The concept of disruptions has been around for a long time now. Shocking revolutions such as the near-complete transition from horse-based transportation to cars in thirteen years in New York City, or the rapid adoption of smartphones, are two of many examples where the “experts” on the inside completely failed to predict the oncoming market disruptions, which are usually created by outsiders to the market.
Another property of technological disruptions – and technological progress in general – is that it forms exponential, S-shaped curves. Progress starts slow before reaching a tipping point where mass adoption occurs practically overnight, often with little warning. That may be a slight exaggeration but it serves to highlight just how unforeseen these changes are by the vast majority of people; even people in the know.
One killer combo of key technologies that has been steadily advancing for years is solar power and batteries, specifically lithium ion (Li-On) batteries like the ones found in your smartphone. Both of these have been following exponential curves which are in the midst of a very large acceleration. In particular, investment in Li-On batteries has increased hugely in the last few years, driven in particular by Tesla Motors’ new $5Bn “Gigafactory”. Tesla, famous for the all-electric Model S saloon car, plans to introduce a $35,000 mass-market model called the Model 3 for which it will require a large new supply of Li-On batteries. In fact, this one new factory alone will more than double the world’s production of Li-On batteries, all the while reducing the cost by 30-50%.
The potential disruptions are two-fold. First is the rapid changes to the automotive market that electric cars will bring, but more relevant to this article is that the business model of energy utilities may cease to be profitable. Energy utilities make the bulk of their money by charging higher prices at peak times: Arizona Public Services, for instance, charges $0.495/kWh at peak and $0.05/kWh at midnight. Already there are companies in the USA which offer businesses a large battery pack for their premises which means the business can buy electricity at midnight rather than at peak times, which can halve their energy bills. Even having enough capacity to store a few hours’ worth of energy can result in dramatic savings – and cost the utility provider dearly.
Remarkably, at the current rate of cost reduction, the tipping point for home energy storage will likely be around 2020 – only four years away. So, in four years, traditional energy utilities could be disrupted and face major upheaval.
This comes without even considering the impact of solar. Right now in 2016, the cost of solar has reached $0.05/kWh – a cost equivalent to buying oil at $10 a barrel, five times cheaper than real crude oil. Here comes the real kicker: by 2030, assuming current trends, the cost of solar will be less than the cost of transmission of traditional energy sources.
That is to say, solar at your house will cost less than just maintaining the energy pylons we currently use, not to even mention the power stations themselves. It’s fair to say that the solar and battery combination will wipe the floor with traditional energy, even if the trend doesn’t continue for all that time. The trend which, by the way, has been going strong for 25 years and is, in fact, currently accelerating.
It’s fair to say that although this won’t be the end, it will be yet another nail in the coffin for oil. And not just in hot countries – the trend is as true for Norway as it is for the USA. The combination of batteries with solar power is set to revolutionise energy as we know it, calling projects like Hinkley Point into question.