My last post lightly covered the general energy trilemma framework. I noticed that there are slightly different definitions around the same thing; though I’ve adapted Arup’s one. First because theyre reputable as engineers, and second, because I really like the use of the word “security.
The Energy Trilemma encompasses a balance in affordability, sustainability and security. “Trilemma” is a great word, as it captures the inherent trade-offs between them all, as I emphasise this again.
But we are on the precipice of major change, with all three under pressure to perform as the macro cycles of the world churn. The macroeconomic environment is down, cost and global warming has set a ticking clock; geopoltical climate is fracturing. Something has to give, especially in area of very high system complexity.
The Three Lenses of Energy - deepening our understanding of complex issues
So, what else to do, but to publish a usual mental model to simplify such thinking?
I remain amazed at the variety of opinions, responses and perspectives in the field of energy, even amongst incredibly smart people. As a means of rationalising why this is so, I believe that one first needs to understand the fundamental drivers of the industry.
There are three major lenses in viewing the energy industry and landscape. Each of these will continue to shape the trends of the energy world, and hence attention and a deeper understanding of its motivators, trends and nuances should be applied.
These are: Economics, Technology and Politics; perhaps in a sequence of increasing complexity.
Economics
I hesitate to profess myself an expert in Energy Economics, but I simplistically consider that the markets will simply gravitate towards the basic principle of supply and demand. It has given birth to an entire industries coiled around hedging, financing futures, supply chain, etc. I won’t get into much detail on this.
Technology
What is economically achievable is a function of the technology available. In recent times however, there have not been any particularly notable breakthroughs, though I’d add that the commercialisation of shale gas (given high-enough prices), is one that accelerated and shaped the markets incredibly quickly.
There are numerous technological challenges that would promise to entirely reshape the equations if done effectively: Nuclear with affordable risks; fission/fusion; easy means of transporting hydrogen - are but some of these.
The energy industry has historically been incredibly well funded. Despite doing science stuff and praying to our energy gods, revolutionary breakthroughs remain far away, we are still, essentially using technology developed in the earlier part of this century.
I feel that this due to the fact that most low-hanging fruit has already been plucked - whatever is technologically feasible to create a step change has already largely been dones;
Also, the bar to beat in cheap, plentiful fossil fuels is incredibly high. New technology simply must do better or come very close to the status quo to be given the chance to scale quickly. Something that is terribly difficult to do.
Politics
I would argue that in today’s climate, politics is by far the strongest driving force as we hit a new cycle of volatility. To an engineer such as myself, with a developed interest in the fluffier subjects, I’d like to spend a bit more time on this.
To be clear, the energy industry has always been heavily politicised, and Yergin’s books go into detail on this. It just so happens that in the last decades or so, the dominance of an American hegemon has made it such that it feels less politicised and more secure. I am reminded that we once again look to the shifting of political cycles on how this area too, is now under stress.
This lens encompasses many areas, and I shall list several. Some obvious, some less obvious:
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Climate change and sustainability is a thing, only because its constituents demand it. In my lifetime, action has only started after it became a real political issue, despite the knowledge on climate change having been there for a long time.
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Industrial policy is also a core driver of change. As a current system becomes widely . Such issues have come to the fore, with China dominating supply chains in solar and battery technology, reaping handsome rewards from a world-in-need; more recently the US and Europe are bickering over its own industrial policies, as they seek to put some degree of self interest (investment, jobs, leadership) ahead of their liberal do-good for the world, especially because….
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Geopolitical control is the ultimate goal and perhaps a new frontier to understand for business and technologists alike. It has been a driving force leading to memes such as “US invading countries for Oil” and its like. Funny, but not without it being grounded in truth. I propose that the importance of this area is a key driver, driving economics and technology with heightened influence.
Geopolitics astoday’s driving force
The pivot away from fossil fuels will lead to consequences and drivers that cannot be understated in its impact:
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Redesigned Middle eastern policy (US going Meh; Middle east now scrambling for relevance before its oil money runs out)
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Presents an opportunity for new geopolitical independence and/or control through. Some include:
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Green eletrical interconnections - entrenching the movement of green electrons between countries, but at the same time, intertwining the nations with an engagement ring. For example, Norwegian Hydropower being sold into Germany
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Rise of a new class of power generation nations who have more leverage than they ever had before. Land abdundant countries with good infrastructure have started to erode the previously dominant power held by fossil fuel rich countries. They will control the future of energy intensive industries.
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Energy dependent countries (like Japan and Korea and…singapore) will….remain Energy dependent, but are seeking ways to increase their position, be it through technology, controlling supply chains etc.
Combined, Politics explains a lot of what some deem to be “irrational”, because it taps into the survival of nations at its heart - a departure from the current system of happy-thinking free market economics which most of us had grown up with.
Conclusion
My concluding thoughts on this is that - just as other complex topics (like sustainablity) end up being clouded with noise through multiple competing narratives, I once again presented some fundamental principles to consider - to help the sift through the noise and not risk being misinformed by some “influencer”.
There is considerable nuance to understand; and the risks to the world is far too high to be ignored.