The greatest business opportunity of our time

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amory-lovins-on-how-renewables-can-survive-without-subsidies-1024x576Amory Lovins, the founder of the famous Rocky Mountain Institute in Colorado, has written a book in which he presents an energy future without coal, oil or nuclear power. Yet he insists his is not a green or left-wing vision. On the contrary, it will save money and create wealth. “The energy transformation is the greatest business opportunity of our time.” 

I heard Amory Lovins present his vision of our energy future – which he calls Re-Inventing Fire – at a conference recently in Groningen. There could not have been a greater contrast between the factual, professorial style of the presentation and its fiery content. Here was a revolutionary armed with a Power Point.

Lovins’ down-to-earth approach makes his vision all the more credible of course. The audience in Groningen found themselves mesmerized by the little man with his big words. Could the United States – of all places – do without coal and oil (and for that matter, nuclear power) 40 years from now, yet be $5 trillion better off with a 158% bigger economy? And could this really be achieved without “new national taxes, subsidies or mandates”? For that was Lovins’ vision in a nutshell.

Imagine, he said, “Fuels without fear. No runaway climate change. No oil spills, dead coal miners, dirty air, devastated lands, lost wildlife. No energy poverty. No oil-fed wars, tyrannies or terrorists. Nothing to run out. Nothing to cut off. Nothing to worry about. Just energy abundance, benign and affordable, for all, for ever.”

Without fossil fuels most of us would quickly start to experience the struggle for survival that only the world’s poorest still suffer daily

Lovins’ vision is set out in a book published by his own Rocky Mountain Institute in 2011 and updated in 2013: Re-Inventing Fire – Bold Business Solutions for the New Energy Era. It is mostly written in a factual, densely footnoted style. While it is extremely ambitious in its prescriptions and solutions for our energy problems, it stresses above all the business and commercial opportunities provided by the transition to a new energy era. (Characteristically, the two forewords it contains are not written by environmentalists or visionaries but by executives from fossil fuel giant Shell and from nuclear giant Exelon. )

Huge machines

Lovins clearly is not a left-wing hater of the free market or a radical green opponent of fossil fuels. He fully acknowledges the incalculable benefits fossil fuels have bestowed on mankind: “ … for the more fortunate four billion [inhabitants of the earth], over the past two centuries fossil fuels have changed everything. Just as fire made us fully human and agriculture enabled cities and states, fossil fuels made us modern. They transformed energy from a preoccupation with personal scavenging to a ubiquitous commodity continuously delivered by extraordinary specialists, exotic techniques, unthinkably huge machines, the world’s largest corporations and the world’s vastest industry. That industry has become immeasurably skillful and powerful. … It is the foundation of our wealth, the bulwark of our might, the unseen metabolic engine of our modern life…. Without fossil fuels … most of us would quickly start to experience the struggle for survival that only the world’s poorest still suffer daily.”

Yet we have come to a point, says Lovins, where the costs associated with the use of fossil fuels (and nuclear power) are now outweighing the benefits. Fossil fuels cause pollution and climate change, and they lead to instability and insecurity. “This magic elixir that has so enriched and extended the lives of billons has also begun to make our lives more fearful, insecure, costly, destructive and dangerous … Its wealth and power buy politicians and dictate to governments. It drives many of the world’s rivalries, corruptions, despotisms and wars. It is changing the composition of our planet’s atmosphere faster than at any time in the past 60 million years.”

Pollution and climate change are well-known arguments against fossil fuels, but security of supply is becoming an increasingly powerful argument as well, says Lovins. “The easy oil is rapidly dwindling and concentrating in fewer countries; the easy coal has only decades left. The huge deposits of US natural gas trapped in dense shales now starting to be exploited are contained in bubbles finer than a human hair. As economists (and some geologists) start to understand how oil-reserve data were widely misinterpreted or misreported, opinions of fossil-fuel abundance are shifting.”

The “fossil fuel party”, Lovins concludes, “is drawing to a close.”

Business for profit

Lovins points out that coal and oil may seem cheap, but their “low price covers just a fraction of the total costs society actually pays to mine and burn fossil fuels.” Thus, for example, US military expenditures for Persian Gulf forces total roughly $1.5 trillion a year – “far more than our total energy bill. This hidden surcharge, paid not at the pump but through business risks, taxes and deficits, exceeds the per-gallon US price of gasoline.”

Whereas citizens in most industrial countries pay taxes on oil to their governments, Americans pay their oil taxes to “suppliers, military contractors and foreign lenders”. At the same time, says Lovins, “the whole oil supply chain is astonishingly vulnerable”. One successful terrorist attack on key Saudi oil facilities ”could crash the global economy”. For coal mining and use, similar examples can be given. And this does not even include the extra costs associated with price volatility (the uncertainty of hydrocarbon prices).

