To understand the massive misunderstanding of the fundamentals of energy and electricity, Lars Schernikau discussed the conclusions reached from 70 interviews over three years with various ministries, governmental economic organizations, universities, industrial conglomerates along with energy think tanks…. “The overarching theme from these interviews,” he found, “was a lack of understanding of the true full cost of electricity and the continued misuse of the marginal cost measure LCOE to compare the cost of variable ‘renewables’ with conventional sources of power.”
I recently finished reading The Unpopular Truth: about Electricity and the Future of Energy by Dr. Lars Schernikau and Professor William Hayden Smith. The authors address how the energy market works rather than how the mainstream media, environmental activists, and policymakers portray it.
Not surprisingly, the book explores the misunderstandings of policymakers and their advisors about the workings of the electricity and energy systems. These misunderstandings have led to, and if not changed will continue leading to, expensive and less reliable power. At the same time, these policies do less to decarbonize the world’s economy than policymakers believe, while reducing the future wealth and living standards of the world’s population.
Schernikau is an energy economist and commodity trader focused on energy raw materials, while Smith is a Professor of Earth and Planetary Sciences at the McDonnell Center for the Space Sciences at Washington University. At one point in his career, Schernikau worked for the Boston Consulting Group in Europe and North America, so he has been a strategic advisor to companies and governments. His training and real-world experience (trading commodities) provides him with the background to understand the weaknesses of the policies that are revamping our electricity system.
By viewing the energy-system transition exclusively through the prism of carbon emissions, policymakers embrace more expensive renewables that use more land and resources and leave the electricity system less reliable. Those weaknesses harm the policymakers’ constituents.
I was introduced to Schernikau via an early March Close of Business Tuesday podcast “Truth in Energy” conducted by Veriten, a knowledge and media platform focusing on energy, technology, and environmental trends hosted by Maynard Holt. As Veriten says on its website, “A central theme to all of Veriten’s efforts will be an evergreen analysis of ‘What will the energy world look like in ten years?’ In other words, how will today’s decisions and policies shape our future? For those interested in energy and its evolution (transition), the firm’s conversations prove enlightening because they dig into the numbers and technology challenges.
What I learned from Veriten’s conversation with Schernikau spurred us to order and read his book as well as read the scientific papers that provide the foundation for the book. Those papers deal with the full cost of electricity (FCOE) and energy returns on investment (eROI). These are key issues in building an energy system that is affordable, reliable, and clean – the primary concerns of consumers and policymakers.
To understand the massive misunderstanding of the fundamentals of energy and electricity, Schernikau discussed the conclusions reached from 70 interviews over three years with various ministries, governmental economic organizations, universities, industrial conglomerates along with energy think tanks like the International Energy Agency (IEA), the Institute of Energy Economics, Japan (IEEJ), the International Monetary Fund (IMF), the ASEAN Center for Energy (ACE), and leading strategy consulting firms. “The overarching theme from these interviews,” he found, “was a lack of understanding of the true full cost of electricity and the continued misuse of the marginal cost measure LCOE to compare the cost of variable ‘renewables’ with conventional sources of power.”
Schernikau also pointed out that the “overarching desire – especially in developing nations – was to support a sustainable yet economically viable energy policy to transition away from fossil fuels over time. The costs and downsides associated with this transition – limited by today’s technologies – were rarely understood or researched.” This is a huge indictment of energy advisors and the policymakers they are advising. Why? Because the energy system is more complex than people appreciate.
For most people, the power in their home comes from a wall plug or a light switch. How that power arrived and was immediately available when the switch was flipped, or a device was plugged in is unknown. Yet, the details behind the power are crucial to the decisions about what fuels are used and how they are employed. In the effort to make electricity simple to understand, the physical realities of energy generation, transmission, and storage are ignored, and popular solutions are based on fantasies.
Moreover, no one ever asks those proposing revamps to our energy and electricity systems what the cost will be, how long it will take, and what are the downside risks in their recommended solutions. It is no surprise that in places like California or Germany that have embraced renewable energy as the only choice for their new power systems, consumers face the highest and fastest rising electricity costs. Moreover, this strategy has made power less reliable. Addressing these failures is what Schernikau and Smith explore in the book. With a 2023 publication date, it is the most up-to-date analysis of energy challenges. Ignoring the realities of energy and electricity will perpetuate the economic disasters we are experiencing.