How Renewable Energy Models Can Produce Misleading Indications

The energy needs of the world’s economy seem to be easy to model. Energy consumption is measured in a variety of different ways including kilowatt hours, barrels of oil equivalent, British thermal units, kilocalories and joules. Two types of energy are equivalent if they produce the same number of units of energy, right?

For example, xkcd’s modeler Randall Munroe explains the benefit of renewable energy in the video below. He tells us that based on his model, solar, if scaled up to ridiculous levels, can provide enough renewable energy for ourselves and a half-dozen of our neighbors. Wind, if scaled up to absurd levels, can provide enough renewable energy for ourselves and a dozen of our neighbors.

There is a major catch to this analysis, however. The kinds of energy produced by wind and solar are not the kinds of energy that the economy needs. Wind and solar produce intermittent electricity available only at specific times and places. What the world economy needs is a variety of different energy types that match the energy requirements of the many devices in place in the world today. This energy needs to be transported to the right place and saved for the right time of day and the right time of year. There may even be a need to store this energy from year to year, because of possible droughts.

I think of the situation as being analogous to researchers deciding that it would be helpful or more efficient if humans could change their diets to 100% grass in the next 20 years. Grass is a form of energy product, but it is not the energy product that humans normally consume. It doesn’t seem to be toxic to humans in small quantities. It seems to grow quite well. Switching to the use of grass for food would seem to be beneficial from a CO2 perspective. The fact that humans have not evolved to eat grass is similar to the fact that the manufacturing and transport sectors of today’s economy have not developed around the use of intermittent electricity from wind and solar.

Substituting Grass for Food Might “Work,” but It Would Require Whole New Systems 

If we consider other species, we find that animals with four stomachs can, in fact, live quite well on a diet of grass. These animals often have teeth that grow continuously because the silica in grass tends to wear down their teeth. If we could just get around these little details, we might be able to make the change. We would probably need to grow extra stomachs and add continuously growing teeth. Other adjustments might also be needed, such as a smaller brain. This would especially be the case if a grass-only diet is inadequate to support today’s brain growth and activity.

The problem with nearly all energy analyses today is that they use narrow boundaries. They look at only a small piece of the problem–generally the cost (or “energy cost”) of the devices themselves–and assume that this is the only cost involved in a change. In fact, researchers need to recognize that whole new systems may be required, analogous to the extra stomachs and ever-growing teeth. The issue is sometimes described as the need to have “wide boundaries” in analyses.

If the xkcd analysis netted out the indirect energy costs of the system, including energy related to all of the newly required systems, the results of the analysis would likely change considerably. The combined ability of wind and solar to power both one’s own home and those of a dozen and a half neighbors would likely disappear. Way too much of the output of the renewable system would be used to make the equivalent of extra stomachs and ever-growing teeth for the system to work. The world economy might not work as in the past, either, if the equivalent of the brain needs to be smaller.

Is “Energy Used by a Dozen of Our Neighbors” a Proper Metric?

Before I continue with my analysis of what goes wrong in modeling intermittent renewable energy, let me say a few words about the way Munroe quantifies the outcome of his energy analysis. He talks about “energy consumed by a household and a dozen of its neighbors.” We often hear news items about how many households can be served by a new electricity provider or how many households have been taken offline by a storm. The metric used by Munroe is similar. But, does it tell us what we need to know in this case?

Our economy requires energy consumption by many types of users, including governments to make roads and schools, farmers to plant crops and manufacturers to make devices of all kinds. Leaving non-residential energy consumption out of the calculation doesn’t make much sense. (Actually, we are not quite certain what Munroe has included in his calculation. His wording suggests that he included only residential energy consumption.) In the US, my analysis indicates that residential users consume only about a third of total energy.1 The rest is consumed by businesses and governments.

If we want to adjust Munroe’s indications to include energy consumed by businesses and governments, we need to divide the indicated number of residential households provided with energy by about three. Thus, instead of the units being “Energy Consumed by a Dozen of Our Neighbors,” the units would be “Energy Consumed by Four of Our Neighbors, Including Associated Energy Use by Governments and Businesses.” The apparently huge benefit provided by wind and solar becomes much smaller when we divide by three, even before any other adjustments are made.

What Might the Indirect Costs of Wind and Solar Be? 

There are a number of indirect costs:

(1) Transmission costs are much higher than those of other types of electricity, but they are not charged back to wind and solar in most studies.

A 2014 study by the International Energy Agency indicates that transmission costs for wind are approximately three times the cost of transmission costs for coal or nuclear. The amount of excess costs tends to increase as intermittent renewables become a larger share of the total. Some of the reason for higher transmission costs for both wind and solar are the following:

(a) Disproportionately more lines need to be built for wind and solar because transmission lines need to be scaled to the maximum output, rather than the average output. Wind output is typically available 25% to 35% of the time; solar is typically available 10% to 25% of the time.

(b) There tend to be longer distances between where renewable energy is captured and where it is consumed, compared to traditional generation.

(c) Renewable electricity is not created in a fossil fuel power plant, with the same controls over the many aspects of grid electricity. The transmission system must therefore make corrections which would not be needed for other types of electricity.

(2) With increased long distance electricity transmission, there is a need for increased maintenance of transmission lines. If this is not performed adequately, fires are likely, especially in dry, windy areas.

There is recent evidence that inadequate maintenance of transmission lines is a major fire hazard.

In California, inadequate electricity line maintenance has led to the bankruptcy of the Northern California utility PG&E. In recent weeks, PG&E has initiated two preventative cut-offs of power, one affecting as many as two million individuals.

The Texas Wildfire Mitigation Project reports, “Power lines have caused more than 4,000 wildfires in Texas in the past three and a half years.”

Venezuela has a long distance transmission line from its major hydroelectric plant to Caracas. One of the outages experienced in that country seems to be related to fires close to this transmission line.

There are things that can be done to prevent these fires, such as burying the lines underground. Even using insulated wire, instead of ordinary transmission wire, seems to help. But any solution has a cost involved. These costs need to be recognized in modeling the indirect cost of adding a huge amount of renewables.

