 We're live here on Energy Wednesday and we're talking about energy in America today with our bi-weekly show with Lucy and Punyarisi of EPRINC, which is what's the extension on that acronym? Energy Policy Research Foundation. Okay, Energy Policy Research Foundation. And he's in Washington DC studying energy 24 by 7 trying to figure out where we're going on all this from a national point of view. And today we're going to talk about understanding the pricing risks of renewables, which is a complicated area, an area that requires a think tank like EPRINC, and the requires, of course, a discussion of all the elements, including fossil fuels. What have you got to say about that, Lou? So I think the first thing we want to talk about, if you think about Hawaiian islands, they have traditionally generated, oh, well over 80, 90 percent of their electric power through the combustion of heavy fuel oil, crude oil, sun coal, and then occasionally some refinery gas, I presume, but not too much. And so one of the things, I think one of the motivations in moving the electric grid in Hawaii off of fossil fuels is the view that it became too expensive. And it was quite expensive. But this was during a period in which there was a revolution in not only the U.S., but worldwide in the availability of oil and natural gas supplies. So the first part of this discussion today is, and I have a couple of graphs we can look here, is to look at what's happening to U.S. supplies particularly, and what that means to the long run price of crude oil. You know, it's interesting that, you know, here in Hawaii, we've all committed, you know, I mean, some people, they've committed to the last morsel and fiber of their body to renewable energy. It started out in the mainstream at 2008 or so, and we all decided we're going to go to renewables, although it's a little vague about exactly how and when. And since that time, you know, it hasn't really settled down. It's still a little vague about how and when. Although we do have, you know, a target date of 2045 and 100%, and nobody yet knows exactly how we're going to reach it. In the process, it's very interesting. I'd like to mention this, you know, for your interest. In the process, we started out with renewable green energy. And a year or two later, the public, the press, the industry was talking about cheap energy. And people began to get the notion somewhere along the line. I'm not sure how it'd be interesting to go back through the media and find out where this came from. They got the notion that well, if it's green, it must be cheap. Renewables are so good. They're so terrific. They must be cheap. They must be cheaper than fossil fuel, which is wrong. That's wrong. Everybody, I mean, I knew that at the time. And so here we are, charging down, you know, this highway of going to, ostensibly going to 100% renewable by 2045, with the public expectation that it's not going to be expensive. That it's going to be cheap. Their renewables will be cheap for us. And the reality, though, and I leave it for you to dwell on this, the reality is new technology, new infrastructure costs money. And at the end of the day, the consuming public has to pay for that. So query then, are we just talking about the cost of fossil fuel, which I'd like you to describe what the trends are. But we're also talking about infrastructure, which so there's two factors in moving from fossil fuel to renewables. Yes, so I think there are two factors. The question is what the alternative is, which is our understanding from a policy point of view in throughout the state of Hawaii. The use of fossil fuels is, I don't know if it's completely off the table, but the view is that we just don't want to go there from a policy point of view. It's very important to understand the costs of that strategy. And that strategy of going 100% off of fossil fuels is likely to be expensive or extremely expensive, depending upon what the cost of fossil fuels are, and also the pace at which we deploy the renewables. And we have a simple rule. Inexhaustible does not necessarily mean inexpensive. That's what you just discussed. And we do know that when the grid gets to about 10 to 15% of renewables, our nondispatchable power, it then becomes quite costly. In fact, if we look at the Netherlands and Germany, they actually have electricity rates, which are competitive with Hawaii. And that's because they have very high renewables. And people say, why is that the case? You know, why does a high, these renewables, the wind is free, right? I mean, the wind, the solar, but these are intermittent sources. They're not available 24-7. And so we know the following things. We get grid problems around at very low levels, like very low levels of renewable penetration. The lid appears to be somewhere between 10% and 15%. And even if there's no workarounds, you have to dump it. So in the middle of the day, when the sun is shiny, the grid can't take all the power. It has to be dumped. And when all costs are considered, and that you really end up with having to fix the problem of storage. If you don't have a storage solution, the renewables are likely to be more expensive than a dispatchable source, such as fuel. Yeah, but let me let me let me throw this in the mix, though, Lou. Um, you know, there are those who say, and maybe to some extent, those who are actually doing it, who are creating storage capability, that's beyond anything we would have imagined five years ago. And then there's this graphene thing about, you know, batteries, graphene and new technology, which is not on the market yet, but hopefully will be, which makes batteries more responsive and more high capacity. And on top of that, you know, you get, you get