, while continuing to act like risk is still being properly mitigated.

What has been removed:

• Coal-fired generation.

• Nuclear generation.

What is being relied upon instead:

• VIRE generation, with minimal battery backup.

  • Humorously, Copilot tells me Germany has a LOT of backup. When I follow up with how many hours of electrical demand Germany’s battery backup could cover, it is able to cover about 1 minute and 50 seconds of demand. :-|

  • Good luck getting through a Dunkelflaute like that when you are depending on wind/solar.

  • Even better luck affording enough batteries to meet demand with a high-VIRE percentage grid.

• Interconnects.

  • Some interconnects depend on nuclear, like France’s.

  • Some interconnects depend on hydro, like Sweden/Norway.

    • Sometimes, those Norskis aren’t super duper stoked about having to export power, and they say their dams aren’t full enough for exports. Uff da.

    • It was kind of a ‘shit situation’ according to Norway.

• LNG imports.

  • So far, Germany has really not come to play on LNG markets.

  • China made a ton of money off of Germany in the aftermath of the beginning of the Ukraine conflict.

• Awkward use of Firm Resources.

  • To balance the grid in the volatility, firm resources are being treated like peaking resources. This is hard on the facilities and costly to do.

• Bad Price Signals.

  • The price caps being put on electricity prices are not sending the right signals and this endangers the grid.

Law #5: People Think Their Leaders are Managing This Situation, and they DO NOT WANT TO BE FORCED TO CARE ABOUT IT.

The average person wants the lights to turn on.

The average person DOES NOT want to be forced to care about how electricity is produced. They DO NOT want to care about the ‘market design’ of the grid and its implications for their lives.

They DO NOT want to be forced to become prosumers that are forced to build their own microgrids.

Law #6: People Want to be Able to AFFORD Their Bills, and Politicians Who Make Things Unaffordable are Usually VOTED OUT.

No explanation needed.

Bottom Line

The average person can, if pressed, probably provide a serviceable and logical explanation for why relying on intermittently produced energy from wind and solar facilities is a dubious idea. This is not complicated stuff, really.

It takes elites with snazzy educations to ‘explain’ why it’s an awesome idea.

Let me know what you think in the comments.

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I read a book a while back called Bursts by Albert-Laszlo Barabasi. In it, Mr. Barabasi skillfully weaves historical narrative around the idea that humans go for relatively long periods of time under stable regimes, and then out of nowhere a major period of change erupts that upends the whole system. He wrote the book in 2010, but it reads like it was designed as a response to the conditions we live in today.

The full-court press that began with the initial UN Conference of the Parties (COP) in Rio has come to a peak. Some commentators called COP 29 ‘Peak COP.’

I believe we are ideally set up for a burst that will seriously realign the energy landscape and the climate advocacy landscape in fundamental ways.

The Setup

First, as el gato malo has pointed out, a very large number of six-sigma intelligent people are set to descent on DC. These people are not your average policy wonks. They reinvent electric cars, create huge satellite networks, run companies like X on ~20% of peak staffing, and engineer rockets that can go up into space, re-enter the atmosphere, land into the Mechzilla chopsticks, and be ready to go again within a couple of hours.

bad cattitude

dear washington DC

in the fine tradition of cats out on limbs, here comes the latest edition of “bold predictions by gato.” buckle up…

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a year ago · 1312 likes · 537 comments · el gato malo

These are not chill people. When Elon applies the algorithm, a lot of the nonsense employment that exists in the US Federal Government and its agencies is going to burn up like rocket fuel.

The second piece of the setup is that a lot of people have been forced into having to care about things they really don’t want to be forced to care about. Energy prices are escalating and embedding inflation into required purchases and transportation. It also turns out that people want secure borders and common sense in their social policies. They don’t particularly enjoy being hectored into acting like having biological males in women’s sports is sensible or reasonable.

My principle here is that when people are forced into caring about energy and politics, they punish the people who are doing the forcing by not voting for them.

When bursts like this happen, it is common to see them as a surprise, but some people like Chand Sooran have written that underestimating the scale and scope of change is probably a rookie mistake. He makes the case in this piece that rooting out bureaucracy has become necessary.