(3) A huge investment in charging stations will be needed, if anyone other than the very wealthy are to use electric vehicles.

Clearly, the wealthy can afford electric vehicles. They generally have garages with connections to electrical power. With this arrangement, they can easily charge a vehicle that is powered by electricity when it is convenient.

The catch is that the less wealthy often do not have similar opportunities for charging electric vehicles. They also cannot afford to spend hours waiting for their vehicles to charge. They will need inexpensive rapid-charging stations, located in many, many places, if electric vehicles are to be a suitable choice. The cost of rapid-charging will likely need to include a fee for road maintenance, since this is one of the costs that today is included in fuel prices.

(4) Intermittency adds a very substantial layer of costs. 

A common belief is that intermittency can be handled by rather small changes, such as time-of-day pricing, smart grids and cutting off power to a few selected industrial customers if there isn’t enough electricity to go around. This belief is more or less true if the system is basically a fossil fuel and nuclear system, with a small percentage of renewables. The situation changes as more intermittent renewables are added.

Once more than a small percentage of solar is added to the electric grid, batteries are needed to smooth out the rapid transition that occurs at the end of the day when workers are returning home and would like to eat their dinners, even though the sun has set. There are also problems with electricity from wind cutting off during storms; batteries can help smooth out these transitions.

There are also longer-term problems. Major storms can disrupt electricity for several days, at any time of the year. For this reason, if a system is to run on renewables alone, it would be desirable to have battery backup for at least three days. In the short video below, Bill Gates expresses dismay at the idea of trying to provide a three-day battery backup for the quantity of electricity used by the city of Tokyo.

We do not at this point have nearly enough batteries to provide a three-day battery backup for the world’s electricity supply. If the world economy is to run on renewables, electricity consumption would need to rise from today’s level, making it even more difficult to store a three-day supply.

A much more difficult problem than three-day storage of electricity is the need for seasonal storage, if renewable energy is to be used to any significant extent. Figure 1 shows the seasonal pattern of energy consumption in the United States.

Figure 1. US energy consumption by month of year, based on data of the US Energy Information Administration. “All Other” is total energy, less electricity and transportation energy. It includes natural gas used for home heating. It also includes oil products used for farming, as well as fossil fuels of all kinds used for industrial purposes.

In contrast with this pattern, the production of solar energy tends to peak in June; it falls to a low level in December to February. Hydroelectric power tends to peak in spring, but its quantity is often quite variable from year to year. Wind power is quite variable, both from year to year and month to month.

Our economy cannot handle many starts and stops of electricity supply. For example, temperatures need to stay high for melting metals. Elevators should not stop between floors when the electricity stops. Refrigeration needs to continue when fresh meat is being kept cold.

There are two approaches that can be used to work around seasonal energy problems:

  1. Greatly overbuild the renewables-based energy system, to provide enough electricity when total energy is most needed, which tends to be in winter.
  2. Add a huge amount of storage, such as battery storage, to store electricity for months or even years, to mitigate the intermittency.

Either of these approaches is extremely high cost. These costs are like adding extra stomachs to the human system. They have not been included in any model to date, as far as I know. The cost of one of these approaches needs to be included in any model analyzing the costs and benefits of renewables, if there is any intention of using renewables as more than a tiny share of total energy consumption.

Figure 2 illustrates the high energy cost that can occur by adding substantial battery backup to an electrical system. In this example, the “net energy” that the system provides is essentially eliminated by the battery backup. In this analysis, Energy Return on Energy Invested (EROEI) compares energy output to energy input. It is one of many metrics used to estimate whether a device is providing adequate energy output to justify the front-end energy inputs.

Figure 2. Graham Palmer’s chart of Dynamic Energy Returned on Energy Invested from “Energy in Australia.”

The example in Figure 2 is based on the electricity usage pattern in Melbourne, Australia, which has a relatively mild climate. The example uses a combination of solar panels, batteries and diesel backup generation. Solar panels and backup batteries provide electricity for the 95% of annual electricity usage that is easiest to cover with these devices; diesel generation is used for the remaining 5%.

The Figure 2 example could be adjusted to be “renewable only” by adding significantly more batteries, a large number of solar panels, or some combination of these. These additional batteries and solar panels would be very lightly used, bringing the EROEI of the system down to an even lower level.

To date, a major reason that the electricity system has been able to avoid the costs of overbuilding or of adding major battery backup is the small share they represent of electricity production. In 2018, wind amounted to 5% of world electricity; solar amounted to 2%. As percentages of world energy supply, they represented 2% and 1% respectively.

A second reason that the electricity system has been able to avoid addressing the intermittency issue is because backup electricity providers (coal, natural gas, and nuclear) have been forced to provide backup services without adequate compensation for the value of services that they are providing. The way that this happens is by giving wind and solar the subsidy of “going first.” This practice creates a problem because backup providers have substantial fixed costs, and they often are not being adequately compensated for these fixed costs.

If there is any plan to cease using fossil fuels, all of these backup electricity providers, including nuclear, will disappear. (Nuclear also depends on fossil fuels.) Renewables will need to stand on their own. This is when the intermittency problem will become overwhelming. Fossil fuels can be stored relatively inexpensively; electricity storage costs are huge. They include both the cost of the storage system and the loss of energy that takes place when storage is used.

In fact, the underfunding issue associated with allowing intermittent renewables to go first is already becoming an overwhelming problem in a few places. Ohio has recently chosen to provide subsidies to coal and nuclear providers as a way of working around this issue. Ohio is also reducing funding for renewables.

 (5) The cost of recycling wind turbines, solar panels, and batteries needs to be reflected in cost estimates. 

A common assumption in energy analyses seems to be that somehow, at the end of the design lifetime of wind turbines, solar panels and batteries, all of these devices will somehow disappear at no cost. If recycling is done, the assumption is made that the cost of recycling will be less than the value of the materials made available from the recycling.

We are discovering now that recycling isn’t free. Very often, the energy cost of recycling materials is greater than the energy used in mining them fresh. This problem needs to be considered in analyzing the real cost of renewables.