smart grid technology that allows you to minimize the dumping you were talking about. This has been a real problem, especially in wind, which is, you know, not really dispatchable, and solar, which is not dispatchable. We have geothermal, which is dispatchable, and maybe some other technologies will come along that are dispatchable. But for the most part, we don't have dispatchable, and we have to rely on these new technologies. But I offer you the possibility that in the next five years, maybe, I don't know if this is soon enough, or 10, we will have technologies that deal with storage and dispatchability and, you know, dumping. So we, we very likely will, I don't know. I mean, I think this is a quite, it's hard to forecast the pace of technologies. I mean, we know that we had, we've got a lot of money on biofuels in the US. And that really didn't work out. It just turned out that the fundamental chemistry and physics of biofuels in terms of the bang for the buck, it just wasn't there. And then the lower cost of traditional fossil fuels have made them very tight. We've been working on batteries a long time. I think we will make progress on batteries. But one of the things you don't want to do is you build out the grid, is get ahead of the storage problem. I mean, the, the consumers in Hawaii are going to be very unhappy if they go forward with a program of very, of sort of high penetration of renewables for which the storage technology is not keeping up with it. That's the real problem. Yeah, you don't want to get ahead of technology that actually exists. You don't want to work on dreams. And you know, these, the research in California, if you look at California, even at 15% now in California, their only way they get out of that is they can dispatch electricity from neighboring states. This happens routinely in California. In Texas, they're running about 10% renewables. It's almost all wind. The solar is very poor performing. But in Texas, they had to spend $2 billion on the grid to get to that level. And they don't do any net metering in Texas. You cannot sell your power back into the grid. Now, I agree. We need to get a smart metering. If we can get some storage, we can use available storage and then home at a later electric cars and all this can help. But it's really important that policymakers cost this out in a very careful way. They keep a close eye on it. Well, can we talk for a minute about how fossil fuels are doing? Yeah, they were down to $40 a barrel. Now it seems like they're creeping up and maybe they'll be up a little higher. How is that going to play out and how is that going to affect the choices that utilities and governments have to make? Yeah, so I think if you look at the forecast, I think there's a couple of charts there. Yeah, let's put some of those charts up. Let's put some of the charts up. And I think that the first thing is that the U.S. oil and gas resource base was remarkably resilient, even under very low prices. And we were producing as much as 9.5, 9.7 million barrels a day. And it dropped when prices got down to $25 or $30 a barrel. We lost about a million, between a million, maybe a million and a half barrels a day. But what we're able to do, what it seems quite clear now, with the small increases in prices that have taken place, the U.S. has already seen an uptick in rig activity. And if you look at a range of prices, say between $45 and $65 a barrel, you get a range of production in the U.S. in 2022, a very short period of time, of four million barrels a day. And so if you think about the problem in reverse, this means that if the price of oil starts to creep up, 60, $65 a barrel, a lot of oil is going to come on the ground. That's going to act as a cap from keeping prices to go up. Now we're looking at these charts. I don't know if you can see them as we look at them. I can't see them. Okay, well, let's go to the first one we were looking at a minute ago. So we get some, you know, concept there. This is slide four that you sent. And it's the University of Hawaii Economic Research Organization. It's entitled Estimated Price Per Kilowatt Hour Towards Fixed Costs. Okay, so let's go to that one. That is the window. So of course, the state of Hawaii did impose a dollar per barrel fee to help pay for fixed costs. Why that's a fixed cost? I guess it's because that's what they're going to do with it, not where they got it. And what's interesting about that chart is, because I think a lot of people in Hawaii say, hey, what's going on here? Getting these renewables, the solar, how come my electricity prices are going way down? And as you can see, that this is our first peak at what's happening, the cost of maintaining the grid is going up. Now some of this is just probably maintenance of old parts of the grid. But there's also a cost to trying to make the grid more resilient, to extend the grid, to reach out to wind farms and to deal with the growing amount of solar activity, solar production. So one of the things that's happening in Hawaii is the cost of maintaining the infrastructure is going up. Here we have another one now, Lou. This is a UH Economic Research Organization, UHERO. It's called our Relationship of Oil Prices to Electricity Prices in Hawaii. Yeah. I guess that's number three, is it? Yeah. And if you take a look at that, that shows you, if I were a policymaker in Hawaii, I'd say, well, I need a kind of reference cost. I think that's pretty close. Somewhere within that range, up a couple of pennies, down a couple of pennies. I'm not saying you wouldn't get a spike in oil prices from time to time. But basically, that is where I'm going to be able, I think I can make the case that the long run price of petroleum is not going