Closest Point of Approach

Growth Mindset

Psychology contrasts a growth mindset with a fixed mindset…

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a year ago · 3 likes · Chand Sooran

The Upcoming Burst

The United States of America is going to see incredible change in the next 4 years.

• Mass deportations are going to begin to correct 20+ of bipartisan, laissez-faire immigration policy.

• Free speech is going to be linked to US foreign policy and interactions with other Western nations.

• The US will focus on energy availability and consumer access to reliable and affordable energy.

• The US will see a massive reduction in the size of Government agencies and in the Government employee workforce.

• The US will reopen negotiations on USMCA and will reshape trade with Canada and Mexico.

This list is by no means exhaustive.

Assessing the impacts of these changes individually is difficult, but taken together it requires some serious imagination to assess how things will be reshaped. Let’s try.

I expect serious adjustments to the permitting process, and substantial project permitting reform. Three-letter agencies will be under full attack and won’t long survive trying to implement any kind of a ‘stay-behind’ strategy to frustrate the incoming administration’s wishes.

I expect a pretty thorough repudiation of the COP/AGW/Climate Crisis/Climate Catastrophe approach from the incoming Trump administration. The admin may surprise on methane control regulations and other sensible measures that would actually make for cleaner air and water. They’re not idiots.

I expect a lot of criticism of European economic policy, EU weakness on defence, and EU stupidity on energy. There is a lot to criticize. As the US spikes the hilariously named Inflation Reduction Act, the EU will probably keep ‘winning’ the ability to put wind and solar resources into its energy mix, and will also ‘win’ the ability to run up energy costs for its voters, who will eventually help parties who get what regular people are up against actually really win at the polls. The US election should be a cautionary tale for people that treat regular people with contempt.

I expect some action against vexatious lawfare, but am not sure this issue gets enough attention and will discuss it further in the next section.

I expect that the conflict in Ukraine will be wound down promptly. Whoever is trying to flare it up into near-nuclear conflict should be put in jail.

Themes to Watch For

First, The US approach is going to highlight that ‘progress’ does not march ever onward and upward, but that, like Icarus, it is subject to certain realities.

I expect European and UK voters to carefully observe what free speech, sensible energy policy, and foreign policy leadership look like, putting significant pressure on their own governments to be wiser, less parochial, less ideologically bound, and way, way, way less snotty and elitist.

‘Drill, Baby, Drill’ is probably overstated. Chris Wright is energy-literate enough to know that this is disaster in waiting. The answer to energy costs lies over in DOGE (still can’t believe there will be a department named after a Shiba). Less regulation, less nonsense will translate very quickly into lower cost to consumers. There was a calculation recently that there is something like $15,000 USD in cost pushed down from regulations into every US household. Cut that in half and that is real dollars into pockets.

The fight from the EU on things like CBAMs and carbon taxes is probably going into hibernation shortly. It would be a mistake to think it is dead, because the people pushing it have immense resources. The European Climate Foundation and its web of underling organizations will respond by doing things on the downlow to keep things rolling and then come back into the fight once the politics change, as they always do. I would counsel not ignoring the opportunity to curtail these groups while it exists. Investigating the links with tools like Fractal.io would be a fascinating exercise in figuring out who is pulling strings.

Energy Transfer Partners is in a key lawsuit against Greenpeace over the Dakota Access Pipeline. Shell recently won its court case (incredibly) over Milieudefensie in the EU. Firms like Sher Edling harass companies with suits that amount to fishing expeditions to pull information through discovery processes. Lawfare is a key issue, as is the funding behind the lawfare. The previous paragraph talks about European eNGOs. Many of those eNGOs fund lawfare in significant ways. This should draw the attention of the incoming administration as it ends up amounting to foreign interference in economic activity.

In this context, it is worth trying to induce companies (especially energy companies) to redomicile to the US (and Canada, if we could ever get our business together).

The National Energy Council needs to keep an eye on electricity market design and ratepayer affordability. With the amount of interconnection contemplated, it sure looks like there should be a Federal role in setting reasonable design parameters that help keep rent-seekers at bay and keep rates reasonable and energy access good for ratepayers.

The Electric Grandma

Market-Washing

Greenwashing…

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a year ago · 66 likes · 29 comments · Meredith Angwin

Nuclear regulations are apparently ripe for an overhaul, and if done properly would help seriously in decarbonizing US electrical grids. This report from the Breakthrough Institute has some interesting concepts to consider.

