From Calum Holt, a researcher analyzing energy, published March 2022.
What struck me the most about the full text is this: “If global GDP growth is 3%, the next 23 years will create as much economic value as the past 100 years, which means looking now in 2045 is about as much as looking back at 1922 now. “
▎New technologies, dramatically falling costs, and our habitual behavior of adapting all portend progress—just we better not expect it to skyrocket.
In the 1930s, American engineer Theodore Wright made a curious observation about the construction of airplanes. Plotting their production costs over time, he noticed that each time the cumulative number of planes produced doubles, the cost of producing each plane drops by a fixed percentage. That is, the ratio of cost reduction between the 1000th and 2000th aircraft produced is the same as the cost reduction between the 2000th and 4000th, 4000th and 8000th, and so on, the data form A neat “experience curve” that follows a power law.
Interestingly, this phenomenon is not unique to aircraft. When engineers and economists started looking for it, similar trends were found across the manufacturing industry, from semiconductor production (Wright’s Law is now known to map the falling cost of computing power more accurately than Moore’s Law) to the Ford Model T, For every doubling of cumulative production, costs drop by 15%.
This experience curve also applies well to technologies at the heart of the energy transition, from electric vehicles and solar panels to wind turbines and batteries. This trend is likely to also apply to hydrogen electrolyzers and carbon capture technologies, although these are still in their early stages and have not yet produced sufficiently reliable data.
While we do have a large data series and can look at costs over the long term, a lot of things are evident, the cost of solar falls about 36% with every doubling of cumulative installed capacity.
But it would be wrong to think of these curves as just lines on a graph. In some ways, the experience curve is a self-reinforcing process. Cheaper products make customers more likely to adopt a given technology, adoption stimulates greater demand, greater demand leads to higher output, higher output leads to lower unit price, and lower unit price leads to higher unit price. demand, etc.
In World War I, for example, aircraft were used almost exclusively to map enemy positions. Only governments can afford this technological breakthrough. While it is sad that a war is needed to demonstrate the potential of aviation, technological improvements and higher yields sparked by the conflict have paved the way for planes cheap enough to be used by passengers and express freight.
The same thing happens with semiconductors. While computing power was initially reserved for the National Intelligence Service, as well as for NASA’s multibillion-dollar budget programs, scale and technological improvements eventually led to the mass sale of computers to consumers in the late 1970s. Profits from these early PCs lead to reinvestment in manufacturing facilities, R&D and supply chain, which means cheaper, better PCs and higher profits when the next generation hits the market. Those profits are reinvested, the process repeats itself, and the rest is history.
Given these past trends, it is possible to use developments in digital transformation to predict how the energy transition will unfold, taking into account the common economics behind the respective technologies. Interestingly, research into current developments in energy markets appears to confirm many of the expected similarities. So, what can we learn from history?
▎ First, we should not think of energy conversion as linear.
Back in 1980, Bill Gates succeeded in defining the goal for the industry “a computer for every desk and every home”. More than 40 years later, not every home actually has a computer (at least not as most people understood “computer” in 1980), but that doesn’t mean the digital transformation has failed. Quite simply, desktop computers have been replaced by laptops, smartphones, tablets and wearables. We don’t all need desktop computers, because the devices in our pockets have millions of times more processing power than the 32-kilogram guidance computers that powered the Apollo space missions. So, measured against the 1980 target, we both failed and greatly exceeded.
We should expect similarities between these evolving goals in the energy transition. First-generation green energy technologies, such as battery electric vehicles (BEVs), solar photovoltaic (PV) panels, and onshore wind turbines, are now cheaper (or close to) than their fossil fuel equivalents. With costs falling sharply and profit incentives from private markets increasing, we should expect them to turn inflection points as subsidies are redundant. Despite the proliferation of digital devices since 1980 (widespread sales without subsidies made them truly lucrative), given the existential needs involved, we should expect the proliferation of green technologies to happen faster, with digital The trillion-dollar government budget setting also represents this explicit purpose,
However, just as desktop computers are gradually being replaced by laptops, tablets and smartphones, we should also expect BEVs, solar photovoltaic panels and onshore wind farms to be in turn replaced by newer, cheaper, more efficient and better quality technologies Replacement, many of which are already seeing costs shift rapidly to commercial viability. Onshore wind demand will slowly be cannibalized by demand for smaller, more efficient floating wind farms, small offshore turbines will be replaced by giant 20MW turbines, and short-range BEVs that require overnight charging may be replaced by fuel cell electric vehicles , even a necessity: solar panels may eventually be phased out in favor of 3D-printed solar films that can be placed anywhere, anywhere, further decentralizing energy production.
