Renewables can power society, just not this one.

The energetic productivity problem. Adding low productivity energy systems. Can arts and culture survive? Will debt become unsustainable and collapse the economy?

The general conversation about energy both in New Zealand, and globally, is just that we need more of it.

This is not wrong, to sustain even modest levels of economic growth of around 2-3% per annum will require a doubling of net primary energy in less than 30 years.

Industry pundits and politicians alike make much of the fact that here in New Zealand we have abundant resources, that we are the Saudi Arabia of wind, and we just need to flood the market with wind and solar.

But is this narrative actually correct?

Can we move to lower productivity energy systems and not collapse the economy?

Energetic productivity:

What do I mean by energetic productivity?

Energy system productivity can be assessed by the surplus it creates, or in comparative financial terms we are more familiar with, the rate of return.

All energy systems require an initial investment of energy to harness. This initial investment is in infrastructure. It could be building a dam for a hydro scheme, manufacturing solar panels or drilling a gas well. How much energy that initial energy investment returns, and how long it returns it for, are the metrics by which the productivity of the system can be evaluated.

This is typically referred to as EROI (Energy Return on Energy Invested) or ECOE (Energy Cost of Energy).

Essentially this is a measure of the surplus an energy system can provide. A system with a low EROI provides less energy relative to what was required to develop and maintain the system, or in other words a lower rate of return.

Noting that the EROI of a specific system, in a specific location, can vary a lot and is the subject of much debate. However, for the purposes of this discussion we should recognise that the EROI of various systems will be somewhere within a fairly standard range. For example, coal will be somewhere between 25:1 to 35:1. In some locations it could be as low as 20:1 if it is difficult to extract and low quality, or inversely in the early 20th century high quality coal could be mined at the surface with an EROI of about 50:1.

The chart below shows some typical EROI values for various systems, again noting that for specific instances in New Zealand these will be different, but still within these general bands.

You can clearly see why NZ’s hydro schemes have been so beneficial, a reasonable up front energy cost but hugely productive with relatively low maintenance and a very long lifecycle.

Note - EROI is tricky as a metric, it can be manipulated by changing the start and finish points of analysis. Many will immediately jump onto google and find claims that offshore wind has an EROI of 35. These sorts of numbers only cover the wind farm itself and likely overestimate the lifecycle. They don’t include backup or the implications of putting that much intermittent generation into the grid in terms of the additional infrastructure this requires. Similarly, you can make the EROI of nuclear look really poor if you use a bespoke design and fabrication costs plus a short life span of say 40 years.

The interface of energy and the economy:

Modern life is full of abundance that it has in a lot of ways allowed us to decouple ourselves from biophysical realities.

We have developed myths, narratives and social structures that orient our daily lives around the flows of money. It’s always about the economy, “going for growth”, house prices, or the cost of living.

The energy flows that underpin the economy are so ubiquitous as to be essentially invisible. We give energy little thought other than when we fill up the car or get the power bill in the mail. Even then we see it in dollar terms only and have no concern for the inherent properties it possesses. Our economic system see energy as just one of a thousand other commodities.

Our expectations for the future center around the economic assumption of ongoing growth, asset appreciation and a comfortable retirement.

Our global institutions such as the IMF and World bank produce macro-economic forecasts that assume continuous productivity gains.

The forecast projections for GDP and inflation produced by New Zealand’s economists assume energy is always cheap and abundant, so much so that energy does not even feature as a variable in the standard economic model they use called the Cobb-Douglas production function.

The biophysical reality is far more energy centric.

Energy “IS” the economy.

The interface of energy and society.

It’s not just the economy that is energy centric; it’s also society.

Since the industrial revolution, bought about by coal powering the steam engine, we have gone from hundreds of professions to tens of thousands. Arts and culture for example have flourished and become accessible not just to the gentry but also the commoner.

This is a direct result of EROI and energy surplus. There are a few studies on this like the one below that suggest that a minimum EROI of 14:1 is required to support a society with arts.

If you like music, gigs, movies and theater then you like any energy source with an EROI higher than 14. With the caveat that this study is a few years only now and 14 is likely closer to 20 these days.

Energy vs money:

Money is essentially a fungible token used to make a claim on biophysical resources. Money is in essence a claim on energy.

What do I mean by this?

The main component of any good or service is energy. The energy to extract materials, the energy to process materials, the energy to manufacture, the energy to distribute, the energy required to provide a service.

Ultimately the economy is a surplus energy equation. As surplus has increased with the addition of ever higher energy density fuel sources, which provide increasing amounts of energy for each unit of energy invested, or surplus, the economy has grown.

The increasing surplus these sources provided allowed the economy to do more work, which manifests in increasing economic productivity and financial returns on investments.

Lower Surplus Systems:

The energy transition is predicated on the idea that we will increasingly move to energy systems dominated by renewables such as wind, solar and biomass that have the following general characteristics.

