Mapping Energy
From Energy Transformation to Energy Markets
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Climate is not a technology problem but a story problem.
Delphi Zero is a consultancy and newsletter about the narrative potential of climate.
By the end of this essay, you will:
Grasp the fundamental steps of energy transformation
Have a framework for orienting yourself in the energy market
How? I’m sharing my favorite framework from my Energy Law degree. Let’s dive in.
Mapping Energy
By Art Lapinsch
Since early 2022, I’ve been on a quest to understand “energy markets”.
What started as a frustration over Europe’s dependence on Russian fossil fuels led to a fascination with climate tech in general and electricity in particular.
Whenever I get sucked into a new rabbit hole, I’m trying to learn as much as possible as quickly as possible. Due to my work, I’ve done that in in AdTech, FinTech, and HRtech. Yet climate tech was much more complex.
The challenge is always the same: Before you can go deep, you have to go to a high-level.
Where’s up? Where’s down? Where are the edges? What’s exciting? What’s dangerous?
The best way we know how to do this is with maps 🗺 Maps accelerate progress.
In hiking it’s called familiarizing yourself with the terrain, in computer games it’s called onboarding, and in entrepreneurship it’s called market research.
Now let’s accelerate your progress in energy markets 🗾
Grasping Energy Transformation
Energy comes in many shapes and the first time I intuitively understood that was in Prof. Mueller-Kirchbauer’s* lecture on Technical Fundamentals of Energy Generation.
All credit to insights goes to Prof. MK | Possible errors or omissions in this essay are definitely mine.
Primary Energy
In simple terms: energy is the capacity to do work or cause change.
✅ Energy that can be used and converted is called exergy. This is the good stuff.
❌ Energy that can not be used because it is “internal energy at ambient conditions” is called anergy. Not so good.
The total energy in a system1 is the sum of exergy and anergy.
To go one step further, let’s look at the First and Second Law of Thermodynamics:
Principle of Conservation of Energy: The sum of exergy and anergy is constant. In energy systems, we are not creating energy but we are converting it from one state to another. I extract crude oil from earth (i.e. our system) and turn it into mechanical energy (i.e. my car driving by combusting that oil).
Principle of Degradation of Energy: It is never possible to convert anergy into exergy. Once the useful stuff is turned into the not so useful stuff it’s gone for good. Another word for this is “entropy”.
With fundamental physics out of the way, let’s look at the types of primary energy we use today:
🛢️ Fossil Fuels: Crude Oil, Coal/Lignite, Natural Gas.
☢️ Nuclear Fuels: Uranium, Plutonium, etc.
🌤️ Renewable Energy: Sunlight, Wind, Water currents, Biomass, Geothermal heat.
We hijack existing exergy from our environment and convert it into something useful. All day, every day.
Secondary Energy
Once we process primary energy, we turn it into secondary energy.
🛢️ Fossil Fuels:
Crude Oil→ Petrol [refined].☢️ Nuclear Fuels:
Uranium→ Enriched Uranium [refined].🌤️ Renewable Energy:
Sunlight→ Electricity [generated].
The particular thing about secondary energy is that fossil and nuclear fuels can be either (a) refined for further use or (b) be transformed into electricity, heat, or energy storage (e.g. hydrogen).
On the other hand, renewable primary energy is directly transformed into electricity, heat, or chemical storage. It does not need to be refined or purified.
Final Energy
Secondary energy is used to provide final energy:
Energy used by consumers (small consumer; household; industry)
Energy stored for later use
You should check out Sankey Diagrams, if you want to have a high-level view on energy transformation.
One of the best in the game is the regularly-updated energy consumption illustration by the Lawrence Livermore National Lab - a beauty 😍
Useful Energy
The transformed energy we use is called useful energy:
Warmth: Warm water.
Cold: Fridge.
Mechanical Work: Action inside of a dishwasher.
Chemically-bound Energy: Battery in your phone.
Light: Image from TV.
Sound: Sound from TV.
Tada 🎊 We have gone from raw energy commodities to the weekly viewing of your favorite TV show 📺
Energy Services
Repeat after me: Consumers don’t care about energy. They care what they can do with it.
Consumers don’t care about heat pumps. They care about cheap heating.
Consumers don’t care about green energy contracts. They care about the cheapest electricity bill.
Consumers don’t care about Direct Air Capture. They care about a clean planet for their children.
Mapping Energy Markets
Remember the questions from before?
Where’s up? Where’s down? Where are the edges? What’s exciting? What’s dangerous?
Energy transformation gives you a frame. Now let’s fill that frame with economic activity.
I’ll give you my 2 cents for each of those markets:
Extraction
Extraction is the stage at which fossil and nuclear fuels are explored and extracted/mined from earth.
This is not to be confused with mining for rare earths/minerals, which is necessary for the production of essential components in the entire energy system: iron ore for steel, lithium for batteries, copper for electric wires, etc.
Unless you get a concession, this is a market where only the big guns play.
Refining & Generation
Ramez Naam described the main benefit of electricity generation from renewables in this goldie 👇
“Clean energy is a technology, not a raw material. Its long-term price isn’t so much dictated by the law of supply and demand as it is driven by the virtuous cycle of increased demand leading to reduction of cost via Wright’s Law / the learning curve, and those lower prices leading to increased demand. And that’s a global phenomenon. Deploying more clean energy technology in Europe makes clean energy cheaper in the US, in China, in India, in Africa, and everywhere.”
