Disclaimer. After nearly 40 years managing money for some of the largest life offices and investment managers in the world, I think I have something to offer. But I can't by law give you advice, and I do make mistakes. Remember: the unexpected sometimes happens. Oddly enough, the expected does too, but all too often it takes longer than you thought it would, or on the other hand happens more quickly than you expected. The Goddess of Markets punishes (eventually) greed, folly, laziness and arrogance. No matter how many years you've served Her. Take care. Be humble. And don't blame me.

BTW, clicking on most charts will produce the original-sized, i.e., bigger version.

Sunday, January 22, 2017

Clean disruption

This remarkable video by Tony Seba shows how dramatically the energy and transportation landscapes are going to shift over the next 5 to 10 years.  I don't usually post videos, because they take a lot of time to watch, more time than the equivalent text.  But I make an exception with this one.  Almost every minute of it is worth watching, and its conclusions are very significant for our society.  Watch the whole thing, then if you want to go back and see individual sections, refer to the notes below the video.

Some key projections and points, to whet your appetite, with my comments in square brackets:

  • The decline in battery storage costs is accelerating [this was before Tesla announced that costs of the Powerwall had halved in one year]
  • By 2020, one day's storage would cost $1 per day, less than a cup of coffee.
  • Large scale storage will completely displace gas peaking power plants, soon.  Already in some locales they are cost effective even at $350/kW storage, but by 2020 storage will be $200/kW and by 2024 $100/kW.
  • 32% of generating assets are used for just 6% of the time.  Batteries will be much cheaper [but we might need more because of weather related variability]
  • The plunge in battery prices means that by 2017 an "average" EV will cost $35,000, by 2020 $30,000, by 2022 $22,000.
  • EVs have only 18 moving parts compared to an ICE (internal combustion engine) vehicle with 2000+.  They are 5 times more efficient than an ICE and 10 times cheaper to run.
  • By 2025 100% of all new vehicle sales will be electric
  • By 2020 all EVs will have self-driving technology.  Already self-driving is feasible for 90% of the time.
  • At some point most people won't own a car but will share in a self-driving, automated EV fleet [like those robo-taxis SF authors used to talk about] 
  • Installed base of solar has doubled every 2 years since at least 1990.  We are just 7 doublings away from solar providing not just 100% of all electricity but of all energy.
  • The cost of rooftop solar will soon fall below the cost of transmission which means no alternative power source will be economically efficient, not nuclear, not fusion, not hydro, not coal nor gas.
  • But we will still need utility-scale power for factories, data centres, smelting metals [and blocks of flats and offices and EVs] 
  • Solar at 5.5 cents/kWh is the equivalent of oil at $10 barrel and gas at $5/MMBtu [recent solar contracts are now 40% to 50% below 5.5 cents/kWh]


At 2;35, how ATT which invented many of the key mobile phone technologies asked McKinsey and Co how many cell phones would there be in the US in 15 years (2000).  McKinsey's answer: 900,000.  Actual number 109 million.

At 4:10, how the internet was never going to be anything important.  "The internet will catastrophically collapse in 1996" (Robert Melcalfe 1995) "There is no reason anyone would want a computer in their home" (Ken Olsen, 1977)  "I do not believe the introduction of motor cars will ever affect the riding of horses" (Scott-Montague, 1903)  Seba points out that it is the experts or insiders who will deny that disruptive opportunities and risks.

At 4:44, why do smart people at smart organisations consistently fail to anticipate or lead market disruptions?

Exponential technologies.  At 6:56, Moore's Law: for the same dollar we get twice the  computing power every 2 years.  If you double every 2 years, over a decade that's a 1000 fold improvement, over 2 decades it's a 1 million fold improvement and over 3 decades a 1 billion fold improvement.  Kryder's Law: hard disk $ cost down 50% every 18 months.  Hendy's Law: digital imaging (pixels per $) down 59% every year.  Butter's Law of photonics (network capacity): the $ cost of transmitting one bit falls by 50% every 9 months,  The convergence of all 4 led to the smartphone and internet revolutions.

Key exponential technologies, at 8:56.  Sensors (9:52) market up 1000 times, costs down 1000 times, power down 1000 times, physical size down 1000 times in just 7 years.