But Lovins argues that switching to a system based on renewables and energy efficiency is cheaper even without counting those hidden costs. This surely has got to be the crux of his argument. That we can reduce pollution and risk by switching to alternative energies is not hard to believe – but that we can also “create wealth” in this way, is a much more unlikely proposition. Ultimately, those who defend the continued use of fossil fuels argue, not unreasonably, that industrial societies cannot be built on renewable energies unless they reduce their citizens’ standard of living drastically. They point to the massive increase in the use of oil and coal-fired power in emerging economies like China and India as a case in point.

Whereas citizens in most industrial countries pay taxes on oil to their governments, Americans pay their oil taxes to “suppliers, military contractors and foreign lenders”

Lovins’ vision is built around exactly this argument: switching to a fossil-fuel-free energy system, he says, will cost less. It will “create wealth”. For the United States alone, it would save $5 trillion by 2050.

And that’s not all: the transition, according to Lovins, will not need to be driven by government intervention, but will be led by “business for profit”. “Private enterprise”, “civil society” and “military innovation” (Lovins pays quite a lot of attention to the US military’s energy strategy) will together create the energy system of the future.

Two stories

So how will this huge change be accomplished? This is what the book, Re-Inventing Fire, mainly sets out to describe. Lovins’ energy revolution contains two crucial steps: energy efficiency and renewable energy. “The new fire … combines two elements: it uses energy threefold more efficiently and by 2050 it gets three-fourths of that energy from diverse and mainly dispersed renewable sources.”

Lovins breaks down the energy transition in two main parts. “Reinventing fire”, he says, “means reinventing two stories, one of oil, and one of electricity, each of which puts two-fifths of fossil carbon in the air.”

Fortunately, the uses of oil and electricity are very concentrated: “three-quarters of oil runs transport, three-quarters of electricity runs buildings”. Thus, if you can change the way transport and buildings use energy, you have achieved most of your transition.

The way to go about this is to start with the basic design of vehicles and buildings. First, Lovins describes in detail how the use of energy by cars can be transformed. His main point is that two-thirds of the energy used to move a car is caused by weight. Unfortunately, cars have been getting heavier rather than lighter: “Our autos have suffered an epidemic of obesity. They have gained weight twice as fast as we have.”

However, with new, carbon-based materials, cars can be made stronger, safer – and “three times lighter”. This will make it possible to make engines smaller and thereby electrification more practical. According to Lovins, these new cars need two to three times less energy and can be built at the same cost but have far lower driving costs.

“The ability to make electricity has now become a scalable, mass-produced manufactured product”

Electric cars need energy of course, but Lovins adds that they “do not need to add burdens to the electricity system”. They can even add flexibility and storage if they are connected in smart ways to the grid and exchange information with smart buildings.

Building a cathedral

In the same way, the transformation of the electricity system needs to start with redesigning our buildings and manufacturing plants. Existing technologies can reduce energy consumption in buildings by a third. New “integrative design” can add another 16-31 percentage points of energy savings. As in the case of cars, transforming the way we build real estate can offer tremendous business opportunities, notes Lovins.

What electricity we need can be mainly supplied through renewable energies, with some natural gas and biofuels thrown in, Lovins and his team have calculated. “Solar and wind power are already cheaper than natural gas fired power in the US”, says Lovins. “Even today in the US companies will happily come to your house, install solar panels on your roof, ask for no down payment. Pretty soon they will give you cash back.”

He notes that since 2008 half of all electricity capacity added in the world has been renewable. In 2013, new solar power capacity will probably have surpassed new wind power capacity. Lovins points out that the reason solar and wind can be added “so incredibly fast” is that “the ability to make electricity has now become a scalable, mass-produced manufactured product. We used to think it takes ten years and billions of euros to build a power plant. It was like building a cathedral. But now during those 10 years you can each year build a plant which each year thereafter will produce enough solar cells which for the next few decades will each year produce as much electricity as your thermal power plant would have produced.”

Solar cells are scaling more quickly than cell phones at the moment., says Lovins. The global ability to produce solar cells is now about 75 GW a year.

As to the much-vaunted “backup capacity” of baseload power stations, Lovins notes that coal and nuclear power plants also fail unexpectedly sometimes. “But the grid routinely handles that kind of intermittence. In the same way it can handle forecastable variations of solar and wind power.”

According to Lovins, the National Renewable Energy Lab (NREL) in the US has done a very detailed analysis showing that with the help of good weather forecasting, demand response systems, distributed storage and integrated networks, it is possible to operate the grid with 80-90% of renewable energy.