Fossil & nuclear-based generators need fuel. Renewable generators don’t.
Energy Transportation
The transport of gas and electricity beyond the refining & generation stage happens on pipes and power lines that are owned by very few entities. Those are called natural monopolies.
There’s a host of reasons why natural monopolies are the dominant design for energy transportation and I’ve written at great length about it in this piece 👇
Long-distance transport (e.g. between cities) is called transmission and short-distance transport (e.g. within a district) is called distribution. That’s where the distinction between transmission lines and distribution lines comes from.
IF you are a former state monopoly or a heavily-financed business, then you can play the energy transportation game. IF NOT, then you’re out of luck. Lots of infrastructure investment is required and the amortization horizons are usually 10+ years.
Energy Storage
Alrighty, this one is juicy.
I believe that we are currently seeing three concurrent trends:
Rising Electricity Demand: Even in it’s baseline scenario, the IEA expects electricity demand to increase manyfold by 2050. This is driven by the electrification of everything (EVs, heat pumps, induction stoves, etc.)
Decarbonization of the Grid: The electric grid is the largest overall emitter of greenhouse gases. As such, we need to rapidly decarbonize electricity generation by shifting from fossil fuels to renewables. The problem: We don’t have a bank account for electricity (yet) and it means we cannot really store electricity at significant quantities.
Increasing Focus on Grid Security: Latest since the European energy crisis of 2022, we have increased public awareness for energy security. A resilient energy system requires contingencies and fall-back options.
The smallest common denominator of these three mega trends is energy storage 🔋
Stay tuned. I’ll have an update in this area soon.
If you are interested in energy storage, please get in touch 🙏
Energy Trading
I still have to fully wrap my head around energy trading so please excuse my brevity.
Essentially, electricity is traded like stocks. There are various markets where it can be traded:
Energy Markets: Short-term trading on Intra-day and Day-ahead markets.
Capacity Markets: Long-term trading (futures) for months ahead.
Energy traders assure that (a) all demand in the market is supplied and (b) that a fair market price is established.
Energy Retail
Most of us have a utility contract. You pay for water, you pay for electricity, and some of us pay for gas.
If this contract is between a utility provider (retailer) and a household (you) then we talk about retail contracts. If the contract is between the utility and a business (e.g. office building) then it’s a commercial contract.
The energy retail space is one of the most dynamic markets for entrepreneurial innovations, since it is relatively cost-efficient.
Energy retailers - sometimes also referred to as energy suppliers - are effectively intermediaries between the producers of energy and the consumers of energy.
[extra] Energy Marketing
This is not a stand-alone market per se but something that needs to be addressed.
Many deeply technical industries struggle to speak the customer’s language. I’ve seen this in AdTech and I see it again in climate tech.
I’ve written a primer on narrative building for climate tech. You can read it here 👇
Mapping Energy
I hope that by now you (a) grasp the fundamental transformation steps of energy and (b) can orient yourself in the energy market.
Two additional thoughts:
Picks & Shovels Businesses: There are tons of picks & shovel business opportunities (e.g. energy storage) in the energy market. Think of software, hardware, and service businesses.
The Map Is Not the Territory: Maps and frameworks are simplified representations of reality. The real world is much more complex than that… but at least it gives you a starting point.
Happy exploring 🧭
🙏 Thanks Andi for giving me input.
If you enjoyed this essay, please consider forwarding it to a friend who wants to get started with climate 🌳
If you have feedback/ideas/critique/etc., please get in touch. Let me know what you liked and what you disliked. What do you want to have more of?
As always, stay healthy, stay happy ✌️
Art
Before conducting any type of analysis it helps to draw system boundaries (i.e. your bedroom; your apartment; your city; your country; planet Earth; the known universe). Once system boundaries are defined, we can apply systems thinking methods.
"The particular thing about secondary energy is that fossil and nuclear fuels can be either (a) refined for further use or (b) be transformed into electricity, heat, or energy storage (e.g. hydrogen).
On the other hand, renewable primary energy is directly transformed into electricity, heat, or chemical storage. It does not need to be refined or purified."
The CANDU reactor is deployed in 7 countries and decarbonized the Ontario grid. It is fueled by natural uranium, no enrichment required. https://cna.ca/reactors-and-smrs/how-a-nuclear-reactorworks/
I suggest you look more into the uranium fuel cycle. It is one of the cleanest mining operations in the world, and a very tiny amount is required for reactors. It is also recycled, unlike PV panels which are put into landfills. France and Japan recycle their fuel, and breeder reactors extend the useful life of raw uranium by literally thousands of years.
VRE isnt the product of immaculate conception - lots of mining and dirty industrial processes are required to produce copper and polysilicon. The Amazon rainforest is literally being clearcut to produce charcoal for polysilicon refinement.
Vaclav Smil may not be right about everything, but we definitely need to curb our energy use (which goes triple for well-educated people in big economies, who live at an energy standard that is no longer supported by the planet's physical attributes). https://ukfires.org/blog-cop26/