 (6) Renewables don’t directly substitute for many of the devices/processes we have today. This could lead to a major step-down in how the economy operates and a much longer transition. 

There is a long list of things that renewables don’t substitute for. Today, we cannot make wind turbines, solar panels, or today’s hydroelectric dams without fossil fuels. This, by itself, makes it clear that the fossil fuel system will need to be maintained for at least the next twenty years.

There are many other things that we cannot make with renewables alone. Steel, fertilizer, cement and plastics are some examples that Bill Gates mentions in his video above. Asphalt and many of today’s drugs are other examples of goods that cannot be made with renewables alone. We would need to change how we live without these goods. We could not pave roads (except with stone) or build many of today’s buildings with renewables alone.

It seems likely that manufacturers would try to substitute wood for fossil fuels, but the quantity of wood available would be far too low for this purpose. The world would encounter deforestation issues within a few years.

(7) It is likely that the transition to renewables will take 50 or more years. During this time, wind and solar will act more like add-ons to the fossil fuel system than they will act like substitutes for it. This also increases costs.

In order for the fossil fuel industries to continue, a large share of their costs will need to continue. The people working in fossil fuel industries need to be paid year around, not just when electrical utilities need backup electrical power. Fossil fuels will need pipelines, refineries and trained people. Companies using fossil fuels will need to pay their debts related to existing facilities. If natural gas is used as backup for renewables, it will need reservoirs to hold natural gas for winter, besides pipelines. Even if natural gas usage is reduced by, say, 90%, its costs are likely to fall by a much smaller percentage, say 30%, because a large share of costs are fixed.

One reason that a very long transition will be needed is because there is not even a path to transition away from fossil fuels in many cases. If a change is to be made, inventions to facilitate these changes are a prerequisite. Then these inventions need to be tested in actual situations. Next, new factories are needed to make the new devices. It is likely that some way will be needed to pay existing owners for the loss of value of their existing fossil fuel powered devices; if not, there are likely to be huge debt defaults. It is only after all of these steps have taken place that the transition can actually take place.

These indirect costs lead to a huge question mark regarding whether it even makes sense to encourage the widespread use of wind and solar. Renewables can reduce CO2 emissions if they really substitute for fossil fuels in making electricity. If they are mostly high cost add-ons to the system, there is a real question: Does it even make sense to mandate a transition to wind and solar?

Do Wind and Solar Really Offer a Longer-Term Future than Fossil Fuels?

At the end of the xkcd video shown above, Munroe makes the observation that wind and solar are available indefinitely, but fossil fuel supplies are quite limited.

I agree with Munroe that fossil fuel supplies are quite limited. This occurs because energy prices do not rise high enough for us to extract very much of them. The prices of finished products made with fossil fuels need to be low enough for customers to be able to afford them. If this is not the case, purchases of discretionary goods (for example cars and smart phones) will fall. Since cars and smart phones are made with commodities, including fossil fuels, the lower “demand” for these finished goods will lead to falling prices of commodities, including oil. In fact, we seem to have experienced falling oil prices most of the time since 2008.

Figure 3. Inflation adjusted weekly average Brent Oil price, based on EIA oil spot prices and US CPI-urban inflation.

It is hard to see why renewables would last any longer than fossil fuels. If their unsubsidized cost is any higher than fossil fuels, this would be one strike against them. They are also very dependent on fossil fuels for making spare parts and for repairing transmission lines.

It is interesting that climate change modelers seem to be convinced that very high amounts of fossil fuels can be extracted in the future. The question of how much fossil fuels can really be extracted is another modeling issue that needs to be examined closely. The amount of future extraction seems to be highly dependent on how well the current economic system holds together, including the extent of globalization. Without globalization, fossil fuel extraction seems likely to decline quickly.

Do We Have Too Much Faith in Models? 

The idea of using renewables certainly sounds appealing, but the name is deceiving. Most renewables, except for wood and dung, aren’t very renewable. In fact, they depend on fossil fuels.

The whole issue of whether wind and solar are worthwhile needs to be carefully analyzed. The usual hallmark of an energy product that is of substantial benefit to the economy is that its production tends to be very profitable. With these high profits, governments can tax the owners heavily. Thus, the profits can be used to aid the rest of the economy. This is one of the physical manifestations of the “net energy” that the energy product provides.

If wind and solar were really providing substantial net energy, they would not need subsidies, not even the subsidy of going first. They would be casting off profits to benefit the rest of the economy. Perhaps renewables aren’t as beneficial as many people think they are. Perhaps researchers have put too much faith in distorted models.


[1] This is my estimate, based on EIA and BP data. With respect to electricity, EIA data shows that in the US, residential users consume about 38% of the total. With respect to fuels that are not used for transportation and not used for electricity, US residential users consume about 19% of these fuels. Combining these two categories, US households use about 31% of non-transportation fuels.

With respect to transportation fuels, the closest approximation we can get is by looking at petroleum use, divided between gasoline and other products. According to BP data, on a worldwide basis, 26% of petroleum is burned as gasoline. In the United States, about 46% of petroleum consumption is burned as gasoline. Of course, some of this gasoline usage is for non-residential use. For example, cars used by police and sales representatives are typically powered by gasoline, as are small trucks used by businesses.

Furthermore, the US is a major importer of manufactured goods from China and other parts of the world. The embodied energy in these imported goods never gets into US energy consumption statistics. In theory, we should add a little energy consumption by foreign manufacturers to supplement total reported US energy consumption.

The selection of “about a third” is based on these considerations.










1,605 thoughts on “How Renewable Energy Models Can Produce Misleading Indications

  1. “Global debt has hit an all-time high of $188 trillion, which is more than double the output of the global economy, the IMF warned today. The global debt load has surged to a new record of around 230 per cent of world’s output, IMF chief Kristalina Georgieva said.

    “While private sector borrowing accounts for the vast majority of the total, the rise puts governments and individuals at risk if the economy slows, she said. “‘Global debt – both public and private – has reached an all-time high of $188 trillion. This amounts to about 230 per cent of world output,’ Georgieva said in a speech to open a two-day conference on debt.

