I recently won a contest with Student Energy which has allowed me to attend the ELECTRIC POWER
Conference in New Orleans and talk about the future of power. In my contest entry thesis, I argued that power will become increasingly distributed, integrated and decarbonized. This is not an uncommon speculation to those familiar with the industry. The keynote speakers, Leo Danealt (CEO of Entergy) and Scott Bolick (Head of Digital Strategy at GE) have stated similar perspectives, although I believe they are underestimating the speed at which the transition could take place. The leaders of these companies have hindsight bias which causes them to expect the future to follow their past experience. They expect innovation in the industry to be slow and steady, and I believe they are mistaken.
We are on the brink of a massive and rapid shift in the electricity industry because the transportation industry is quickly moving itself into electricity’s territory. Our fleet of 1 Billion vehicles, powered by gasoline, will be replaced with a fleet of 100 million autonomous, centrally owned, electric vehicles. Switching fuels en masse from gasoline to electricity seems farfetched, but there are some strong drivers that will cause this transition.
Firstly, there is the question of why these vehicles will be electric instead of internal combustion. This comes from the significant efficiency advantage in the supply chain of electricity over gasoline. In Calgary, Alberta, an electric vehicle fuelled by the District Energy Centre (a natural gas generator that captures otherwise wasted heat and sells it to surrounding buildings) can turn the wheels only losing 37% of the original energy stored in the natural gas in the ground. Alternatively, an internal combustion engine fuelled by the oil from our oil sands (mined, diluted, transported, refined, transported back and fed through the cylinders) loses 94% of the energy stored in the natural gas that started the supply chain. This inherent efficiency advantage comes namely from electric motors being more than 90% efficient with regenerative braking while internal combustion engines are only 20% efficient in typical daily use.
This means big things for sustainability as well. Even though an electric vehicle is fuelled by natural gas in this scenario, we need to consume 10X less of it!
The next common argument is that consumers will take decades to transition off of internal combustion engines because of preference, capital cost of electric vehicles, scale (1 Billion vehicles), and range. Autonomous vehicles have the ability to solve all of these problems. Companies like Uber, Lyft, and Car2Go are all dreaming of the world running on autonomous vehicles, and they will likely be purchasing the supply of these vehicles at scale.
Vehicles won’t be purchased for marketing preferences but for economic utility, hence the efficiency advantage of electric vehicles will not be overlooked. Capital costs are unlikely to be higher at scale for electric vehicles given the significantly fewer number of components and complexity of production. Additionally, autonomous vehicles will be utilized at 10X the rate of personal transport, a change from 5% utilization to 50% utilization. When utilization rates go up, the marginal cost (cost to drive an additional kilometre) rather than capital cost (cost of the vehicle itself) becomes the important number. Imagine if instead of travelling 24,000 kilometres in a year a vehicle travelled 240,000 – the cost per kilometre is much more important in the latter case.
The improvement in utilization also radically improves scale of production problems, which are significant. If the entire fleet of vehicles is turned over in 10 years, and we have 1 billion vehicles on the road worldwide, world production is around 100 million vehicles per year. Tesla, with its Gigafactory (the largest battery factory on earth), has annual production of 500,000 batteries or 0.5% of global demand. Some see this as THE argument against a rapid transition towards electric vehicles; I think it is a simple lack of capital supply due to unclear demand. When the centralized companies that own autonomous vehicles want to purchase millions of cars, capital and scale of production will follow. Additionally, when every electric autonomous vehicle displaces 10 traditional vehicles, cities will turnover in a matter of years. Look to the growth of car and ride-sharing businesses in the last 5 years to get an idea of how an improved utilization rate can stimulate unprecedented growth.
Finally, there is the issue of range, but autonomous vehicles are driven by algorithms and algorithms don’t get range anxiety. Centrally owned, autonomous vehicles will be deployed as necessary and will return to charge as required, it will be just that simple. If wondering when these vehicles will charge, they will only be utilized 50% of the time, and a central hub of superchargers, much like a central bus station will reduce the cost and challenge of charging infrastructure.
Electric fuelling and autonomy are going to shift our transport system into the realm of electric utilities. In the process, assets and resources will be utilized more efficiently, which will precipitate a tangible impact on climate change – even continuing to use natural gas. The efficiency of the supply chain also means that our abundant supply of natural gas would be more abundant. As we transition to a combination of natural gas, solar, wind and nuclear our fleet of vehicles will become less and less carbon intensive.
This transition means great things for the electric utility industry as growth in demand will allow the replacement of tired, old, inefficient assets with newer, efficient and distributed assets. Finally, the fleet of cars can be used in concert with distributed natural gas plants to fill the supply gaps of intermittent renewables like wind and solar. 1 + 1 = 2, but in the case of electric utilities and transportation we could see 1 + 1 = 3. Autonomous electric vehicles are the cornerstone that our experienced leaders are missing as they construct their vision of the future.
Want More? Chec out the slides from Daniel's presentation at ELECTRIC POWER!