April 18, 2017
ENERGY WATCH #1 by Karel Beckman
Can cleantech finally turn the corner?
April 18, 2017
You have all heard the comparisons of the energy sector with “Silicon Valley” stuff. The idea was that energy would be transformed the way telecommunications were, or the media, or photography, etc. And if it hasn’t happened yet, it will happen tomorrow.
Unfortunately, things aren’t that simple. Change in the energy sector isn’t happening nearly as fast as in other sectors. In fact, it’s turning out to be one hell of a job to transform the energy system.
Energy, it appears, is different. Why? For one thing, the existing energy system is simply gigantic. It’s what the world economy is based on. But there is more to it than that. This “more” is illustrated very nicely in an excellent article by Marius Buchmann, a PostDoc at Jacobs University in Bremen, and blogger (see his blog Enerquire).
Buchmann notes that starting around 2006 there was a lot of excitement about investing in energy and cleantech startups – but the high expectations were not met. He refers to an article from Gaddy et al (2016) from MIT who compared the data from clean tech with two other technology sectors: Software and Medical.
From this data, Buchmann writes, we learn that cleantech startups performed very poorly compared to startups in the other sectors (even though the two sectors had a comparable environment for startups):
What are the reasons for this? The MIT paper identifies four:
- Cleantech development needs time (normally longer than the 3-5 years which are expected by venture capital funds)
- Cleantech is expensive to scale as you need large factories even before your product is finalized
- Cleantech focuses on commodity markets with high competition and low margins, which reduces the ability to invest in Research &Development
- Cleantech lags incumbent companies that are willing to take the risk and acquire startups
Buchmann notes that the “first two reasons can explain why clean tech underperforms compared to software startups and why most startups outside the clean tech sector are focusing on digital products or services. But high investment costs for R&D and production are required for the medical sector as well. Here, clean tech loses the comparison because of the last reason mentioned above. While companies in the medical sector have always been willing to invest in startups to bridge the gap between venture capital and mass market, energy utilities were not. Cleantech startups therefore entered the valley of death between prototyping and mass markets.”
But according to Buchmann, the picture is finally starting to change. This is because in recent years “incumbent” utility companies are increasingly starting to invest in cleantech and renewables. Before, they did not do this, out of fear that it would cannibalise their existing business. But they are moving beyond that point – especially when the companies are split up, as Eon and RWE have done in Germany.
Here is an overview of utility investment in distributed energy companies in the U.S. and the EU 2010-2016:
In addition to utilities being split up and investing in cleantech, there is another reason why prospects for cleantech are favourable, according to Buchmann: the trend of digitization taking place in the electricity sector. This reduces development time and upfront investments for startup activities.
ENERGY WATCH #2 by Karel Beckman
Cleantech investment lowest since 2013
April 18, 2017
So Buchmann ends on a positive note. Nevertheless, victory for cleantech is hardly guaranteed. The latest news from the investment front is not very encouraging.
Bloomberg New Energy Finance (BNEF) reports that clean-energy investment fell 17 percent in the first quarter, “keeping pace with last year’s decline, as the U.S. and China both scaled back support for wind and solar farms”.
Worse: “the $53.6 billion funneled into projects such as renewable energy, efficiency and electric cars during the first three months of the year marked the lowest investment for the quarter since 2013, according to Bloomberg New Energy Finance.”
One reason was that “a surge in financing for large offshore wind projects at the start of last year wasn’t repeated in 2017”.
There is also a positive side to the figures, though: the broader decline in investment reflects the falling cost of capital for renewables, which allows investors install the same power generation capacity for less cash. Renewables were the biggest new source of electricity last year even as investment fell to $287.5 billion from a record $348.5 billion the year before, BNEF said. Declining costs also lead governments to slash subsidies. Bottom of Form
As to bright spots, they included “a $1.4 billion share sale by Tesla Inc. and $650 million for an Enel SpA solar project in Mexico that may be the biggest plant of its kind. Germany and France also boosted investment. Brazil and India declined.”
China, the world’s biggest clean energy market, saw investment fall by 11 percent to $17.2 billion in the first quarter, reflecting a drop in feed-in tariff subsidies and issues with grid curtailment. In the U.S., funding fell 24 percent to $9.4 billion, which may have been partly driven by further uncertainty about future tax liabilities.
