Ann Arbor (Informed Comment) – The energy crisis provoked by the world-historical US-Israeli war on Iran has set off a scramble throughout the world to replace petroleum and natural gas, as countries face COVID-style shut-downs for lack of gasoline, and electricity black-outs for lack of fossil gas to fuel power plants.
The war is world-historical because it is unlikely that countries will go back to business as usual even if this phase does end sometime in April. Israel failed to overthrow the Iranian government and Iran has failed to establish permanent deterrence. Since Iran likely is in a position, with Russian and Chinese help, to rebuild its missile and drone capabilities and even to go for broke in building a nuclear weapon, it can be anticipated that there will be further Israel-Iran Wars and further disruptions in fossil fuel production.
In a direct response to the Iran War, Windeurope.com notes, “Germany’s Minister for Economy and Energy Katherina Reiche announced that her country will increase onshore wind auction volumes up to 2030 by an additional 12 GW (gigawatts).” She said that energy policy is now “security policy” and that Germany wants to avoid being under the thumb of foreign powers or hostage to fluctuations in the price of fossil fuels because of supply chain disruptions.
UK climate hawk and Energy Minister Ed Miliband (God bless his soul) has been proven right by the current energy shock. He swung into action last Tuesday to require that all new homes built in Britain have rooftop solar and heat pumps. He is also ensuring that plug-in solar or “balcony solar,” which can be used by apartment dwellers, will be available in a few months. Balcony solar coupled with batteries has surged in Germany.
Miliband is scheduling the country’s next energy auction early, in July, in which as many as 18 wind farm projects will compete.
The energy consultancy Ember points out that because it built out renewables, fossil gas only set the price of electricity in Socialist Spain 15% of the hours this year, whereas in laggard, far-right-ruled Italy it is 89%. And fossil gas prices are going through the roof.
The gasoline price spike has caused a surge in the purchases of used electric vehicles in Europe. Battery electric cars were already rapidly increasing their market share in Europe, threatening to overtake the sales of gasoline cars within a year (which have plummeted to 22% of new car purchases this year). And that was before the Great Iran War gasoline crisis hit.
William Sandlund and Edward White report at the Financial Times that since the Iran War began on February 28, the stock valuations of BYD, CATL and Sungrow have surged by $70 billion. BYD is the largest electric car maker in the world, CATL is one of the foremost producers of batteries and mega-batteries (energy storage systems or ESS), and Sungrow makes solar PV inverters and ESS. Investors are voting with their feet. The FT article notes that this growth in valuation is outpacing that of the oil companies, even though their profits will be healthy this year because shortages will drive up prices.
The sun doesn’t shine at night and the wind doesn’t blow all the time, so grids like that of California have dealt with this intermittency by installing vast battery capacity — 17 gigawatts at the moment, which allowed it to depend on 100% wind, water, and solar for at least part of the day in 221 days last year. California is off coal, and its fossil gas use for electricity generation has been falling 17% – 23% a year.
While California’s progress is impressive, it is nothing compared to China, which aims at 180 gigawatts of installed battery capacity by the end of 2027, just 20 months from now. That is nearly as much battery capacity as the entire world has now.
Photo by Kenny Leys of test driving the new electric sportscar (Audi Etron GT) through Aalst Belgium, during sunset Unsplash
Many governmental bodies, even municipalities, strive to do energy deals on a 20-year basis. Already in Texas, many mayors prefer wind and solar for electricity generation because they know that the price will not rise over time: the sun won’t stop shining and the wind won’t stop blowing. Natural gas suppliers lose those bids because they can’t guarantee a price over the next 20 years.
And now price volatility has gone into overdrive.
The Israeli strike on the South Pars gas field and Iran’s revenge attack on Qatar’s Ras Laffan Liquefied Natural Gas facility not only took natural gas off the global market for years to come but also signaled that it is unwise for Asia and Europe to depend on fossil fuels for their power generation and transportation needs, i.e. for their economic progress. Publics are unforgiving toward political and business leaders whose decisions leave them in penury. Also, business leaders dislike depending for their profits on unreliable supplies that could be arbitrarily cut off any time and bankrupt them.
