For more than a decade, Notre Dame’s College of Business has sponsored a spring lecture series called Ten Years Hence. Each series has a particular theme, and within that theme each speaker explores issues and trends likely to affect business and society over the next ten years. Entitled Climate of Opportunity, this spring’s series deals with implications of climate change for investors and innovators, and I was privileged to kick things off with a lecture on Our Energy Future.
Speculating on what may happen tomorrow, much less ten years from now, can be wildly wrong, and I for one have always been a reluctant prognosticator. But, in accepting the invitation to speak, I was expected to “give it a shot.” This posting summarizes my thoughts on what our energy future might look like. It emphasizes two vital components of our energy system: how we generate electricity and how we fuel our transportation.
Electricity
I have no doubt that the sun and wind, both renewable forms of energy, represent the future of power generation.
- Solar power produced by photovoltaic (PV) cells is on a roll. Driven by improvements in performance (cell efficiencies) and sharp reductions in cost, global generating capacity increased at an average annual rate of 40% from 2005 to 2015. And growth will remain strong as costs continue to drop and performance continues to improve. China intends to increase its generating capacity three-fold by 2020 and India 30-fold by 2025. Many of the plans submitted by the nearly 200 nations that signed the 2015 Paris Climate Accord include large solar investments. And, solar power figures prominently in plans made by many corporations to increase the use of renewable energy. So, how do I see the future?
Within ten years global solar generating capacity will increase 10-fold to more than 2,000 gigawatts (GW). This would be twice the current US capacity from all sources. Although policy decisions of the federal government may slow growth in the US, current momentum will be sustained by technology advancements and market forces. Ten years hence US generating capacity will have increased from 26 GW in 2015 to more than 200 GW.
- Similar trends have marked the progress of wind power. As costs dropped, global generating capacity grew from 2005 to 2015 at an average annual rate of more than 20%. And, although not as dramatically as solar power, costs continue to drop, particularly for off-shore wind.
Within ten years global wind generating capacity will exceed 1,500 GW, and US capacity will increase from 74 GW in 2015 to more than 250 GW. The nation’s enormous off-shore wind potential will also be unleashed, and US off-shore capacity will increase from essentially nil to more than 30 GW.
- Today solar and wind energy have reached grid parity in sun- and wind-rich regions of the world, as for example, the US Southwest and Central Plains. It means that, in these regions, electricity can be produced at costs comparable to those for coal and natural gas. But, that’s only the beginning.
Within ten years solar and wind will establish themselves as the lowest cost sources of electricity in many regions with less abundant resources.
Solar and wind energy are sufficiently abundant to satisfy all of the world’s energy needs. But ultimately, the extent to which they meet these needs will depend on the ability to neutralize their intermittency. Power isn’t generated when the sun’s not shining or when the wind isn’t blowing. Also, the best sources of sun and wind tend to be in remote regions far removed from densely populated areas of high demand. There are two technologies that can circumvent these limitations, one dealing with energy storage and the other with the electric grid.
- Utility-scale solar and wind energy can be stored by charging large capacity (gigawatt-hour) battery packs during periods of peak generation and discharging the batteries (recovering the energy) during periods of little or no generation. Smaller battery packs (kilowatt-hour to megawatt-hour capacity) can serve the same function for solar power generated on the rooftops of homes and businesses. Today, at a cost of about $300 per kilowatt-hour (kWh), lithium-ion batteries dominate the energy storage market.
Ten years hence the global demand for energy storage in home, business and utility-scale solar and wind power systems will increase more than 100-fold. Costs of lithium-ion batteries will drop below $100 per kWh, and they will continue to enjoy significant market share. However, other technologies with the potential to further reduce costs and improve performance will have emerged from the laboratory to various stages of commercialization. Battery technology is on the cusp of a virtuous cycle: growth in demand will spur cost reductions which, in turn, sustain demand growth.
- Much can be done to modernize the electric grid by making it bigger, smarter and tougher. A bigger gridinvolves more regional transmission lines that reduce intermittency effects by integrating wind and solar energy from different regions. It also involves lines to provide transmission from sparsely populated sun- and wind-rich areas of low demand to well-populated regions of high demand. A smarter grid is one that better balances the supply of electricity with demand by using real-time information to control every aspect of generation, delivery and consumption. A tougher grid is one that is resilient to extreme weather events and cyber attacks.
