May 30, 2018
As published on Forbes.com
Politicians and energy executives seem to agree that we are in a transition from fossil fuels to renewables. Yet, we hear the same old trope: ‘It won’t happen overnight’. If that is the case, then when will it happen? Next year, in five years or in 50?
‘It won’t happen overnight’ had a different meaning four years ago than today. The speed of cleantech innovation has accelerated tremendously. Looking back a decade from now, we may be surprised how slow things progressed in 2018. Innovation provides hope that ‘It won’t happen overnight’ will not be as long as it once seemed.
In Part I of this two-part series on the energy transition, we’ll consider the innovations transforming the energy industry. In the next installment, we’ll explore the market dynamics.
The Energy Transition Report Card
In recent years, four key technological developments have shifted the future of energy. As a former economics professor and now venture capitalist (my firm invests in innovations for resource intensive industries), I felt that an Energy Transition Report Card would best illustrate the significance of these changes:
Cleantech innovation has outpaced Moore’s Law and forced the International Energy Agency (IEA) to adjust its forecasts for clean energy year after year. In the US, unsubsidized solar and wind are already less expensive than coal, oil and natural gas.
International record lows for new wind and solar power are both below 2 cents per kWh (kilowatt hour). Their costs could drop by another 50 to 60% in the next decade. Indeed, 72% of the $10.2 trillion spent on new power generation between now and 2040 will go into solar and wind, Bloomberg NEF predicts. Yes, the installed renewable energy base is still below 20%, but it’s increasing steadily.
Energy storage, the Achilles heel of clean energy, saw even stronger improvements. The cost of battery packs dropped almost 80% in six years, from $1,000 per KwH in 2010 to $230 per KwH in 2016. They could drop another 70% between now and 2030.
This has major implications for electric vehicles (EVs; a separate item on the Report Card) and smart grids. Consider the 100-megawatt Powerpack battery backup system Tesla recently installed in South Australia. It provides some 30,000 homes with backup power in case there’s no breeze at the wind farm they rely on for their electricity.
New innovations in long-distance power lines could revolutionize the utility side of the energy industry. The Chinese have pushed the development of ultra-high-voltage DC powerlines to transmit electricity beyond 2,000 kilometers (about 1,240 miles) without any significant line loss. This technology could expand the typically small geographic range of utilities and help renewables become part of ‘baseload’ energy provision.
For example, Iceland is exploring Ice-Link, a cable that could deliver the country’s hydro and thermal energy to the UK. Iceland could become the clean energy battery of Europe. Other opportunities, like connecting offshore wind in the North Sea and solar in Southern Europe and North Africa, show similar potential.
In 2014, you could buy one of three electric vehicles. At recent auto shows in Paris and Detroit, every carmaker displayed entire lineups of EVs, which could account for 54% of new cars by 2040. At that scale, EVs would reduce the need for transportation fuel by 8 million barrels per day, or about 1/12th of today’s global production.
We may be nearer to ‘peak oil demand’ than expected. New power demand for EVs will have to grow only modestly. Even with such rapid adoption, only 5% of global power generation is expected to be diverted to EVs in 2040.
So, the energy transition won’t ‘happen overnight’?
The flaw in this phrase is that most of us think about change linearly. But how many of you still have a BlackBerry?
10 years ago, any conference hall filled with business people would have been BlackBerry territory. Along came the iPhone in 2007, and within years, BlackBerry went from industry leader to footnote.
This is more than ‘exponential’ change; it’s about a dramatic bifurcation. There’s a picture of Times Square in New York City from 1903 with all horses and one car. A picture of the same place just 10 years later shows almost all cars and just a few horses.
Today’s energy transition might take a similar course, but we’ll only see it in retrospect. When you are in a disruption, you may not realize it. Zoomed in, the curve still looks linear. Instead of looking at change as an ‘overnight’ phenomena, let’s widen our lens.
In Part II of the Energy Transition Report Card, we’ll focus on market trends that constrain hydrocarbons players and will force the industry to adapt or decline.