Energy storage, at 11:38.  From 1995 to 2010, lithium-ion batteries fell by 14% per year.  Then 2 new industries came into lithium-ion: transportation and energy storage.  This accelerated the decline in the cost curve, from 2010 to 2014, cost declines accelerated to 16% per annum.  (Note that Seba's presentation was made in March 2016: since 2014 battery costs have halved)  At 16% by 2020 storage will cost $200/kW, by 2024 $100/kW.  Tesla's Powerwall 1 and Powerpack 1 battery costs were already (at the time of the presentation) below Seba's projected cost curve.  Now of course they are much lower than his curve.  Tesla got a billion dollars in orders on the announcement, and as a result the gigafactory, already planned to double world output of lithium-ion batteries, will be expanded in size by 48%.  at 15:58, Tesla isn't the only one doing this: BYD, Foxconn, LG Chem, Samsung SDI, TDK, Apple, Bosch, VW, etc.

Business model innovation, at 16:46.  Storage as a service 17:25.  By 2020, one day's storage (which by the way is more than we need) will cost about $1 (18:38) .  Half the cost of a coffee.  At 20:23, large scale storage likely to replace peaking power plants : billions of dollar in power plants used for just a few hours a year.  According to ConEd, 32% of generating assets used for just 6% of the time,

EVs, 22:10.  Tesla Model S: the best car ever made, not just the best EV.  The best selling large luxury car in America.   At 23:26, The EV is 5 times more efficient than the internal combustion engine (ICE), is 10 times cheaper to charge (24:08), has 2000+ moving parts compared to 18 in an EV (24:47), which makes EVs 10 to 100 times cheaper to maintain, and has much more torque (25:35).  When will EVs replace ICEs (26:56)?  $35,000 EV by 2017,  $30,000 by 2020, $22K by 2022.  By 2025 all new vehicles will be electric.  And note: it won't just be the incumbent companies who do it--Foxconn is to make an EV costing $15,000 (30:58)

Autonomous vehicles (32:52).  Tesla capable of self-driving 90% of the time (33:08).  What an autonomous car sees (34:02) Cost of LIDAR sensors has fallen  from $70,000 in 2012 to $10K in 2013 to $1K in 2014 to $250 in 2016 and a projected cost of $90 in a year or so (34:42)  World's first 1 teraflops computer in 2000 cost $46 million (36:13).  Would now cost $59 (36:43)  Is the market ready?  Yes, in Brazil, China, India, where traffic congestion is horrendous, self-driving cars are very desirable (37:25)  In San Francisco, 50% of Uber rides are car pools (38:43)  Cars are parked 96% of the time (39:09).  The convergence of EVs, self-driving, and shared cars will mean the end of individual car ownership (41:17)

The solar disruption (43:28) Installed base of solar has doubled every 2 years since at least 1990 (44:00)  7 more doublings, or 14 more years until solar can provide 100% of  total energy, not just electricity (44:25)  Grid Parity or God Parity (46:03)?  80% of global market will reach grid parity by 2017 (46:15)  Colour TV technology adoption curve (46:47) God Parity (48:18) where cost of rooftop solar is cheaper than costs of transmission, implying that no matter what alternative technology is used, even if it has zero cost, rooftop solar would be cheaper.  And that will happen by 2020 (49:16)  But we will still need utility scale solar, because blocks of flats, office blocks, aluminium/steel smelting (50:29)  Solar at 5.5 cents/kWh is the equivalent of oil at $10 barrel and gas at $5/MMBtu (51:00)

Tuesday, January 17, 2017

The Peaking Duck Curve

Ergon Energy, the state-owned  Queensland "gentailer" is responsible for supplying power to most of Queensland outside the densely populated south eastern corner.  This chart shows net residential electricity demand, i.e., net after electricity produced by rooftop solar.  Each year, the midday dip has got bigger, and the evening ramp up larger.  In 2015, net demand went negative for 90 minutes at midday.


I liked this chart because it gives you a very rough idea of how many hours of storage is needed.  Looking at it from the net demand side, you'd need storage from about 16:00 to about 1:30. The peak after midnight is prolly from water heaters, which were programmed to turn on after midnight in the days when all power was produced by baseload generators.  Those timers should be shifted to midday.  So that suggests (in the absence of wind) that we need 8 or 9 hours of storage.  Looking at it from the supply side, we'd need enough storage to store electricity from  6:30 to 16:00, which is 11 to 12 hours.

The new Tesla Powerwall will store 14 kWh.  Average annual electricity use by households in Queensland is 5793 kWh, or 16 kWh a day.  That means that one Powerwall battery should almost cover net demand from 16:00 to 6:00.    I keep on meaning to do a proper estimate of the Powerwall's LCOE, but a rough and ready guess would be AU 13.6 cents/kWh (=A$10,500 including GST and installation, divided by 14 kWh*365 days*15 years)   Now my electricity retailer, here in Victoria,  charges AU 28.5 cents per kWh., including GST.  I imagine costs in Queensland aren't that different.  Which means that it makes sense if you already have solar panels to install a Powerwall battery "behind the meter".  And as behind the meter storage becomes more common, the "peaking duck curve" will flatten.

