By: By Kelly de la Torre Issue: Resource Management Section: Book Review
Electricity Underpins Modern Civilization. With this simple sentence, Daniel Yergin sums up our way of life as it relates to energy and frames the three fundamental issues that shape the narrative in his book, The Quest. These issues include adequate supply, energy security, and the associated environmental impacts. Yergin’s writing demonstrates that the energy landscape consists of more than supply security—the energy landscape is a system with numerous moving parts that make the whole. Yergin deftly maps out the interconnected nature of this system and using this groundwork explains why we should care about the energy industry and energy policy.
A critical question throughout the book relates to fuel choice and what fuel mix will enable the generation of enough electricity to meet the nation’s growing demands for power? “The prospects for electric power in the twenty-first century can be summarized in a single word: growth.”
Our lifestyle and economic growth is intimately tied to energy, and the world’s appetite for energy keeps growing. Decades have passed since the “Live Better Electrically” campaign that was launched by Ronald Reagan in the 1950’s to extol the benefits of an all-electric home. At that time, it was a luxury to have a vacuum cleaner, a toaster, and a television. It was during the 1950’s and the 1960’s that America became an electrified society. Electricity spurred industrial growth and created a better lifestyle. According to Yergin, Reagan and his daughter summed it up, “You really begin to live when you live better electrically!” Today’s consumer doesn’t need any convincing about the virtues of electricity. In fact, it’s quite the opposite. We can’t function without it, and we need a lot of it. The statistics are staggering. Yergin says, “Electricity consumption, both worldwide and in the United States, has doubled since 1980. It is expected, on a global basis, to about double again by 2030.” But, the costs and logistics of this growth are also staggering. In fact, Yergin argues that the cost for building the new capacity to accommodate this growth between now and 2030 is currently estimated at $14 trillion, and is rising. But that expansion is what will be required to support what could be by then a $130 trillion world economy.
Yergin says that these big numbers generate big and complicated questions and at the crux: fuel choice. He says, “The centrality of electricity makes the matter of fuel choice and meeting future power needs one of the most fundamental issues for the global economy.”
Fuel choice, however, doesn’t just involve selection of the energy source, but includes considerations surrounding energy security, physical safety, economics, environment, geography, carbon and climate change, values, public policy and reliability—all decisions that are critical to the state of our electricity grid.
Interwoven into this conversation is the gap between public expectations and the reality of what can actually get built in the face of dramatic swings in markets and popular opinion. “Meeting future needs for electricity means facing challenging and sometimes wrenching decisions about the choice of fuel that will be required to keep the lights on and the power flowing,” states Yergin. Yergin addresses the lack of certainty over rules, politics, and expectations and how this lack of certainty defines the reality of what can get built. The huge capital investment and the timeframe for which these plants and facilities will operatee, further complicate the decision-making process. For example, power plants and facilities are typically in operation for 60 to 70 years. New coal-fired plants can cost as much as $3 billion, and new nuclear facilities can cost upwards of $6 or $7 billion or more. Thus, today’s decisions will impact the energy landscape now and into the next century—while the rules, politics, and public perception continue to change.
Further analysis underscores the importance of understanding the risks and requirements of energy security. Any major disruption of supply demonstrates how fundamental access to energy is to our modern life and how important it is to protect our access to it. The Quest explains the simple definitions of energy security and the availability of sufficient supplies at affordable prices, so that one can delve into the multiple dimensions of the energy landscape. Physical security relating to infrastructure, supply chains and trade routes, access or supply security, systems management to provide coordinated response to disruptions and emergencies, and certainty with respect to the policy and business climate in order to promote investment and development are all key factors when considering the current energy debate.
Beyond the physical infrastructure, The Quest highlights how energy security now extends into cyberspace. Yergin refers to the difficulty of protecting our electric grid this way, “The bulk power system is comprised of over 200,000 miles of high voltage transmission lines, thousands of generation plants, and millions of digital controls. It is also one of the most complicated to secure.” Unfortunately, the threat is not limited to the grid. The threat extends to other systems relating to energy production, pipelines and water. One solution proposed in the book is investment into the architecture of these systems with increased focus on design and security. The question of security, however, underscores the need for innovation across the energy spectrum. Yergin says, “Today there is a great bubbling in the broth of energy innovation as has never occurred before.”
The challenges of energy supply, usage, security, environmental impact, and climate change drive innovation. One example provided by Yergin is the natural gas revolution driven by fraccing and incented in the 1990’s by a federal tax credit. Fraccing know-how was combined with skills in horizontal drilling, and the result was a transformation of the U.S. natural gas market. New innovations could once again dramatically change the supply outlook.
Yet another way to dramatically change the supply outlook is to conserve energy by implementing energy efficiency technologies and processes. The book notes that a global consensus is emerging around the key role of energy efficiency. Call it a “C-change in attitudes” around conservation and climate change. Energy efficiency goes by many names but the effect is the same—using less for the same or greater effect. Yergin explains that energy efficiency is applying greater intelligence to consumption, and its potential application is huge. “The United States uses less than half as much energy for every unit of GDP as it did in the 1970’s. A good part of the improvement is certainly pure efficiency,” he says.
In the United States, the industrial sector consumes about a third of total energy. Industry strives to understand how to manage energy costs and how to ensure payback on efficiency investments. Yergin again emphasizes the need for some certainty and predictability in fuel choice. Small investments in operations and maintenance can lead to low-cost gains. However, large capital investment hinges on predictability in the market. “Volatility – the way that prices can rapidly move up and down – can be a real challenge. Companies are more likely to invest the money and effort – and stick with it – if they believe that process will be high enough to have a significant impact on their costs and bottom line.”
The Quest concludes with the “Great Revolution”—a time where we all recognize that energy transition generally takes a long time, but that there are principles that can define a place to start. Yergin says it best, “Diversification of oil resources needs to be expanded to diversification among energy sources—conventional and new. This represents a realization that there are no risk-free options and that the risks can come in many forms. Energy efficiency remains a top priority for a growing world economy.”
He goes on, “The real advances, whether in developed or developing nations, will be embodied in behavior and value, but especially in investment in new processes, new factories, new buildings, and new vehicles. Sustainability is now a fundamental value of society. Environmental priorities need to continue to be integrated into the production and consumption of energy. They should be analyzed and assessed in terms of impact and scale and cost-benefit analysis, assuring access to energy, with appropriate environmental safeguards.”
Fundamental to the “quest” is the continuing search for knowledge which will spur innovation to meet the rising challenges of energy demand. Energy is fundamental to all of our lives and no revolution can happen without our input to solve the challenges of today and our energy future. No one explains that quite like Mr. Yergin.