A Stanford business professor predicts that today’s energy and automobile industries will be swept away in just over a decade by solar and wind power, and electric cars.
In just 15 years, the world as we know it will have transformed forever. The age of oil, gas, coal and nuclear will be over. A new age of clean power and smarter cars will fundamentally, totally, and permanently disrupt the existing fossil fuel-dependent industrial infrastructure in a way that even the most starry-eyed proponents of 'green energy' could never have imagined.
These are not the airy-fairy hopes of a tree-hugging hippy living off the land in an eco-commune. It's the startling verdict of Tony Seba, a lecturer in business entrepreneurship, disruption and clean energy at Stanford University and a serial Silicon Valley entrepreneur.
Seba began his career at Cisco Systems in 1993, where he predicted the internet-fueled mobile revolution at a time when most telecoms experts were warning of the impossibility of building an Internet the size of the US, let alone the world. Now he is predicting the "inevitable" disruption of the fossil fuel infrastructure.
Seba's thesis, set out in more detail in his new book Clean Disruption of Energy and Transportation, is that by 2030 "the industrial age of energy and transportation will be over," swept away by "exponentially improving technologies such as solar, electric vehicles, and self-driving cars."
Tremors of change
Seba's forecasts are being taken seriously by some of the world's most powerful finance, energy, and technology institutions.
Last November, Seba was a keynote speaker at JP Morgan's Annual Global Technology, Media, and Telecom Conference in Asia, held in Hong Kong, where he delivered a stunning presentation on what he calls the "clean disruption."
Seba's JP Morgan talk focused on the inevitable disruption in the internal combustion engine. By his forecast, between 2017 and 2018, a mass migration from gasoline or diesel cars will begin, rapidly picking up steam and culminating in a market entirely dominated by electric vehicles (EV) by 2030.
Not only will our cars be electric, Seba predicts, but rapid developments in self-driving technologies will mean that future EVs will also be autonomous. The game-change is happening because of revolutionary cost-reductions in information technology, and because EVs are 90 percent cheaper to fuel and maintain than gasoline cars.
The main obstacle to the mass-market availability of EVs is the battery cost, which is around $500 per kilowatt hour (kWh). But this is pitched to fall dramatically in the next decade. By 2017, it could reach $350 kWh—which is the battery price-point where an electric car becomes cost-competitive with its gasoline equivalent.
Seba estimates that by 2020, battery costs will fall to $200 kWh, and by 2024-25 to $100 kWh. At this point, the efficiency of a gasoline car would be irrelevant, as EVs would simply be far cheaper. By 2030, he predicts, "gasoline cars will be the 21st century equivalent of horse carriages."
It took only 13 years for societies to transition from complete reliance on horse-drawn carriages to roads teeming with primitive automobiles, Seba told his audience.
Lest one imagine Seba is dreaming, in its new quarterly report, the leading global investment firm Baron Funds concurs: "We believe that BMW will likely phase out internal combustion engines within 10 years." (Investors at rival bank Morgan Stanley are making a similar bet, and are financing Tesla.)
Two days after his JP Morgan lecture, Seba was addressing the 2014 Global Leaders' Forum in south Korea, sponsored by Korean government ministries for science and technology, where he elaborated on the prospects of an energy revolution. Within just 15 years, he said, solar and wind power will provide 100 percent of energy in competitive markets, with no need for government subsidies.
Over the last year Seba has even been invited to share his vision with oil and gas executives in the US and Europe. "Essentially, I'm telling them you're out of business in less than 15 years," Seba said.
solar panel costs are now 154 times cheaper than they were in 1970
Revolutionary economics of renewables
For Seba, there is a simple reason that the economics of solar and wind are superior to the extractive industries. Extraction economics is about decreasing returns. As reserves deplete and production shifts to more expensive unconventional sources, costs of extraction rise. Oil prices may have dropped dramatically due to the OPEC supply glut, but costs of production remain high. Since 2000, the oil industry's investments have risen threefold by 180 percent, translating into a global oil supply increase of just 14 percent.
In contrast, the clean disruption is about increasing returns and decreasing costs. Seba, who dismisses biomass, biofuels and hydro-electric as uneconomical, points out that with every doubling of solar infrastructure, the production costs of solar photovoltaic (PV) panels fall by 22 percent. "The higher the demand for solar PV, the lower the cost of solar for everyone, everywhere," said Seba. "All this enables more growth in the solar marketplace, which, because of the solar learning curve, further pushes down costs."
Globally installed capacity of solar PV has grown from 1.4 GW in the year 2000 to 141 GW at the end of 2013: a compound annual growth rate of 43 percent. In the United States, new solar capacity has grown from 435 megawatts (MW) in 2009 to 4,751 MW in just four years: an even higher rate of 82 percent.
Meanwhile, solar panel costs are now 154 times cheaper than they were in 1970, dropping from $100 per watt to 65 cents per watt.
What we are seeing are exponential improvements in the efficiency of solar, the cost of solar, and the installation of solar. "Put these numbers together and you find that solar has improved its cost basis by 5,355 times relative to oil since 1970," Seba said. "Traditional sources of energy can't compete with this."
A great delusion?