Within ten years the world will see a proliferation of high-voltage, direct-current (HVDC) transmission lines that offer significant advantages over today’s high-voltage, alternating-current lines. Marriage of the grid and the Internet of Things, which involves intelligent electronic devices such as consumer appliances and business machinery, will increase the ability to adjust demand in response to available supply, while smart meters will increase two-way flow of electricity between the grid and distributed sources such as homes and businesses. And, at a time when extreme weather events are becoming more frequent and cyber attacks on critical infrastructure more threatening, large investments will be made in grid security.
Transportation
Although transportation currently relies heavily on gasoline, diesel and jet fuels, these petroleum-based fuels will eventually be supplanted by alternative sources of energy such as electricity, biofuels and hydrogen.
- In 2015 there were only 1 million battery electric vehicles (BEVs) on the road. Largely light-duty vehicles (LDVs) − sedans, SUVs and pick-up trucks − they represented less than one-tenth of one percent of the total number of LDVs worldwide. But, driven by two factors, demand will increase. Advancements in battery technologies will lower costs and increase storage capacity (the amount of electrical energy stored per unit mass), and expansion of charging infrastructure will extend the range of travel.
With an average annual growth of 50%, there will be more than 50 million BEVs in ten years, and robust growth will continue for decades thereafter.
- While electricity is well suited for LDVs, liquid biofuels are more appropriate for heavier trucks, large off-road vehicles and jet aircraft. Although modest amounts of these fuels are currently produced from food sources such as corn, sugar cane and canola, the future of biofuels depends on the ability to produce them from nonedible, cellulosic forms of biomass such as recycled paper and wood products, assorted grasses, agricultural residues, and fast-growing trees such as poplar and willow.
Thus far, high costs − specifically for enzymes used to break down the cellulose − have limited production of biofuels from cellulosic biomass. However, it is reasonable to expect breakthroughs that will unleash large-scale production within the next ten years.
- For more than two decades, there has been extensive research and development on using hydrogen fuel cells for transportation. Hydrogen, which is produced by reforming methane or electrolyzing water, is used by the fuel cell to generate electricity that propels the vehicle. Costs have been dropping, and most of the world’s major automakers continue to work on fuel cell electric vehicles (FCEVs). Although several FCEVs are now on the market, stiff completion from BEVs will limit growth .
Ten years hence FCEVs may penetrate some niche markets, but cost and performance advancements of BEVs will insure a lion’s share of the EV market.
Fossil Fuels
From the foregoing comments, one might conclude that fossil fuels have a short shelf-life. That would be a mistake. The world will not be able to do without fossil fuels for a long time, perhaps throughout this century. For example, even with 50 million EVs ten years hence, it would represent only 4% of the projected number of LDVs (about 1.3 billion). For both transportation and generating electricity, fossil fuels will remain significant sources of energy for decades to come.
From a 2015 level of 95 million barrels of oil per day, oil consumption will continue to increase, possibly to more than 110 million barrels, before it begins to decline. Although coal consumption will continue to experience significant downward pressure, natural gas will be a major beneficiary and consumption will increase, possibly through the first half of the century. That said, things are changing.
Our Energy Future
Globally, innovation and investment will shift competitive advantage to cleaner, renewable forms of energy and to enabling technologies such as battery storage and a 21st century grid.China, for example, plans to spend $360 billion in solar and wind energy by 2020. It is also leading the world in developing a transcontinental 21st century HVDC grid and is among the top five nations in implementing energy conservation measures. Make no mistake, China recognizes the potential that these and other clean energy technologies have for job creation, and it has every intention of dominating global markets. These markets will provide trillion dollar business opportunities, if not in ten years shortly thereafter.
The US has experienced steady growth in clean energy technologies over the last decade, and it’s been accompanied by significant job creation. In 2016 more than370,000 people were employed in the solar power sector, twice the number working on power generated by coal, oil and natural gas. Additionally, 102,000 worked on wind power and 26,000 on power generated from biomass. Clean energy can be a powerful engine for job creation well into the future.
At its core, this posting deals with our nation’s energy future, one that will profoundly affect the lives of our children and grandchildren. This is not the time to take our foot off the accelerator. Instead, it’s time to double down on our capital investments and our capacity for innovation.