The Future of Energy
This article was adapted from a presentation at the 2018 Energy Impact Partners Annual Meeting.
Meet Bug.
Bug is the nickname my colleague Andy has given to his soon-to-be daughter, who is due to be born right around the end of this year.
Let’s take a look at a likely timeline of Bug’s life. She’ll be born right around the beginning of 2019. She’ll enter high school in 2033, leave home around 2037, and turn 30 in 2049. By 2054 she will be eligible to (and presumably will) run for president.
The reason I’m introducing Bug relates to a famous quote from Bill Gates’ 1996 memoir: “We always overestimate the change that will occur in the next two years and underestimate the change that will occur in the next ten. Don’t let yourself be lulled into inaction.”
In ten years, Bug will be entering 5th grade. If we underestimate the change that will happen by then, just imagine what her world will look like as she reaches these milestones and those beyond.
So what I’d like to do is test all of our collective estimation of change in the future. And because I’m a betting man, the way we’re going to do that is by placing a bunch of bets about Bug. For each bet, your job is to decide whether you agree, or whether you’d bet against me.
Let’s get started. Bet #1: Bug will control machines with her voice more than with her keyboard.
It’s been a long road for voice-controlled devices, which have been around for decades. In fact, Mike Phillips, CEO of Sense, one of our portfolio companies at Energy Impact Partners, was a pioneer voice recognition, starting a successful company in the space in 1994. But it’s only over the past three years, since the introduction of at-home voice digital assistants like the Amazon echo, where we’ve started to see something dramatic really change.
By some estimates, by the end of this year we’ll have nearly 80 million of these devices deployed in the US. That will result in over 50 million users, or more than 20% of the U.S. adult population. That is an incredible adoption rate.
Just for comparison, here’s how long it took various personal devices to reach 50 million users. Right now voice assistant devices are being adopted faster than mobile phones, faster than ipods. They’re in Facebook territory, and Facebook is free software while voice assistants are hardware you have to buy. If this trend continues apace, by the time Bug becomes aware of her surroundings, they’ll be ubiquitous.
But what will she do with all this voice control? We don’t know. But we do know what people do with it now, which is basically a mixture of listening to audio (music, podcasts or radio), using it to gain knowledge (i.e. replacing computer or mobile searches), and control of the home.
One thing I’m willing to wager is that control of the home, which is already relatively high on the daily use case measure, will shoot to the top of this ranking by the time Bug can talk. And so, by the time Bug hits her terrible twos, she’s going to have a whole new set of ways to drive Andy and his wife crazy in their home.
On to bet #2: Bug will never personally drive a car.
There are actually a few bets embedded within this one. First, she won’t need to own a car. You’ve probably see the fearmongering headlines about the end of car ownership, and you would be forgiven for some degree of skepticism. But two important notes:
- Companies like Lyft are actively pushing this future forward through programs that reward people (now in 35 cities) to ditch their cars
- This is already happening in other countries. In 2007 young people in Germany applied for 1.1 million drivers licenses/year. By last year that number had dropped 25%, and it continues to decline.
Why is this happening in Germany, and what makes me confident it will play out here as well? First and foremost, we still use cars a lot when we really don’t need to. Almost 60% of all vehicle trips in the U.S. are less than 6 miles.
That may be necessary when there aren’t good alternatives. But it won’t surprise you to know that, increasingly, there are.
We’re 18 years into the advent of carsharing, which has never quite taken off but is now experiencing a resurgence through peer-to-peer networks like Turo and Getaround. More recently, the rise of ridesharing (Uber and Lyft) has started to change the game. But there’s more. While I don’t think Bug will ever drive a car, I do think she’ll drive a scooter. Literally over the past 18 months, we’ve seen the introduction of shared, dockless e-scooters, which are so far being adopted far faster than any other mode of transportation in history. Lime, one of the major e-scooter companies, offered over a million rides in its first 7 months of operation, many of which were to me.
So Bug will have many last-mile transportation options. But there’s another bet embedded in this one, and it relates to the rise of autonomous vehicles. I think there is plenty of warranted skepticism about the pace at which we’ll see AVs with widespread adoption, but this is a perfect place to remember Bill Gates’ quote about short vs long-term change.
Here’s what is happening today: Waymo, the google spinoff AV company, started driving autonomously on public roads in 2010. 2–3 years ago, those vehicles were putting in a million miles every 18 months. Today, they’re adding over a million miles/month and have just reached 10 million cumulative miles.
Meanwhile, every major auto OEM, and most tier-1 suppliers, have announced AV plans that largely have them releasing commercially available, fully autonomous vehicles around 2025., or when Bug is in kindergarten.
So by the time Bug could drive, ten years later, I think we’ll be well on the way.
Let’s say you agree with me on this one. What will all these changes mean for the future of transportation and energy? Well, I think there are two factors that all these new modes of movement — be they ridesharing, scooters, autonomous vehicles or otherwise — will have in common.