Other experts disagree. Renowned scientist Vaclav Smil of the University of Manitoba has studied the history of energy transitions, and argues that forecasts of an imminent renewable energy revolution are deluded. It took between 50 and 75 years for fossil fuels to contribute significantly to national energy requirements, in circumstances where technology was cheap and supplying baseload power (operating 24 hours continuously) was not a problem. So the idea that renewables could be scaled up in decades is fantasy, he argues.
Similarly, Australian sustainability expert Prof Ted Trainer of the University of New South Wales and the Simplicity Institute argues that renewables cannot cope with demand in industrial consumer societies. "The raw cost of PV is not crucial," Prof Trainer told me. "Even if it was free it cannot provide any energy at all for about 17 hours on an average day, and in Europe there can be three weeks in a row with virtually no PV input."
Trainer also flagged-up 'energy return on investment' (EROI)—the quantity of energy one can get out compared to how much one puts in: "EROI for PV is around 3:1. It hardly matters what it costs if it's down there."
There are 300,000 solar installations in the US right now. By 2022, there will be 20 million
Fossil fuel ostriches
"What the skeptics don't understand is, when disruption happens, it happens swiftly, within two decades or even two years," Seba told me. "Just ask anyone at your favorite camera film, telegraph, or typewriter company." Kodak, a photography giant in 2003, filed for bankruptcy in 2012, as the digital photography revolutions swept away dependence on film. We've seen parallel disruptions with smartphones and tablets.
Seba's main answer to Smil is to highlight the folly of extrapolating the potential for future energy transitions from the past. New clean energy industries are utterly different from old fossil fuel ones. It's as if saying the industrial revolution could never have happened based on studying the feudal dynamics of pre-industrial societies.
Costs of solar are not just decreasing exponentially, they will continue to do so due to increasing innovation, scale, and competition. "There are 300,000 solar installations in the US right now. By 2022, there will be 20 million solar installations in the US," Seba predicts.
As a rule, Seba said, when a technology product achieves critical mass (historically defined as about 15-20 percent of the market), its market growth accelerates further, and sometimes exponentially, due to the positive feedback effects. In hundreds of markets around the world, unsubsidized solar is already cheaper than subsidized fossil fuels and nuclear power. A new Deutsche Bank report just made headlines at the end of October for predicting that solar electricity in the US is on track to be as cheap or cheaper than fossil fuels as early as 2016.
Seba also dismisses concerns about baseload, pointing me to the new Solar Reserve 110 MW baseload solar plant in the Nevada desert, running on molten salt storage, that will power Las Vegas at night.
Meanwhile, increasing efficiencies and plummeting costs of lithium ion (li-on) batteries are already making night-time residential storage of PV and wind power cost-effective. Every year, li-ion battery costs drop by 14-16 percent. By 2020, experts believe that li-on will cost around $200-250 per kilowatt per hour (kWh) in which case, according to Seba: "A user could, for about $15.30 per month, have eight hours of storage to shift solar generation from day to evening, not pay for peak prices, and participate in demand-response programs."
At the current rate of growth, Seba's projections show, globally installed solar capacity will reach 56.7 terrawatts (TW) in the next 15 years: equivalent to 18.9 TW of conventional baseload power. That would be enough to power the world, and then some—projected world energy demand at that time would be 16.9 TW.
Paul Gilding, who has spent the last 20 years advising global corporations like Ford, DuPont, BHP Billiton, among many others on sustainable business strategy, agrees that the trends Seba highlights imply "a disruptive transformational system change" that outpaces the "assumptions built on the old world view of centralised generation." Author of The Great Disruption, Gilding said that "it's the systemic interactions of software, new players, disruptive business models and technology that accelerates the shift," and which "will be self reinforcing"—not just cheap prices.
EROI concerns are therefore a red-herring. Seba argues that the minimal costs of maintaining solar panels which last many decades, coupled with the free energy generation once initial costs are repaid, mean that real EROI for solar is dramatically higher than fossil fuels in the long-run.
"Should solar continue on its exponential trajectory, the energy infrastructure will be 100-percent solar by 2030," Seba said. "The only reason for this not to happen is that governments will protect or subsidize conventional coal, nuclear, oil, gas generating stations—even when this means higher prices for consumers."
While solar has already reached 'grid parity', becoming as cheap or cheaper than utility rates in many markets, within five years Seba anticipates the arrival of what he calls 'God Parity': when onsite rooftop solar generation is cheaper than transmission costs. Then, even if fossil fuel plants generated at zero costs (an impossibility), they could never compete with onsite solar. So after 2020, the conventional energy industry will start going bankrupt.
The costs of wind, which complements solar at night and in winter, is also plummeting and will beat every other energy source, except solar, in the same time-frame, according to his analysis.
"We are on the cusp of the largest disruption of industry and society since the first industrial revolution. Large, centralized, top-down, supplier-centric energy is on its way out. It is being replaced by modular, distributed, bottom-up, open, knowledge-based, consumer-centric energy," said Seba. "The transition has already started and the disruption will be swift. Conventional energy sources are already obsolete or soon to be obsolete."
But for Gilding, like Trainer, the clean disruption will also disrupt economic growth as we know it: "In the end we'll have to wake up to the impossibility of endless economic growth. Even with very cheap, zero carbon energy, we can't have endless growth nor human progress defined by shopping."
One thing is certain: as the old energy paradigm dies, in its ruins, the opportunities for a new post-industrial paradigm are emerging faster than anyone anticipated.