Will global energy drought herald a future of surplus?

Our energy system is built upon a mountain of waste. Believe it or not, that's a good thing.

Look at the journey that power takes to your plug socket from its original source, and you'll find excess and overcapacity every step of the way. All electricity grids are designed with a reserve margin - some 10 per cent or so in excess of expected peak demand that can be called on in exceptional circumstances to prevent blackouts.

Before that, the coal- and gas-fired generators are also oversized, functioning barely half the time at present and only 70 per cent or 80 per cent of capacity when they weren't competing so hard with renewables. The fuel that powers them also derives from operations that run with a lot of slack, with US oilfields traditionally running at between 90 per cent and 95 per cent of capacity and coal mines at 81 per cent or so.

All that oversupply provides a useful function. When power demand runs ahead of forecasts, the surfeit of capacity can be readily called upon to provide additional electricity at short notice. That's precisely what we're seeing right now: The surging costs of Chinese coal, European gas and global crude are the symptoms of an energy system using high prices to incentivize additional supply when and where it's most needed.

For all that zero-carbon power is likely to win the long-term race to meet the world's energy needs, this gives fuel-based energy a substantial advantage. A new wind or solar farm (let alone nuclear plant) simply can't be built in a timeframe comparable to what you need to produce an extra gigawatt-hour from hydrocarbon fuel - not to mention the matter of days it takes to ship that fuel from an oversupplied storage tank in Europe to an undersupplied one in Asia, or vice versa.

The current problems facing the world energy system are, as the International Energy Agency said this week, fundamentally about the widespread dislocations you'd expect as we awaken from a once-in-a-century pandemic. As such, they won't hold back the switch to zero-carbon power. Still, they're a timely reminder that an energy system based upon a fungible, global fuel trade is a huge asset in trying to balance out fluctuations in demand between regions and seasons. That's a characteristic that future grids will need to reproduce to reach net zero.

There are several possible ways of addressing this, and none are ideal. One option is to make use of national and international electricity transmission lines to shift power from one region to another. That's the promise of proposals to link India's grid with ones in the Middle East and Southeast Asia, or to power Singapore with renewable electricity from the Australian outback. Running such links over large distances through deep oceans pushes the limits of our engineering abilities, however. On top of that, you face challenging geopolitics wherever, say, an Indian power line needs to pass through Pakistani territory.

Alternatively, the existing fuel market might be recreated in a low-carbon form. We could use renewable power to produce hydrogen and ship it around the world, either in elemental form or as ammonia - but either process would result in huge efficiency losses from converting the gas into and out of a transportable form. Alternatively, if carbon capture and storage can be made to work, you might continue to use existing fuels and remove the greenhouse gases from smokestack emissions - but that, like green hydrogen, is a costly and untested technology, and more low-carbon than zero-carbon.

Such systems will almost certainly be needed as a backup. The most important element, though, may be to recreate the inefficiencies of the current fossil-fuel energy system in the new zero-carbon one. Among renewable developers, "curtailment" - the situation where so much energy is being produced from wind or solar that the grid can't accommodate it, and the electricity is wasted - has traditionally been a dirty word.

Still, some energy modelers have started arguing that massive overbuilding of wind and solar power - constructing so many plants that even a collapse in supply or surge in demand isn't sufficient to tighten the market too much - may prove the cheapest way to build a zero-carbon grid.

If so, the future that we're looking at isn't the one of constrained energy supplies that the current record prices for coal and gas is suggesting, but instead one where power is so abundant that we barely know what to do with it. If you want to recreate the virtues of our current inefficient power system, building in a little deliberate inefficiency into our future may be the best way to do it. (Bloomberg)