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Solar, peak oil and net energy

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Solar and renewables are being touted as the energy sources of the future, but will they provide enough power relative to the energy that must be invested in them? Engineer Graham Palmer argues there’s no easy solution to the fact that we’re running out of fossil fuels.

Canadian philosopher Marshall McLuhan once quipped that the last thing a fish would notice is the water. You could almost draw a parallel to the essential role energy plays in modern society—cheap accessible energy is now so ubiquitous that we barely notice the importance of it to modern living, nor the astonishing wealth it has brought. Just one litre of petrol provides the equivalent of a week or more of pre-industrial human labour. Having achieved this miraculous transformation, it is not likely that societies will voluntarily turn back. According to Joseph Tainter’s thesis, societies grow more complex in order to solve new social and environmental problems. And in order to coordinate this additional complexity, societies need more energy.

Neoclassical economists, however, assume that only labour and capital are important for growth—energy supply is assumed to be unconstrained since natural resources are a small proportion of national accounts. Indeed, the energy forecasts produced by the International Energy Agency and the IMF are computed from GDP forecasts.

It’s not at all obvious that solar provides the same value to society as oil and other energy sources; every one of the more than a million grid-connected PV systems in Australia could be turned off for a week and few would notice.

While neoclassical economics is interested in the functioning of market economies, ecological economics is grounded in the laws of thermodynamics, and takes the perspective that vast energy flows since the birth of the industrial revolution have been integral to economic development. Importantly, it takes energy and capital to drill oil wells, build power stations and erect wind turbines. The ratio of the useful energy produced relative to the energy invested to get that energy is known as the energy-return-on-investment, EROI, or sometimes ‘net energy’. It is the energy surpluses fossil fuels make available that have enabled the development of the modern state, with its advanced education, healthcare, welfare, and the richness and diversity of modern life.

But what if global net energy is on a downward trend? The EROI of the global oil supply is currently taken at between 10:1 and 18:1, and declining. Capital investment for the oil industry has tripled in the past 10 years, but production has plateaued. Oil supply is increasingly reliant on deepwater drilling, enhanced recovery and unconventional oil.

If we take the commonly quoted net energy figures for solar of somewhere between 10:1 up to 60:1—and still increasing—we might assume that PV (photovoltaic solar) is an irresistible ‘disruptive technology’ on an  assured  upward trajectory. However, it’s not at all obvious that solar provides the same value to society as oil and other energy sources; every one of the more than a million grid-connected PV systems in Australia could be turned off for a week and few would notice, nor would the electricity system reserve margins be adversely affected. Yet even minor disruptions to petrol supplies, natural gas or the internet can have a major effect on daily life. The curious thing is that the literature on the solar life cycle seems to readily accept these high numbers without probing what they really mean.

It is only recently that these figures have been put into a real world context. One of the foremost experts on the net energy concept, Charles Hall, and solar engineer Pedro Prieto conducted a comprehensive study of the large-scale deployment of solar in Spain. Coincidentally, I was researching a paper on solar in Australia, which was published shortly after. Prieto and Hall’s study was a bottom-up microeconomic analysis, while mine was an assessment of system costs and intermittency. Both of us came to similar conclusions on solar’s net energy; that it is between 2:1 and 3:1, much less than the most commonly cited figures and below the critical minimum threshold needed to sustain a complex society.

At the heart of the net energy issue are the guidelines established by the International Energy Agency’s solar program. The guidelines establish a consistent framework for life cycle analyses, but the results that are intended for comparing solar systems are being used to compare solar with other energy sources, leading to a gross overestimation of their true value to society.

Nonetheless, intermittent sources of power can still play a useful role in fuel savings, pollution control and emissions abatement, but at a cost. The real questions are what the precise role of solar is, what it contributes to society, and what value do we put on it.

To draw an analogy—if we wanted to compare the cost of car ownership versus riding a bike, we could compare purchase price, per kilometre running cost and even total system costs, including congestion. Clearly the bike would be much cheaper on nearly all measures. But most people will quickly spot the fallacy: even if you buy a bike to ride to work occasionally, the average commuter still needs a car—the bike supplements rather than replaces the car.

