On Dealing With Uncertainty, and a Threshold

My crystal ball is out being repaired. It’s been in the shop for most of my life – starter problems, I think, or maybe the bearings. I share this problem with most of the people who analyze the fossil fuel industry. There are so many factors, so many hands on the steering wheel, that it is essentially impossible to predict price and supply except in long term generalities. Nobody can time the market.

We have been on an undulating production plateau for oil since roughly 2005. World production for all oil-like liquids has been hovering around 84 million barrels a day. Price volatility has stalled the development of new oil fields, resulting in what some commentators refer to as the “practical peak” in oil production. What they mean is that while the world economy wallows in depression, the production of our aging oil fields will continue to decline. This won’t affect prices because of lowered demand, so the new, more expensive to develop oil fields won’t get tapped. When the world economy starts to crawl out of its present collapse, oil demand will increase, bumping up against declining supply. Steeply increasing oil prices will kill the recovery, oil demand, and oil development. Repeat until Amish.

Similar problems afflict natural gas production. Coal energy production has been flat since 2001.

There is a similar problem with global heating due to the combustion of these same fossil fuels. The scientific consensus is that it is upon us and that it is dangerous, but nobody can say with absolute certainty how soon or how abruptly it will happen. Will it be a slow evolution or will it hit a threshold and accelerate wildly? Experts differ.

I have been pondering these dual and balancing uncertainties, fossil fuel depletion and global heating, and I’d like to advocate for immediate, accelerated action.

I like skydiving as an analogy. It has both the elements of risk and inevitability. Imagine that you are a careless skydiver. You jump out of a plane at some undetermined altitude, right into a bank of clouds. You have neglected to wear your altimeter, so you have no way of knowing your distance to the ground. You haven’t checked the weather, so you don’t know how close to the ground the cloud cover goes. There you are, falling blindly through the gray mist. You know the ground is down there, and that you will inevitably be making contact with it at some speed at some time. When do you pull your ripcord? You can’t wait till you break out of the clouds and see the ground. The clouds might be too low, and your chute wouldn’t have time to open. When faced with utter uncertainty and when delay may result in death, the only answer is immediate action. You may spend some time inconveniently floating down through the clouds, but no matter.

Some, especially those who work for fossil fuel companies, advocate a go-slow approach on energy and climate issues. Further study is needed before we act, they say. When you are falling and have no idea when you might go splat, that is no time to convene a committee to study the issue. It is time to pull the ripcord.

There is one strand of that ripcord I’d like to discuss. As a renewable energy consultant and installer, I am always doing calculations, including calculations about the economics of renewable energy installations. This morning I was working up a price quote for a potential customer. I subtracted the Vermont incentive and the federal tax credit, did an idle mental rule of thumb calculation, and had a sudden start.

Due to the economic slump and increased production there is a worldwide glut of photovoltaic (solar electric) modules. The price has dropped by about two dollars per watt over the past couple of years. $8.50 per installed watt used to be the off-the-cuff number for a residential scale solar. Now it is down to around $6.50 per installed watt. Subtract the Vermont incentive of $1.75/watt and the 30% federal tax credit and it comes to $3.33/watt. Now, consider that in Vermont this watt of solar will generate about 1.2 kilowatt-hours per year, or about 30 kilowatt-hours in its module’s 25 year warranted life span. $3.33 divided by 30 equals a levelized cost of 11 cents per kilowatt-hour, almost exactly what I would pay today. (What I would pay, but I don’t, because my solar array feeds more back to the utility than I use.) The economics are more complicated than that, but as of now, in Vermont, residential solar electricity is roughly at parity with the electrons we buy at retail. We have reached a long sought threshold.

25 years may seem like a long payback, but that is a 4% return, rising with the cost of electricity, guaranteed as long as the sun rises, and covered under your homeowners insurance. It is a half a percent better for business owners, who can depreciate their solar assets.

H.446, now called Act 45, offers even more with a feed-in tariff that will probably land between 25 and 30 cents per kilowatt-hour. The Public Service Board, the utility lawyers, and the renewable energy and consumer advocates are still making the sausage on how that will play out. Still, the absolute baseline cost for net-metered customers is viable. It can only get better as retail electricity costs go up.

Solar hot water offers a better return than solar electricity, and energy efficiency better than that. Interest rates are low. So what are you waiting for? Pull the fossil fuel ripcord.