Skip to main content

The Real Cost of Renewables

By July 6, 2022Blog

We came across the below infographic recently which is sourced from a recent article in Issues in Science and Technology, a publication of Arizona State University – highlighting the resources required to build a gas-fired turbine and a wind turbine.

In short, the infographic highlights that “building solar and wind systems requires roughly a tenfold increase in the total tonnage of common materials” to deliver an equivalent amount of power compared to a gas-fired turbine. Not only that, but because of the wind’s intermittency (i.e., it doesn’t blow all the time), you would also need batteries or spare turbine capacity to compensate for shortfalls.

The history of humanity has been a constant move towards energy sources with higher “Energy Return on Energy Invested” (ERoEI) –  how much energy a system outputs, relative to the energy input needed to generate the output – going from burning wood to burning hydrocarbons to nuclear fission. Renewable resources, on the other hand, have lower ERoEI figures due to: (a) the huge quantity of materials needed, which means the “energy invested” is very high; and (b) renewables’ intermittent power generation – i.e., turbines only generate power when there’s wind!

Of course, the move to renewables reflects the fact that carbon emissions need to be curtailed to avert a climate catastrophe. A noble goal, of course, and one that we agree with fully. The hard question the article asks is: can we afford to build huge amounts of wind and solar capacity?

Not only will we need materials for wind and solar, we may also need materials to build batteries for energy storage, as well as needing materials for all other industrial uses. All in, the demand for materials is likely to increase massively over the coming decades.

Capital spending by mining companies has decreased significantly from a peak in 2012. As it takes many years to bring a mine online, the effect of historic underspending is likely to be felt for some time to come. What this amounts to is a restriction in supply at a time when demand is set to increase – a classic set-up for higher commodity prices.

In our members’ area, we provide coverage of an investment trust which is focused on investing in a portfolio of globally diversified mining companies, the likely beneficiaries of higher commodity prices. A starting dividend yield of 5% and a portfolio trading on an average price-to-earnings ratio of 8-9 times looks attractive, in our view. To access a full research note on this trust and ongoing update on developments in its portfolio, subscribe to our website using this link.