Over the holiday I spent as much time outside as possible, and as little time in front of screens as I could. As I start up 2022 screen time, there are a few announcements of note in the world of transport and electricity that get me thinking about the year (and years) ahead.
They range wide, but point to two things: a massive scaling up of clean electricity and electrified transport, and a concurrent decentralization of both at the same time. The implications of the latter are fascinating, but first, the scaling.
In India, solar generation narrowly surpassed wind generation in 2021, making it the third-biggest source of electrons behind coal and hydro. Wind, solar, and biomass are now more than 10% of India’s power generation; throw in hydro and nuclear and 25% of its power is zero-carbon. Coal still dominates — it was 72% of all generation and at a record high level last year — but it’s expected to barely grow to 2030, while solar will triple.
India’s solar expansion will continue, and so will the world’s. Much of that will be highly distributed, at the scale of a household, and much of it will be paired with a battery. BNEF expects small scale photovoltaic generation capacity to expand almost ten-fold by 2050. Battery capacity will expand nearly 130 times by mid-century.
Batteries, of course, will not just be stationary and used for power grid applications. In the U.S., Ford has announced the second doubling of production capacity for its F-150 Lightning electric pickup truck in less than twelve months, from 40,000 to 80,000 and now 150,000 units a year. A Ford executive said that “it feels like the demand is certainly there” for EVs to be 10% of the U.S. car market, which would align this lagging market with the global market, which hit that mark in the third quarter of 2021.
Major manufacturers are planning to use their vehicles as storage options that can not only hold and use a charge, but discharge it to something else. Volkswagen, which is in the midst of its own significant electric vehicle expansion, said last month that its EVs will be part of a “universal and seamless eco-system for charging.” VW sees bi-directional charging as a way for its vehicles to “be used on the energy market as flexible, mobile energy storage units.”
These developments point to a decentralization of significant parts of the power and transport systems. Millions of solar generation systems and battery systems will be individually owned, participating in power markets that only a few decades ago were the exclusive province of large utilities and state-owned and state-regulated companies. Cars have been individually owned since the beginning of course, but if hundreds of millions of them become participants in the power market in the coming years, they will play a very different role than they do today.
Decentralization of energy systems could enable myriad new business models to flourish. Individuals can arbitrage price differentials; neighbors can trade with each other; companies can aggregate assets and act in place of larger and established energy market participants. These are good possibilities that should be embraced — but they also raise questions.
Power markets are not the consumer internet. Power markets are highly regulated for a reason, and we collectively place expectations on those markets — of reliability, of universal service, and of cost — that we do not typically apply to individual actions. In a decentralized age, would an individual participant be able to price her own power at 10,000 times the average? Or, would a small clique of insiders engage in ‘wash trading’ and essentially spoof the market with price signals that do not reflect supply and demand?
Another equally important question is, does decentralization necessarily imply more innovation? Aaron Levie, the CEO of cloud services provider Box, nicely captured the tradeoffs between decentralization and innovation in a series of tweets at the end of December. Levie is writing specifically about software and the potential to build decentralized apps that run on the blockchain, known as Web3, but his insights are relevant here, too.
The web, Levie says, “is already decentralized, allowing you to launch any new product to the market at any time.” A further decentralization — in which each product itself is without a center — breaks a market’s natural efficiency at determining the right product that it needs. Add in requirements for availability and reliability, and it is unclear the degree to which decentralized electricity and electric transport markets could operate without some centralized control.
The future likely will offer a blend: a decentralization of assets along with entities that will serve ‘command and control’ functions. That could leave plenty of room for innovation, and plenty of space for new businesses and business models to emerge. More on that next week.
Source: Bloomberg