Worldwide offshore wind financing fell by 60 percent to $4.6 billion from $11.5 billion a year ago. The U.K., the world’s biggest offshore wind farm installer, had no new financing in the first three months of the year.
BNEF analyst Abraham Louw concludes that “It was a relatively quiet first quarter for global investment, but it’s too early to assume that 2017 as a whole will be lower than last year.”
ENERGY WATCH #3 by Karel Beckman
Tesla’s projects: the highest hanging fruits?
April 18, 2017
BNEF places high hopes on Tesla: “Tesla continues to plow ahead with its ambitious plans for ramping up manufacturing of the Model 3,” said Colin McKerracher, an analyst at BNEF. “If they achieve anywhere near their 2017-18 production targets, the impacts on the auto sector would be profound. Tesla are rolling some big dice here.”
So can Tesla save the world? Not if you believe Schalk Cloete, an independent energy expert based in Norway who regularly writes for the website The Energy Collective. In a new article for The Energy Collective, he zooms in on Tesla’s famous “master plan”. Cloete “crunches the numbers” on four key Tesla initiatives: electric cars, autonomous vehicles, solar roofs and battery storage, and comes up with pretty discouraging results. To be sure, Tesla will upset energy markets – but not enough to transform the system.
Let’s take a quick look with Cloete at three of the four pillars of Tesla’s efforts: battery EVs, solar roofs, battery storage.
-Battery electric cars
According to Cloete, ”few people understand just how small the medium-term climate change mitigation potential of battery electric cars is. Even though Tesla plans to expand to other segments, battery-powered electric drive remains fundamentally best suited to light-duty vehicles that are mostly used for shorter travels. Light duty vehicles consume about 40% of global transportation energy. 19 mb/d [million barrels/day] of oil consumption results in CO2 emissions of about 2.2 Gt/year – 6.8% of the global total.”
He notes that “electric car forecasts are all over the place, but the seemingly reasonable forecast from BNEF (below) gives about 20% electric cars on the road by 2040. By that point, new conventional cars and hybrids should be averaging more than 50 MPG [miles per gallon], aided by the fact that electric cars will take over predominantly city mileage where internal combustion engine efficiency is quite poor. Average electricity carbon intensity might have fallen to about 350 kg/MWh by that time. When assuming 50 MPG for conventional cars and 300 Wh/mile (including charging losses) for electric cars, it can be calculated that 20% electric cars in the fleet will avoid 8.2% of PLDV [passenger light-duty vehicles] CO2 emissions in 2040 (ignoring the higher embodied carbon in BEVs and the potential of biofuels and synfuels to reduce gasoline carbon intensity). 8.2% of 6.8% amounts to only 0.56% of total energy-related CO2 emissions.”
Cloete notes that the BNEF forecast “suggests that electric cars will sell well without subsidies in about 5 years’ time”, but adds that “Based on subsidized sales statistics from the US and Norway reviewed in a recent article, this seems unlikely. For example, affordable BEVs command only 0.25% market share in the US, even though subsidies cover the entire battery pack cost. It is also worth pointing out that, under the assumptions outlined earlier, a BEV will avoid 14.6 tons of CO2 over a 200,000 mile lifetime. The CO2 avoidance cost therefore exceeds $100/ton for a subsidy of only $1460 (current US subsidies are about 10x this number).”
According to Cloete, “in a long-term future scenario where Gen IV nuclear power has failed to deliver, rooftop solar can become an important player in densely populated sunny countries such as India).”
However, he adds, “this will be more due to a lack of other options than because of the attractiveness of this technology.”
The fundamental problems with small rooftop PV relative to utility scale PV, Cloete claims, “will always be higher installation costs and lower capacity factors, substantially increasing the levelized cost of generated electricity. Yes, rooftop PV can potentially avoid grid capacity in regions where electricity demand always peaks when the sun shines at its brightest, but this advantage fades quickly with increasing market share and does not apply to grids that are already built. These effects have been reviewed more thoroughly earlier.”
The solar roof as envisioned by Tesla “will further accentuate these problems. I can see no clear reason why a solar roof will cost less than a normal roof with solar panels installed (and plenty of reasons why it will cost more). Also, the capacity factor of a solar roof will definitely be less than a roof with solar panels. For these simple reasons, many companies have tried and failed with solar roof tiles simply because they are not cost competitive with solar panels. In addition, solar roofs only make economic sense on new roofs, greatly restricting the potential market size.”