1. They harvest low energy density, highly disperse energy sources.

2. They therefore require much more infrastructure.

3. Increasing the amount of infrastructure increases the complexity. Complexity results in lower efficiency due to cumulative incremental losses being distributed over a larger system, and the requirement for complex control arrangements.

4. Increased infrastructure also means more maintenance across a larger and more disperse asset base.

5. Intermittency means that the distribution system needs to be overbuilt for surge capacity, which also infers more complexity and more maintenance.

6. Intermittency also needs to be backed up either in the form of storage or dispatchable sources. As these backup sources are not always required their utilisation is low. This further increases the infrastructure required in the system and by association the maintenance.

7. Shorter productive lifecycles of around 20 - 30 years result in a higher ongoing recycling requirement and a greater percentage of the system surplus having to be regularly reinvested in replacing the system.

What this means is that we will have energy systems that inherently produce less surplus, while simultaneously requiring a greater percentage of the surplus produced to be reinvested into maintaining the system.

This results in less surplus with which to expand economic activity. This scenario is not compatible with economic growth.

The debt problem:

With money being a claim on energy, debt is therefore a claim on future energy.

In a business sense debt is typically issued to fund capital expenditure in order to increase productive capacity. It could be a bigger factory, a faster machine, a second shop or more land.

Bigger, faster, and more are all adjectives predicated on increasing demand underwritten by ongoing growth. These concepts also all require more energy. Even investing in efficiency paradoxically leads to more energy use by increasing production, this is known as Jevon’s paradox.

When our energy system provides less surplus, as a result of having lower EROI than the system it replaces, the unyielding laws of thermodynamics determine that things can’t grow and have to get smaller, slower and less. Which is fundamentally at odds with servicing private and public debt.

As an analogy to highlight this point consider an after-school lawn mowing business that starts out with a manually powered push mower. Things are going well, and our budding entrepreneur takes out a loan to buy a petrol-powered ride on lawn mower. Many more lawns can now be mown, and the increased revenue stream is both servicing the debt and increasing the profitability of the business. The energy surplus of going from manual labor to petrol has resulted in economic surplus.

Now, imagine that our young entrepreneur is no longer able to get enough petrol to run the ride on and must revert back to the push mower. The debt still remains but the energy system now has much less surplus. The protagonist in our story now cannot physically mow enough lawns to service the debt.

Debt is a claim on future energy. It assumes that if I borrow now that I will be able to make claims on the energy system in the future, and that the productivity of the energy system will be greater than it is today, allowing me to pay back both the principle and the interest.

Debt by definition relies on future growth.

If high-EROI fuels are phased out, and society transitions to lower-EROI renewables (like solar, wind, and biomass), then:

• More energy must be allocated to just maintaining stability rather than expanding economic output.

• More labor & capital will be directed toward energy production, reducing surplus energy available for non-energy sectors.

• Economic complexity will need to be simplified, because maintaining high-complexity, high-energy economic and social structures without high surplus energy sources will be increasingly difficult.

Simply put, if our energy systems have lower EROI economic growth will slow, then decline, making debt impossible to sustain.

Going for growth:

Inversely, more energetic surplus leads to higher productivity enabling more goods and services to be produced, supporting wage growth and investment returns—both of which help repay debt.

It is for this reason that the “going for growth” slogan has been rolled out from the government.

There is however a trap here. Investing in energy systems that reduce the overall productivity of our energy system will not provide long term growth. It will produce the opposite; it will produce a deep and endless recession.

As I have noted before our selection criteria for energy systems is far too narrow. We focus only on emissions and ignore physics.

Thermodynamics is ruthless referee; it does not care about energy illiterate slogans.

The effect of lowering the overall system EROI on the economy and society is conspicuously absent from the discussion around energy systems in New Zealand. When I have had this discussion with some of our industry leaders it just ends in a shrug of shoulders and a comment that it doesn’t matter as long as its economic. The irony being that things only appears to be economic in the short term and IF the economy grows.

I would also add that if subsidies in the form of tax incentives, contracts for difference or curtailment pricing and needed then that’s a red flag about the economics.

Wide boundary analysis:

The bigger picture is that the EROI of coal, oil and gas, which make up around 80% of global net primary energy, is also decreasing with depletion. All the easy to get, inexpensive stuff is gone. It gets harder each day to extract and requires more energy.

How we respond to this will be the challenge of our time, and I would argue it is starting to manifest itself already. Trump’s energy dominance policy, ongoing Russian conflict, China’s interest in Africa, BRICS, and economic gloom in Europe can all be attributed at least in part to quest for more energy to sustain growth.

The reducing EROI of our current global energy mix has the potential to upend everything and create a very different future from the one we imagine.

Thanks

Larry

P.s. Not all “renewables” are created equal. I’m a big advocate of hydro and geothermal because the inherent properties they possess are compatible with modern life.