Michael Liebrich on electrifying the global economy

2023, in my opinion, was an inflection point in this energy transition, the year the future of energy became clear. Well, much more clear, at least. I can't think of anyone better with whom to discuss the future than today's guest, so welcome to the interview, Michael.

And maybe that's the place to start, is to talk about your because you had some very interesting ideas. So why don't you give us just an overview of that op ed if you don't mind?

So what I did last year, I I thought, okay. You know, you've just mentioned a piece of pseudo news, right, that the EV uptake slowed down in North America, right? It's not true. If you actually look at the numbers, EV growth 50% last year, what happened was a few of the incumbent manufacturers, very specifically, you know, people like Ford with their f 150, they had a bad year. But, of course, Tesla didn't have a bad year, and, BYD didn't have a bad year and others.

So in fact, there was 50% growth. So what's happening is you've got this enormous amount of noise in the news flow. And by the way, I've been doing this for 20 years. There was never a year when there wasn't noise because everybody's trying to kind of use every snippet of data. You know, they're cherry picking to prove their arguments and and so on.

And, you know, a lot of what I do and I think what you do is we're trying to get the signal out of the noise. So at the end of last year, I wrote a piece. I thought, okay. Should we be optimistic or should we be pessimistic about the transition? And I said, right.

I'll do a 2 parter. Last year, in, I think, September, I wrote five reasons why the transition is basically we should we should forget about it. It's gonna be really hard, and, hey, impossible. And I called them the 5 horsemen of the apocalypse, of the transition apocalypse. Right?

And then this year, I've written, and it's just about to come out. This is for Bloomberg. The 5 I call them, the 5 superheroes of the transition. And so the 5 the 5 horsemen, the bad news things, were that, you know, although, you know, wind and solar are, you know, competitive and EVs are actually competitive, but lots of other things are not competitive. If you wanna do green steel or if you wanna do clean cement or if you wanna do heating, it's just not there yet.

Right? So economics was one bad thing, one, you know, horseman of the apocalypse. Grid constraints was the second. Minerals was the third. The 4th was political inertia and social inertia.

It's just, you know, if there's confusion, do nothing. And and so that was number 4. And then number 5 was actually regulatory capture and bad people, whether they are, whether it's, you know, US politicians being paid for by oil, gas, coal, or whether it was, you know, corruption or whether it's just, you know, the kind of newspapers we have in the UK who think it's entertaining to write, you know, to to to write huge stories on the one person they found who had a bad experience with a heat pump. So those are the bad things. Those are my 5, you know, horsemen of the transition apocalypse.

But what's really interesting is those five things are all in a sense, temporary constrained. They're kind of here and now. That's what we feel now. We're worried about the grid now. We're worried about minerals now.

But fundamentally, there's no reason why we can't build whatever grid we want, why we can't, you know, mine. There's no shortage of the minerals in this earth's crust. So then you've got the 5 superheroes, which I've written about, and it'll appear in in a, I think, a few days, and that is exponential growth, very different from, you know, sort of the usual energy commodities. This is manufacturing and AI and software that drives clean energy economics, so exponential growth, system solutions. So the fact that, for instance, the more heat pumps and EVs you have, the more solar you can absorb in the system because those are flexible resources to a certain extent.

A few hours, a few days, you move things around, charge your car when it's windy, sunny. Right? And so there's a sort of feeding on each other of these solutions. So system solutions is number 2. Number 3 was, do you remember hard to abate sectors?

Right? And we were worried about them and then what are we gonna do with, I don't know, steel, and what are we gonna do with high temperature heat and aviation, fuel and and all these things? Well, guess what? We now have 2 things. 1, we have line of sight on how to do these things and at costs of, you know, 50, 100, 200, $250 per ton of carbon avoided, not at prices of $1,000.

Right? So we we're starting to get our arms around this thing. And the second thing we've got is great power competition. Right? So we've got countries who really want to own those industries because they understand their engines of enormous wealth in the future, and so they're plowing money into those hard to abate formerly hard to abate sectors.

So that's number 3, is kind of great power competitors and industrial strategy. Number 4 is disappearing demand. When you don't mine coal, you don't need coal mining. You don't need the railway tracks. If you don't refine oil, you don't need refineries, pipelines.

Shipping is fascinating. 40% of shipping is moving oil, gas, coal around the world. Another 15% is iron ore, which is gonna be refined where it's dug because that tends to be where it's sunny as well. So there's disappearing chunks of demand. And then number 5, I find absolutely fascinating, well understood by some, not understood by most is that there's this thing called primary energy demand, which is what we are always told is so colossal and is still 80% fossil and much too big.

People like that's left smell, you know, and Bjorn Lomborg. They're all saying, oh, you know, it's so big. The problem's intractable. It'll take 50 years even to just write down what the problem is and that kind of stuff. Well, actually, 2 thirds of that is waste.

