J.P. Morgan Private Bank CIO Michael Cembalest on the Energy Transition | Part 2

Podcast: Eye on the Market

Episode: The Elephants in the Room: Part Two, Transmission and electric vehicles

Length: 20 min

Produced By: J.P. Morgan

Date: May 12, 2022

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Overview

Part 2 of a 4 part series discussing key takeaways from the J.P. Morgan Eye On the Market 2022 Annual Energy Paper.

Part 2 focuses on electrification – EV adoption by gasoline super-users and building new transmission, which “may be the single largest roadblock in the entire renewable energy transition.”

Electrification

Over the last 20 years – share of electricity as % of total energy use has risen just 2-3% in most countries (very slow rate of change)

- Large & mid-sized countries – use electricity for 15-20% of overall primary energy consumption
- Only countries like Iceland, Norway, Sweden, Switzerland are above this, and these countries have abundant hydro and geothermal power
  - They are not representative

Transmission

Enormous gap between the amount of transmission capacity we have (measured as gigawatt miles) and what the decarbonization plans require

Very hard to build new transmission

In the U.S. – transmission capacity has grown only 2% per year since 1978, only 1% over past 5 year
Nowhere near robust grid needed to support electrification of energy use

States rights, eminent domain issues are real world obstacles to deeper decarbonization

- Transmission projects blocked all across the country by landowners, conservation groups
- Eminent domain not being used for transmission
  - Ex. Northern pass from Quebec to Mass
    - Would have replaced natural gas with cheaper and cleaner Canadian hydro power
    - Rejected by NH and Maine

Interconnection Queues – line up and apply to be added to grid

- Even once transmission projects get go-ahead, they need to connect to the grid itself
- Used to be simple when developers were adding large nuclear and natural gas plants
- Now with hundreds of smaller scale renewable projects its longer
  - Can take up to 4 years for approval
- Amount of wind/solar capacity in queues now is many multiples existing wind/solar capacity

Transmission issue – may be the single largest road block in entire renewable energy transition

Electric Vehicles

Sales gathering steam, growing as % of a given year sales

- Still a small % of overall vehicles

Gasoline super users: top 10% of drivers burn 1/3 of all gasoline, more than gasoline burned by bottom 60% of all drivers (In the U.S.)

Policy idea – pay people for gallon of displaced gasoline

- Problem with current system – someone who barely drives gets same EV rebate as someone who drives a ton
- Incentive to switch is not being maximized