to be above that price for very long or very often. And so if I'm a planner in Hawaii, I'd say, okay, if this renewable stuff doesn't happen quite fast enough, how much risk am I taking by relying on the fossil production a bit long? And that's your number. Okay. We're going to, we have two more charts, but first we're going to take a short break. We'll come back to those other charts and we'll try to make a comprehensive message on it about how Hawaii should treat this, these comparative prices and costs. Title of our show is Understanding the Pricing in Hawaii's Renewables. And we have here, Lucy and Fulio Ricci of EPRINC. And we'll take a short break. We'll be right back and finish the discussion. Aloha, I'm Kirsten Baumgart, Turner, host of Sustainable Hawaii. We live stream every Tuesday from noon to 12.30. You get a chance to hear what people are doing about sustainability in Hawaii and what the issues are impacting all of us in all the islands. Join us, please. Hi, I'm Ray Starling and I am co-host for Hawaii's Wednesday afternoon State of Clean Energy. And with me today is Leslie Cole Brooks and she's going to tell you what's happening this month with our shows. Hi, everybody. I'm Leslie Cole Brooks, the Executive Director of the Distributed Energy Resources Council. And this month is the focus on Distributed Energy Resources. We just had a great show on smart grid technologies and the rest of the month we're going to discuss storage, different strategies, microgrids, and then we're going to have live man and woman on the street from Verge. So it's really exciting, very informative, lively, and just worth doing. So see you next Wednesday. We're back live with Fulio Ricci of EPRINC. He joins us from his think tank. He's the president of EPRINC in Washington, D.C., where they make a close examination of oil issues. And one of the issues we're discussing today, understanding the pricing restrictions on renewables for Hawaii's planning. So let's go to slide two. This is two out of four. We've looked at three and four. Now let's look at two. And so what does this tell us? It's called oil prices adjusted for inflation and exchange rates. Okay, so I think one of the interesting things is that there was a view of either peak oil, that the price of oil was going to go up. And if you take a look at what happens to oil prices over the very long term, you can see that it's really hard to keep them high for a long time. But the trend in oil, even though people kept worrying about it being a depletable resource, the emergence of the share gas and the share oil revolution, the ability to produce oil from source rock instead of traps, the advancement of technology. Because this is what happens, right? We have advancement of technology on renewables. But guess what? We were getting advancement of technology on fossil fuels. That's why we have cheap natural gas. And you can see here from this chart that the long run price of oil is quite amox based on, and it's going to, there's a light with it. I'll show you in the next chart why that's going to be the case. Now, this chart essentially agrees with the you hero charts that we talked about before the break. And this chart is made only a couple of weeks ago in the London gas and LNG forum, September 27th. So there's a common denominator emerging from these charts. Let's go to chart one now. This would be the fourth of the charts we look at. What is this one talking about, Lou? So I think this is a really interesting set of data from RBN, folks we know quite well, and it's very consistent with a lot of our work. And I think what they did, so what RBN did is they said, let's solve the problem backwards. We don't know what the price oil is going to be. But let's look and see what the, what Econos might call the production function of a cost of production looks like based on everything we know about the geology, about the advancement of technology to date, what's happening to the amount of drilling rigs that are out there. And see how responsive is the U.S. production platform from a relatively small change, you know, given the historic level in oil prices. And as it shows is that if you move from 45 to $65 a barrel, the U.S., in a very short period of time, can raise production by about 4 million barrels a day. And you say, well that's only 5% of world production. World production is about 90 million barrels a day. But 4 million barrels a day at the margin, coming on very quickly, is a very big deal in a market which was traditionally hampered by long lead times between price increases and new production. And so this, this is the real story of the shale oil revolution and the shale gas revolution. It's like a manufacturing process. And relatively short, short term changes in prices can induce relatively rapid responses in new supply. So we're in a revolution. And, you know, and as you said before, there's new technologies coming online that deal with oil and shale and LNG that make it, you know, that make it cheaper maybe in the long term and more attractive. But what about those concerns that were expressed earlier? What about the concern, for example, that there would be ultimately a reduction, you know, in the availability of these fuels? That we would find we, you know, we came to the end of it and there was not that much left or that what was left was going to cost more to get out of the ground. Are those concerns behind us now? Yeah, I think absolutely. The deep oil argument has completely gone away. I could give reference to any of your viewers on a very interesting piece we did on people even years ago. And the real issue now is how, how low can it go? Because the technology, we're no longer reserved and limited. This is