Mainly thermal waste, mainly from, oil, gas, coal, you know, burning petrol in your car. Most of it does not move the car forwards. And so the actual problem we have to solve is energy services. I just wanna be warm. I don't I don't care how I'm warm. If it's a heat pump multiplying the the the the energy by 4, I'm just as happy as if it's a furnace that's, you know, between the gas field and my home is only 50% of fish. I don't care. I just want the warmth. I want the warmth. I want the light.

I want the cold beer. Right? And doing those things actually requires only about a third of the energy that we call primary energy demand. Primary energy demand has got nothing to do with demand. So cold beer is a demand. So so we got these 5 superheroes that are really gonna help us, and those are long term drivers, and I think they'll win.

So when you think of it that way and you think of it as, you know, a historical process that might take 50 to a 100 years, you begin to have different expectations of it. You don't expect that because electric vehicles, you know, became competitive in 2021, that suddenly you're gonna flick a switch in the whole you know, you're gonna replace the entire global fleet of 1,500,000,000, light duty vehicles, and you're suddenly they're all gonna be electric, and, it's gonna overwhelm the the grid and all of those things that often come up in conversations about this energy transition. You see change over time. And for me, that when I say that 2023 was the inflection point, what I mean is that the the arc of change, the arc of adoption of many of these clean energy technologies, I think came into focus in 2023 in a way that they maybe hadn't previously. I don't know.

What's your take on that?

I agree with you, that there is this uptick that we saw. Actually, I actually, I'm gonna say it. I called it coming out of COVID. I called it the great clean energy acceleration, and I think it's been going on, for a few years. It just but I'm not gonna we're not gonna quibble between friends over a year or 2.

20 2023, we certainly saw evidence that it's really accelerating. The longer answer, though, is that, actually, these s curves are not they're not unitary. This is the kind of that mistake. Right? He says, oh, everything takes 50 years because energy is so big.

No. What happens is that there's a bunch of s curves by sector and by country. So as an example, one s curve was electric vehicles in Norway. Right? They put a ton of incentives on, but they went to, like, 50% of all vehicles sold had a plug, took about 6, 7 years. That was it. 6 or 7 years. And suddenly, it was like you were halfway up the s card. In the UK, in 2012, 42% of our electricity was from coal to 2012. Right?

It's not that long ago. Today, it's basically 0. And so what you've got is these s curves, the kind of the big s curve might be 50 years or 70 years or whatever. And it but but the little s curves are much much LED lighting, that's another one. I mean, you know, it is not that long ago that when an LED light bulb and I know because I bought some of the early ones, cost like $80.

You know, that's not that long ago. And now almost every I mean, every light bulb I buy certainly doesn't cost $80, and it is an LED. So these mini s curves are much, much quicker.

But here's the here's the point. Vaclav Smil was a brilliant, brilliant historian of of energy transitions. What he missed, and you put your finger on it, is that energy as a commodity, which has been energy all the time. It's it's the 80% of, you know, primary energy we're talking about fossil fuels, has been a commodity. This transition is the first one that is based on electronics manufacturing, and it it and it responds to different laws.

It happens costs come down on a curve, Efficiencies rise on a curve. You see that with batteries. Costs have come down in the last decade from, like, a 1,000 kilowatt, a $1,000 a a kilowatt hour. Now they're what? You know, for a full battery pack, you know, it's a 130, $135, and they're and they're gonna go down well below a 100 by by 2030.

But what's energy energy density been doing? It's been rising and rising an average of 7% a year. And you can go back and you can look at wind and solar, you could look at at heat pumps, ancillary technologies, and they obey that law or those laws. Mike Andrade, CEO of, Morgan Solar, points out to me that it's a a combination of Moore's law and Wright's law. The learning curves and this idea that you're gonna increase, you know, do more with what you have.

That's what Smeal has missed. You made that point, and I agree with you a 100% that if if our listeners take away nothing more than that point that Smeal has made a analytical error, a thinking error. He doesn't understand energy as a technology.

When you say they are they they do we it's different laws. You'd say this is different microeconomic laws. Let's say you've got a coal resource, right, and you're gonna develop it. The first thing you do is you find the best bit of the coal resource, the the best, most productive, the biggest, the the highest quality you wanna that's what you do develop first. And you have to start cutting the the faces and whatever and and and you do that.

You also need a railway or some way of getting the coal out. You build that. The moment you're done, that sets your costs from that resource forever. Right? And the coal that you take out, you take it out, you burn it, next day you have to get more out.

There comes a point when you have to go to the next best bit of that resource. Right? So the next bit of coal that you extract from that that place, from that resource, the next bit is gonna be more expensive. And that's resource economics. You can go in a school of mines and you'll you'll learn that, and that's what resource economists, they do.

It's all about that that, supply curve, the supply cost curve. And once you've developed something, your costs are fixed. And that is completely different from these clean energy technologies. You talked about batteries. Not only did they go from $1,000 to a $130 per kilowatt hour, not only did the, energy density double in 10 years, but also the degradation.

