• Energy storage is another reason the energy transition will fail
  • Civilisations are defined by their ability to store energy cheaply
  • Energy storage investments will boom

In past issues, we’ve looked at the importance of energy in making civilisation possible and how this relationship exposes the energy transition as a dangerous idea to pursue. Today, we analyse a new angle on the same argument…

Issues with energy storage sound like a painfully obvious challenge to point out. I mean, who hasn’t heard about problems like intermittency and the cost of batteries by now? Or experienced them first-hand… but there’s a lot more depth to the problem of energy storage.

What I’ve discovered about storage might be even more important than our ability to generate a lot of power cheaply, meaning with little effort. The equation of how much energy we get per unit of energy spent trying to produce energy (known as energy return on energy invested, or EROI) has already got energy systems analysts worried about the transition in and of itself.

It takes ever more oil to produce a barrel of oil, for example. How many windmills can we produce using the energy harvested from a windmill? Some say less than one…

What I’ve learned might also be even more important than the breakdown between marginal revenue and marginal cost, which makes our energy market function smoothly today.

So, I hope you read carefully to see how energy storage undermines the energy transition even more than the other issues identified…

In short, it may not have been our ability to produce energy efficiently or our ability to harness a lot of energy that made civilisation possible, but advances in energy storage specifically. Of course, these factors inherently rely on each other. However, several researchers have suggested that storage was the missing link that unlocked civilisation.

You see, it’s not so hard to hunt some more bison or gather some more firewood if you need more for dinner. But what if you want to save up either for future use so that you can spend time doing something other than hunting and gathering? The question then is whether you can keep it in a useful form and how much energy you’ll expend in storing it. Firewood is heavy for nomads to carry around…

More on that idea in a second. First, why should you care today?

The implication of identifying energy storage as the key variable for civilisation is similar to the argument that we gave about EROI. If we transition towards an energy system that requires more energy input per unit of energy output, then we are going to become poorer. We’ll spend more time, effort, money and resources on energy rather than doing other things.

In the same way, if we transition to an energy system where energy storage becomes less economic and/or more important, then we are going to become poorer because it takes away from other things we could be doing. In both cases, we need to work harder just to provide the energy we need to live.

It won’t surprise you that I’ve concluded that we are indeed making that crucial mistake. We aren’t just transitioning down the energy density scale when it comes to energy creation, but when it comes to energy storage too. It’s just that storage may be the crucial part.

The claim goes a little something like this: the key factor enabling civilisation to sustain itself comes down to its ability to store energy. Or, more scientifically, the better the technology a society has to store energy, the more advanced it can become.

A hunter-gatherer society doesn’t store much energy at all. Perhaps some food, perhaps even dried food, but it effectively lives hand-to-mouth in terms of energy.

Once a civilisation figures out a way to store energy, it has a way to capture any surplus energy it creates. Without storage, there is no benefit to producing surplus energy.

The best example of this are grains, because they appear to represent an energy-inefficient form of food – it takes a lot of energy to make grains edible. However, grains are very good for storage. They allow civilisations to store a lot of food and thereby energy. The emergence and popularity of grains suggest it was storage, not energy production, that changed things.

Steamships are another example. The wind is difficult to store, but coal is very easy. This also makes another point obvious: you must be able to store energy to control its use and avoid being becalmed. Don’t forget to notice that while the wind is free and coal is not, steamships came to rule the sea…

But why is energy storage so crucial to civilisation? Because it unlocks what we associate with civilised societies: trade, the end of being nomadic, the ability to weather seasons, the ability to control our environment and the ability to engage in activities that aren’t just about surviving. Once you can store energy, you can spend time doing something other than surviving.

Now, just as we applied the question of EROI to the energy transition today, let’s apply this understanding of storage too. Is the energy transition one step towards a better form of storage that lowers the cost of storing energy and increases its efficiency? Or are we slipping down the slope there too?

Well, the energy transition is all about electrification. Unfortunately, electricity is a flow of energy, not a stock, so it cannot be stored. Even batteries do not store electricity. They use a chemical reaction that recreates it. This means that the electricity we use must be stored in some other form.

This is, of course, one reason why coal has served us so well over the decades. It’s incredibly easy to store when you compare it to the energy transition’s greener replacements – batteries, hydropower and hydrogen, for example. It is incredibly difficult and expensive to produce and then store hydrogen, as well as build a battery or a dam. Gas isn’t especially easy either, nor is oil.

With coal, you can just leave it lying around in your cellar. Indeed, that’s how many German households are dealing with their country’s energy transition and the lack of effective energy storage today.

My point isn’t that we should transition back to coal, as Germany has been doing, just because it’s better for storing energy. There are other considerations, such as pollution.

My point is that we are in for a greater challenge than we’re used to when it comes to storing energy, and such a challenge will impact our standard of living. It reverses advances we’ve made in energy storage and is perhaps the first time we’ve ever attempted this backwards move in the history of civilisation.

We have now spent a decade building renewable energy infrastructure around the world that produces clean energy. However, we haven’t solved the question of how to store it yet. The options do not look good once you compare their cost and efficiency to the methods that we use to store energy today.

This implies a dramatic ramp-up in costs. Not just the financial cost, but the inefficiencies created by having to build entire industries and infrastructures needed to store energy – none of which exist at the scales needed today. Economists measure the need for such industries as wonderful sources of future GDP and jobs. But they are inefficiencies – industries and jobs we didn’t need to have to provide the energy we needed – and they therefore make us poorer overall.

It’s not all doom and gloom though… for investors, anyway.

Given that large-scale wind and solar power is useless without the energy storage to back it up because it requires an entire backup grid to be prepared to fill the void at any time, anyone who can figure out how to store energy well is on to a winner.

Of course, the fact that we don’t yet have such a solution won’t stop governments from attempting flawed solutions, such as batteries. The trouble is, if every government in the world pursuing net zero all try to build vast batteries to store energy, that requires rather a lot of resources. An impossible amount, if you ask me and several geologists. But, like I said, such side issues won’t stop governments from trying.

This desperate need creates a rather intriguing investment opportunity…

For politicians to avoid further utter humiliation over their pet wind and solar projects and their supposedly “free” energy, a hell of a lot of energy storage will have to get built, bidding up battery metal prices to exorbitant levels.

And the wind and solar energy producers will have to be protected from those costs. Otherwise, their energy will no longer be described as “cheap” on even the current dodgy comparisons, known as levelised cost of electricity. (If the cost of storing electricity were included in renewables’ cost estimates, their true price would skyrocket.)

If you think politicians will shelter renewables from the cost of building energy storage, that implies the costs won’t be a deciding factor in whether that storage gets built. It’s a bit like Australia’s pumped hydro project, which has overrun its budget more than sixfold. Batteries will get built, no matter the cost, because the economic incentive is removed from the industry providing intermittent power and creating the need for storage in the first place.

In such a scenario, the upside for battery metal prices is extraordinary. The question for investors is: who has those battery metals and who produces those batteries?

Until next time,

Nick Hubble
Editor, Fortune & Freedom