–Distributed battery storage
The solution for solar roofs, writes Cloete, is in theory very simple: distributed battery storage.
However, according to Cloete, although “battery storage does have a potential market in terms of low-volume grid services, the economics quickly deteriorate when the energy storage time-scale is lengthened.”
He reproduces a summary from the 2014 IEA Energy Technology Perspectives report:
“The top two graphs illustrate high-volume energy storage applications and it is clear that battery technology will not be competitive for a long time. Some possibilities may open up for moderate-volume load following applications if open cycle gas turbine power costs double, but batteries remain uncompetitive with other storage options like pumped hydro and compressed air. Similar conclusions were drawn from my own energy storage cost analysis here.”
The potential of battery storage to significantly enhance the impact of distributed solar therefore appears to be small, writes Cloete: “Tesla’s Powerwall will sell many units in isolated regions with very high residential electricity prices, but the total potential for medium-term CO2 avoidance by enabling cost-effective deployment of more intermittent renewables is probably in the same order as the solar roof.”
Finally, Cloete argues that for example for a country like India, a large-scale rollout of rooftop solar PV will lead to prohibitively high opportunity costs in the range of $500,000 per person over a 30 year period.
His conclusion: Tesla’s solutions may be great once we get to the low-carbon society, but right now they represent the highest hanging (rather than lowest hanging) fruit: “It is easy to see Tesla’s electric cars and distributed solar+batteries playing an important role in the fully industrialized, post-carbon, stable-population world we will hopefully achieve towards the end of this century. In the crucial quest to safely reach that point, however, Tesla’s products represent some of the highest hanging sustainable development fruits in terms of total cost, cost structure and potential CO2 abatement. Despite them being excellent and very cool products, they will not save our planet and it would be prudent to phase out technology-forcing policies that assume they will.”
ENERGY WATCH #4 by Karel Beckman
Public ready for EVs (except the Germans…)
April 18, 2017
Yet sceptics like Cloete have been wrong before. With regard to the future of EVs, one very encouraging point is that the public has a positive basic attitude towards them. According to new research which looks reasonably reliable, 4 out of 10 car drivers worldwide are considering switching to an EV within 5 years.
It’s been merely six years since the first modern electric car hit the streets, and the segment looks ready to take off, notes Green Car Reports. “Over 43,000 people residing in 52 countries all around the globe were asked whether they are considering buying an electric car in the next five years. On average, four out of 10 motorists say they’re either very likely or likely to get one.”
According to the Dalia Research’s survey 31 percent of Americans surveyed are planning to go electric. In addition, 31 percent of Canadians and 39 percent of Mexicans answered “yes” to the question.
North America’s average is lower than the rest of the world’s. Thailand tops the survey with 66 percent of participants seeking to give up gasoline in the coming years. Surprisingly, Japan sits at the very bottom of the list, with a predicted take-up rate of just 16 percent. “Like several of that nation’s auto-makers, the buying public believes hybrids and hydrogen fuel cells-powered cars are a better way to reduce air pollution.”
58 percent of people surveyed in China say they are likely to buy an electric car by 2022. “However, strict regulations aimed at curbing air pollution in major cities are expected to increase the actual number, perhaps beyond that percentage.”
In Europe, “only 22 percent of Germans surveyed say they’d consider buying an electric car, which is one of the lowest percentages recorded in Europe.” The Germans are less enthusiastic than the French (28%), Polish (27%), British (25%), Dutch (32%), Italians (42%), Spanish (46%), Danish (29%), Norwegian (53%) and Swedish (27%).
According to Green Car Reports, “last year, plug-in vehicles only made up about one percent of vehicle sales around the globe. If the survey participants don’t change their mind, electric cars will represent a sizable chunk of the automotive landscape in 2022.”
Range anxiety remains one of the top reasons why car shoppers are hesitant to go gasoline-free. “Upcoming advances in battery technology and an ever-growing network of public charging stations will help alleviate it.” Image is an issue, though, notes the article, “and it will take a few years for overly expensive electric cars with less than 100 miles of range to disappear from motorists’ collective memory.”