- Jun 05, 2023, 3:00 PM CDT
As I analyze the situation, I have reached the conclusion that energy modeling misses important points. I believe that profitability signals are much more important. In this post, I discuss some associated issues.In Sections [1] through [4], I look at some issues that energy modelers in general, including economists, tend to miss when evaluating both fossil fuel energy and renewables, including wind and solar.
In Section [5], I try to explain one reason why published Energy Return on Energy Investment indications give an overly favorable impression of the value of adding a huge amount of renewable energy to the electric grid. The basic issue is that the calculations were not set up for this purpose. I think of the problem of rising energy prices for an economy as being like a citizen faced with an increase in food costs. The citizen will attempt to balance his budget by adding more debt, at least until his credit cards get maxed out. This is why we should expect to see an increase in government debt when oil prices are high; oil and other fossil fuels are as essential to the economy as food is to humans.
Section [1] shows that high oil prices seem to be associated with government deficits. A high-priced substitute for oil would almost certainly have a similar problem. This governmental debt tends to build up, and at some point becomes almost unmanageable. [3] It is uncertain in exactly which ways the economy might contract, in response to higher interest rates. Some ways the economy could contract would bring an early end to both the extraction of fossil fuels and the manufacturing of renewables. This is not reflected in models.
Figure [2] shows that, on an annual average basis, inflation-adjusted Brent oil prices have only exceeded $120 per barrel during the years 2011, 2012 and 2013. On an annual basis, oil prices have not exceeded that level since then. For a while, forecasts of oil prices as high as $300 per barrel in 2014 US dollars were being shown as an outside possibility ., showing how much oil can be produced at various price levels.
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