Right? Every year, that battery, 10 years ago, they were telling you, oh, it'll get worse by 4% a year, and now it's 2% a year. Right? And it's not by the way, that's the warranty. The reality is much less even than that.

So you've got costs coming down, density going up, degradation of the battery going down. I mean and and so if you if you think about well, let's use solar. It's to compare to that coal plant, supposing you build a plant, you start delivering your solar. The first thing happens every single panel, it doesn't matter how much it costs to start with. The moment you deliver it, it delivers power at 0 marginal cost effectively forever.

Well, for, you know, 30 years, whatever the number is. So first of all, that plant, once it's built, off it goes, and it's delivering essentially free energy. Right? And the second thing that happens is the moment you build another plant, it's probably gonna be bigger and smarter. So the next lot, unlike coal, is not a worse resource and more expensive.

It's actually gonna be cheaper. And, you know, if you if you've got students listening to this, who are, you know, studying econ, it's a fundamentally different course. 1 is resource economics, which is all about the supply cost curve. The other is all about learning learning curves, and it's and these learning curves, which is every doubling of experience pushes the cost down by the same amount, in the case of solar, 25% or more for every doubling of cumulative experience. Ten doublings 10 doublings in the last 20 years, and everyone has reduced the cost by 25%, and it's not gonna stop.

Right? And and and it's just a different course in ecom. Completely and by the way, then you get you talked about it, the Moore's Law piece. Well, I don't even know what the law is because now we're starting to use machine learning, whether it's about the catalysts, you know, to design catalysts or to locate wind turbines so they don't interfere with each other or so you can plan your maintenance. And then you really start to get incredible sort of both software and network economics which take over.

And and this is this is not entirely predictable where it ends up. Right? I mean, the how how far and how fast the cost can come down.

And then the Rocky Mountain Institute and our friend, Kingsmill Bond, you know, who who are more plugged in than the IEA into this idea of energy as a tech technology and and using s curves, and and they they argue that the, we'll see a very, very fast transition that, you know, they're more in the in the that camp. And the point about the IEA or sorry, about OPEC, because that's a dominant narrative in the oil industry, which is very powerful, and they you know? And and, we hear it all the time in the in the mainstream media, we'll call it. What the OPEC folks, they are still doing their analysis on the resource economics model that you talk about. They have not figured out yet or not accepted the fact that we are now dealing with energy as a technology economics.

And the IEA has. I there's absolutely no question. I read a lot of IEA reports, and they do very detailed work at the country level, the technology level, the fuel type level, and and they get that. But I still don't think they get it enough, And I'm beginning to think that Kingsmill and his crew over at, you know, that are based out of Colorado may be onto something, and that we may be in for a wild ride as the energy transition accelerates later, book from now, but particularly later in this in this decade. So I'm curious about what your take on those sort of 3 models 3 models of modeling, if you will.

They were all saying different things, so we started to do a kind of integrated view of the world. That that BNEF model now, the NEO comes out of that work, you know, 15 years later or whatever. So but the question most of these models one of the question you have to ask, why are they being produced? So the OPEC model is produced. It its role in life is not to say, gee.

Let's come up with the best possible view of the future, the most accurate one that we can. It is to support a business model and a political narrative and negotiations. Right. That's what it's for. And so, you you know, the model is gonna be as brilliant as they want.

And if they turn around and say, well, what it means is, I've done that. I've run the numbers, and we get, gee, we get wiped out in about 15 years. They're not gonna be allowed to publish it. Let's be absolutely clear. The IEA, very interestingly, almost used to be I don't know.

It's it's not it's not so much the kui bono problem. It's just the kind of it is unthinkable problem in the sense that there was a sort of it used to be I'm talking 20 years ago. It used to be unthinkable, to a lot of the modelers there that things like wind and solar would get cheap. And my first interactions were trying to get them to understand the prices. So there came a point where IEA produced some forecast for solar and wind that said that in and at the time, I think they went out to 2040, not 2050 or whatever.

And they said, oh, in 2040, there'll be this much solar and wind, and I had a database. I could literally show them the rows on the database that said, but that much wind and solar has already been financed today and will be delivered in a year or so. You're going to be wrong. And to their credit, after a few years of this, they said, What is this database you've got? And I said, well, there's this thing, and it's new energy finance, and I've got this crappy little start up.

But this is what we do. We list the project. And they took a look at it and said, well, we need to license that because you're right. You know, if that happens, and these are and these were financed projects, not like the hydrogen projects today. They're kind of, oh, you know, theoretical.

We want to do the press release and whatever. These were financed. They'd reached financial close. So I think the IEA and, you know, to Fatih Birol, the head of the IEA's credit, they flipped to starting to understand this, but but they still have buried in the guts of their models. They have limiting factors breaks.