Design and strategy

An important conclusion that Lovins has drawn from his research is that we need to look beyond the two traditional pillars of the energy transition: technological innovation and public policy. He notes that there are two other elements that may be even more important but do not get the same amount of attention, namely design and strategy. By design he means the design of buildings, materials and infrastructures. By strategy he refers to new business models and competitive strategies. “These four tools for energy transformation total far more than the sum of their parts. Together, they can create the greatest business opportunity of our time”.

Obviously, the new business models that are being developed will have a tremendous impact on the incumbent utilities and oil companies. He believes the “pace of surprises and disruptions is going to increase” in the coming years.

The oil companies “should be very uncomfortable right now with their strategic posture”

The business model of utilities will be turned completely upside down by the energy transition. “Traditionally utilities would build giant nuclear and coal-fired baseload power plants, then add more flexible, smaller gas-fired power plants and finally throw in some renewables and flexible demand systems. This order will increasingly be reversed: the utility of the future will first build renewable capacity and distributed storage and offer flexible demand, and will only then add gas-fired power and baseload capacity.” This will happen first in countries and States in the US that reward utilities for saving rather than selling energy, for example in States where “demand side resources are allowed bid into supply side auctions”. He gives the examples of an auction in which 94% was supplied by bids on the demand side.

As to the oil companies, they “should be very uncomfortable right now with their strategic posture”, says Lovins. “They are in a very long lead time, capital-intensive business with very high technical, geological and political risk. They are politically unpopular, they only own 6% of their asset base, which could be confiscated or taxed away any time, and they are being forced by governments into the most risky exploration & production plays at a time when their investors want less risks and more rewards. They are price takers in a volatile market. Most of their book values are based on their hydrocarbon reserves most of which cannot be burned, i.e. monetized.”

According to Lovins, the big oil companies are in many ways extremely capable. “We need their skills, in technology, organisation, and finance, their great cultural skills and huge cash flows.” But he says they should ask themselves what the assets are that would enable them to thrive in a new world”. Hydrocarbons, he notes, “may not be a featured of their business forever.” He points to the example of IBM, which has transformed itself from a computer manufacturer into a successful computer service company.

Master chef

Lovins also discusses what barriers exist for the implementation of the energy transition and how the right policies could help bring those barriers down. He does not believe that, as many people like to argue, we should “keep all options open” and simultaneously pursue all low-carbon supply options. He says “it’s about choosing a system that can best exploit the full range of supply and demand side options in an integrated, least-cost fashion. Integration is the skill of a master chef, not a grocer’s buyer. And in the electricity sector, as in cooking, the best solution comes not from combining all the possible ingredients, but from an artful and harmonious combination of just the ones you need.” (The same goes for the transport sector.)

In the end, says Lovins,”the answer starts with a powerful vision”.  Without “a clear goal in sight, chances are slim” that we will stumble on the right solutions. Implementation of the vision requires leadership. Policymakers must put in place the right incentives that will unleash private enterprise. And then, “once those incentives to choose sensibly exist, watch out! The powerful American engine of innovation … will shift into high gear. It will not only bring new technologies to market but also reshape our ideas of how we use energy.” The “most astonishing” results will occur when and where IT meets energy, says Lovins.

Lovins ends his book by insisting that his vision is “not a green or left-wing idea”. Whether you care most about profits, or national security, or climate and environment, what needs to be done, he says, is the same.

In Groningen this message was met with highly enthusiastic applause. To which Lovins typically reacted by muttering: “I am sure I said nothing controversial.”


  1. says

    “Lovins points out that coal and oil may seem cheap, but their “low price covers just a fraction of the total costs society actually pays to mine and burn fossil fuels.” Thus, for example, US military expenditures for Persian Gulf forces total roughly $1.5 trillion a year – “far more than our total energy bill.” It could take years to respond to this book and I am unwilling to spend the time. The U. S. military does not spend $1.5 trillion a year on all activities. This remark should clue readers about exaggerations in the book.

    Renewables are not a panacea. Wind and solar plants appear to need replacing after 25 years operation because of power fall-off with time. These sources require large amounts of energy just to produce them–possibly the first 6 years of operation before a net energy gain. The renewable have capacity factors of 0.30 for wind and 0.18 for solar. We have not developed economical energy storage to make these systems workable on a 24-hour day, 365 days per year. The book is pure fiction.