Similarly, it’s clear that solar adds to the energy mix without replacing conventional generation. Germany has seen a 32 per cent net increase in capacity over the past decade, most of it in wind and solar, but consumption has barely changed. Despite wind and solar contributing a greater share, we are also seeing an upward trend in coal-fired generation due to the dynamics of the energy and carbon markets. As the reluctant hegemon of Europe, Germany has far more discretion than most to implement its pioneering energy experiment, the Energiewende, which has committed them to a disruptive technological pathway. However, despite strong political, social and economic support since the 1990s, greenhouse intensity for electricity remains stubbornly high at 10 to 20 times the best performing European nations.

Related: Is the carbon tax to blame for high electricity prices?

Lacking the hegemonic discretion of Germany, Spain has issued 17 Royal Decrees to unwind their solar bonanza. These painful and unpopular legislative amendments are being called ‘taxes on the sun’. However, unlike other industrial transitions, such as coal, steam or railways that were able to bootstrap their own productivity gains to deliver increased national wealth, the Spanish solar revolution has proved a net burden on an already struggling economy.

This macroeconomic outcome is consistent with a low net energy, and aligns with Prieto and Hall’s case study. It’s important to recognize that when we buy electricity, we are really buying access to the grid and the associated reliability. This is a legacy of historically state-run electricity, when there was an informal social contract that those who used the most energy paid the most, even though utility infrastructure costs are mostly reflective of reliably meeting peak demand. Debates over the trade-offs between demand reflective pricing and average cost pricing date back to the 1940s and were eventually settled in favour of flat energy tariffs, which are still used today. The problem is that solar is supplying energy but contributing no reliability, hence flipping the traditional socialised model and ‘gaming’ the system. In Spain, as in Australia, there is no easy remedy to tariff reform, since any change will bring winners and losers.

The outcomes that we see in Germany and Spain—a growth in energy costs as a proportion of GDP, and declining electricity supply productivity—can also be caused by a peakier load curve due to the use of air conditioners, and overinvestment in electricity networks, both of which we have been seen in Australia in recent years. These outcomes provide a clue as to what we should expect with declining net energy.

On the other hand, there are some contexts where solar can make sense. For example, with around four hours of built-in storage, solar could provide a valuable network support role because Australian air conditioning loads roughly coincide with solar output.

However, from a global perspective, the idea that advances in energy storage will enable solar to take on a primary energy role is enticing, but misleading. Similarly, it is often assumed that solar can be incorporated into a ‘suite of renewables’ with smart grids and electric vehicles to achieve some sort of ‘optimised synergy’, but the reality is that this imagined synergy rarely exists. As John Morgan observes, the catch-22 is that in overcoming intermittency by adding storage, the net energy is reduced below the level required to sustain our present civilization.

While much attention has been devoted to facilitating the growth of intermittent power, arguably the more pressing challenge is coming to terms with a decline in the net energy of global energy supply chains, and rising demand in the developing world. Energy supply is highly correlated with human development, and one in four people globally still lack access to the most basic of energy services. A few solar panels provided by foreign aid to remote villages can make a great difference to people’s lives. But a modern urbanised society with schools and hospitals, roads and bridges, sewage and clean water needs a self-supporting energy system based on dispatchable energy with a sufficiently high net energy.

So, what of the future? Net energy is important because it is a foundational issue that underpins energy economics. Indeed, in a review of long-term trends in net energy, debt, and interest rates in the UK and United States, Carey King concluded that we may already be at a fundamental turning point in the history of cheap energy. This will have implications for the assumptions of economic and social development and long-run quality of life indicators. A wider appreciation of these issues is sorely needed.


15 Comments on "Solar, peak oil and net energy"

  1. Davy on Sun, 27th Jul 2014 9:53 am 

    This is something we have discussed over and over on this forum. IMO AltE Cornies have an unrealistic hope in nothing more than a FF extender. I wish it could be true. I don’t want to knock AltE importance just let us not have unrealistic hopes. Survival depends on rational mitigation efforts not fantasy. In a descent there will be little time and treasure for mistakes. False hope is just another example of a mistake.

  2. Kenz300 on Sun, 27th Jul 2014 10:47 am 

    Oil, coal and nuclear are the past………….

    Wind, solar, wave energy and geothermal are the future……….