Right? And so they say, oh, solar can't get cheaper forever. We're gonna put a floor price. A lot of the kind of integrated assessment models that the IPCC use, they have floor prices. Or they'll say, well, obviously, solar can't grow, you know, forever, and therefore, the learning rate, we what you know, couldn't be that, or it'll we'll put a limit at 25% or 10% of penetration of solar and 20 so they'll put these on and they're buried deep, deep in the modeling.

And, you know, they're getting better about being transparent, but some of these kind of limiting factors, very difficult to find. Right? And so even though they kind of get that it's learning, they'll use a too small a learning rate with a limiting factor, with a floor price, whatever. And if you look at the scenarios today, you'll still see and it it's what you have to do is take the the first derivative of the, like, the solar installations, because the installation, oh, they saw after they it looks like fantastic. They grow like crazy.

But if you take the first derivative and you say, well, how much does that mean that is being added every year, You find that it flattens. And my question, Kingsville Bond's question would be why would it flatten? People are still building, and there's gonna be a terawatt of solar capacity by 2025. Right now, there's like you know, last year, there was like 500 gigawatts. You're gonna be doubled again by 2025.

Why would the rate of installation slow? So though I'd still critique I still think that in some ways the and by the way, the Bloomberg NEF models, they're the way they you know, now we're going back, you know, when I was still involved. So, you know, prior to 2017 when I, you know, stopped having any executive role, but I I I would find the team self regulating. Like, if we just if we just let the learning rate can do what it does, solar becomes so cheap that nothing else gets built, right, which is the kind of Kingsmill Bond answer. And so then they would sort of change the learning rates and, and when batteries came along, there was a learning rate that they were using, which was 14% because a load of chemical engineers said, well, they can't see they think it's gonna be 4 and I said, no.

Batteries is gonna be 20% plus or minus 2%, the learning rate. Every doubling, 20% improvement. And you have to be brave to say those things, but that's what happens. Now so I think that I think that we will go faster than those big models. Where I disagree with the, you know, solar eats the world model.

Right? The Kingsmore Bond, you know, really rapid is that what then happens is you hit a constraint, which is not the price of the solar panel, but it might be, the what the Germans call the Dunkelflauter, right, when there is no wind and no sun during winter. And that's a real problem. You can't wish away the difficult stuff just because, you know, the the one piece becomes really, really cheap. You do need those system solutions, and you need those complementary technologies that will enable the cheap stuff to get into the market, to get into the system.

People do tow boats using cars, and electric vehicles are not good at that yet. It doesn't you can't wish that away. You've gotta kind of have a solution for that.

But this is a it's it's top of mind for me because this is happening in Alberta, which is the province Canadian province that has the best wind and solar resources. And the premier, Danielle Smith, is an absolute opponent of wind and solar. And she she perpetuates these narratives of, you know, the wind doesn't blow and the sun doesn't shine and endangers you're gonna freeze in your house because because of that and so on. But I came across an IEA PowerPoint from about 2 years ago, and it argued it said, look. There are 6 phases of variable renewable energy integration.

So phase 1 and 2, where it's very small amounts of wind and solar or inverter based resources as they're often called, and you can you can accommodate that that variability with forecasting and other kinds of tools that system operators are quite familiar with. So it's not a big deal at phase 1 and 2. But when you starting in phase 3, then you have to begin reengineering your grid. And this is the problem in Alberta is that they're already into phase 3. They have about 14% penetration, and the rest would be gas and and a little bit of coal left, which will be gone fairly soon.

So it's mainly it'll mainly be a renewables and gas system. And reengineering your grid means things like market reform. You need different types of market. You need to be able to incentivize arbitrage. You need to have, virtual power plants so you can, you can, what's the word, agglomerate or bring together small distributed energy resources like rooftop solar.

You need microgrids microgrids that can work with the bigger power grid and bring more reliability. You need vehicle to grid integration, which we're only just kind of starting to, you know, do pilots on. You need better transmission. You need to build out your disk. All of these things and much more because you need long, duration storage.

I mean, there's many things we could talk about. But this idea of while as wind and solar ramp up, particularly solar, you need to do other things. You need to change your regulatory framework. You need to change your power grid. You need to change the way you finance things, on and on.

This idea of reengineering things to make this cheap energy work is very slow, I find, to catch on. And and I've had a chance to interview, US utility executives and regional transmission organization executives. Even they're grappling with it. It's not clear to them yet that this is where they need to go. And I'd be curious about your perspective on that.

The number last year was 50%. Right? It was technically impossible. But, you know so what happened was the 4, 5% back then, a bunch of countries, a bunch of states, Texas, a few others kind of went through to, you know, 8%, 10%. So, oh, well, you could never go to 15%.

And then they went through the 15%, but you could never go to 20% or 25%, then you go through and so we've now got a bunch of really serious economies, serious economies. Germany at 50%. The UK is 60% clean, including nuclear. So it's about 40 I think 40% more than 40% renewables, which for us is mainly wind and solar, bit of solar in the sun in the summer and some bio, some biomass as well, but not not a huge amount of biomass. It's mainly wind.

