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The Center for Sustainable Infrastructure Blog

Planners Must Prepare For the Clean Energy Revolution!

October 12th, 2016 · 1 Comment · Energy

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by Eric Strid Cofounder and retired CEO at Cascade Microtech, Inc.

▪ The Energy Revolution is here and will unfold faster than you think… Any news about a leading-edge technology is already obsolete.  ▪ Failing to plan for the cost trajectories of clean energy equals planning to fail at choosing the best infrastructure. ▪ Policy creation for accelerating clean energy is challenging, and rapidly changing cost-performance make it even more challenging.

The Clean-Energy Revolution is here and will unfold faster than you think. Any news about a leading-edge technology is already obsolete.

The Clean-Energy Revolution will be the scale of the Industrial and Information Revolutions combined. It is unfolding as rapidly as cell phones displaced landline phones and flat-screen TVs displaced picture-tube TVs, driven by continuously lower costs and better performance.

Your understanding of the costs of clean-energy technologies is probably outdated, because each has an impressive cost trajectory. From 2008 to 2015 the cost of wind power dropped 41%, distributed solar power dropped 54% and utility solar 64%, batteries dropped 73%, and LEDs dropped 94% (figure 1). LEDs passed the tipping point where consumers now prefer them for their rapid payback period. Electric vehicles are already cheaper to fuel and maintain than gasoline vehicles, and over the next decade all light vehicles could become cheaper to buy than gasoline vehicles because battery costs keep falling.

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Figure 1. Comparable costs of clean-energy technologies (US DOE 2016).

The Clean-Energy Revolution already benefits us economically. Oil, coal, and natural gas prices are all falling because new technologies have made energy globally abundant. In 2015 capital investments in clean energy passed oil and gas investments. Oil is in history’s largest going-out-of-business sale. Energy will continue to be plentiful even as prices fall, because clean energy keeps getting cheaper (figure 2).

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Figure 2. (Click to enlarge) Learning curves for wind and solar power generation demonstrate 19% and 24% cost reductions per doubling of accumulated production, respectively for wind and solar PV.

It is important to understand that extrapolating these learning curves does not assume any technology breakthroughs. The manufacturing experience curve results from learning more as we build more. Technology breakthroughs that are commercially successful would only improve cost-performance beyond the industry’s experience curve.

New technologies are displacing the obsolete industries. Most US coal companies are bankrupt (and may leave us a clean-up bill) and dozens of small oil companies are bankrupt; as clean energy gets cheaper, larger oil companies will likely be next and then natural gas. Fortunately, clean-energy infrastructure creates more jobs than fossil fuel projects—solar already employs more Americans than coal.

Whenever addressing the cost of renewables, refer instead to the “cost trajectory” of renewables. Most people have an outdated perception of clean-energy costs and don’t appreciate how continuous cost reductions overwhelm incumbent technologies. Don’t expect mainstream news about cost reductions or tipping points, because they’re not a crisis or sudden enough to turn heads. Don’t expect much news from the leading companies either, because they are focused on cost reductions and sales. Any news about a leading-edge technology is already obsolete, because there is little business advantage to sharing a breakthrough or progress before it can be productized in volume.

Failing to plan for the cost trajectories of clean energy equals planning to fail at providing the best infrastructure

It is risky to trust that clean-tech products will get cheaper and better. For example, the Oregon Global Warming Commission recommends that we not count on energy costs significantly lower than today’s. However, such thinking recently resulted in planners being surprised that Oregon’s new renewable portfolio standard will be cheaper than expected less than a year ago. Instead of projecting up to 0.8% per year rate increase, the costs are now projected at 0.1% per year. No one in clean-tech would have been surprised.

Thus it is also risky to not trust that clean-tech products will get cheaper and better. If we plan on static energy costs, the result will be planning for the same dirty and inefficient infrastructure that we have today. For example, some large utilities are asserting that “Post 2020, there may never be another [natural gas] peaker built in the US.” No electronic product company would survive without depending upon, and planning and driving for, continuous cost and price reductions. Assuming that costs are static can expensively limit our thinking about energy solutions and policies, by encouraging long-lived infrastructure that will predictably become stranded or by unnecessarily deploying more dirty infrastructure that ends up delaying cost savings, detoxification, and decarbonization. Today, common sense leads to asking how much utilities should be decreasing the cost of electricity, because their wholesale costs of generation keep falling.

Anyone doubting that continuous cost reductions will continue does so at significant risk. The culture of the Information Age and Silicon Valley entrepreneurs is driven by developing new technologies that achieve exponential cost reductions, pre-competitive collaboration on technology roadmaps (such as the International Technology Roadmap for Photovoltaics), and funding that bets big on big opportunities.

Policy creation for accelerating clean-energy deployment is challenging, and rapidly changing cost-performance make it even more challenging.

Creating good policy is hard, and highly dynamic technologies and markets make it even harder. For example, the California Air Resources Board foresaw neither Tesla offering EVs like they did, nor pluggable hybrid electric vehicles with significant electric range.  Legislation should provide stable policy and incentives for long periods and often takes years to craft and pass, after which the available products could evolve faster or slower than anticipated, or the industries involved could find unforeseen paths to unintended consequences.

Figure 3 demonstrates a general case of new technology with improving cost-performance. In the early years of technology development, governments can directly or indirectly subsidize the R&D costs. Then at some point the new technology becomes cheaper than the incumbent technology due to social costs or whatever reasons, and its deployment could be subsidized until its costs are competitive on a purely economic basis. Regardless of the subsidy rationale, the clean-energy costs keep changing, somewhat unpredictably. The subsidy needs to be high enough to encourage system sales. If the subsidy is a fixed portion of the total system cost, there will be a time after which the subsidy is a profit windfall. If the subsidy is modified less than a few years before effectiveness, the market is jerked around like the changing federal wind production tax credits.

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Figure 3. How to fairly subsidize a moving target?

Thus policy creation needs to anticipate a range of cost trajectories and how to fairly incentivize the entire range. Will electric vehicles be less than 1% of the fleet in 2040, as oil companies predict, or 100% of new sales by 2025, as Tony Seba predicts and Audi promises?

Recommendations for planners

  • Develop a range of technology and market evolution scenarios, with a horizon of up to 20 years, for clean energy in each of various transportation sectors, electricity generation, energy storage, transmission and distribution costs, the largest emitters among industrial processes such as cement production, etc. If possible, engage energy producers and users in the scenario developments.
  • Use the scenarios to test candidate policies for efficacy, applicability, fairness, unintended consequences, completeness, or other criteria.
  • Educate all stakeholders about the range of technology evolutions and disruptions likely and possible. Include policy thinkers, energy users, energy users, environmental groups, legislators, etc.

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One Comment so far ↓

  • David Hawley

    Your argument is convincing. A similar case is made in https://thinkprogress.org/oil-investor-death-spiral-35773e131250#.nsu32wa39 regarding electric cars – pervasive integration of electric cars will wipe out the need for oil. To me, there are 2 issues. 1. So far fossil fuel alternatives are only a few percent of energy production. Can we really ramp up fast enough to save the planet? 2. We need to start pulling carbon from the atmosphere and ocean. The only practical way I see is via photosynthesis. Northern hemisphere summer growth pulls out 5 or 6 ppm annually. We need to change agriculture to be net carbon sequestering instead of soil oxidizing. Given the area dedicated to ag, there is potential to make a huge impact. At the same time, we might get much healthier food and population.

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