Three Cleantech Predictions for the 2020s
I’m convinced the 2020’s will be remembered as a golden age when countries around the world deploy clean energy solutions at scale. Here are my top 3 predictions for the coming decade.
1. Energy generation will be too cheap to meter
In August 2020, Portugal announced the preliminary results of 700 MW of solar auctions. The winning bid once again set a new world record of 1.31 cents (in USD) per kWh of energy generated. It is remarkable to note that just five short years ago, the price was hovering around 5 cents per kWh and that we have achieved an astounding 73% in price reduction in that span of time. The graph over the past 7 years look like this (thanks Cleantechnica for this original graph — I hope you don’t mind the continuation):
But let’s look at this situation within a larger context. 1.31 cents per kWh includes the equipment and labor to build a brand new power plant from scratch. We’re talking steel structures, solar panels, power electronics, wiring, not to mention the hundreds of thousands of labor hours involved during construction. As a comparison, the marginal cost of coal dug out of the ground is more than double at 3.2 cents per kWh, and natural gas is doubled that again at 6.5 cents per kWh. This is just the cost for raw fuel — it excludes the coal or natural gas power plant itself. Even energy efficiency programs (e.g. use less energy) cost more to administrate at about 2.7 cents per kWh of reduction. You begin to see why solar is absolutely booming, even in the midst of a global pandemic.
Wright’s Law states that for every doubling of cumulative production scale, prices will decline at a fixed percentage. AMPLY investor Ramez Naam has a great write-up on this phenomenon as it relates to solar. All of this is to say that one penny per kWh of energy is just a couple of years away.
At a penny or even less, does it even make sense to meter anymore? I predict we will start seeing “unlimited, all-you-can-consume” fixed pricing plans for energy generation in the 2020’s, similar to cellular voice, cellular data, or cable TV. This will be revolutionary for energy-intensive industries such as aluminum smelting, desalination, or hydrogen production through electrolysis. Consumers will also share in the benefit. Are you constantly badgering your kids to turn off the lights when they leave the room? You may not need to do that much longer — energy will be a fixed monthly priced commodity much like voice or data. And the best part is, it’s all carbon free.
2. Grid upgrades using software + storage instead of brute-force, utility rate-based hardware infrastructure
While energy generation may be free, energy distribution is another matter. Electric utilities have to constantly maintain and upgrade the grid to keep it balanced between supply and demand in real time. Hundreds of billions are spent worldwide every year to add capacity through transmission lines, substations, distribution feeders, and other grid hardware to meet the maximum energy throughput in the system. I’ve written extensively in the past on why these upgrades can be more efficiently (and less expensively) accomplished through software and energy storage instead of brute-force utility infrastructure. I will further predict that in the 2020’s, the tradition utility rate-basing model for grid upgrades will start to crumble, and this will unlock a tidal wave of energy innovation. Let me further explain.
Since electric utility is effectively a monopoly business, it is overseen by a regulatory body or “Public Utilities Commission” or PUC to ensure that it is serving the greater public good. But an investor-owned utility is not a charity and it has a for-profit motive. The mechanism in use across the country is called “ratebasing”, in which the PUC, on an annual basis, approves a certain rate of return for the utility’s deployed assets. In other words, the more hardware assets the utility has on its balance sheet, the more profit it makes. This is not a formula to achieve operational efficiency — in fact, it carries just the opposite effect.
As more renewables and electric vehicles plug into the grid, supply and demand fluctuations will only become more pronounced. It will not be sustainable to continue upsizing the grid to accommodate peak loads during hot summer afternoons; load growth needs to be solved through software and locally-installed generation and energy storage.
In September 2020, the Federal Energy Regulatory Commission (FERC) came out with Rule 2222 as a framework for distributed energy resources (DERs) to participate as a grid resource. This is a foundational ruling that will unlock a tidal wave of innovation, essentially incentivizing operational efficiency over ratebased infrastructure buildout. Much of the innovation will be the “asset light” variety — real-time controls and software to match supply and demand, potentially coupled with localized buffering through energy storage.
In the meanwhile, energy storage is also following Wright’s Law for price declines. Over the past 10 years, prices have declined by almost 10X.
Energy storage is powering electric vehicle adoption, and on the grid side, it’s enabling individual businesses and even homeowners to participate on the grid markets. Utilities will now have to compete with their customers — all with the aim of greater transparency, efficiency, and low-cost of energy. I suspect a lot of technologies and innovations will blossom in the 20’s to enable this scenario.
3. Cleantech to become the main course, not a side dish any longer, for Silicon Valley & tech hubs worldwide (the opportunity is so immense)
I started my career in the late 90’s in Silicon Valley. This time period saw the first wave of Internet adoption — Yahoo!, eBay, and Google all started and became household names. High tech workers, filled with dreams and optimism, were pouring into the Bay Area to be part of the revolution. I believe the same script will play out in the 2020’s, except this time, it’s going to be all about cleantech.
Let me take my company’s industry to illustrate this point. AMPLY operates EV chargers for electric buses, trucks, and passenger fleets much like datacenters operate server blades — a lot of them at a time, at 99.99% reliability and at the lowest per-unit cost. In September 2020, California Governor Newsom signed an executive order banning the sale of internal combustion engine powered vehicles altogether starting in 2035. The world’s 5th largest economy has just put an end date on fossil fuel to power transportation. And California is not standing on its own — Norway’s goals are even more aggressive, aiming for all-electric new car sales by 2025. Many more countries around the world and states in the U.S. have either adopted similar measures or are contemplating adoption.
Let’s put all this into perspective. Oil and gas exploration and production is a $3.3 trillion dollar global industry as of 2019 or about 3.8% of the global economy. It employs 4 million people across 350,000 businesses. In the U.S., 91% of transportation is powered by petroleum. Now you see the immense opportunity, and much of this will convert into zero emissions in the coming decade. How am I so certain? Because when it comes to their pocketbooks, consumers make rational economic decisions. Consumer Reports recently confirmed that EV owners spend half as much on maintenance. Electricity is already the cheaper “fuel” compared to diesel and gasoline, and it is going only going to get cheaper (or free!) in the coming decade. And finally, EVs will become more convenient to fuel-up, even compared to a gas station experience. Tesla keeps increasing the range of their cars, oftentimes through a software upgrade, with the top model now at 620 miles per charge. Can you imagine future model cars with 1,000 miles range, or lasting several months in-between charging? Consumers will do the right thing, not because it’s environmentally sustainable, but because EVs are cheaper and they offer a better experience, period.
And electrification is just one corner of cleantech. There is just so much to do.