The seven technologies included:
1. advanced biofuels,
2. electric vehicles (EVs),
3. concentrated solar power (CSP),
4. solar photovoltaic (PV),
5. onshore wind,
6. offshore wind, and
7. clean coal through carbon capture and sequestration (CCS).
Each of these technologies was assessed on its potential to be cost competitiveness with conventional energy by 2020 and be economically viable without subsidies; the pace at which it can reasonably be adopted given the barriers it faces; and can it scale its market penetration enough by 2025 to be a game changer.
The key findings from the BCG report were:
- Three of the seven technologies are game changers: Advanced biofuels, CSP, and solar PV are likely to see faster adoption rates and thus can change the global energy mix much quicker than conventional wisdom suggests because production costs are falling rapidly, making them more cost competitive sooner (5-10 years) than other technology choices.
- Onshore Wind power is already mainstream technology with fast growing adoption rates. It is cost competitive with conventional energy sources in some instances, and its costs are falling. The biggest barrier for onshore wind is its intermittent nature and the lack of a practicable storage solution to mitigate that weakness. Solar PV faces the same barrier problems.
- Plug-in Electric Vehicles use will grow and costs will fall by 2020 but battery technology improvement is not yet fast enough to produce significant drop in costs. This cost barrier plus the need for substantial recharging infrastructure will slow PHEV growth to moderate levels not the game changer superstar status some hope. • In contrast to onshore wind, offshore wind will struggle to move beyond purely subsidy-driven growth. Offshore wind’s overall adoption will be slow except in a few countries willing to continue heavy subsidies.
- Clean Coal through CCS faces very significant cost barriers and technology risk and is 10-20 years away from commercial viability beyond demonstration projects. Nonetheless, BCG said the technology was essential to reducing carbon emissions from coal-fired power plants but the research must stay focused on demonstrating large-scale viability and reducing the cost.
Nothing in this report surprised me. In fact I was delighted by it for very satisfyingly selfish reasons.
Back in 2005 at Global Energy Decision we produced a similar study entitled: Renewable Energy: The Bottom Line, (2005). Our analysis of market potential for nine renewable energy technologies across twelve markets was one of the first done consistently across power markets and validated wind as leading renewable resource.
We performed this study for several reasons. Our investment banking clients kept asking us to help them assess the risk of investing money in new technology especially wind energy projects and they wanted to better understand the financial and technology risks. And second, since we produced a power market advisory service product that included long term forecasts of additions to power generation portfolios we needed to understand the market potential and expected market penetration rate of these new technologies. In essence, we asked ourselves the same question BCG asked in the study mentioned above.
We got the same answers at Global Energy Decisions back in 2005 as BCG got in 2010. We said then that wind energy was quickly becoming mainstream, its costs were coming down and it would likely capture 76% of the market share for renewable energy in the early stages of the market. We said that solar PV costs were high and a barrier that must be overcome to make it mainstream, BUT if solar costs did come down and efficiency came up it represented the most potent threat to the traditional utility central station business model. In essence, solar was the key to the distributed energy business model game changer if it could overcome the market barriers.
Equally important, at Global Energy we were engaged to be the market analytics advisor to Battelle Memorial Institute’s work in the FutureGen project and our analysis of the cost competitive of CCS was the same as BCG. CCS is important to the future of coal use but it has big barriers to overcome to be viable and practicable.
We used our Global Energy study of renewable energy and the insight we extracted from the analytics to give market opinions in structured energy project finance transactions that totaled 90,000MW of assets valued at more than $50 billion by the time Global Energy Decisions was sold to Ventyx in 2007.
Renewable energy technology has come a long way in a relatively short period of time and it is indeed a game changer. The rate of adoption has been aided greatly by China and its ability to scale production and drive down the cost of wind turbines and solar panels to build its export business. The changes also forced the consolidation of the wind and solar industry transforming them from “mom and pops” to sectors dominated by world class industrial giants accelerating the pace of change. And the adopted of state renewable portfolio standards and Federal tax credits, subsidies and loan guarantees also accelerated the adoption rate.
So here we are in 2010 and states which adopted 20% RPS targets are nearing achievement of those goals and the question we face is where do we go from here? Many states will declare victory and tell their utilities to focus on improving energy efficiency, demand response and energy management to make better use of resources and reduce emissions. Some will push forward with other technology choices hoping to overcome the barriers. Our Global Energy Decisions study was more optimistic about offshore wind, included geothermal as a winning but limited location technology choice, and said biomass was also a winner. A few states like California will shoot for the moon with its 33% RPS. The risk they face is getting ahead of the technology learning curve and costs thus consigning ratepayers to higher than necessary costs.
The hidden truth in the BCG study as it was for our Global Energy study five years earlier is that the policy can be ambitious but the reality is the technologies that produce the most energy efficient performance at the lowest cost will win. Regulators can subsidize some technologies to speed up their learning curves but sooner than later all new technology must prove itself in the marketplace and be more cost effective than alternatives if it is to grow and thrive.
Nice work BCG!