    “That is up from the previous record of $164 trillion in 2016, according to IMF figures.

    “While interest rates remain low, borrowers can use debt to make investments in productive activities or weather a bout of low commodity prices.

    “But it can become ‘a drag on growth’, she said.

    “‘The bottom line is that high debt burdens have left many governments, companies, and households vulnerable to a sudden tightening of financial conditions,’ she cautioned.”

    • “The bubbles of the 2008 crisis were blown because there were simply not enough outlets for profitable, productive investment in the developed world…

      “In the coming recession, many companies that are currently puttering along in the US and Europe will fail. Credit will seize up as the pressure on lenders increases. Failing companies will not be able to refinance their debt at lower rates or take out new loans to pay off existing ones, leading them to default.

      “Cascading defaults on junk debt will crash the sub-prime corporate debt market and many of its associated CLOs, just as the demise of the US housing market destroyed the CDO market in 2008. Many shadow lenders, which are largely unregulated and not positioned to withstand a recession, will also fail and go into default, squeezing their institutional sponsors.

      “But that is not all.

      “In an average recession, around 10 percent of rated securities get downgraded. As discussed above, many commercial banks, investment banks and pension funds face restrictions from holding any of the $3 trillion in outstanding BBB-rated corporate bonds if and when they receive one notch downgrades. It is thus highly likely that there will be a fire sale on up to $300 billion of severely-distressed, if not worthless, assets at a time when all major buyers are also selling.

      “Many hedge funds and pension funds will take severe losses, which will be passed onto the banks with whom they have financial connections. Banks like Wells Fargo and Japan’s Norinchukin, the largest holders of CLOs, will also take severe losses.

      “Large banks are also legally required to hold a certain reserve of capital to cover potential losses in their portfolio. As the crisis develops — and stock, bond, and derivative values plummet — the big banks will be forced to sell even more of their assets just to meet capital requirements. After public protestations to the contrary, many large institutions will be found insolvent.”

      • Wow………….. I must admit this is how I see the situation playing out. BUT how much would central banks have to pump in to stop the collapse and would it? Dr Morgan has mentioned $320trillion of asset ‘value’ will be destroyed, at the moment the FED is tinkering in the $billions, after GFC1 over $29 trillion was required, see the Levy Report BUT I don’t think they really understand the systemic risk, which appears to be unfolding in the repo market. They are ‘academics who think their models are the answer to the problem’ which is really a predicament, they clearly are not. I guess it’s time to really stock up on the gold and silver after the essentials, after all aren’t the central banks? Do what they do not what they say. We have livestock (just bought a very nice Bull) and we won’t be accepting infinite paper for a lamb eg that’s for sure if what is predicted unfolds, assuming they are not rustled!!. We will want a store of value for a store of energy.
        This is worth an hour of your time.
        As always Harry, thank you for your diligence in keeping us all informed and you Gail for the site to share all this info.

        Click to access wp_698.pdf

      • When a system is in inexorable decline:

        Debt = Neck + Noose.

        The pianowire kind that does the job so, so slowly until… expire. Not the kind long-drop and a broken neck.

        We can’t control one bit what our governments and the CB’s do to try to shore up the failing system, but for the individual freedom from debt must be the first priority.

        • Xabier, please allow me most heartily to endorse that sentiment. I have been debt feee for almost 20 years, and the money that might have gone to mortgages, car loans, credit cards and frills has been saved. If all goes well, my retirement fund will keep me for as long as needed, and the balance will go to my children and grandchildren.

          To quote, once again, the words of my first and best financial advisor: “Pay cash, or go without”. But then, my Grandmother was born when Queen Victoria was on the throne, and money mattered.

          • My Victorian great-grandmother trusted in her sock filled with gold sovereigns, until the early 1960’s!

            Much as people might mock it, she sincerely believed that ‘God will provide’, and admonished that ‘If you are not happy, it’s your own fault’. She wouldn’t have thought much of Millennial whining…..

            If I have any backbone at all, it comes from that woman.

            • Trusting in Providence tends to pay dividends, in my experience, but it is not easy to let go of all that egoic fear. If I may quote my noble countryman, Rod Stewart:

              “Luck is believing you’re lucky, that’s all, and showing just a little bit of faith.”

          • Wait ——if what is said up above by Harry, then that will cause mass inflation. Before 2008 a billion dollars was a lot of money after it was not. Your cash will be worth less in the future. Assets would seem like a better idea…but there will be no escaping, there is no “right” thing to do. And it does not mean that you are better off because you paid in Cash etc….that is going to be the frustrating thing forward. Your health, sanity and friends are all you will have…..but then again that is really all that you have…everything else will disappear pretty quick.

        • It is! There’s some good stuff in there but you have to mentally filter out the socialist tub-thumping:

          “…The left in the developed world is still broadly unprepared to organize and harness this rage and indignation — though there is still time, now, to ready ourselves.”

          The political left seems resolutely convinced that financial and ecological mayhem will strengthen their hand and open the door to a socialist utopia… The only way I can see socio-economic collapse making us all equals is if it kills everybody.

          • They will get the collapse of Capitalism that they claim to want – but it won’t be anything to celebrate…..

            Infantile day-dreaming at it’s best.

            Dangerous Utopianism at its worst – those who seek ‘purity’ and perfection do tend to end up as mass murderers, somehow.

          • Yup the right has it all figured out>!!!??? I have a friend who is a trumper and if I tell him the economics of whaat is going on he thinks that its a conspiracy . The left thought the same thing….if you believe that one side is more knowledgeable about what is going on your a fool! I have heard people on the right talking about a civil war and how tough they would be….. but after one bloody nose I think they would run crying home….I wish baby politics would be left out of discussion; makes me wonder if this is a russian sponsored website.

            • It wasn’t my intention to seem partisan, Denial. No political party is prepared to acknowledge the limits to growth, and no electorate would ever vote into power a party that did.

              From a macro-perspective, national politics is in any case something of an empty charade, designed to keep the global economy growing at the circa 3% growth-rate it has enjoyed for the past two hundred years.

