The Incumbent Mirage
By: Chandu Visweswariah
This past week I received numerous holiday greetings expressing a sentiment that the sender was glad to put 2020 in the rearview mirror. The assumption is that the vaccine is here, the election is over, and better days are ahead. Thanks to rigorous scientific advances and the magic of messenger Ribonucleic Acid (mRNA), we believe we will soon bend the curve on COVID. Out with the old, in with the (better) new! Thank goodness for science!
But how about our prospects for bending the carbon curve? If we are to avert the worst impacts of climate change, we must cut Greenhouse Gases (GHGs) in half this decade. This will require nothing short of a disruption of our energy systems by 2030. Two recent reports confirm that we can not only achieve this goal but overcome the “incumbent mirage” with concomitant economic and societal benefits. Back to this concept in a moment.
The two reports I am referring to are a RethinkX report by Adam Dorr and Tony Seba (which I summarized in a recent blog) and a Zero Carbon Action Plan (ZCAP) by Sustainable Development Solutions Network, a group that is influential in the Biden-Harris transition team.
Disruption is an illogical and counter-intuitive beast. When the first automobiles came on the scene, they were greeted with derision. The rules of the road were unclear. There were no filling stations. Nobody knew how to drive. There was no regulatory framework for car safety or licensing of drivers. Yet the horse-drawn industry was 100% disrupted in a mere 15-year period, and automobiles ushered in completely new markets with broad economic and societal benefits.
Disruption is typically described by an S-curve as shown by the red line in the figure. As the new technology grows, the incumbent technology shrinks – often shockingly rapidly. As described by Dorr and Seba, the “incumbent mirage” is the illusion that the new technology will merely replace its predecessor. In reality, almost all disruptions lead to larger markets and more benefits.
When the smart phone replaced the flip phone, I could not only make phone calls, but I also no longer needed a camera, a video camera, a compass, a wristwatch, CDs and DVDs, books, paper maps, triptych maps, etc. Thus, most disruptions look like the asymmetrical X-curve in the figure.
Disruptions often occur due to the confluence of multiple technologies. It is no surprise that the Uber ride-hailing service was announced within a short time after GPS-enabled smartphones and cloud computing became widely available. So it will be with energy systems! The rapid reduction of the cost of solar panels, wind turbines and lithium-ion battery storage will lead to 100% Solar-Wind-Battery (SWB) electrical grids by 2030. In other words, battery-firmed capacity will make electricity from solar and wind dispatchable all day, all night, all year around less expensively than any other technology. This also means that coal, gas and nuclear generating plants will be stranded assets and should not be constructed any more (I hope proponents of the Danskammer gas plant in Newburgh take note).
A by-product of this disruption will be the availability of vast amounts of energy at a very low marginal cost, so called “super power.” This is because the lowest-cost SWB system will have to oversize the build-out of wind and solar generation so as to provide reliable electricity year-round with a modest amount of battery storage. While building out such a 100% SWB system will result in tremendous economic and health and environmental benefits, the availability of super power will truly blast through the incumbent mirage.
For over 100 years, energy has been an extractive industry requiring finite and expensive resources like coal, oil and gas. We will instead have an abundance of renewable energy. With small additional investments, we will reap the benefits of this tremendous abundance. This is what economists call a “positive externality.” Let me explain. Prior to the advent of the internet, moving information (by mail, by wire, by FAX) was expensive and cumbersome. Now we treat photons as free and think nothing of beaming video feeds all over the world in our Zoom calls. We are not charged by the email or by the video feed – moving information has become abundant and practically free. (15 years after the internet arrived in 1992, the 5 largest companies in the U.S. by market cap were Amazon, Google, Apple, Facebook and Microsoft!) What happened in the world of bits is now poised to happen in the world of energy. A small incremental investment in solar and wind energy will be mostly offset by reduced investment required in battery systems, leading to the aforementioned positive externality of abundant super power with costs driven down for all players. The days of 1 cent per kWhr of electricity are not too far away!
So, what’s the big deal about super power?
Super power is the extra power produced by renewable sources on most days of the year because of the oversizing of the generation capacity. The least windy and least sunny periods of the year are the only times when super power will not be available. We have to change our views about energy systems in order to leapfrog the incumbent mirage (i.e., limits of our present energy systems) and reap the benefits of super power.
Conventional thinking says to build power generation capacity equal to about 100% of peak demand and that it is wasteful to exceed 90% of demand with solar, wind and batteries. The new wisdom is to build out 3x to 5x of renewable energy production beyond today’s capacity. Conventional wisdom requires wasteful curtailment when renewable sources provide more energy than needed, while the new disruptive model is to use the excess energy intelligently. Conventional wisdom says 100% SWB systems won’t be practical, while the new thinking is that these disruptive systems are not only practical, they are also inevitable and will lead to multiplying benefits.
What can we use this super power to do? Ideally, we will have flexible loads near the wind and solar farms (to mitigate transmission congestion problems) that can make use of very low-cost electricity, when it is available, for things like desalination, water and sewage pumping, bitcoin mining and hydrogen fuel cell manufacturing. In fact, super power can be “auto catalytic,” by using it for carbon removal and for manufacturing of batteries, solar panels and wind turbines – thus setting up a virtuous cycle of decarbonization! Effective use of super power will allow us to decarbonize our transportation and building energy sectors in an accelerated fashion, bringing 50% GHG reduction in sight by 2030.
Super power is really a race to the top of more opportunities. Low energy costs attract industry and talent thereof. Stores and restaurants can “give away” electricity by allowing you to charge your vehicle while you shop or dine. A restaurant can offer free charging for a bus (at a cost of $6 or less) to attract busloads of tourists. After having lived in an extractive, toxic and constrained paradigm for a very long time, our imagination is the only limit to what we can do with abundant cheap energy. We no longer take fewer photographs to conserve precious camera film; we take as many digital pictures as we like to make sure we get a good image.
Here are some key take-aways: disruption is never linear, predictable or intuitive, and new technologies often create bigger markets than incumbents. Our energy systems will soon be disrupted by solar, wind and battery technologies making 100% SWB systems the least expensive way of providing energy. This least-cost system will produce abundant energy at a near-zero marginal cost that will provide tremendous economic and societal benefits. By using this super power to electrify transportation and building energy, we can achieve our 50% GHG target by 2030.
These ideas make us hopeful about the pivot out of 2020 and into 2021. This massive energy transformation has started and is taking place before our very eyes!