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Comment by jillesvangurp

2 days ago

I think the raw economics behind the transition are very interesting. People have a hard time imagining transformative changes. They keep trying to project the current state of affairs onto the post transition state. Of course the current state is mostly the result of how things used to work and not really a predictor for the future. When things stop working in the same way, a lot of other things start shifting. For example steel production is happening close to where coal used to be produced. And a lot of other industries depend on steel. What happens if steel production transitions to renewables? It will move to wherever renewables are cheapest. Which typically isn't where it's currently happening. Everything depending on cheap steel might move as well.

I think the current US policies are unfortunate (for the US) but ultimately futile. They'll fall behind and will see their exports affected. That will lead to local economic problems that ultimately will lead to economic reform to fix that. It will delay the energy transition in the US for a bit (10-20 years, maybe less). The tariffs will curtail imports. Which, ironically means other countries will be less dependent on exporting to it. And also less motivated to import relatively expensive things from the US. So US exports will decline in lockstep with its imports. And the whole tariff volatility just means that countries will start insulating themselves from being dependent on anything coming from the US. And that will extend to all sectors in the US. Agriculture, gas, cars, software services, etc.

The obvious fix to this in a few years will be a hard break with the (recent) past and ending trade wars and pulling the plug on the fossil fuel industry. Which by then won't be competitive anymore. It actually isn't right now but the US chooses to shove that under the carpet with trillions of dollars of government support. And most of that money is being borrowed. Interest and inflation is going to be a key thing to keep an eye on in the next few years. The US is sitting on a big stinky gas fueled debt bubble currently. What happens when that bursts and the gas becomes worthless?

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jillesvangurp

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silvestrov  2 days ago

Steel factories cannot shutdown temporarily due to high electricity prices. They need a steady source of electricity.

This needs to be taken into account. I don't know if factories can be made with better insulation so they can "hibernate" somewhat when electricity is expensive.

So they might want to be located in a location with both wind, solar and hydro to ensure a (somewhat) stable price.

Denmark has a lot of wind mills and use hourly pricing for most consumers. This means that the price can vary a lot from hour to hour. 21st of June the price of electricity itself (excl taxes and transmission) was negative 3 cents at 2pm and 18 cents at 8pm. That is a difference of 21 cents over 6 hours.

  • jillesvangurp  2 days ago

    They need some local buffers batteries, and some fallback power generation via the grid. But it benefits them if they can run on cheap renewables most of the time. And of course steel production processes can be adapted to be more flexible as well. Current steel production isn't optimized but when the choice is between shutting down for a few days or falling back to some relatively expensive power source, shutting down might be the more economical option. The idea behind flexible pricing is that large consumers of energy can optimize for that with batteries and storage. Charge when it's cheap, discharge when it isn't. Sell power when it gets really expensive.

  • Chilko  2 days ago

    This really depends on the pricing mechanisms & contracts that large industrial users have with their energy provider. Many users may contract out of wholesale spot prices in favour for a more predictable contracted price - and demand response could form part of that contract. Depending on the market, financial hedges are also an option.

    For instance, in New Zealand we have an aluminium smelter (Tiwai point) that constitutes about ~13% of national electricity demand. The smelter recently re-contracted its electricity supply with several of the major power companies (a 20-yr agreement) which includes a component for demand response when required. NZ has a ~80% renewable grid with hydro and wind as major variable sources, which creates both hourly and seasonal variation in the wholesale spot price (dependant on wind and rain resource). In the event of a major drought that pushes up prices due to a lack of hydro (this happened last year), the agreement with the smelter means it will shutdown some of its operating lines in exchange for demand response payments. This is exactly what occurred, whereas other industrial users that did not have such agreements in place or chose to take advantage of previously low spot prices without adequate hedging were then exposed and also shut down, without being paid to so.