Our top 7 Energy Transition Myths 

Ecofin has been dedicated to the Energy Transition for more than 10 years. Our experience has taught us important lessons – and we have also watched the world adapt to the effects of climate change. It’s brought progress (and cost declines) as well as tension on a global scale. Today, there are multiple spheres of influence driving the mitigation of climate change. These forces are not static, they are evolving, and equally, they are non-linear. As far as Energy Transitions go historically, this one is proceeding rapidly. Buckle up!

But with all that change, it’s brought confusion, exaggeration, and scepticism. We thought it was necessary to highlight the top 7 Energy Transition myths we hear.

Watch as Greg Murphy and Matt Breidert discuss each of the Top 7 Energy Transition Myths

MYTH 2:

The grid cannot handle the increased power load from an EV fleet conversion

Another often-used remark against EVs is the grid’s inability to sustain EV power demand. We believe the system could handle the increase in power demand. With 100% light-duty EV penetration in the U.S., there would be an approximately 20% increase to overall annual electricity consumption*. This transition would likely happen over 15-20 years, but is within the current system design for most local / residential grids. Our belief, is electricity demand growth will be fed by additional renewables capacity and ongoing upgrades to accommodate changes in the location of demand, including at-home charging. The symbiotic relationship between at-home charging and on-site rooftop solar infrastructure should boost deployment and smooth the impact of rising electricity demand.

One thing is clear: we have entered a multi-decade power demand growth cycle toward reduced costs, reduced wasted energy and improved efficiency.

*Source: US Energy Information Agency & Barclays Research

MYTH 3:

The physical land required to build all the renewables we need to reach net zero is lacking

In its Master Plan Part 3, Tesla recently published an astounding graphic leveraging data from two U.S. laboratories illustrating how little land area would be required to convert our entire economy to renewables. Tesla cited that the global solar panel fleet would require approximately 0.19% of global land area, while the global wind turbine fleet would require approximately 0.02% of total land area. While we believe these figures may be a bit unrealistic, as they do not assume location distribution nuances, they vividly illustrate the inaccuracy of land space limitation claims.

MYTH 4:

There are not enough rare earth metals and precious minerals available to make the Energy Transition happen

One common misconception regarding renewables surrounds rare earth metals; in fact, rare earth metals are not widely used in solar and wind technologies. Wind and solar primarily use basic materials such as concrete for wind and silicon metals for solar panels. None of these materials have any possibility of shortage over the next 20 years.

EVs, on the other hand, do use the most exotic minerals of all the major technologies surrounding the Energy Transition, and some do utilise rare earth metals. Another busted myth is that rare earth metals aren't actually rare. With most of these metals, the issue is not finding them, but quickly ramping production of them in supply chain friendly geographies. However, market share for these exotic materials is receding, innovations are increasing, and market direction is positive as Tesla announced its initiative to remove rare earth metals from its EVs.

MYTH 5:

Renewables have a higher life-cycle carbon footprint vs. traditional energy

Decarbonisation is synonymous with the Energy Transition and is therefore essential to Ecofin’s investment philosophy. Renewables’ ability to avoid emitting carbon into the atmosphere is fundamental to global decarbonisation initiatives. At Ecofin we find Myth No. 5 to be potentially the most farfetched item on this list. We find it challenging to take seriously, but in the spirit of this article, we will gladly debunk it.

Some pundits claim renewable energy has a higher life-cycle carbon footprint than traditional energy due to the emissions stemming from the construction, operations and disposal of renewable assets. The chart below highlights the amortisation, or time needed, for various energy sources to offset the power required to make and operate it. As you can see, this concept never occurs with traditional energy. Amongst renewables, solar takes the longest but it only clocks in at two years. Even if renewables are assumed to be constructed and operated 100% by fossil fuels, they would offset those emissions in short order.

Furthermore, technology innovations and efficiencies are improving such that the carbon footprints for renewable assets continue to decrease. Examples include decarbonising steel and cement and recyclability initiatives as well.

The lifecycle CO2 emissions of medium segment battery electric cars produced in 2020 and used for 250,000 km would be between 38% and 85% lower than those of equivalent internal combustion engine (ICE) vehicles. As electricity grid emission intensity decreases in the future, EV lifecycle emission becomes increasing more attractive relative to ICE vehicles.

MYTH 6:

Republican states will be slow to embrace the Energy Transition

Interestingly, thus far, in 2023, the pace of annual renewable installations in Texas is 4x what it was in 2013. In our opinion, it is reasonable to estimate that wind will move to 36% and solar to 20% of market share by 2030. These increases in market share will begin to erode natural gas consumption. The exhibit below demonstrates this dynamic in Texas as gas remains stagnant, coal diminishes and renewables ramp up, with more than 40% of Texas power coming from carbon-free sources in 2022.

Texan Republicans are not pleased about these nuances and are starting to fight back, with Senate Bills 6 and 7 (having just passed the Texas Senate) designed to subsidise natural gas power plants as dispatchable backup. Industrials, co-ops and a host of environmental groups are fighting this.

Further, across the U.S., the “EV Belt”, which is a group of states that manufacture EVs and batteries, are nearly all Republican or red states. Take that Myth No. 6!

MYTH 7:

Renewables build-out will destroy power prices

Myth No. 7 is the only myth we will not debunk in this editorial as the mountain of renewables is likely to put downward pressure on power prices.

In many places, decarbonising power grids have interrupted traditional energy affordability and market pricing mechanisms however, renewables remain the most cost competitive form of energy and their cost profile is only improving.

As power grids transition to renewables, power prices could be severely impacted. We believe a migration to long-term contracting and average-cost rate making (with prudency review) could alleviate substantial power price volatility. The focus should be on a system level policy design that considers both costs and reliability, taking into account issues relating to transmission bottlenecks, renewables intermittency, electric vehicle penetration and emissions reductions goals.

We hope it does not take a crisis for policymakers to evolve the current system to account for the complexity added by intermittency and the zero marginal cost nature of renewables.