              Historically it has been the tension between the political polarities that has allowed for reasonably functional democracies (thence economies) and facilitated this growth trajectory.

              But as we chafe against the limits to growth, the tension grows too great; the polarities push too far apart; there is splintering in the middle; the centre cannot hold; political paralysis and/or social unrest may ensue.

              The worsening political, social and indeed financial pathologies of this era are best understood as surface manifestations of underlying energy and resource-constraints.

              I was just having a pop at the left out of mischief but I will try not to be so naughty in future.

            • “The worsening political, social and indeed financial pathologies of this era are best understood as surface manifestations of underlying energy and resource-constraints.”

              concise… nicely worded… quite right…

  2. “Financial markets have seen this story before: The Federal Reserve rides in with piles of freshly minted digitized money that helps send the prices of stocks and other assets lurching forward.

    “But this isn’t 2009…

    ““This really speaks to the idea that once again we’re on the brink of potentially being in this bubble, where valuations are about the story and the narrative and not about the cash flow and profits,” she said. “You would think we would have learned this lesson before. But here we go again,” said Lisa Shalett, chief investment officer at Morgan Stanley Asset Management.”

  3. “A spate of bank runs has highlighted the growing challenges facing China’s financial sector, with local lenders particularly vulnerable due to the slowing economy and a crackdown on shadow banking…

    “While many large banks have taken measures to reduce non-performing loans, city commercial banks and rural financial institutions have suffered higher rates of soured loans as the economy has slowed. Beijing bailed out three troubled regional banks — Baoshang Bank, Bank of Jinzhou and Hengfeng Bank — earlier this year.”

  4. I would like to see any models for equities unwind if and when it does occur, despite having read some interesting arguments for a stock market continued melt -up, possibly due to continued inflows from foreign market capital flight. In theory during a sudden downturn, as more people rush for the exits, the prices drop which in turn accelerates the attempt to sell even more equities, trigger margin calls etc., thereby accelerating the negative feed back loop. But, won’t the automatic stops in the stock markets give central banks enough time to print more money and nip these in the bud, as I think the FED was able to do during last year’s Christmas -eve drop?

    I think the prospect of not being able to stop an equities meltdown and/or a deflationary event is what has the FED and central banks worried the most. They have no sense of when, where, or how the bottom might fall out, so they have to keep pumping “money” into the markets. The fear of the unknown.

    Gold and silver price action seems to be the reverse. Prices have to be high enough to keep miners from going bankrupt in order to allow CBs to continue buying up all the gold and silver that can be mined at reasonably cheap costs, yet not allow prices to increase to the point that they unmask dollar underlying weakness(facade) in the face of even weaker world fiat currencies. In short, central banks have allowed gold to rise a little bit, but will now defend against higher prices @1500/oz as long as miners are financially able to extract the last bit of recoverable metals.

    • I know that his politics aren’t everyone’s cup of tea but Mac10 makes some good points vis-à-vis the stock markets in a recent post:

      “This is the first time in U.S. history that the stock market is peaking AFTER the beginning of recession…

      “Compliments of the unprecedented stimulus gimmicks employed during this era, the stock market is no longer a reliable barometer of the economy.

      “Hugh Hendry warned this would happen: “The worse the reality of the economy becomes, the more we take on the reflexive belief in further and dramatic monetary expansion and the more attractive the stock market looks.”

      “At this latent juncture, real-time GDP (“Now”) is running at 1%. In other words, the U.S. is borrowing 4% of GDP to have less than 1% growth. A confirmed recession at any other time in U.S. history…

      “On top of all that are the record buybacks intended to keep the market bid up while insiders exit. Buybacks hit their all time high one year ago in the fourth quarter, and are now falling. In 2007, the peak in buybacks occurred a few months before recession began. As the article notes, ALL types of corporate cash spending is now falling.”

      • With profits down, it should be no surprise that corporate cash spending is falling.

        The fact that the US stock market is holding up is the result of a lot of different things:
        1. Financial gimicks
        2. Recession started in China, spending elsewhere
        3. US is now the best of a bad lot. Borrow in currencies with negative interest rates, and invest in the US.

        • Moreover, every possible effort is made to maintain the stock market in the US, as people are influenced by the delusory ‘wealth-effect’ – just as with distorted real estate values.

          All a conjurer’s game…..

          ‘No (real) Wealth but Life’. (J. Ruskin – died a raving madman, but he was right!)

      • “This is the first time in U.S. history that the stock market is peaking AFTER the beginning of recession…”

        this is probably spot on…

        US recessions seem to be officially called with a delay of 2 or 3 quarters, for propaganda purposes, so no official recession call as of now doesn’t say where we are at…

        it has become blatantly obvious that there is massive manipulation going on to keep up the stock markets, and all too obviously because there is a desire to not have a repeat of the 2008 stock market meltdown…

        why are CBs propping up stock markets?

        because they can!

        it’s that simple… they have financial techniques available to get their desired result…

        so the markets indeed are no barometer of what is really going on with the economics of IC…

        the problem is that, besides stock markets, there is “everything else”…

        there’s no way that “everything else” can be manipulated, which is maybe too obvious…

        negative interest rates, low commodity prices, and low inflation suggest that the economy is degrading even though markets are high…

        one significant missing puzzle piece is rising unemployment…

        when that comes, all bets are off…

        • If real growth comes through increasing efficiency.

          And money printing admits useless enterprises staying alive, lossmaking IT companies, bridges to nowhere.

          Then money printing will kill real growth, while at the same time hiding it.

        • “Those who have studied the yield curve and its relationship to the economy stress that, historically speaking, it doesn’t matter if the yield curve returns to normal. The recession predictor is that it inverted at all — though the downturn can take as long as two years to arrive.

          “In a way, the damage is done,” said Campbell Harvey, a Duke University finance professor whose research first showed the predictive power of the yield curve in the mid-1980s. “If you look at the track record, if you’ve got an inversion, there is a recession that follows.”

          “One reason is that the yield curve has a real-world impact on the banking system. Banks borrow money at short-term rates and then lend it out — in a 30-year home mortgage, for example — at long-term rates.