And so it goes. And there's always a kind of frontier where you have to do the things you've talked about, in order to to integrate, what are you know, there's also this kind of pushback that says, oh, the wind isn't that cheap because you have to do these other things. Well, no. It is that cheap. The wind and the solar are that cheap.

And then what you have to think about, the the model of how you run your grid changes. Instead of doing this thing called baseload and then having some peakers, what you're doing is you're trying to integrate what I call base cost. Right? The really, really cheap resources you want to be able it's like saying, well, you know, I can go shopping. I don't know.

We we have an expensive set of shops in the UK, Waitrose. Well, why would you buy your toilet paper from Waitrose? Why don't you just go to the, you know, to the wholesale discount store to the Lidl, buy your toilet paper there and go get your salmon from Waitrose. Right? So you wanna include your base cost renewables from the cheapest resource you can get, the cheapest stuff, which is the wind and the solar.

And then now what will happen is you say you have to restructure your markets because now you're gonna use that gas less and less and less, and, frankly, that's not bad for Alberta. It just means you can sell that gas instead of, you know, you know, it's it's it's not it shouldn't be seen as threatening the fact that you're gonna use the very cheap local resources more and more and more, but you need to enable that. You're absolutely right. And and, frankly, it's a failure of vision not to because it's a it's an explicit decision to be a price taker. I came to Calgary a few years ago and I spoke, and I was trying to think of a title for my talk.

How should I I knew exactly that I was gonna get a mixed audience, some oil and gas people very hostile to this idea, and some technology people and, you know, much more, open and so on. And I and I was in the airport at Heathrow on a travelator, and I went under this sign and it said, face the direction of travel. And I was so taken by this that I actually went round again and took a photograph of it, and I threw it up on the screen at this conference, face the Alberta, face the direction of travel. Right? We know which way all of this goes.

And now you can say, well, we're either gonna have our great energy companies fighting a permanent rearguard action facing away from the direction of travel, facing oil and gas and oil sands and resisting, or you can face the direction of travel, and then you'll still find outlets for your resources, but there will also be new business opportunities. And that is, you know, that that's I would love to see Canada and Alberta, Calgary, places I love, facing the direction of travel.

And you have now a post combustion economy that is built for the 21st 22nd century. So it is a failure of vision, Michael, because so few people in under in Alberta understand where it could go, where maybe it even should go. And they're and they're locked into the incumbent struggle with a changing marketplace and changing technologies, and they wanna protect the incumbents instead of embracing change. And that's a I can't overemphasize how important that idea is even at the global level where you have China and Europe and and the United States, the Americas basically in locked in a clean energy global arms race already.

Because you've also got, by the way, and I hate to say it, but you've got a high carbon resource and a high cost resource. In a world of declining demand, prices are gonna be volatile, which means every few years, guess what happens? When the when the sea level drops, who is it that is you know, whoever is, you know, highest out of the water is first to be seen not to be wearing any underpants. And that's the worry for for Alberta that every time there's price volatility, it's gonna be, you know, the the Canadian resources that are left stranded, and it's just a really dangerous place to be. It feels great when the oil price is in the be nice and high and, you know, everybody's everybody's making money, but it does not feel great.

And, you know, it's not like this is a secret. You know, you you've had these cycles. You've seen these cycles. This is not a secret.

Force them out of the market, take that market share for ourselves, and, eventually, we we maximize our return on a declining resource, on a sunset industry, basically. And and I've been sitting around waiting to see when that point will be. What do you make of Spencer Dale's argument?

And then between 20,021,005, it kind of still shot up, but a bit less steep, and then a bit less steep, and then a bit less steep. And I asked the question. I put a slide together that said, well, what happens if we see this this this arrow maybe going through a 100,000,000 barrels a day, but not by much and then coming back down because demand is going away because of electric vehicles, more efficient vehicles, changes in, you know, whatever it is, you know, public transportation, the whole thing, lots of forces. And it was just this real when I showed it, there was, like, nervous laughter. Michael has gone mad in the audience.

A few years later, it was Spencer Dale and BP showing an almost identical chart. It was, I think, it was it was 2020 or 2021. So 5 years later, and this has become maybe not orthodoxy. I think orthodoxy is now the oil peaks before 2040, but Spencer and BP were saying, could be, you know, this side of 2030, could be 2025. And yeah.

No. I think what but what's really interesting is, of course, the oil fields have a decline rate, particularly the nonconventional. And so there's always gonna be this this sort of how quickly does demand fall away versus how quickly do the oil fields fall away. And if the oil fields fall away too quickly, we'll have to ex we'll have to do exploration, and that will support the price. But, you know, it it's hard to see because demand, I think, once it tips, and it will tip, it's gonna fall away reasonably quickly.