    James H. Rust, Professor of nuclear engineering

  2. says

    Must say Lovin this man’s vision and talk. Being Creative innovator and alternative renewable inventor of Smart Renewables. His words intwine with my rhetoric and my Creative idea concepts. I designed developed and built an energy efficient renewable electric generator in my garage with low to high output capacity gearbox.that will change our Paradigm. With my Energy Mutiplying Accelerator Plate deisgned for EV’s and developed for Electric generation will Signficantly reduce Carbon emissions in both industries coupled to existing thermal generators.
    But my design is to remove thermal generation completely. So I designed Alternative Renewable Energy a Convergence of smart renewables.
    Designed new Solar Turbine towers with significant increased power levels.
    Deisgned new electric transport system that will reduce our need for plugging. Self generating AC propulsion system with my invention fueless Electric Generator as the power source. 13 kw to100kw Generator powering my various propulsion methods from driveline to wheelhub technology.
    I am building my dreams with my limited knowledge. 25 years practising alternative solutions in transport as Automotive electromechanical engineer. With practical applications in construction to pattern making designs.
    Anything is possible if you have a clear vision how to complete it

  3. Michael Knowles CEng says

    Having read Lovins ‘Factor 4′ in the 1990s, I might now read this one. You only mention one example of Lovins vision – ‘ultra light-weight cars’. That as an engineer I can understand but how to get them accepted by the public is another matter! Maybe Boris Johnson the Mayor could ban all heavy weight vehicles in London! I seem to remember it was in Factor 4 too .

    I must read what he says about renewable energy that is very low area density 2.5W per sq m for wind against 1000W per sq m for nuclear coupled with low load factors 26% for onshsore wind and 32% average for offshore wind and 10% for solar pv against 80- 90%nuclear and clean coal with CCS when the latter is demonstrated on a commercial scale.

    Offshore wind in UK waters is now struggling as the Government has set a strike price of £155/MWh for it and except for Dong Energy the developers like RWE, Centrica and SSEB are backing off as they want a higher strike price with the next round that is further offshore and in deeper water. A UK Government report in 2011 said as much by nearly 2 times the current subsidy. Watch this space consumers!

  4. says

    In response to the data presented by Mr Knowles & concerning off-shore wind, data (over two years) from Alpha Ventus and Horns Rev 2 indicate capacity factors of 48 to 55% (these CFs feed through to some quite interesting LCOEs). The UK has low off-shore capacity factors because the farms are close to the shore where winds are weaker- German and Danish wind farms show the benefits of moving more than 30kms off-shore.

  5. says

    Lovins is a pioneer in ‘creating’ energy by saving it. He coined the word ‘NegaWatts’ to deal with all the power plants that wouldn’t have to be built, to maintain our standard of living, if only the energy we already have isn’t wasted.
    I’m an inventor with several simple practical and proven fuel saving technologies (since 1984). Just the technologies I have could cut worldwide fossil fuel consumption by 25% (while maintaining full power output) in as little as 5 years, if they weren’t being suppressed by Vested Interest.
    The biggest roadblock I see, keeping alternative energy from happening, is the companies who are Vested in the current technology. If the people knew the truth (the practical solutions that already exist) and were free to choose those alternatives, our energy issues would resolve themselves.

  6. says

    I have known Amory for many years, starting with the 1970s, have always followed his work closely, agree with his point that economic considerations will determine our long term energy system(s), and believe that history will be very kind to this unusual and valuable visionary.

  7. Dr. James H. Rust says

    Amory Lovins name came up on commentary about President Obama’s State of the Union address by Phil Epstein. His remarks follows:

    “Here’s a scary story. In the 1970s, arguably the most revered intellectuals on energy and environment were men named Amory Lovins and Paul Ehrlich. (They are still revered, which, for reasons that will become apparent within a paragraph, is a moral crime.)

    In 1977, Lovins, considered an energy wunderkind for his supposedly innovative criticisms of fossil fuels and his support of solar power and reduced energy use, explained that we already used too much energy. And in particular, the kind of energy we least needed was . . . electricity: “[W]e don’t need any more big electric generating stations. We already have about twice as much electricity as we can use to advantage.”

    Environmentalist legend Paul Ehrlich had famously declared “The battle to feed all of humanity is over. In the 1970s hundreds of millions of people will starve to death in spite of any crash programs embarked upon now.” Thanks in large part to a surge in energy use that led to a massive alleviation of global hunger, that prediction did not come to pass. But it might have, had we followed Ehrlich’s advice: “Except in special circumstances, all construction of power generating facilities should cease immediately, and power companies should be forbidden to encourage people to use more power. Power is much too cheap. It should certainly be made more expensive and perhaps rationed, in order to reduce its frivolous use.”

    Had we listened to these two “experts,” billions of people—ultimately, every single person alive—would be worse off today. Or dead. You would certainly not be reading this on an “unnecessary” electronic device connecting to the electricity-hungry Internet.”

    Mr. Lovins’ book is undoubtedly rehash of material written about in the 1970-80s that make good door stops.

    James H. Rust, Professor of nuclear engineering

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