          “So when short-term rates are higher than long-term rates, bank profits are crushed and they cut back on lending. That’s bad news for the economy.

          “Then there’s the market’s feedback loop, which can stymie decision-making by executives, discouraging new investments.

          ““When the yield curve is inverted, investors pull in risk taking,” Mr. Golub of Credit Suisse sad.””

            • Gail, that of course is the answer. The inverted yield curve does not predict a recession; it creates it. By fooling all those so clever economists into believing it will happen. A classic example of the Madness of Crowds. These fools don’t believe in astrology; they believe in graphs. But the fault, dear Brutus, lies not in our graphs, but in ourselves.

    • I posit markets are not going up, currency is going down. Warren referenced “The Death of Money” some years back. Own, i. e., control enough of a useful corporation and one has wealth. Wealth in nominal terms is possibly more about control of the remaining wealth than absolute wealth.
      Interesting times,

      Dennis L.

      • And when that control fades away a lot of the make-believe wealth will also. I suspect we are going to soon see many newly-hatched millionares scratching their heads and wondering what happened. We did all the right things (to get rich)!?

      • I always wondered why that when bread and gas and 2x4s went up in price it was inflation but when the stock market went up it was economic growth.

  5. I made a math error factor of 10 in my calculations.

    It turns out that 28% of the Sahara would have to be paved with solar cells, or 120% of Saudia Arabia.

    Takes close to 30,000 Sasol sized plants at a billion dollars each. Building them at 3000 a year would burn through ~$3 T.

    There still might be a market for carbon-neutral fuel, but displacing the whole 100 million bbl/day would not be easy.

      • Yes, that’s what peer-review will catch, and in this case, that’s what happened.

        Mike Sneed makes the case that there is not enough area in the sunny parts of the US to make storable fuel this way. He points out that for the same power, you need about 1/5th of the PV area in rectennas. So due to area, it may turn out that power satellites are required.

    • I expect that people would want to replace coal and natural gas as well with a low- or non-carbon substitute. Also, make enough to keep up with population growing to 10 billion people.

      • “to 10 billion people”

        It’s not impossible because there is 2/3rd of the Sahara Desert left after making 100 million bbls/day of oil. But I think it will be done another way if anything is done at all.

        It may be worth remembering the Singularity with an estimated takeoff time by the mid-2040s.

        But talk about a race with disaster.

        • “It may be worth remembering the Singularity with an estimated takeoff time by the mid-2040s.”

          it may be worth remembering that on another issue you have been off by a factor of 10…

          I propose that the math behind this date falls way short of being comprehensive enough to make any claim about the Singularity becoming a reality…

          in other words, the Singularity is merely sci fi imagining…


          I bet the math would be so very entertaining to see!

          fire away!

            • Extrapolations of processor speeds.

              Two objections against processor speed as proportional measure of progress:
              1. Systems today waste most processor cycles through lots of layers and abstractions.
              2. Computing has become so complex so what in the 80s was an economist who happened to program sometimes, around 2000 was a IT technician who did “everything”, now they’re specialised on a very small segment of system development/operation.

              I don’t think well above average human brains can take much more before they can’t squeeze more use out of more processing power.

              You probably need genetic augmentation before getting AI above insect level.

            • I cringe every time an update is added to computer programs. What unwanted feature will I now need to work around? Why possibly did anyone want to make this update?

            • Also, processing speed per $1000.

              How much of that improvment is because of going from “handbuilt” in labs by high income persons to highly automated processes controlled by slave labor in some shithole?

          • The Singularity is just a myth invented by those who wish to evade the reality of being mammals who will die after a brief life. Great name though!

  6. A proposed way to replace natural oil with renewable oil

    There are two recent news stories that started this line of thinking.

    First is the recent MIT release on a method to inexpensively capture CO2.

    The second is the story about the world’s lowest PV bid.

    One much larger is being planned.

    The first article says the capture method will work in the air.  It takes about one GJ to capture a ton of CO2.  A GJ is 278 kWh.  At 1.69 cents per kWh, it will cost about $4.70 per ton of CO2.  Or $17.23 per ton of carbon.  14 tons of oil has 12 tons of carbon at a cost of $206.  Per bbl, the carbon would cost about $2.00

    Oil is approximately CH2.  Making hydrocarbons is scaled off the 34,000 bbl/day plant Sasol built 12 years ago in Qatar, it would take about 30,000 plants.  10,000 if the plant size was moved up to 100,000 bbl/day, but that may take too large a PV farm.

    CO2 + 3H2  yields CH2 + 2H2O
    44    +   6                 14  + 36

    It may take reverse water gas shift to make the CO2 into CO.  It is also possible that the CO2 might be electrolyzed to CO and O2 at a lower energy cost than making the extra hydrogen.

    At 50 MWh/ton, 6 tons of hydrogen would take 300 MWh.  That makes 14 tons of oil or 21 MWh/ton of oil. At 7.33 bbl/ton the energy required for a bbl of oil is about 3 MWh.  For an energy cost of $16.90/MWh, the hydrogen energy cost is very close to $50/bbl.

    Add $2/bbl for carbon, and ~$10/bbl for the capital cost of the F/T plant.  Carbon-neutral synthetic oil (fuel actually) would cost ~$62/bbl, possibly less with more process optimization.  For example, there is no reason for inverters, the PV DC output can directly power the electrolysis cells.  This should reduce the cost of energy in hydrogen below 1.69 cents per kWh.

    The take-home is that in some places PV has gotten so inexpensive that it would be possible to make carbon-neutral synthetic hydrocarbons to replace natural oil for about the same price.

    The area needed for the PV is large, 120% of Saudia Arabia or about 28% of the Sahara Desert.  (check these numbers, 100 million bbls/day/34,000, ~30,000 plants at ~90 square km/plant.)

    34,000 bbl per day is a rate of around 1466 bbl/hr.  At 3 MWh/bbl for the hydrogen, the average input to the hydrogen cells would be 4.25 GW and the peak about 4 times higher.

