Creative Destruction, Solar Style
Solar energy arrives from the sun in the form of electromagnetic radiation, about 1,300 watts of energy per square meter of surface outside Earth's atmosphere, and about 1,000 watts per square meter at Earth's surface, at noon on a cloudless day. The difference is reflected back into space or absorbed by the atmosphere. Averaged over the entire planet 24 hours per day for a year, each square meter of surface collects the energy equivalent of almost a barrel of oil annually, about 4.2 kWh every day. Deserts, dry with little cloud cover, receive more than 6 kWh per square meter per day. In Maine we collect closer to 3.6 kWh. Sunlight varies by season and also with cloud cover. Maine receives more solar radiation than Germany, yet the Germans use far more solar energy than we do.
Solar energy supports all life. It is a fundamental need of economic life, the source of all the energy we use. It makes the plants we burn as renewable "biomass" grow. Coal, oil and natural gas are but plant life left to rot in swamps, compressed underground for millions of years. Solar radiation causes molecules to vibrate at a rate that corresponds to the amount of energy absorbed, and winds that power turbines are the product of temperature differences. Water evaporated by solar heat falls as rain and snow on high elevations, forming rivers that spin hydroelectric turbines. And solar energy can heat and light houses, and generate electricity.
Just 20 days of sunshine equals all the energy stored in Earth's reserves of coal, oil, and natural gas. It falls distributed across the surface of the Earth, matching our similarly distributed energy needs. So, why are our energy systems centralized? Wouldn’t it be more efficient to collect and use the day’s solar energy where it falls, instead of burning stored solar energy in central power stations whence it must be redistributed to users? The answer: fossil-based energy systems match the business models of the industrial revolution. They represent a paradigm shift from distributed pre-industrial muscle power (pack and draft animals, slaves, serfs) to serve the concentrated energy needs of factories.
The central power station with its grid and the oil refinery with its distribution system match the industrial business model and provide easy control of the economic process from resource extraction to waste disposal, allowing for multiple profits along the way. But these centralized artifacts of the machine age came about at the price of what economist Joseph Schumpeter called "creative destruction". The steam-powered railway drove stagecoaches and the inns that served them out of business. Edison’s electric light bulb did the same to gas lighting, which, in turn, had displaced oil lights and devastated the whale oil business.
Disruptive change is a constant feature of evolving economic systems. The stage coach driver who becomes a railroad engineer does fine, the buggy-whip manufacturer who refuses to adopt is swept away. Today the energy paradigm is shifting again, even as powerful interests that benefit from the status quo do everything in their power to stave off the inevitable. “Solar and wind power are too expensive”, their narrative goes, “they are not viable because they are intermittent”.
But how viable are business models that refuse to adapt to change? Power utilities used to have some of the safest of blue chip stocks. Not any more. RWE, one of Europe's biggest power utilities based in Essen, Germany, a Ruhrland town at the heart of the last industrial revolution, recently announced an annual loss of €2.76 billion, its first since 1949. That loss followed a record loss posted by France's GDF Suez. RWE made clear that its loss was due to the company’s failure to move quickly enough into renewable energy, the fastest growing component of Germany’s energy-mix.
Closer to home in Palo Alto, California, the car manufacturer Tesla just announced it will invest in a $4 to $5 billion "gigafactory" to double the world's production of lithium-ion batteries, which power mobile phones and also Tesla's high-end electric cars. The objective is to cut battery prices by 30% in three years, and halve them by 2020. There is also work going on in nanotechnology, which allows a much greater surface within a given battery, shortening charging time and increasing storage capacity.
Cheap batteries will speed the transition to low-carbon electricity. Solar and onshore wind are coming down dramatically in price – they will be cheaper than grid electricity in most of the world by 2025. Car batteries can be used to store and provide electricity when demand peaks. Battery packs in houses could charge up when the sun shines and the wind blows, and supply heat, light and hot water when needed. Tesla's battery plant brings the prospect of all this closer.
Solar and wind have no fuel costs. We pay for the capital cost up front, and the electricity flows into the grid regardless of price. As more and more electricity comes from these distributed sources, the wholesale price of electricity can collapse on sunny, windy days. If I were a power company executive, I would rethink my business model, instead of trying to charge a premium for delivering renewably generated power.