RUTHFULLY YOURS

JP Morgan Chase — that’s the largest bank in the country. It has been headed for almost 20 years by celebrity CEO Jamie Dimon. For much of the 20 years, Chase and Dimon have been known for their fealty to woke orthodoxies, at least in their official pronouncements. For example, here is a Forbes piece from October 2020 citing Dimon on the subject of “systemic racism.” (Pithy quote: “Systemic racism is a tragic part of America’s history. . . . It’s long past time that society addresses racial inequities in a more tangible, meaningful way.”)

The fealty to woke orthodoxies has in the past extended in particular to the subject of “climate change.” In April 2021 JPM put out a big announcement of plans to facilitate investment of some $2.5 trillion in what they called “climate action and sustainable development.” In October 2021, JPM joined the so-called Net Zero Banking Alliance, then being organized by the UN (led by Mark Carney), promising to starve fossil fuels of investment capital in order to reduce CO2 emissions.

But meanwhile, over at J.P. Morgan Asset & Wealth Management, they have a guy named Michael Cembalest, who currently has the title Chairman of Market and Investment Strategy. For some 15 years, Cembalest has put out an annual Report called the Annual Energy Paper. I have covered a couple of Cembalest’s prior reports, here for 2021, and here for 2022. The titles of both those posts included the words “Fantasy Versus Reality In Woke-Land.” Cembalest is just out with the 2025 version of his Annual Energy Paper, so consider this to be Part III of this series.

These Reports by Cembalest are far from perfect. At a basic level, the Reports accept the ideas that there is a real energy transition going on, that it is somehow important, and that use of fossil fuels must eventually be eliminated. I don’t know if Cembalest really believes those things himself, or if accepting them for purposes of your public reports is the price of holding a highly-paid job at JPM. Either way, while I consider the failure to question those ideas to be a major flaw of these Reports, that failure does not prevent Cembalest from taking a serious and realistic look at many aspects of the supposed energy transition that are completely failing.

I’ll start with a couple of sections of this year’s Report that I consider to be the strongest: those covering hydrogen and carbon capture and storage (CCS).

Hydrogen

Cembalest’s section on hydrogen, beginning at page 45, is titled “Frydrogen: the cancellation of green hydrogen projects when exposed to the sunlight of energy math.” The reason for use of the word “fry”: “[M]any hydrogen projects are being fried (terminated) since the energy math didn’t work.”

Cembalest quotes Hanns Neubert in the June 2024 German MIT Technology Review:

“Electrolyzers, which do not exist, are supposed to use surplus electricity, which does not exist, to feed hydrogen into a network that does not exist in order to operate power plants that do not exist. Alternatively, the hydrogen is to be transported via ships and harbors, which do not exist, from supplier countries, which – you guessed it – also do not exist.”

There is a long list of some 12 insurmountable obstacles standing in the way of a green hydrogen economy. My favorite:

The green hydrogen economy barely exists despite mountains of taxpayer subsidies promoting supply. In the US, for example: a production tax credit of $3 per kg is equivalent to $91 per MWh based on the energy content of hydrogen (i.e., greater than wholesale electricity prices which averaged between $30 and $50 per MWh in 2024).

(Note that the $91/MWh tax credit for green hydrogen is just the subsidized portion of the cost of making the fuel; the $30-50/MWh wholesale cost of electricity includes all elements of making the electricity, not just the fuel.)

CCS

In a section on CCS on page 19 of the Report, Cembalest correctly takes note of the fact that after decades of hype, CCS has gone absolutely nowhere. He calls the CCS “citation-to-usage ratio” (that is, the number of citations of CCS in academic papers divided by the actual operating capacity of CCS facilities) “the highest ratio in the history of science.” A chart shows current U.S. capacity of operating CCS facilities at about 0.1% of CO2 emissions. If all planned facilities actually get built (highly unlikely based on experience), then the percent of emissions captured would go to around 0.8% of emissions.