It's gonna go down at sort of 2, 3% a year, 5%, those sorts of things. But you're right about not just Saudi, but everybody at that point is going to want to do to first shut off the exploration activity. Right? Because that could be, you know, producing stranded assets. You'll want to just chuck out cash, but you also want to use up the last barrel of your own national resource or the the last barrel of developed oil you will want to extract and sell, and that'll be the game between the different countries and different producers.

The issue for Alberta and any oil producing region is not displacement, it's disruption. Long before your market is your demand is destroyed, your market is destroyed, your market will be disrupted. Your business model will be disrupted. So you talked about volatile oil prices. That's one element of disruption.

Declining profit margins would be another. Tighter, climate, you know, regulations and policy would be another. And we're already seeing the beginnings of that disruption. We're already seeing it, and it's only going to intensify. And what happens then is those, producers who are not competitive, they go to government, and they ask for regulations to keep the the the competitors out, or they ask for subsidies because, oh, don't worry about it.

This is still cyclical. It'll come back in a couple years. So give us 1,000,000,000 of dollars now to keep us happy, and and you'll make it up in royalties and taxes in a couple of years. Well, of course, this is not a cycle. That's the point. And so disruption arrives a lot quicker than displacement.

But so, yes, the disruption does is is I went to interesting. I went to California, and we're talking about, like, 2007. And, you know, I was just limey out of London. I came, you know, the California. They knew, you know, their markets much better than I did.

And, and I asked them what they were gonna do when the the midday price of electricity went to 0. And they said, what do you mean? I said, well, because right now, it's all air conditioning load. It's the best time. And then you're making your money, all your utilities, you're making PG and E.

Right? They're all making that money midday by running when people run their air conditioners, say, yeah, but it's going away. You know? Winter winter is coming, not winter winter, but, you know, that lovely, juicy chunk of the day's demand is gonna go away. And they laughed at me, and they thought I was mad.

And, of course, now we've got the duck curve, and the prices go to 0 midday. And, you know, PG and E went bankrupt partly because of the fires, but partly because they just did not anticipate the disruption to everything they did. But, you know, it it it's it's it's brutal. When it comes, it's brutal.

And some of those technologies that were way out there not that long ago are now being adopted in California and other and other markets and stabilizing the grid, stabilizing, demand, you know, the the disconnect between supply and demand that happens with with variable resources. I I think that that there's lots of lessons there for for jurisdictions, across North America, and I'd be curious to know, what you think of them.

And, of course, only later you get the investigation that says, well, actually, no. A bunch of pylons fell over in Australia, or the piles of coal froze in, in Texas, or that they just, you know, shut down a whole bunch of gas fired power stations and so on in in California. And so there's a lot of learning about just, you know, not doing dumb things or being smarter about how you use the resources. There is also a lot of learn you know, the new technologies that that come in, and we've gotta see a lot more of that. So for instance, we're gonna see a lot more smart charging.

We gotta see a lot more you you started this segment talking about the grid, grid constraints. Right? We have this discussion. I don't know if it's happening in anywhere in Canada about, the so we have the Scottish energy minister. There's a huge amount of wind in Scotland, so much so, and there's not enough transmission to get it down to the big sources of demand in the south in, you know, in in England and in southern England in particular.

So it gets constrained, and we have to pay some of the wind generators to switch off. Ah, she says, we should use hydrogen blending because of the grid constraints. So when it's windy, we'll make hydrogen and we'll get it down to the south of the country, using hydrogen blending. And the the problem is the round trip efficiency of going from electricity in Scotland back to what you need, which is electricity in the in in the UK, is like 30%, which is basically, by definition, equivalent to 70% grid constraints. The real number is like 3%.

So, you know, we have we have these discussions about fake solutions. But, actually, if you think about it, what is the solution in that situation? Well, hang on a second. Why are we not giving away practically heat pumps in Scotland? Or in fact, we don't even need to give them away.

If we just let the electricity price in Scotland go to 0 or negative, we have one price across the whole of the country. It's completely mad, you know, instead of locational pricing. If we let the price in Scotland of electricity drop to 0 or negative when it's really windy, everybody will go out. They'll buy an electric car, and they'll buy a heat pump because 20%, 25% of the time, 10% of the time, they'll get free power. And so the need for these heavy regulatory incentives, subsidies, and so on actually reduces if you get the price signal through the system.

And so we're gonna have so it's a combination of what you talked about, the technologies, batteries, they get really cheap. Yeah. But they're useless if you don't have the price signal that says, charge the battery now, don't charge it now, use it now, vehicle to grid, smart charging, electric heating, and and so on. And and, you know, I I'm working right now with an incredible, heat industrial heat pump company. Right?

So, again, when the when it's really windy and sunny, make sure the electricity is really, really cheap. Get that price signal through, and people will upgrade to the technologies that are complementary and drive them down those ferocious cost curves.

And and as we, you know, as time passes, we get better and better and better at this sort of thing. And but that leads me to the issue of China. And I I said at the beginning that China was gonna drag us kicking and screaming into the electric age, and we haven't yet had a chance to really, talk about China. So let's do that. And maybe the way in is China is undertaking market reforms to do the very thing kind of things that you're talking about, and it's not quite yes.