    Sunlight comes down at a ~GW/km^2.  Between the peak to average and the PV efficiency, a factor of about ~20 needs to need to be applied.  This takes the PV area per plant up to 85-90 square km.

    It could be done over a number of years, but the cost is going to be a problem.  If we built the plants at 3000 a year, that alone would be $3 T.  I am not sure what the capital cost for the PV would be, probably 4-5 times the billion-dollar plant cost.

    I don’t believe this option has been considered in the context of the global effects of CO2.

    After checking the math and finding I had the area off by a factor of then, I am not so sure it is something that could be considered.  The Sasol plant cost a billion dollars.  30,000 would be $3 T a year for ten years. Also, the area needed is so large that much black PV might cause serious weather problems.

    • Sound similiar to perpetual motion machine. If you miniturize it, hook it up to your exhaust, convert it to gas, pump it into your engine. Viola.

      • “perpetual motion”

        No more so than rain. It’s just using carbon as a hydrogen carrier. Take carbon out of the atmosphere and burn it to put it back in. Carbon-neutral synfuel. We know what to do with hydrocarbons.

        I am somewhat appalled at how much of the Sahara desert we would need to cover with PV to power making 100 million bbl per day.

        It shows how poor PV is at collecting energy and the unbelievable scale of humans burning oil. Gail objects to intermittent renewables for the electricity supply. It looks like they are not that much use even for this application where intermittency does not matter.

        • one good sand storm and you can forget your vast PV arrays in the desert. you might observe that much of the Sahara is covered in sand dunes. how do you think they form?

          • Perhaps we could get seven maids with seven mops to sweep for half the year? But how would they get around, where would they live, what would they eat and drink, how would they keep cool? The infrastructure to maintain these arrays would be vastly more expensive that the infrastructure needed to build them, and it would have to be permanent. I do not think this is affordable.

          • China with its PVs has essentially the same problem. I was in Beijing when there was a sandstorm. It was hard to see where the sun was in the sky. The sandstorm was actually in the Gobi desert and the sand came that far. I expect that there would be more than a little problem with China’s solar panels getting covered with sand. Other pollutants would tend to form a layer as well.

            • gail, the problem is not just that the sand covers the arrays. It erodes them. When we lived in Africa a car that got caught in a sandstorm would have its paint sanded down to the bare metal. That’s why when you drove near the Sahara you carried a very rugged tarpaulin to cover the car (with you inside it of course).

            • The last I looked, IEA dictated that models of the usefulness of solar panels should assume that they will last 5 years beyond the manufacturer’s warranty period. (I wonder how many manufacturers will be around that long.)

            • “will last 5 years beyond”

              I really wish I had access to the process that priced PV power at 1.69 cents/kWh. I can’t make any sense out of back calculating the expected capital cost,

          • There is also the issue of insects creating problems with the electrical connections, as I recall from Pedro Prieto’s descriptions of the problems in Spain.

            • More carconogenic pesticides, then, to help the Green Industrial Revolution!

              How dare insects get in the way of the new planetary Eco-Consciousness!

              It all just crumbles as one looks at it, like the mummy’s face……

            • Termites! Those wretched termites. In West Africa, almost all electric wiring was visible, rather than hidden inside walls or conduits. So that we could see what the termites were doing, and take timely action.

              But no pesticides; just clean them out, and let the house lizards eat the stragglers.

            • We have lots of termites in Georgia, too. Realtors have a saying, “There are two kinds of houses: Those who have had termite damage and those that will.” I think treatments are getting better, but there is still a problem. Without fossil fuels, there would definitely be a problem keeping termites away from electrical transmission (assuming there could be electrical transmission in the first place).

    • Keith, this is why we need mirrors in geo-orbit to provide 24 hour per day sun on the 1000km diameter PV array. Gives us a factor of at least 3 improvement in energy per day. As to wind blown sand we will need wind breaks.

        • As the sun’s rays are essentially parallel at earth, presumably a 1000km diameter array would need a 1000km diameter mirror to direct sunlight on the whole array? Yes, that is very large indeed.

          • I’ve gotten around the ridiculously-large orbital mirror issue by postulating a 100km diameter lens to focus incoming sunlight onto a large-but-not-excessively-so orbital mirror.

            Keith, do you think this idea could be a winner?

    • The critical part is the storage. Also, don’t use much solar, especially as far north as Norway. The storage needs would be unbelievable.

      Whether this arrangement can really be economic is another question.

      • Storage is a huge issue not only from a demand perspective. Its easy to say we will only use the power when the sun shines unfortunately the devices that use that energy can not magically use whatever voltages and currents the PVs happen to be producing any more than a 60 hz motor can run on 50 hz. Batteries baseline the output of PV panels somewhat allowing a still variable but ranged energy source. There you are in the middle of your industrial process and the sun goes behind a cloud. Kaboom. Adding the complexity of a electrical energy source that is not stable to all of the other unknown complexities… I strongly doubt any industrial process could be developed that uses PV panels without energy storage to somewhat stabilize the electrical energy enough for use. Yes that IMO goes for either the dc output regulated or ac inverted. The batteries required might be much less if used only to buffer the PV output not store energy for use when sun is down however. Maybe the seven maids with seven mops could buffer the PV output by dancing around the PV arrays when they were not sweeping up from the sandstorms or dancing value into a currency devoid of energy backing!

          • So heat and much shorter life from mismatced windings is “just fine”
            The argument could be made that a 50hz motor could be run on 60 hz “just fine” it will be faster but cooler but the power is badly lessened. If voltage to frequency ratio is maintained using a step up or step down transformer then both mismatches will run just fine.

            practically if there is no load than frequency can be used to control speed. add load and get smoke.

            Cite one example of pvs being used to power a industrial process without batteries…

        • “PV panels without energy storage”

          If the PV is being fed into an electrolysis cell, then you don’t need storage, or you could make the case that the hydrogen was storing the energy.

          • Sorry keith you didnt understand. Energy storage allows the pv energy to be stable. Perhaps if you actually ran pvs you would understand. Please cite references for unregulated pv power being used for electrolysis and the processes required to manufacture synthetic oil. kaboom

            • You don’t need stable PV to run an electrolysis cell. In any case, a PV cell has a lot of internal resistance. You load one up to the point you get max power out. The number of PV cells in series per hydrogen cell might be adjusted to max hydrogen production.

