SUSTAINABILITY, ENTROPY AND RISK
The world is on a once off transition to sustainability. I often ask myself the question: what does sustainability mean? For me it is ultimately about humans being able to grow, thrive and ultimately leave Earth to colonise elsewhere. It is about civilization and its ongoing ability to provide a societal mode of behaviour based on for instance the values best expressed by Confucious. We in the West have evolved a fine civilisation emanating from the ancient Greeks but refined by the Ten Commandments, the Sermon on the Mount and the lessons learned from a history of conflict.
But how can civilisation survive if the six billion of us (soon to be nine) goes on to use up all the natural resources bequeathed to us by nature. We assume that nature will go on yielding up its bounty even though the evidence that is to hand suggests otherwise. How can civilisation continue to thrive if large tracts of the world are outcompeted by stronger nations for commodity items such as energy, water, phosphates, copper, platinum etc? Civilisation is easier to organise if there is a sufficiency of the basics.
So where does entropy come into all this? The second law of thermodynamics states that the entropy of the universe is increasing (∆q/t>o). This means that the degree of randomness inexorably increases. A greying out is happening; all processes are at least slightly irreversible. Thus for instance when we take a molecule of oil and burn it with oxygen, we go from a highly ordered state where the carbon and hydrogen atoms in the oil are as indicated.
H H H H H H H H H
I I I I I I I I I
H – C – C – C – C – C – C – C – C – C -H
I I I I I I I I I
H H H H H H H H H
to one, whereby the addition (14 molecules of oxygen (O2) yields 9 CO2 + 10 H2O. CO2 is a gas which by its nature is subjected to an infinity of random collisions with itself and other gases. The degree of disorder on this collection of oil and O2 is increased by the chemical reactions. As a result of the chemical reaction much heat is released but we are left with molecules which have only ground state energy. To make them react further energy has to be added. No matter how much you place 9CO2 and 10H2O molecules in a drum it is never possible to recreate the normal nonane and oxygen you started with. Only by adding energy and pressure over time can we start to recreate the originals.
Take phosphorous: It is concentrated into the guano of sea birds over centuries and is mined and refined to be used in combination with nitrogen in fertilisers. 30% only is used to make plants grow. The rest (70% dissolves and finishes up via rivers in the sea in a highly diffused and diluted state. The entropy of the universe is increasing.
Another way of looking at entropy is to think of the cost of extracting phosphates. It is really cheap to dig them out of the ground. It would be extremely expensive to take a large volume of seawater and by any set of processes imaginable concentrate the phosphates to be usable as fertiliser.
To me the concept of entropy is useful in describing what we are doing to all the elements we need to survive as a species. We are greying out everything. There is only so much highly organised carbon around in the form of oil and gas. It took large amounts of time, sunlight and pressure to create the stock of oil and gas that exists. We are using (very inefficiently) a feed stock that took 20 million years to build. In about 250 years we will have used it all.
It is not sustainable to keep relying on oil and gas for our primary energy.
It is not sustainable to keep on digging out limited supplies of minerals and scattering them into uncollectible enhanced entropy states.
It is not sustainable to cut down our rain forests to grow food or supply land to increasing populations.
Of the extractive industries we now use very few will exist in 100 years.
We will be using no fossil fuels (including uranium) to make electricity in 100 years.
Everything that humans do will have to be done sustainably.
And energy production is one of the major keys to being able to do things sustainably. It will not be possible to have sustainable transport without sustainable energy. It will not be possible to have sustainable food without sustainable energy. Sustainable homes, offices and cities need sustainable energy. For adequate supplies of water we need sustainable energy.
The civilised life, to which all humans can aspire, needs sustainable energy.
If we are to get through the next century intact as a species we have to stop global warming.
The heading to this blog was Sustainability, Entropy and Risk. And so now on to the risk part. Risk can be defined as:
A variable series of outcomes from any venture, which generally should they occur, will adversely affect the success of the venture. Some risks will be well known, some less so. The likelihood of occurrence of any of the identified risks varies from probable to highly unlikely. The consequence of the risk happening can vary from minor irritations affecting only a small part of the venture to catastrophic destruction of the venture with major environmental consequences.
For those of us in business we know that risk and return are intimately related. If an enterprise or project is inherently risky then the returns from this enterprise or project must be high. Risk can be described in terms of volatility. A very volatile outcome is almost synonymous with a risky one. It is possible to measure risks because we can look at historic volatility, calculate the mean outcome and work out the standard deviation of each individual outcome from the mean. Means and standard deviations allow us to apply statistics which through the medium of the frequency distribution curve allow us to consider the mean riskiness as well as the low probability outcomes. Some low probability outcomes are not material but some, if they occur, will be catastrophic for the business.
Risk for electrical utilities is different from risk for other free enterprise companies. One of the primary risks for a utility business is the cost of its raw material. Most business exists in a competitive arena and the price at which they sell their products is not within their control.
Around the globe today hundreds of companies are going out of business because the price of their raw material rose too high. They lose money and many collapse.
The primary raw material of an electrical utility is fossil fuels. But look what happens when the price of the raw material increases. The utility goes along to the Energy Regulator and argues for a price increase. In almost every circumstance the Regulator grant the price increase. Would it not be lovely if the whole world of business were organised like this. No matter what you did the customer paid.
However, things are changing for utilities. Regulators will have noticed that wind and solar renewables on the system mitigate the fossil fuel price. Renewables even go further than give a fixed price. They have a merit order effect, they product electricity without CO2 and they reduce demand for and the price of fossils.
Pretty soon the Regulator will ask the question. How much renewable energy do you generate? And what is your plan for the future?
Actually the degree of risk of any project is becoming more and more bound up with how sustainable that project is. This could be a very broad subject for enquiry indeed the principles could become quite abstract. So by way of an example let me compare two scenarios for utilities. The first utility is conservative and uses only fossil fuels, the second has a balanced portfolio including let’s say 20% wind, hydro and solar in its plant mix. The primary energy for the renewables is free and the cost is fixed. The systematic risk of the first business is much higher (without a concrete set of figures it is impossible to quantify exactly) than the second. The current rules applied by the Regulators allow risks to be passed onto the customers. But how long will this situation pertain? Surely, when Regulators see very high profits resulting from systematic lower risk accruing to the greener utility they will begin to disallow fossil fuel electricity price increases.
There will be winning utilities and there will be losing utilities. The winners will be the ones with the lower risk profile, i.e. the more sustainable.