It's an authoritarian country, and, yes, the national government has a tremendous amount of power more than it does in in democratic countries like Canada and the UK. Nevertheless, it has it has provincial governments, and it has local governments, and those all have to be coordinated, and they and they they you know, to make it work, they have to buy in and so on. And so they're struggling a little bit as well to figure this out and the role that coal will play, but they're figuring it out. That's the that's the whole point, and they're and they're adopting tremendous amounts of solar. Half of the solar every year in the world goes is installed in China, and they have all the factories to make, you know, solar panels at 12¢ a watt instead of 40¢ a watt in the US.

The hence my argument that China is gonna drag us kicking and screaming into the electric age. So your take, sir.

But it is sparing an enormous amount of money to be spent, to be invested, enormous amounts of talent to be absorbed. And, you know, it is it is clearly a marker, and it's by the way, it's much more about China than it is about climate. Right? The the support for in fact, you can't go as far as to say support, but it's just really noticeable that there just isn't much of a pushback. You don't have president, former president Trump saying, I'm gonna hang my electoral, you know, hat on repealing the inflation reduction act because it's popular.

But it's popular partly because of the climate impacts and so on, but a lot more because of the the the jobs and the fact that it is expressly targeting, the recovery of, you know, strategic national knowledge and supply chains from China. The EU is kind of stuck in the middle. They would like to play the big the great power games, but they don't have the federal budget that the US has or the control of its economy that China has. And so you've seen, you know, Germany tried to part had a budget. It was ruled illegal.

So a lot of sort of green programs have have been put on ice because of that. The EU has never had this huge central budgets. They talk a good game. I think they're gonna fail to meet a lot of those sort of huge targets. But that, you know so I think that's the key to the next, you know, decade.

I mean, you've got to also figure out then there's India. Right? India could also, enormously expand its, you know, wind, solar batteries, EVs, etcetera, etcetera. But right now, it's pretty dependent on China for its supply chains, and that's not an easy relationship. And then you've got Africa, this kind of sleeping giant of resources, which, you know, there's no solution to all of this without helping, you know, Africa to become wealthy and, and and to improve its governance and so on.

And, also, by the way, if Europe thinks that it can achieve its targets with an impoverished Africa suffering from climate damages and exporting millions of people a year illegally into Europe, forget it. So there's got to be a kind of Europe, Africa axis in all of this as well. Yeah. So I don't think it's just China, but, obviously, what China is doing is enormously impressive. The but the caveat is that there's also enormous misallocation of resources, in China, and this is something my my podcast, Cleaning Up, actually going out, tonight as it happens.

I've got an expert on China who unpicks this because, you know, it it's very easy to sit outside China and say, wow. Look at all those amazing spending. But, you know, there's a lot of it is misallocated. There's a lot of coal fired power stations being built that will have very poor capacity factors. There has been, until recently, a lot of wind and solar built that's been, you know, not connected for years years to the grid. So, well, let's I'm I'm giving you a couple of carryouts there.

Usually, what I say is that we've now kicked off a global clean energy arms race between China, the EU, and the US. And and others will draft in around those, as as as time goes on. Yep. And the reason I I frame it this way, Michael, is because and, again, you know, most a lot of the debate that I'm involved in is is in Canada and is between Alberta and other provinces, the federal government. And the there, Alberta has specifically and unequivocally adopted the OPEC model and the OPEC narrative.

And where OPEC makes a fundamental error, in my opinion, is dividing the world up into OECD economies and non OECD economies. So the OECD economies, they acknowledge, will will electrify. They'll adopt more wind and solar, and they'll electrify their transportation. Demand will go down, But then they say the non OECD, so we're talking about, you know, Latin America and and Africa. But Africa, particularly, that's where the the oil and gas is going to thrive, and that's where new demand will come from, and that's why they argue that it will the new demand will more than compensate for the the declining old demand, and we'll see growth actually out to 2045.

And I think that's wrong because we're going to to see those non OECD countries as they call them, actually adopt this really cheap technology electric technology, wind and solar, and all of the other stuff that goes along with it. And so what's your take on that?

Let's talk about, you know, the last stage we've kinda glossed over. Right? There comes a point where you wanna get to a 100% net zero decarbonizing. That's really, really hard, and that dominates the debate. It dominates.

Oh, you can't you can't do the the the Germans' Dunkelflauter, that sort of 2 week wind drought in winter when there's no solar. You can't do that with wind and solar because every sort right. Fine. But that's not an argument to do nuclear for the entire 365 days a year. That is a problem that is a couple of weeks per year.

And frankly, I don't care if you solve that with unabated gas for my lifetime, which is, you know, out till 2050, 2060 if I'm lucky. Right? And and then ultimately, we'll have to deal with it. But let's get to those kind of 7 60, 70, 80 percent decarbonization fast. That's the game in what as you know, coming back to your question, that's the game in the OECD is to get there really fast.