Things to Not Miss

To the extent that the array of climate NGOs will attempt to frustrate the incoming administration’s agenda, Trump’s administration should be as wary of these groups as of any swamp creature likely found in DC.

These organizations, with the funding they have and the lawfare they produce, should be carefully examined and assessed.

Much like the Obama administration did with cause celebre cases, Trump’s US DOJ should take an active interest in finding and supporting cases that are likely to set jurisprudence in useful ways. Where lawfare is being used to harass O&G producers and executives, this is especially useful.

DOGE and the newly-formed National Energy Council should seriously consider some regulation to correctly frame electricity debate away from poor concepts like LCOE and towards more useful concepts like LFSCOE (Levelized Firmed System Cost of Electricity). This would do a much better job of showing probable impacts to rate payers and would go a long way toward keeping rent-seekers at bay.

Environmental regulation should actually care about whales. Wind installations on the Eastern US coast have been allowed to harm whales with impunity. The same thing is true for birds and onshore wind.

The NEC should get a grip on market design and grids across the US. To the extent that grids require interconnects and often require import/export between each other, the systemic risks involved in basing market design and thus grid design on bad premises means that the NEC probably has a role to play in governing the whole picture to ensure adequacy and reasonable costs for consumers. Energy is life, and the electrification trend will probably not stop. That does not mean that regular consumers should suffer for it.

Data centre strategy is also critical. This includes having enough power available to support the data centres without spiking electricity rates for regular people, who cannot afford it. Policy and tax measures to support this outcome will be required to allow AI and data dominance to become a serious part of US strategy in the world.

The incoming US administration has an incredible opportunity to secure America’s energy future and positively influence the whole world towards realistic energy policies that properly consider the Energy Trilemma.

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To say it has been an interesting week is British understatement.

Trump won, bigly, taking the White House, Senate, and almost certainly Congress. This is going to be a hugely impactful change for America and the world. The tone has already changed.

We have Ursula von der Leyen publicly saying the EU needs US LNG. I certainly did not have that on my bingo card for 2024. I mean, obvious, but still. I guess the same clowns that were laughing in 2018 don’t find things quite so funny now.

Canada is going to face massive pressures. We are the only major oil producer on this planet to voluntarily move towards an emissions cap on oil and gas. I don’t say this with respect, it is insane. Norway seems to get a pass for doing what makes logical sense for its people, but for some reason Canada as a nation is racked with a massive Carbon guilt complex.

No matter. The eye of Sauron that is going to be 47’s government is going to turn on Canada forthwith, bringing the really hot heat onto Trudeau fils.

We are, in Canada, led by self-interested flakes that are desperate to string this good thing out until they all get Member’s pensions. Policy has been set by the NDP for the last 4 years, and it is showing. Canada is behind, with shrinking GDP per capita and massive competitiveness problems.

But I digress. This isn’t the point I came to make today. Let’s take a victory lap together.

Early 2022

I wrote this in March-ish of 2022:

I care about the environment, and I’m all for progress. That said, there are some very real issues that the ‘only CO2 matters’ crowd are missing. Anyone passionate about making progress on climate has to substantively address these issues. These things will be seeds of failure in dealing with climate change and energy transition.

In no particular order:

Colonialism 2.0: much of the developing world is still in energy poverty. This has real health impacts and environmental impacts. People in developing countries have a right to improve their lot and to attain a dignified standard of living. Telling them they can't do that is not going to stand.

Energy Poverty in the West: stop making people in industrialized nations energy poor (again, as they were before the Industrial revolution). Bad decisions by energy-illiterate leaders that ignore basic economics will stop progress cold. Pun intended.

Dematerializing Energy: this is a myth. Stop pretending renewables dematerialize the world. Mining has a massive footprint environmentally and geopolitically. Child and slave labor will come to the fore as ESG stops giving ‘green’ industry a hall pass. ‘ESG-washing’ green investments must stop.

Supply-Side Constraint on Oil and Gas: shutting off the gas meter before you have something else to heat your house leads to pain. This is happening all over the globe and is extremely short-sighted policy. Calling this stupid is charitable.