    Renewables Provide 56 Percent of New US Electrical Generating Capacity in First Half of 2014

  3. steve on Sun, 27th Jul 2014 11:02 am 

    It didn’t have to be this way….if we had developed a society of very slow growth mixing in renewable with new nuclear technologies etc…but the fact that there is no mainstream acknowledgement of P.O makes me feel like I am in the Matrix….Liberals love to talk about climate change and how all we have to do is switch over to solar and stop fracking….all the while flying around in their airplanes and driving their autos everywhere…Conservatives just want to attack something…I know solar and wind will not get us there
    Our culture worships someone like steve jobs—-when future generations-if there are any— will curse him. I think bible is right societies have been collapsing forever, “the last shall be first and the first shall be last” “the meek shall inherit the earth”

  4. JuanP on Sun, 27th Jul 2014 11:41 am 

    Good article. My position on renewables is they will not save our bacon as a globalized civilization, but they are an essential part of my personal plans and preparations. Every person that can afford it should build at least a small system with PVs, a small wind gen, and some batteries. Even a small, second hand PV and one battery on a cart with corresponding charger and inverter can provide light, fans, and communications in an emergency at a very low cost.

  5. Joe Clarkson on Sun, 27th Jul 2014 3:22 pm 

    “Debates over the trade-offs between demand reflective pricing and average cost pricing date back to the 1940s and were eventually settled in favour of flat energy tariffs, which are still used today.”

    While this statement may be true in Australia, it is mostly false in the United States. Here the trade-offs were encountered early on in the history of electricity supply and were settled by incorporating demand and energy metering for all but residential users, who use only about 1/3 of all electricity consumed.

    In most of the US, all non-residential solar producers are paid only energy prices, never demand or “capacity” prices, so they are only paid for what they supply, intermittent energy. Some gas fired peaking plants are paid handsomely for what they supply, namely lots of capacity and very little energy.

    While residential solar can be a headache for utilities due to its reversal of energy direction of flow (and subsequent impact on voltage management), much of residential solar offsets utility peak loads (from air conditioning) and does indeed provide some capacity value to the utility.

    The whole question of intermittency would become moot if residential consumers were metered for both demand (capacity)and energy like everyone else. This is easy to do with modern metering.

  6. meld on Sun, 27th Jul 2014 3:27 pm 

    renewables will be great for those that can afford them. It’s all about getting them at the right time, as in just before we run out of energy to produce them and that they are at the height of efficiency. Renewables will still of course be powering flour windmills and solar ovens well into the de-industrial future. Someone somewhere may even have electricity but without anyone to manufacture the lightbulbs or Tvs it’s going to be next to useless.

  7. Joe Clarkson on Sun, 27th Jul 2014 5:50 pm 


    With enough spares of critical equipment, it should be possible for an off-grid homestead to keep electricity around for about 50 years after the beginning of the de-industrial future.

    And just think of how many light bulbs and refrigerators there will be in all those millions of houses emptied by starvation. At a household level, the truly valuable uses of electricity are lights, refrigeration, a washing machine and perhaps power tools. All the rest is fluff.

  8. Tom S on Sun, 27th Jul 2014 7:09 pm 

    In my opinion, the calculation of ERoEI for renewables is just mistaken. In fact, renewables have a higher ERoEI than fossil fuels.

    Peak oilers are tremendously exaggerating the ERoEI of fossil fuels, because they do not count the massive energy losses (50-85%) which are incurred as waste heat from combustion engines, when calculating the ERoEI of fossil fuels. They also do not count the incidental costs of fossil fuels such as security costs, carrier groups, and so on. When such factors are counted, the ERoEI of fossil fuels is MUCH LOWER than that of renewables.

    I just wrote an article about this, which can be found here:

    -Tom S

  9. bobinget on Sun, 27th Jul 2014 7:12 pm 

    Our electric utility, Pacific Power sent out an on-line questionnaire to those of us who were solar/grid-tie connected. While completing the survey it struck me,
    PP is fixin to ask rate-payers to kick-in for small,
    almost neighborhood PV solar power stations of the sort being marketed by ‘First Solar’.

    In exchange for financing new solar arrays we, the rate payers would be able to obtain federal and state tax
    incentives. On the surface this makes good sense as
    renters, condo owners and other multi unit home dwellers can’t erect their own PV systems if they wished. If this plan goes ahead even renters who now get no tax deductions would be able to participate.