              “to manufacture synthetic oil”

              There are a number of such plants around the world, but I usually cite

        • Agreed. And thank you for picking up my reference to Lewis Carroll’s “Through the looking glass”. The seven maids come from the song “The Walrus and the Carpenter”.

      • From the article:

        “It uses a cloud-based artificial intelligence platform …”

        You can stop right there. The answer to a dysfunctional complex system is to add even more complexity. And can “artificial intelligence” really predict that ten million people are going to turn on the coffee maker at half time during the World Cup? A bunch of desperately overengineered computer programs hacked together by IT graduates with no knowledge of physics and very little of the real world? (I know: I saw it happen during 10 years at Carnegie Mellon University)

        Complexity is the enemy of reliability. As always.

  7. The old testament is conservative.
    The new testament is liberal.

    Conservatism and Liberalism is in our genes.

        • The Romans did a lot for my ancestors in Britannia. For one thing, they got rid of the druids, who has this unpleasant habit of human sacrifice at seasonally appropriate times. They might also seize your firstborn child, cut their throat, and bury the body under the foundation stone of an important new building.

          But the Roman’s greatest gift was surely Hadrian’s Wall, which kept the Scots out for fourteen hundred years. Maybe after Brexit we can rebuild it.

      • ISIS has a very conservative view of Islam. It was ISIS that almost took control of Syria.

        At some point the world will no longer be able to intervene.

  8. Current news stories indicate that Arizona Public Service is considering using seasonal excess power at Palo Verde to make hydrogen, something I have talked about for almost ten years. Looking at the Wikipedia site, power has been sold for as little as 1.33 cents per kWh. At that price for power, synthetic oil would cost around $50/bbl.

    I don’t know what they figure the power is worth when they don’t have a market for it. I did make email contact with the guy named in the news stories. Will ask.

    • Generating hydrogen from a nuclear power plant. Great Idea. This is progress! All hail this new technology! Can the hydrogen be stored in the spent fuel pools?

      • :hydrogen from a nuclear power plant:”

        If I remember correctly, King said this was the way to go as we ran out of oil.

        ” fuel cost = 0.39 ¢/kWh.” If that is the marginal cost, then liquid transport fuels should cost around $24/bbl. Or about 50 cents per gallon.

        • King saw that fossil fuels were ending. He hypothesized that nuclear would take their place. It has not and will not occur as nuclear power plants are energy sinks. How you connect that to “the way to go” is nonsensical.

      • “fuel pools”

        Hydrogen is really hard to store. I would not try, take the loss and use F/T to convert it to hydrocarbons. We know how to deal with them.

        • Some quantity of hydrogen has to be stored since you are creating immense volumes of it in your fantasy Defining your synthetic oil process around immediate consumption of your hydrogen process would destroy any other process parameters for both processes.

          • “immediate consumption ”

            You are right. What I should have said about the hydrogen is that it’s hard to move it. We have to store a couple of days of hydrogen to keep the F/T part running overnight. 34,000 bbl per day is 4638 tons of fuel per day. The fuel is 2 parts in 14 hydrogen or about 663 tons. An empty gas field would come in handy. There is also a need for 4860 tons of overnight CO2 storage.

            Although you would not try it with a standard Sasol F/T system, there are catalytic converters that are smaller and fast. They don’t make wax though.

      • “hydrogen from a nuclear power plant”

        It’s actually PV that is causing the problems. They have to either shut down some of the reactors, which they don’t like to do or shut off some of the PV, which also has problems. The fuel cost for those reactors is very low.

        • Nuclear reactors are exponential energy sinks if the energy required to store the waste is accounted for. There is no nuclear waste storage in the USA for power reactors so it piles up in the pools. Its beyond ridiculous. To propose that using some of the output of this energy sink to produce dangerous hydrogen gas that has no storage facility is somehow a energy source is also ridiculous. Providing water for this in AZ is even more waste of precious resources.

    • I remember
      i remember
      I remember Fast Eddy offering to pay airfare to Japan for the poster that wrote it was safe to swim in the ocean next to fukushima. Yeaaah baby!

      • I suspect the unnamed person was right. Low ambient doses of radiation, for instance from cosmic rays (at higher altitude) or igneous rock have long been associated with better health. The phenomenon is called “hormesis”.

        Of course, if you swim with your girlfriend (or boyfriend) the radiation emitted by their human body may push you into the danger zone.

        • It’s never safe to swim in the ocean. You might meet up with a shark or a jellyfish that mistakes you for a snack, or you might get caught by a ships propellor or even by the Under-toad!

          Fukushima is recovering. There have been no deaths directly resulting from the nuclear disaster. It’s estimated that 2,000 people died prematurely due to the effects being forced to evacuate, most of them unnecessarily, and that up to 4,000 people may have died prematurely due to the 20% increase in electricity prices when Japan shut down all its nuclear plants for several years following the disaster. All of these people are victims of nucleaphobia—the irrational fear of safe, clean and reliable nuclear energy being promoted and fostered on the rest of us by the deranged misanthropic denizens of the Green Lobby.

        • “The panicked closure of nuclear power in Japan pushed electricity prices up. The UN agrees that no people died from radiation in the Fukushima event, but the frenzied over-evacuation killed up to 2,000 people. After that, higher electricity prices led to at least 1280 extra deaths in the 21 largest cities. That translates into 4,500 deaths if the mortality rate was similar across the rest of the country.”

        • Also, a person would be exposed to more radiation flying across the Pacific than they would swimming in the ocean offshore of the Fukushima complex. I expect that’s one more reason why young Greta is so reluctant to fly.

          • My stepfather’s daughter died aged 14 from cancer six months after swimming in the sea near Sellafield. I don’t remember all the details, but the authorities got involved and it was revealed there had been a radiation leak. I doubt my stepfather would agree with you on the lack of risk from swimming in the sea near Fukushima.

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