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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. These days I'm retired, and I can't by law give you advice. I do make mistakes, but I try hard to do my analysis thoroughly, and to make sure my data are correct. Remember: the unexpected sometimes happens. The expected does too, but all too often it takes longer than you thought it would.

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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]






Notes:

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)

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