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28 February 2019

Is it time to Rethink Energy? We think so.

Some people say it happened in 2017, others say in 2018, but regardless of the detail – wind and solar power can now bid for grid scale energy supply up against any form of fossil fuel supplier – because they are effectively cheaper.

Both wind power and solar have passed the levelized cost of energy (LCOE) barrier which make them cheaper than almost every other form of electricity generation – at scale. The ubiquitous Combined Cycle Gas Turbine is perhaps still on a par in pricing terms per MWh in some territories, but every year renewables fall in price, while CCGT is tied to the cost of obtaining gas. It also throws off a lot more CO2 than renewables, so is obviously fated, eventually, although it is the favored fossil fuel of our time by the big fossil extraction companies.

Other renewables like wave power and hydrogen fuel have some way to go, but it seems that in a ten year timeframe, they too will be useful on a levelized cost base. Developments in Floating Offshore wind power will shortly see farms of wind turbines just out of sight on the far skyline, floating in deeper waters, and harmless to anything, but the most intensive of local fishing, which is why they try to avoid densely fished areas. Initially there is a premium to pay for such “out of sight, out of mind” electricity generation, but in a short space of time R&D will take away the sting of offshoring, with the increased maintenance and the 20 kilometer plus underwater live wiring, and bring it within energy parity. And then the cost of offshoring will outstrip onshore wind, simply because there is more cheaply available sea.

Scotland began floating platforms, California is planning a major move in that direction. Denmark has turned offshore into an industry, but much of its own installations are anchored fast to the seabed, rather than floating, although that too is a matter of simple economics and time. There is even the concept of floating solar to be looked into, but this is a more specialized case, requiring very still, harbor-like seas. Can we harness wave power and have floating wind or solar at the same time? Possibly, and if we can it will create massively dense energy generation areas on water.

People have throughout 2018 talked a lot about parity, a term used to suggest that no subsidy finance needs to be used in conjunction with these technologies. This is new, and it frees up renewables to play at scale. Every day since we began looking at renewables we see multiple announcements of funding or switch-on for multi-GWh per annum supplies of renewable energy. Funding sources cannot attach themselves to renewables fast enough and the landgrab for ownership has been on for a while.

Since 2009 this has been obvious because there have been consistent falls in the cost of both onshore wind and large scale solar, of the order of 69% for wind and 88% for solar. If the same price erosion continues for offshore and wave power, then it is only a matter of time before every bit of sea surrounding major continents is accounted for – some for electricity generation, some for fishing and others for leisure activity – but all of it accounted for, driving up its value.

All that being the case you may be asking yourself, “Why am I not in the renewables business?”

People are going to get rich, but at present renewables is little more than a wise investment for existing money. Later innovation will move it on further. The solar panel that can extract 2% more energy out of the sun, or masquerade as window, or co-exist in fields with farm animals and grass will all make the difference between selecting one process and another.

There is an apocryphal story about the internal combustion engine, when the piston engine was faced with what appeared to be the superior Wankel rotary engine design. But all of its promise never came to pass, simply because as each manufacturer overcame the short-comings of the rotary design, the piston engine had moved further ahead. Basically the more a design is uses, the better it becomes, until inherently better designs fall away.

Solar and Wind needed government subsidy for multiple decades for this very reason, but that now there are sufficient installations of renewable energy, they will continue to drive innovation, and this innovation will one day envelop all electricity supply – a roughly $2 trillion market, and eventually it will also absorb another $2 trillion in the petroleum market, as electric cars work the same trick against internal combustion engine driven cars, to create a unified $4 trillion electricity market, which, initially at least, will contunue to grow.

One of the key innovations will be around the idea of energy storage or batteries. They can be used in two ways, which are rather analogous to the way computing developed. Either there are centralized battery facilities – grid scale if you like – which support storage inside or on the edge of the grid, for distribution to anywhere, or they may move out to regions, towns, sub-stations and finally to both homes, and individual devices.

We know of people researching cheap solar panel materials which will attach to phones, for a constantly charging device, which never needs to be plugged in, focusing on the semi-conductive properties of commonplace metals like Copper, rather than Silicon. While this is unlikely to ever absorb more than 6% to 7% of the energy falling on it, the distributed nature of the energy collection may make this viable and in fact the largest market.

The way the computer industry developed was that large centralized mainframes were the first to emerge, then regionally distributed minicomputers, then intelligent terminals which did some of the processing work, and then widely distributed PCs. The emergence of the internet refocused websites onto centralized servers, and then as the cloud emerged many enterprise services slid onto centralized cloud servers. And yet much processing power remains out at the edge on handsets.

Those paradigms were created by dynamic tension between the price of processing power and the price of communication. Electricity is much the same, it can be most easily created in one place and then distributed over wires, but the further it travels over wires, the more of it is lost in the distribution effort and in stepping up and down through the power segments. It is best to create it in many places, and then one is always “near” the point of use. This is very much reflected in today’s electrical national architectures, whereby most European countries resort to local Combined Cycle Gas Turbines for extra power, and retain a link to the National Grid for top up.

The end point of computing is to have many local “cloud” instances, and truly local power on phones and laptops, and to split the roles of these devices so that local processing power works on appearance and screen performance, and “number-crunching” on shared datasets is carried out on nearby cloud servers. It is likely that the eventually end point of renewable energy will be much the same with central generating facilities – be they wind or solar farms or fossil fuel driven power stations today – and some central grid-scale storage, as well as smaller versions of the same regionally and on City microgrids, and then locally into townships and hamlets and that some facilities will be centered on the home, and finally some will work purely on a device. Phone today have batteries – the result of 25 years or innovation in battery design – and may also one day have solar rechargers built in.

All that remains are the two most important things – how get from where we are today to these destinations and who takes us there, as in who gets rich out of the process.

Any distributed power architecture has to go through the same innovations that drove computing and telecommunications – iterations of VLSI, drawing a line between devices you can afford to fix (such as grid scale batteries) and those  you simply replace (as in a rechargeable phone), and who pays for that process. Is it five 9s reliability in central facilities with 1 hour guaranteed maintenance via a Service level Agreement (SLA), versus best effort backed by personal insurance to maintain and replace home batteries and home solar panels.

The next 20 years will be a succession of regulations and relaxation of regulations, to encourage innovation and drag the entrepreneur kicking and screaming onto energy. There will be reversals along the way and some jurisdictions will prefer one route, while others prefer another, but eventually energy will become a relatively pure market, where the price of one form of energy directly affects the price of any other, and where (carbon dioxide permitting) each one is interchangeable. Somewhere in there the landscape will become dotted with billionaire’s as a $4 trillion landscape re-writes itself and there is no guarantee that tomorrow will have any room for the energy brands of today, and certainly not if they delay their shift to the new renewable reality, and drag their heels.

Rethink Energy promises to bring you the blow by blow account of these transitions and help you see the future landscape of global energy before it has happened. That’s our promise.