So while we often think of the energy transition as going from A to B, from 51 gigatons of carbon to net zero, from “1990 levels” to “pre-industrial levels” or even “races”, it means defining A clear start and finish line, which is not a useful way to think about transitions, is like defining digital success in terms of desktop computer household proportions. Instead, the transition will be more like what the hypothetical Ship of Theseus went through, in which every plank and oar is gradually replaced by stronger, sturdier replacements until no part of the original ship remains. down, but each of us involved does not necessarily know when the world will truly be transformed.
There are two other places where there should be parallels with the digital transition process.
▎The first is the ongoing deflationary trend,
Because the cost of energy ultimately falls, making all goods more accessible to consumers by reducing costs in manufacturing, distribution, use and disposal, which is much larger than the scale of the industry in the digital transformation process.
▎The second is that, as with digital transformation, we will not only change energy use, but energy use will also change us.
The advent of cheap computing power has changed our behavior, culture, and society, changing everything from our dating habits to our attention spans. If the cost of everything falls with the cost of energy, and this new but pervasive climate-induced anxiety subsides, then we should not only anticipate profound changes in our individual behavior, but also this The new relationship to energy (and the planet) leads to new businesses, ideas and cultural habits that are currently unimaginable or untenable, in other words, like digital transformation,
Back in 2022, we’re just starting to see how the first phase of the transition will play out. In 2020, most new renewable energy projects are cheaper than the cheapest fossil fuels for the first time, and many major economies are now phasing out subsidy programs because they are simply no longer needed. The cost of solar power has fallen by 90 percent since 2009 and is now one of the cheapest forms of energy ever created.
Of course, there will be obstacles to deploying wind and solar on a large scale. Our grid will require significant investment, manufacturing supply chains will take time to kick in, and green hydrogen and battery-based storage infrastructure will be built.
While the energy transition has not been smooth sailing, wind and solar are heading in a better direction than any other form of energy generation invented to date. As we approach a world where we can easily absorb a fraction of solar energy and satisfy our wildest energy demands, we will also find that we can decarbonize vast economies with little additional technology. Mass-produced electrolysers would provide an inexpensive source of hydrogen that could power vehicles and heavy machinery, heat homes, burn in other surplus gas plants, and use as an industrial feedstock. Electrolysis will also provide us with a cheap and abundant supply of green oxygen, which has its own medical and industrial uses, and by combining these products with carbon capture, we will be able to make synthetic hydrocarbons for a variety of uses, including plastics compounds, because doing so would not harm the planet, as the carbon involved first had to be extracted from the atmosphere.
While there will undoubtedly still be some emissions by 2050, likely from industries such as concrete manufacturing or agriculture, powering them with green energy means they are still less polluting than they are today. At the same time, carbon capture technology should be able to mitigate most of the adverse effects, while also allowing us to sequester most of the carbon dioxide.
Do you think this is a naive dream? Is it a utopian assumption? Recall the miracle of compound interest: If global GDP grows at 3%, in absolute terms, the next 23 years will create as much economic value as the past 100 years . That is, broadly speaking, 2045 to today will be as big as between today and 1922 — an intoxicating thought and a “developmental” difference.
While it’s easy to see new frontiers in space, the healthcare revolution brought about by the dawn of genetic sequencing, etc. as the main drivers of this “dream” growth, falling energy costs have made the cost of doing just about anything more affected by the Impact, which will affect every government, business, family and individual. Only time will reveal the full extent of the impact of the energy transition, and I don’t know if I can unfold it for you.
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