First, they’ll all be electric. People talk about the mobility transformation using this acronym CASE — connected, autonomous, shared and electric. What I find exciting is that the other three all lend themselves toward electrification. And if that’s true, we may see even more of an acceleration of vehicle electrification over the next decade than we all currently expect.
Second, they’ll be fleets. Shared vehicles, be they autonomous cars, bikes or scooters — will likely be owned by a central fleet operator. Interestingly, fleet management is something that many of these new companies don’t do well, but it’s something with which other companies (say, utilities, for example) are quite familiar.
Here’s the thing about operating a fleet, if you’re trying to earn a profit. Your economics are directly correlated with the utilization rate of the fleet — in other words, you want your vehicles on the road in operation as much as possible. And all these fleet owners will be spending their time trying to increase utilization.
If they’re successful, the one thing they need less of is parking, which brings us to the next bet about Bug.
Bet #3: By the time Bug buys her first home, especially if she’s in an urban environment, her surroundings will transformed. Currently, we utilize an incredible amount of valuable urban land on parking — anywhere between 1/7 and 1/4 of our land goes toward surface parking alone. That works out to more than a parking space per person, let alone per vehicle.
I’ve found this to be one of those things that you don’t notice until you start paying attention. I took the red pill, and now I can’t stop seeing unnecessary parking all over cities.
So if that parking starts to become unprofitable and the land becomes available for replacement, what will we do with it?
I’ll give you one idea, and it relates to the next bet about Bug. Bet #4: By the time Bug shops for her own groceries, >20% of her produce will be grown indoors, up from virtually none today.
At EIP we’ve counted over 50 startups who are focused on indoor agriculture. The potential benefits of indoor ag are myriad. No need for pesticides, dramatically lower water usage, high-density yields in land constrained areas, low transport and shipping costs. We’re in the early days here in the U.S., but this has become mainstream in countries such as the Netherlands, where over 30% of the country’s vegetables are grown in greenhouses.
Right now most of the activity in the US focuses on fully indoor agriculture, which replaces sunlight with electricity. Just think of the load growth.
For bet #5, let’s turn to Bug’s house. I bet that in Bug’s first home of her own, more than half of her electricity load will dynamically respond to grid or price signals in order to provide flexibility services. Though that may sound dramatic, I think this may be the least challenging bet to achieve so far. After all, getting 50% of an average customer’s load to react to signals doesn’t take all that much. Say Bug lives in the South. Based on current load profiles, if she’s an average customer, you basically just need to control her HVAC (via a smart thermostat) and to install a smart water heater, and you’re over 50%.
In the rest of the country, at most she might need to add control of one more big device, like a washer and dryer. And of course, that’s to say nothing of newly introduced large, controllable loads like an electric vehicle (if, of course, I’m wrong about her car ownership), or if she controls all loads with a residential battery. In other words, by the time Bug has a home, demand flexibility will be embedded within our energy system so much that we’ll stop using the term.
That brings us to the next bet. If you think back on all the previous bets, they all lead in the same direction: growth for electricity, be it from electrifying transportation, the home, or agriculture. So bet #6 is that, by the time Bug reaches 30 (in the year 2050), electricity’s market share of final energy consumption will more than double.
Here’s where we stand today. Electricity comprises 20% of our overall final energy consumption, mostly in the residential and commercial sectors.
The team at the National Renewable Energy Lab recently modeled out a number of future electrification scenarios. In their high electrification scenario, when you add in all the sectors we’re discussed and more, electricity jumps from 20% to 41% by 2050. That’s my bet.
So where will all that electricity come from?
Bet #7: more than 50% of Bug’s electricity, as represented by the national breakdown, will come from renewables by the time she’s a sophmore in high school. And by the time she hits 25, it will be nearly 2/3. This is Bloomberg’s forecast, which foresees a steadily increasing share of renewables in the U.S. power grid for the next 30 years even in the absence of major climate legislation.
This really isn’t all that aggressive, especially given the pricing world in which we now live, where the going rate for a long-term solar contract is fixed between $20-$30/MWh, literally 90% below where we were a decade ago.
So this is the point where I worry that I haven’t done the EIP San Francisco office justice by offering a heaping dose of techno-optimism. So let me attempt to rectify that by offering one more bet that I’m sure will find plenty of takers: Bet #8 — Bug will live over 200 years, and for most of her life, electricity will be her only food.
In other words, before she dies, her consciousness will be downloaded into a machine running on power. I have…almost no evidence to support this one, other than to offer some perspective on timeline. Bug will be born in 2019. Her base life expectancy is around 85 years, so we have until the year 2100 to figure out this challenge. Think back 85 years from today, which would take us back to 1933. Here are some things we hadn’t invented then.
We didn’t even have canned beer! You don’t think we can figure out how to live off only electricity by 85 years from now?
I dare you to put that in your load forecast.
So here you have it: The 2018 Bug Bets. Consider the betting markets open.
Shayle Kann is the Senior Vice President of Research and Strategy at Energy Impact Partners, a growth equity fund investing in innovative energy technology companies.