    From the electric utilities POV they get almost free
    new solar units placed in high growth, high income
    neighborhoods much like a ‘sub (or sun) station’.
    Poor neighborhoods won’t get doodle but will pay never-the-less. In fact, most ‘sub-stations’ are already devoid of trees and are spotted where demand is highest. I’ll bet the first PV power ‘plants’ are simply erected on or over existing utility grounds.

    We see Florida power and Light has also erected several hybrid PV/NG power stations, though I’m uncertain how they are financed .

    Perhaps Joe Clarkson is forgetting about the game changer that is the internet. Uses lots of energy but saves much more.. Fluffy indeed.

  10. Davy on Sun, 27th Jul 2014 8:05 pm 

    Tom, your response is too general because I ask which FF’s are you comparing. The good sweet light Crude oil rising under its own pressure or large high quality seam of coal close to the surface or what we see today in Alberta tar sands. I think a point that AltE folks cannot explain away is any of the AltE that have significant power potential are complex in nature. Complexity is energy intensive. Complexity is also more than just energy intensive it is multiple energy type intensive. You need liquid fuels and electrical power generation to run organizations, networks, and distribution. When one considers the embedded energy in complexity of the lifecycle of AltE such as solar or wind the eroi has been eroded significantly. This is just as true of FF and something Short here on this forum speaks about regularly. In a global interconnected world at limits of growth facing diminishing returns to complexity we find we are in a losing battle to entropic decay. We can never out run the laws of thermo dynamics. We started out with a lead in the race but are slowing down quick as we burn through the best saving the worst for the last. Too bad it was not the best for last.

  11. Makati1 on Sun, 27th Jul 2014 8:11 pm 

    Interesting that the US imposed huge tariffs on Chinese and Taiwanese solar panels because they were cheaper than those made in the US. Now there is a 26% to 42% added cost for the American consumer. Boomerangs anyone?

    “…China’s crime? Subsidizing clean energy. The United States can’t abide governments meddling in the energy market in an attempt to make solar panels more affordable. Except, you know, when we’re the ones doing it…”

  12. Kevin Cobley on Sun, 27th Jul 2014 10:45 pm 

    Poor old Graham, he thinks that the great benefits of the fossil fuel society can continue to run because we wish it too.
    Graham we will be forced by the unarguable situation that fossil fuels are FINITE, therefore supply of them MUST end.
    The “NEED” for the “SUPPLAMENTARY” car will end when the price of fuel can no longer be afforded by the commuter, as will the “NEED” for electricity when the cost (coal fired electricity requires oil to get the coal and move it to the power station) is too high for the average user.
    I’m 59 and it’s quite clear that within “MY LIFETIME” motoring, flying and wasteful use of electricity will end.
    If we use the next 20 years wisely we will build public transport/shipping infrastructure, building much smaller and efficient housing built into a much more walkable denser layout too allow cycles and walking to be our transport.
    It’s quite clear that if we move to a largely renewable system we will also have to consume much less energy (it will be more expensive and may not be able to supply 100% of peoples “DEMAND” at certain times) but that will be the price of the past wasteful consumption of energy for “COVENIENCE”.
    Graham may be right in saying the society we have now cannot run on renewables, we are just going to have a “NEW SOCIETY” that can run on a lot less.
    It’s just a question whether we continue to squander our remaining cheap energy to attempt to continue an unsustainable lifestyle and just fall into a dramatic collapse when the energy supply ends abruptly or spend the last of our fossil fuels wisely to build some sustainability into our economic system.

  13. Arthur on Mon, 28th Jul 2014 2:52 am 

    Not again some Australian engineer refering to that Spain book of uncle Charley Hall. Has been debunked here several times. See for instance my posts here:

    That Spain book was based on oldfashioned crystaline silicium panels, with calculation mistakes on top of that.

  14. Arthur on Mon, 28th Jul 2014 3:52 am 

    Undeterred by the stories from uncle Charley, the Dutch households with solar installations increased from 125,000 to 185,000 in one year time. 6.5 million more households to go. Mind you, the Netherlands are among the slowest to adopt solar energy in Europe; Germans, Italians, Spaniards and Czech are much faster.

  15. Kenz300 on Mon, 28th Jul 2014 10:28 am 

    There are safer, cleaner and cheaper ways to produce energy than using fossil fuels.

    UK Supermarket To Use Food Waste To Power Itself

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