So you've got this this fossil, which is got fossil supply, which is gonna kind of shrink gracefully, ungracefully maybe in Alberta, but everywhere else, gracefully is gonna shrink down shrink down, seeding territory, declining as the as the the the wells decline, and as the mines are exhausted for coal, seeding that territory, going down to 40%, 30%, 20%, and then 10% might get really hard, but let's worry about that. My kids will worry about that. Our kids will worry about that. Now you look at well, what's the role of the the developing world, the non OECD? And that is very simple.

Leapfrog. Don't go to enormous industrialization based on 90% coal, 80% coal, 70% coal. They'd have to go to 60% coal and 50%. No. Figure out where the puck is going to be, to use a great Canadian analogy for all strategy that we ever try and think about in business.

Figure out where the puck is going to be, right, in 20 40, 20 50, and go there. That doesn't mean don't develop your gas fields. What it means is develop your gas fields if you're in Mozambique. Right? For instance, develop them by all means, but only use them as a backup resource because you're using so much cheap wind and solar, and, you know, whatever else they have.

They I think I suspect they'll have quite a bit of biogas and so on. Only use your fossil resources where you absolutely have to because, frankly, that's gonna be a source of competitive advantage in the future, not to be dismantling things and stranding assets and having political, you know, bun fights and inertia because the incumbents are trying to hold on to the the wrong resources as as is happening in in Alberta and across Canada, parts of Canada. So, you know, leapfrog, get away the puck is. That's I think what the game has to be in these faster developing developing countries. You know?

That that's not an answer for I don't know. There there are, you know, the slow developing countries, it it's a different game. There, it's just like, let's get electrification to people and whatever it takes and and deal with conflicts and so on. But the the countries that are growing fast, skate to where the puck is. Not to where the puck is going to be rather.

Trust me. So here's a an interesting point about the non OECD countries and the and the argument that you just made, Michael. And that is, China's belt and road initiative, which spends about a $100,000,000,000 a year, $1,000,000,000,000 over the last decade, is now 70, 80% focused on renewables. No more coal. No more building coal plants for the most part, in places like, this is never mind.

Can't can't think of an example offhand. That's changing. The Americans are leading an initiative whose name, and I think it's an an acronym, actually, one of those dreadful things, But they're doing the same kind of thing. And part of it for China is they have an enormous amount, as I mentioned earlier, of surplus manufacturing capacity. And if you have that, why would you not look for export markets?

This is a this is a a ages old economic strategy by by national governments. The Americans employed it after 1945 to get into places like Latin America to subsidize the adoption of your technology in other countries you with your your companies. They do it all the time. But we're gonna I think we're gonna see it speed up, and I think that is going to be an important stimulus to some of these non OECD countries adopting clean energy, maybe earlier than they might have.

Right? Because the rest of the world has resources that we need, whether it's the, you know, critical minerals for the transition, and, you know, for the to keep us wealthy during the transition. We're going to have to get those, and we're gonna have to also find export markets. All of us are gonna find those export markets around the the developing world, the sun the the the global south and so on. And I think that it's really interesting to see if if you if you agree with that sort of postulate that we're going to actually have to kind of win friends and influence people, you know, in the global south and so on.

How are we gonna do that? And there is one way that says, well, you know, we will just drop the environmental standards and we will just, you know, we'll just build, build, build, and we don't you know, we'll have low standards for corruption. We're just not gonna catch anybody being corrupt. You know, that's one model. There is another model, which is, no.

Actually, what we're gonna do is is, you know, try to do it with justice and with high standards. And I think that's a I don't know which one is going to win. Right? It's I I would love to think because I, you know, I I'm the product of a liberal democracy, a very, you know, sort of, you know, an economy that's based on a lot of, you know, intellectual property and so on. I would love to think that that the global south and those countries in the developing world want to be part of that and don't just take the shortest of shortcuts and that they protect themselves against the corruption or the short the the kind of low environmental standards, low labor standards.

But but there's gonna be a huge temptation to just go that route. And I think, you know, if you see it in the context of also what's going on with with Russia's invasion of, of Ukraine, you know, Russia is clearly trying to set this thing up as Russia being the champion of the non NATO world, the non western world. And and so there is a kind of an element of, of, I don't know, kind of Lord of the Rings. These become, you know, these become really important it's a really important battle to win. The the those countries become part of our sphere and are not lost to a a dictatorial, command economy, autocratic, low human rights, low environmental standards, I I very much hope that they kind of that they fall on our side and and, you know, and India is, of course, one of the most Africa is incredibly important for Europe as I've said, but India is a really, key sort of screen constituency.

You know, I want I want the closest possible relationships with India, you know, the biggest democracy in the world, and we should be, you know, working together to increase environmental standards and wealth and inclusion and, because, you know, it could be such an important sort of swing player in in our team. Right?