Disrupting the Largest Market in the World
Energy represents the most important market in the world as it underlies virtually every other valuable market. Without energy, there is no manufacturing, transportation, healthcare, finance & banking, or even Internet.
To give you an idea of energy’s importance, let’s take a look at the U.S. electricity market. In 2012, the United States spent almost $400bn on electricity for homes and buildings. As energy analyst Tyler Tringas explains, this is more than the $225bn spent on ecommerce, $135bn spent on hotels and lodging, or $165bn spent on advertising in the same year. Residential electricity alone accounted for $170bn, meaning that powering homes and apartment buildings represented a larger market than every dollar that the core business units of Facebook, Google, Twitter, etc. were chasing that year combined. What’s more, electricity is only becoming increasingly important as we witness the electrification of almost everything from electric vehicles (EVs) to the dawn of the smart home.
From an environmental perspective, this could be a disaster as adding more energy demand leads to increased greenhouse gas emissions and rising temperatures. Fortunately, there are two Distributed Energy Resource (DER) revolutions happening simultaneously that are driving us even faster toward a distributed, clean energy future. They include rapidly declining costs in and deployment of solar energy and energy storage (batteries).
Before we examine these fields, it’s important to take a moment to reflect on how technological revolutions actually occur. When forecasting industries like energy, most analysts tend to think in terms of linear progress. But in actuality, almost every technological revolution has followed an exponential S curve model. For example, Uber went from being a concept to offering more rides than the entire U.S. taxi industry in only 7 years. Solar and batteries will follow a similar curve. See this excellent treatment of S Curve revolutions for more background or see the image below to see the steep slope of numerous major technological revolutions.
Solar
We begin with solar energy, the price of which has fallen off a cliff. Since 1970, the cost of a solar panel has already decreased > 99%! Only 10 years ago, solar panels cost ~$7/Watt (reference below for definition) with just 20 GW deployed. Today, panels cost around $0.30/Watt with over 400 GW deployed.
Watt is the SI unit of power, equivalent to one joule per second, corresponding to the power in an electric circuit. Consumers may notice their electricity bill rate is reported in $ per kilowatts-hours (kWh) which is simply 1,000 watts per hour. Reference here for further explanation on the difference between a watt and watt-hour
These steep decreases in cost are part of a larger learning curve known as Swanson’s Law, which, similar to Moore’s Law, notes that for every doubling of cumulative solar capacity produced, the cost of solar cells falls by about 20%.
It took ~40 years to go from 0 to 1% of the world’s electricity coming from solar in 2016. Less than 2 years later, we’re already at almost 2%. Greentech Media (GTM) recently reported that 2018 will be the first triple digit GW installation globally. If anything, solar is only going to beat even the most bullish predictions. The cheapest fossil fuel source today is natural gas with a lifetime cost of energy around $0.7 USD / kWh. In sunny regions of the world like Mexico, we’ve already seen multiple solar bids coming in at just over $0.02 / kWh! And in the Middle East, we’ve seen a world low solar bid of $0.017 / kWh — almost 5x cheaper than natural gas!
By this logic, we expect to see several more doublings of solar over the next decade even before we run into what many perceive to be structural problems to unlimited growth. The biggest of these structural problems are that the sun only shines for half the day and that the incremental value of solar decreases as penetration levels increase. How could we ever achieve anything close to 100% energy from solar with this critical limitation? There are several answers to this question, but the first leads us to our next technological revolution.
Batteries
Battery technology allow for short duration (< 4 hours) and long duration (> 4 hours) energy storage. Current lithium ion battery (Li-ion) chemistries are well suited for high power, short duration applications. However, new chemistries like flow and metal-to-air are providing long duration. In fact, the sweet spot for Fulidic Energy’s zinc-air battery technology is four to 24 hours and is widely deployed in island communities worldwide. The cost of conventional Li-ion batteries is declining along a similar learning curve as solar, decreasing in price ~20% every cumulative doubling.
The cost of Lithium Ion batteries has already decreased > 70% since 2010!
Groups like Bloomberg New Energy Finance are now projecting Li-ion batteries that cost ~7 cents / kWh. And this doesn’t even include other advances in new battery technologies like flow state, metal-to-air, or compressed air storage.
So what does this mean? Two things. First, distributed solar + storage will soon be cheaper than ALL other forms of energy generation. Technology Analyst Tony Seba notes that the cost of transmission (i.e. use of utility lines to transport electricity from point A to point B) costs between 7–12 cents / kWh. By 2020, he’s projecting that the all-in cost of rooftop solar + batteries will cost < 7 cents / kWh, making it cheaper than all centralized generation sources (including the currently cheaper utility scale solar or wind). Even if you think this projection is overly optimistic, it’s likely only a matter of time until these two technologies will make it cheaper to create and consume your own energy on an individual or micro-scale (with the grid perhaps used for backup, ancillary services, and to facilitate peer-to-peer (P2P) energy trading).
Second, the rapidly declining cost of batteries will lead to a similar decrease in cost for electric vehicles, opening the door for transforming not only all current electric appliances, but also completely powering world transportation needs as well.
So far, we’ve covered how technological revolutions occur and why distributed energy resources (DERs) are set to disrupt energy markets worldwide. Next, we’ll examine the biggest distribution challenges that these DERs face today and how we can continue to accelerate this process.
Special thanks to Max Webster for his inspirational contributions to this article.
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