The Future of Energy
09 January, 2018
By Sanjit Singh, S&S Associates (India)
“Exponential technologies” seems to be the buzz word around town, and even the geeks have difficulty keeping up with the pace of change. In this note I would primarily like to elaborate on two aspects related to the above – Solar Energy and Battery Storage costs, and their likely impact on our lives in the next decade.
So let’s look at some facts and then do some soothsaying:
- Why have the big bad Oil Companies become the largest venture investors in Solar Energy ventures and Battery Storage Companies?
- Why is the young Saudi crown prince changing course and investing heavily in green technologies?
- Why have the global Auto giants who kept insisting from every platform available that combustion engine vehicles would be 80% of the market till 2040 suddenly diverted 80% of their R&D investments ($50 Billion annually) to Electric Vehicles?
- Why are coal surplus countries like India jettisoning all new Thermal projects?
Are we on the cusp of some earth shattering breakthroughs that might assist in improving the quality of life in the poorest of countries? We might well be:
- Solar generation bids in India have dropped from a subsidy dependent Rs.17 per unit, to a low of Rs. 2.44 though the average for the country may be around Rs. 3.5 with no subsidy. There are credible bidders, so it’s not a flash in the pan. Similar projects in Dubai and Saudi Arabia have bid lower than India. Europe and Japan with half the sunlight we get now have rooftop solar as a major growth area.
- Will the next 13 years see an explosion of Solar Generation projects, Rooftop projects, Micro-grids to avoid Transmission investments? Yes, the only constraint to this happening is long term capital and in vast amounts. 70% of the cost of a Solar project is investment amortisation costs, and thankfully 60% is rupee denominated. So M/s Modi, Jaitley and Goyal have the ominous task of finding the money, getting inflation down and convincing a recalcitrant RBI to reduce rates, and unleash a new era in our lives.
- What makes us so bullish on the scenario is the dramatic reduction in Energy Storage costs. In the USA they have already declared the death date for “Peaking Power” tariffs (Gas/Furnace Oil based power plants for meeting spikes in demand) and by implication the DG Set industry. The US Energy industry typically kept a $350 per KWH number as the crossover point between new investment for peaking vs Storage costs. A sanguine world had thought 2023 would be the earliest that we would take a peek at this rate. In December 2016 TESLA and four others offered Industrial Batteries (Lithium ion) at $185. The projection is that by 2023-25 this cost could come down to $35. Suddenly a new term called “God Crossover” is being used – a rooftop Solar with Storage that could by 2030 become cheaper than the cost of Transmitting Power. Is this in the realm of science fiction???
- Suddenly we find that there are 18 Giga plants under construction/development for manufacturing Lithium batteries. Electric Vehicles (EV) originally drew interest from the Tech majors like Google, Apple, Samsung, but now Detroit is moving fast to join the band wagon. An EV has just 18 moving parts as opposed to over 2,000 for a combustion engine vehicle. 40% of the cost of an EV is the battery cost. This is where sharp drop in costs is happening. The life of a battery is now at 500,000 Km – above the life of a conventional vehicle. Suddenly huge business opportunities may appear for Charging Stations for conventional gas stations. There’s a lot of work happening fast in this space.
- Foxconn recently announced its plans to launch a sedan EV at $15,000 in 2020. This is quite aggressive given that TESLA currently prices a similar product at $35,000. This gives us an idea of the pace at which technology and volumes will impact costs. Some Technologists have already forecast that the expiry date for Combustion Engine (CE) vehicles will move forward from 2040 to as early as 2023. They base it on certain “river in spate” forecast models: 12/13 years for Horses to be replaced by Autos, the pace of developments in PC/laptop penetrations, Growth of Email and demise of Fax, now growth of Whatsapp and drop in Email, the rise and fall of Nokia with rise of Apple and Samsung, the growth of Facebook, Google and Amazon.
- Let’s not forget another of God’s gifts – Wind!! Windmill manufacturers are not lagging behind in innovating span of wings, motor efficiencies, rotation with low wind-speeds below 10 Kmph, and the cumulative effect is that Wind Energy unsubsidised is already cheaper than Thermal. The 5 major Coal Companies in the USA were valued above $50 B in 2010. Today you could buy all of them for less than a Billion Dollars. No wonder Trump hates climate change talks!
So what does all this imply for the Global economies and where is our world headed to?
- If Combustion Vehicles go off road even by 2030, it means 30-40% drop in demand for crude. Existing oil fields would be good enough for the next 40 years, and the discovered reserves good for another 100 years. What happens to price of oil – back to $10 per barrel?
- It would be curtains for the Auto-component sector and Oil Exploration sectors . What happens to alloy steel manufacturers catering to CE Vehicle needs?
- If globally environment cleaning becomes a norm, would health of populations improve, and would Pharma companies be looking at Product Portfolios very carefully?
- Austral-Asia, MEA and Latin America have adequate Wind and Solar availability to at some date achieve 100% clean energy supported by Storage. Does it imply a cap on growth of Thermal Power (death!!).
- Would Global political realignments be determined by which Energy Bloc they come from with USA, Russia, Saudi Arabia (and acolytes) in one camp and China, India and the EU (clean energy sponsors) in the other? Japan, Iran and UK may have a difficult tightrope to walk on. In the USA the conflict between old money (Republican-Oil & Auto) and the Hi-tech sector (Democrat supporters-all for Clean energy) seems to be tilting heavily towards Clean in the long run if you see the investment strategy of Oil and desperate moves by Auto. Political soothsaying will certainly be a huge new area.
- Let’s not forget some interesting moves in the Water desalination sector. There has been a technology breakthrough which reduces energy consumption to one ninth of that used by current Desalination plants. This could completely change the scenario for Arid/ Desert areas over the next 15 years as more such technologies become available.
We were given to believe that we have seen a lot of technology changes in our lives, but with what’s coming in the next 10 years – we ain’t seen nothin’ yet!!