Another interesting chart shows that CCS facilities that have been built capture far from all of the CO2 emissions from the plant in question, despite consuming substantial portions of the energy production of the plant. Here is a portion of that chart:

Capturing 55-75% of the emissions of a coal power plant is never going to satisfy the environmental zealots. So what’s the point?

OK, those were the strong parts of the Report. Let’s get to the fundamental flaw.

Solar power

The biggest theme of this year’s Report is “Heliocentrism.” The title of the Executive Summary of the Report is “Heliocentrism and the speed of the energy transition.” Why the term “heliocentrism”? “For purposes of this paper, heliocentrism refers to the view that rapid growth in solar power and energy storage are at the heart of the energy transition, and that new investment in complementary thermal power generation is no longer required.”

Cembalest says that there are “believers in heliocentrism,” apparently lots of them, and lays out their case for them:

Believers in heliocentrism point to rapid growth in global solar capacity which more than doubled over the last three years. If BNEF projections are correct, solar capacity will double again from 2024 to 2027. Solar is now the dominant form of global capacity additions, comprising 60% of new capacity in 2024 and by our estimates ~75% in 2027. According to Carbon Brief, the International Energy Agency underestimated solar capacity growth for years and has been trying to catch up as shown below. Globally, the combination of wind and solar power generation has soared past nuclear and should surpass hydropower in 2025.

Cembalest then states that “there are a couple of ‘buts’ to keep in mind.” That’s putting it mildly! As the “buts,” Cembalest mentions that solar facilities have annual capacity factors in the range of 15-20%, and that producing electricity from solar panels does not solve the issue of non-electrified uses of energy, like transportation, industry, and most space heating. Fair enough. But he never gets to the biggest problem, which is dealing with the problem of intermittency as the penetration of solar generation into the grid increases.

The problem of energy storage is barely mentioned. There is this on page 5:

EIA analysts I spoke with cite a “staggering” amount of battery storage being added to the US grid: another 38 GW by 2027 on top of 22.5 GW already in place. This suggests that some natural gas peaker and baseload plants could eventually be displaced.

Well, how “staggering” is that? It’s really discouraging that Cembalest does not even use the correct units for describing battery capacity (which are watt-hours rather than watts). But assume that we are talking about standard 4-hour lithium-ion batteries. A few minutes of simple arithmetic would show that this “staggering” amount of storage is a tiny fraction of what would be needed to back up a predominantly solar electrical grid. The U.S. used 4,086 TWh, or 4,086,000 GWh, of electricity in 2024. Dividing by 8760 (hours in a year), that’s 466 GWh every hour. 38 + 22.5 GW of batteries would total 60.5 GW, times 4 hours’ duration would come to 242 GWh of storage. So, about half an hour’s worth. Full backup of a predominantly solar grid would take about 500 to 1000 hours of storage. So the “staggering” 242 GWh is around 0.05% – 0.1% of the storage that would be needed. An almost meaningless amount.

Cembalest’s conclusion is that while solar generation is increasing rapidly, it is only increasing “linearly,” which is not nearly fast enough to overtake all fossil fuel generation in any short number of years. Thus, “[A]s a general principle, . . . the US and Europe are a long way off from no longer needing both baseload and backup thermal capacity.”

Well, sorry Mike, but you’ve missed the big picture. If you had done the arithmetic, you could easily have seen that solar is not just “a long way off” from powering the grid without thermal backup; solar is never going to be the main source energy for a developed economy. You owed it to your clients to tell them that this can’t work, and there is a Green Energy Wall coming; but you failed.

Meanwhile, there is at least some reason to think that JPM at the highest levels has finally started to see reality and re-think its green energy commitments. Just in January, JPM quit the Net Zero Banking Alliance. Maybe by the time next year’s Report rolls around, the shackles will have been taken off Mr. Cembalest, and he can give his readers a dose of the truth.