very important. The production in the U.S. and other places in the world, in the world eventually is going to be from source rock. The source rock is the basic rock that migrated oil to traps as we found in, say, old days, most places in the world. But if you can produce from source rock, which we can do in the U.S. now, you are not reserved limited. It's strictly a manufacturing and technology question. If you lower the cost of production, you lower the cost of it. Now the other concern I think it's worth, you know, we need to bring it out is the COP 21 and soon to be the COP 22 concern about the environment. And of course, you know, Hawaii is in an odd situation because whatever it does, however ideal the steps it takes, we can't have a significant effect on climate change just from our small market here. Right. So I think this is a very interesting question which is not being debated enough. If you think about Hawaii, and we talked about a little bit about this last time, in many ways, it's what you might call asymmetric payoff. Like Hawaii is in the front lines of the consequences of climate. So you're, you know, have lots of beaches. You're subject to violent storms. And much of your tourism and economic level is tied to the natural beauty and the ability of Hawaii to bring in tourists. Enjoy the wonderful beaches, the Aloha spirit, the whole thing. And so if Hawaii were a country, I think their foreign minister would go to the U.A. and say, hey guys, let me explain something to you. We are going to take the big breath of this climate. So you need to give us a pass on what we do on climate. You know, you can do a little more on cutting back climate. We're not going to have any effect on it. We're going to bear more of the costs of this climate. We're going to put more of our effort into adaptation. And I think that's actually a debate the, you know, the people of Hawaii ought to have. But I talk about that because the payoffs to those two strategies are much different. The payoff to going to a 100% renewable will be negligible. Won't even be measurable in terms of the benefit to the climate. Well, there's one other factor that we should talk about, one last factor. And that is the availability of renewables as here, as local. We don't have to ship them in. We don't have to have ships. We don't have to have any delivery systems really from the mainland or from Asia. And that might save some money in terms of the shipping costs. But also it makes it renewables here gives us the independence. You know, we are now we are dependent on shipping things in. And when we get to the right place on renewables, theoretically, we'll have it all here. So international events won't affect us that much. International markets won't affect us that much. We'll be able to do it all ourselves. This has got to be worth some money, at least theoretically, no? So I think it's worth something. There is something to a security supply and stability. Of course, you can buy security supply, much like the US government does. It has a larger strategic petroleum reserve. It has forward markets, which allow people to make contracts. So I think from a policy planning point of view, our Hawaiian policymakers have to say, okay, what is the cost of this 100% renewable? What is the cost of this particular victory to do it too quickly versus the other costs and risks associated with a longer reliance on fossil fuels? Well, yeah, that's a big question right now. We're dedicated to moving to 100% by 2045. Are you suggesting that the availability of fossil fuels and the market prices you've described and the restrictions we've been talking about in pricing of renewables, that would change that timeline? Should we be reconsidering that timeline? How does this play in our policy right now? So my guess is that if you try to move too quickly, and really this is something that needs to be studied much more carefully, but if you try to move too quickly, you will run up against the law diminishing marginal returns. You will come on a very steep cost curve and that the costs will exceed the benefits. Now, where that is, I would be quite somebody must be looking at this in more detail. I know one of my distinguished fellows, Jeff Kessel, is doing some work on this, but this is an area I think is worth having an open debate about and as I said at the beginning, in God we trust, everyone else should bring data. One thing that strikes me, Luke, is that it's all a question of degree. The pricing in the market and trying to consider those things in our policy, it's all a question of degree. Check me if you disagree, that in the end, the continued use of fossil fuel is a bridge fuel. LNG, and to the extent we continue to use any kind of fossil fuel, it's a bridge fuel and ultimately, see if you agree with me, ultimately, whether it's 2045 or some other year, earlier or later or even much later, we're going to wind up on 100% renewables. Am I right? But here's the interesting thing. It might be hydrogen. It might not be wind. It might be hydrogen. It might be some very sophisticated storage technology for which we don't even know what that is yet. And that's one of the problems with foreseeing and letting the government policymaker deciding, I've decided it's wind, or I've decided it's solar. Well, okay, but you can be wrong. So you need to have a diversified strategy, and you need to allow these alternatives to have an opportunity to emerge as well. Yeah, and don't rush. Don't rush. Be thoughtful. That's Lou Pulirisi, the president of E-prink in Washington, D.C., an energy think tank. Thank you so much for joining us, Lou. If you don't mind, we'll come back and do it again, two weeks from now. Okay. Thank you so much.