The craziest thing.

The craziest thing about renewable energy is that a bunch of it literally falls out of the sky for free. [Energy transition, continued!] Nobody in particular owns the blowing of the wind or the shining of the sun, so if you've got an generator that runs on those inputs, then fuel costs are nil! Of course there are other day-to-day costs (opex), as with any generator, but the inputs? Gratis! So if renewable energy is so cheap, why don't we produce more of it?

Reasons. One of them is the unfortunate fact that the generator itself is probably not free. It takes a sum of upfront cash (capex) to build things like that. So when comparing the cost of electricity generated with the free inputs versus electricity generated with not-free inputs, you've got to take into account the building of the meat grinder itself. People in the industry do this with a simple math formula anyone can type into Google Sheets called 'LCOE'—levelized cost of electricity. Any given enterprise would use it to figure out the financial viability of a renewable energy project—to help them make a 'go' or 'no-go' decision. At least that's what the Delft University of Technology course entitled 'The Transition to the Decarbonised Economy of Tomorrow' is telling me.

Turns out the LCOE calculation is really only a typical NPV comparison focused solely on financial cashflows in a world where competing projects have quite disparate capex-versus-opex structures and production capacities—but with LCOE, it's no worries because you can just sum all the expected net flows of each alternative project, discount them back for risk, et voilà : apples-to-apples comparison.

Except that social/environmental 'cashflows' are disregarded—which of course is a bit odd! Since those costs/benefits are probably why renewables are on the table in the first place—but on the other hand, it also makes sense why social 'cashflows' aren't in the LCOE formula—because they are traditionally borne (or reaped) by society writ large, not by the deciding enterprise.

Or at least that's how it was before things started heating up around here. Outrageous insurance bills in the face of rising rivers, tides, temps, and tornados seems expensive for business, no? Crumbling social order, political chaos, and supply-chain malfunction seems expensive for business, no? The absence (or mitigation) of these things seems.... less expensive. How might we bake societal costs/benefits—at least the bits-n-bobs borne specifically by that one enterprise—into the sum of all future net flows? Surely there's a way.

#gogrid #youcandoit #globalenergytransition #electricityiscomplicated