Monday, January 16, 2017



When I wrestle with climate denialists and fossil fuel spruikers, they keep on saying that wind and solar only provide a small percentage of total electricity generated world wide.  And therefore (a) we might as well give up, and (b) we simply have to keep on using coal. Forever.  Never mind the rise in global temperatures.  Well, no. It's perfectly true that renewables still make up just a small percentage of global electricity generation.  But that completely misses the point.

From 2000 to 2015, the percentage of electricity generated from solar has doubled 7 times.  Over the same period, the percentage of electricity generated from wind has doubled 4 times. That means solar has risen 128 fold and wind 16 fold, over 15 years.  In fact, the percentage of solar in total global electricity supply has been doubling every two years for over 30 years, a growth rate of 41% per annum.  As costs have fallen, so more solar has been installed,  which has led to further cost falls.  A classic virtuous cycle, or learning curve.  The wind percentage, meanwhile, has doubled every 3 years, which is a growth rate of 26% per annum.

Together, wind and solar now produce about 5% of global electricity.  This means that together they are just 4 and a half doublings away from 100%.  Obviously as we get closer to 100%, growth rates will slow.  But over the next few years, as costs continue to decline, and the concern about global warming continues to grow, growth rates are likely to remain high.  At 25% growth, the percentage of electricity from wind and solar will reach 15% in 5 years, 45% in 10 years, and would exceed 100% within 15 years. In fact, all we need to reach 100% renewables over the next 20 years is a mere 16% growth per annum.  And that ignores nuclear and hydro.  Eminently doable.

A similar dynamic is happening with electric cars.  They make up just over 1% of the world car sales.  But sales are doubling every 18 months.  That means that in ten years 100% of car sales could be electric.

We doubt these forecasts because our brains think linearly.  Exponential growth at some deep level make no sense to us.  But you have to ask yourself, using the logical analytical parts of your brain: why would growth rates slow before we reach close to 100% saturation?  Prices keep on falling; awareness of these new technologies keeps on rising, the cost advantage keeps on improving.  And technology take up S-curves are extremely common.  Think mobile phones, DVDs, microwaves, the telephone, colour television, electricity itself, etc, etc, as this beaut graphic shows.


What could stop 100% renewable electricity?  Well, the only thing, now that cost is no longer a hindrance, is that renewables are intrinsically variable in output.  And as we get closer and closer to 100% renewables, we will need progressively more storage. That will add to the total all-inclusive costs of wind and solar, so their uptake will slow.  But a grid with mixed sources of supply might need one day's storage (the CSIRO in Australia estimates that only half a day's storage is needed to reach 100% renewables).   And in 15 years, batteries and perhaps other storage will be one tenth of current costs.  So I don't think that will be too big a factor.  I think growth in wind and solar will continue to barrel along for another decade or more.

The implications for fossil fuel producers--and for policy makers and governments-- are clear.  Beware the carbon bubble.  Change is happening faster than our linear-constrained brains realise or feel comfortable with.  And getting it seriously wrong could be disastrous, for everybody. We don't need more coal mines.  And oil companies should stop exploring for new oil, because we won't need it.

Moral Crisis


Sunday, January 15, 2017

Renewables just keep on getting cheaper

(Source; click to enlarge)

In Mexico:

Twice in 2016 Mexico held two renewable power auctions that raised significant investor participation. 
The most recent, in September, saw 23 winning bids out of a pool of 57 to build renewable projects worth $4 billion for 2,871 megawatts of new capacity. More important, the average price at the auctions was US$33.47 per megawatt hour, (MWh) 30 percent less than prices from a previous auction in March. In the September auction, 54 percent of the supply was awarded to solar projects and 43 percent to wind farms. 
The March auction drew 69 prequalified bidders and awarded 18 projects with a total of 1,691 megawatts for solar and 394 for wind. The a average contract price was $47.60/MWh


In Chile:

According to media reports, Mainstream Renewable Power Ltd. and Empresa Nacional de Electricidad/Chile SA won more than two-thirds of the electricity supply auction in Chile. 
Meanwhile, Solarpack set a new record-low solar bid at 2.91¢/kWh ($29.1/MWh). That beats the 2.99¢/kWh bid a Masdar Consortium provided for an 800 MW solar power project in Dubai earlier this year. 
Mainstream has won rights to supply 3.7 TWh of electricity every year (30% of the auctioned electricity), while Endesa, a subsidiary of Enel, will supply 4.9 TWh (40% of the auctioned electricity). There was a significant correction in tariff in this auction compared to previous one. The average tariff bid in the auction declined 40% to US$47.59 per MWh compared to the previous auction. 
To supply the contracted electricity Mainstream will develop 7 wind energy projects with a total capacity of 985 MW. To achieve this capacity, the company is expected to invest $1.65 billion over the next 5 years. Electricity generated from these projects will be sold at tariffs between $38.8 per MWh and $47.2 per MWh.


In Abu Dhabi:

The United Arab Emirates has seen yet another record-breaking solar power tariff bid. Abu Dhabi received the lowest-ever bid for a solar PV project at a shocking 2.42¢/kWh, taking back the title of cheapest solar power project from Chile. 
Abu Dhabi Electricity and Water Authority received a total of 6 bids for the proposed 350 MW solar PV project planned to be built in the town of Swaihan, Abu Dhabi. Out of 6 bids, the lowest ever bid of 2.42¢/kWh has been submitted by the JinkoSolar–Marubeni consortium. The results of the tender are not out yet, as authorities will now evaluate the proposals for technical and economic viability. 
The current bid of 2.42¢/kWh is the lowest so far globally, and by quite a bit — it is shockingly low. This bid is 20% lower than the previous record bid of 2.91¢/kWh submitted at an auction in Chile last month. 
The second-lowest bid in the Abu Dhabi tender was reportedly not much higher, at 2.53¢/kWh, and was submitted by a local firm. These bids also beat the 2.99¢/kWh bid (shocking at the time … and still to some extent) submitted by a Masdar-led consortium for an 800 MW solar PV project in Dubai. 
The Abu Dhabi solar park was initially planned for 350 MW. However, media reports state a possible increase in project size, as bidders were allowed to bid for larger capacities. The final capacity of the solar power park may well increase to 1 GW.


Some points:

  • These, like South Africa, are mid-ranking developing countries.  Their electricity demand, contrasting with the situation in developed countries, is still growing.
  • Solar costs have more than halved in two years.  More than halved.  In two years.
  • These prices are already irresistibly cheap.  And they're going to get cheaper.  If electricity demand is expanding, the new generators built are not going to be coal-fired.  They're going to be wind and solar.  In developed countries, it's harder.  Even though renewables are cheaper than new coal, often much cheaper, existing coal power stations look cheap, because they're fully depreciated.  So the switch to renewables is constrained, though it is happening, especially where generation is highly competitive, for example in the USA.  The good news is that most of the coal generating fleet in developed countries is past its design life, and major refurbishment is not worth it.  New capacity (as it already is in the US) will be renewables plus gas, and coal-fired power stations will be progressively retired.
  • This means that coal demand has peaked, and that emissions from burning coal have peaked too.  Coal is the biggest contributor to CO2 emissions.  It's very likely that within 20 years there will be no coal-fired power stations.  Anywhere.  And that's without a carbon tax.  Introduce a $30 per tonne carbon tax and coal generators are toast.
  • It also means that despite Trump and his gang of climate-denying, oil- and coal-loving cabinet, despite the Republican cognitive dissonance about global warming, the renewables revolution is irreversible.  For a start, it's happening now in developing countries including China, not just rich developed countries.  Second, even in the USA, the switch to renewables is being driven not just by regulation, but by price.  And the states in the "wind corridor" might vote Republican but they're also very fond of their wind turbines and the cheap power they generate.
  • These developing countries and the US are installing both wind and solar, even though solar is cheaper, because the two together minimise the storage needed.  For now, the variability of renewables supply will be compensated for by gas.  In future, storage (CSP and batteries) will take the place of gas peaking power plants.  So demand for natural gas prolly hasn't peaked.  Yet.
  • The reverse auction (i.e., targeting the lowest not the highest price) is an extremely effective method to slash renewables costs. Are you listening Australia?  Germany?
  • I keep on saying this, so I'm beginning to sound like a record (remember them?) with a scratch.  But there are now no technical nor economic reasons  why we cannot aggressively switch electricity generation to renewables.   Global temps are rising by 0.2 deg C per decade.  Even though global CO2 emissions have probably peaked, they're not falling fast enough. We need to stop making excuses, stop listening to the lies of the denialists, and move.