Ignoring Geopolitics: if your nation or region isn’t secure, everything else stops being a priority until this happens. Acting otherwise is dangerous and naïve.

Favoring Redistribution over Innovation: picking winners instead of driving innovation is terrible economics. Governments are the very last place to look for innovation, and the last people I would trust with money.

Slagging Nuclear: goodness. The only source with enough energy density right now to actually move the needle, and it is being vilified as horrible. Words fail me on this.

Ignoring Intermittency and Grid Instability: people like their fridge to work 100% of the time.

Ignore these things, and progress will be glacial.

I think it has aged well. 2022, a very good year…

Especially this part:

Energy Poverty in the West: stop making people in industrialized nations energy poor (again, as they were before the Industrial revolution). Bad decisions by energy-illiterate leaders that ignore basic economics will stop progress cold. Pun intended.

Patricians and Plebs - The Divide of our Time

This election was about normal people that elites see as Plebs.

Here is the best take I’ve seen so far. CNN is still putting out the fire in the smoking crater of this absolute torching. Kudos to them for airing it. It is wonderful.

Takeaway for Energy

I said to my 24-year-old son a couple days back that the average voter doesn’t want to have to care about politics.

They want to vote and then go back to living their life. For a working class person who likes football, they want to watch the Chiefs lose, the Texans win, enjoy a beer or two on Friday night, mow the lawn, earn some money, not be taxed to living death, and raise their family in a place that is worth living in.

What they don’t want is to be forced into caring about policy. Like it or not, it seems apparent this week that Democrats went several bridges too far. They forced regular people that really don’t want to care about policy into feeling like they needed to do so. They did this with open borders, excessive spending, and other preventable things. Not surprising, then, to find that those people voted red.

So, what does that have to do with energy?

For a start, like I said in early 2022, most people just want to pay their power bill and their gas bill and have the light and heat work.

Just like why Trump won, I believe it just so happens that when you make their power bill and gas bill (or hydro or whatever else) incredibly more expensive, they start having to care about why that is.

They know their dollar doesn’t go as far. They know their groceries cost way more. It is not a good idea to piss on them and then tell them it’s raining.

The people responsible for this are many. But the impact is that as steven lightfoot elegantly put to me, they are forcing regular everyday people to become electricity and energy prosumers.

A prosumer is somebody who both produces and consumes energy, like someone who puts up PV panels, a wind turbine, and drills a geothermal well, then has to get intimately familiar with the massive nerd-work involved (which I think is cool, but is not everyone’s cup of tea) in putting together a system that will work anywhere near well enough to be stable and not be a massive net cost to them. On the minimal end of the scale, they buy a genset for use during electricity outages. Robert Bryce explains this well in his piece here.

Robert Bryce

What’s Good For Generac Is Bad For America. We Bought One Anyway

If you are in the business of selling standby home generators, hurricanes, severe weather, and blackouts are good for business. And as the frequency of blackouts across the country increases, companies like Generac are making bank on the declining reliability of the US electric grid…

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2 years ago · 832 likes · 199 comments

Prosumers are the lucky ones. They can afford to spend the time and money to bother creating a parallel energy system for themselves.

Everyday people (if elite, Plebs) have not got that luxury. They are literally facing heat or eat dilemmas.

They are being MADE to care about energy policy. And in democracies, making people NEED to care about things that they don’t WANT to care about is a very bad tack indeed.

COP 29 and the Path from Here

I would expect quite a turning from here, a veritable eruption of common sense.

The handwringing is proceeding apace in the usual quarters. Such fun. Joy is back!

The Guardian (my favorite ‘newspaper’ to hate) posts:

There will be more cancellations. People know what’s up and what they need to prepare for, and it isn’t more subsidies in the IRA, which is going to begin emitting a massive death rattle any time now.

Energy Transition Populism

It turns out then that the arc of energy transition may not automatically bend towards green utopia, but instead will be forced (as I foresaw long ago) to reckon with impacts to everyday people.

Once transition cheerleaders have a chance to reckon it out, I think they’ll be thankful. Accounting for reality is the only way to make a plan that will work.

And reality is that in what they call the Anthropocene, it should be axiomatic that how people behave must be a first principle underpinning planning of actions to help transition towards cleaner sources of energy.

Let me know what you think in the comments!

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