Oil prices have fallen by more than half since July. Just five years ago, such a plunge in fossil fuels would have put the renewable-energy industry on bankruptcy watch. Today: Meh.
Here are seven reasons why humanity’s transition to cleaner energy won’t be sidetracked by cheap oil.
1. The Sun Doesn’t Compete With Oil
Oil is for cars; renewables are for electricity. The two don’t really compete. Oil is just too expensive to power the grid, even with prices well below $50 a barrel.
Instead, solar competes with coal, natural gas, hydro, and nuclear power. Solar, the newest to the mix, makes up less than 1 percent of the electricity market today but will be the world’s biggest single source by 2050, according to the International Energy Agency. Demand is so strong that the biggest limit to installations this year may be the availability of panels.
“You couldn’t kill solar now if you wanted to,” says Jenny Chase, the lead solar analyst with Bloomberg New Energy Finance in London.
2. Electricity Prices Are Still Going Up
The real threat to renewables isn’t cheap oil; it’s cheap electricity. In the U.S., abundant natural gas has made power production exceedingly inexpensive. So why are electricity bills still going up?
Fuel isn’t the only component of the electricity bill. Consumers also pay to get the electricity from power plant to home. In recent years, those costs have soared. Annual investments in the grid increased fourfold since 1980, to $27 billion in 2010, according to a report by Deutsche Bank analyst Vishal Shah. That’s driving bills higher and making rooftop solar attractive.
3. Solar Prices Are Still Going Down
You may have seen this chart before. It’s the most important chart. It shows the reason solar will soon dominate: It’s a technology, not a fuel. As time passes, the efficiency of solar power increases and prices fall. Michael Park, an analyst at Sanford C. Bernstein, has a term for the staggering price relationship between solar and fossil fuels: the Terrordome.
The chart above shows the price of energy from different sources since the late 1940s. The extreme outlier is solar, which only recently entered the marketplace, at a very high price. Prices are falling so fast that solar will soon undercut even the cheapest fossil fuels, coal and natural gas. In the few places oil and solar compete directly, oil doesn’t stand a chance.
Case in point: Oil-rich Dubai just tripled its solar target for the year 2030, to 15 percent of the country’s total power capacity. Dubai’s government-owned utility this week awarded a $330 million contract for a solar plant that will sell some of the cheapest electricity in the world.
Jobs cuts and cancelled projects mean that oil prices could bounce back harder and faster than before
Is the return of $100 oil just around the corner?
Just over a year ago, Peter Voser, in one of his last speeches as chief executive of Royal Dutch Shell, warned about the catastrophic consequences that could arise from the energy industry failing to invest in providing the world with enough oil and gas to meet global demand.
Mr Voser told an audience of senior oil and gas industry executives gathered in London:
“Our first priority must be to invest heavily in new supplies, and to maintain it through economic and political turbulence. Failing to do so would be a sure path to another crunch and major price volatility.”
On the day Mr Voser spoke in London a barrel of Brent crude was trading at $107 per barrel, the same barrel is now worth under $50.
The sun sets on drilling (Image: Pexels)
It can take a decade to discover a major oil field and bring it into production, and most oil majors have been basing their long-term forecasts for such projects on the assumption of $80 oil.
Failure to ride out the bumps in oil prices along the way can lead to even bigger shortfalls in supply further down the track. The risk in the current market is that oil companies will cut back too hard, too fast, setting the world’s consumers up for another shock that will see the price of a barrel of crude trade well above $100.
Instead of heeding Mr Voser’s advice and forging ahead with new investments to boost capacity by pushing the search for new resources in the frontiers of the Arctic and offshore Africa, oil and gas companies are now looking inwards by aggressively reining in capital expenditure.
Oil majors like Shell are forensically evaluating their project pipeline to filter out schemes that may not make sense in a supposedly new era of low oil prices, which some pessimistic pundits have predicted could fall to as low as $20 per barrel. The Anglo-Dutch company and its partner Qatar Petroleum this week shelved its first major development this year when it decided not to go ahead with a $6.5bn petrochemicals plant near Doha. Its reason for cancelling the project was simple: the scheme, which probably started as a concept in a world of $100 oil, no longer makes commercial sense with the current economic circumstances weighing on the energy industry.
More energy projects are expected to be placed on ice as companies prioritise short-term shareholder returns ahead of long-term strategic planning to meet future demand. According to estimates made by Wood MacKenzie, in Europe and the UK around £55bn-worth of oil and gas developments are under threat while prices remain at their current levels. Most of these projects are centred around the North Sea, one of the world’s most expensive operating areas.
The first wave of cutbacks spreading across the industry started to hit the UK this week. BP announced plans to shed 300 workers from its North Sea operations, where the company employs 3,500 people. The BP announcement was followed by news that US oil giant ConocoPhillips plans to trim 230 staff from its UK workforce of 1,400 people. These cuts followed similar moves in the North Sea by Chevron and Shell last year. Oil and gas contractor Schlumberger, which has a significant presence in the UK, then said it will have to cut 9,000 jobs to remain profitable.
More jobs cuts are expected across the industry both among engineering contractors and operating companies. The Telegraph revealed this week that Tullow Oil plans to shrink its number of staff as the company said that it would have to write off $2.2bn as a direct result of the oil price collapse. Oil industry veteran Sir Ian Wood has warned that 15,000 jobs could go in the UK’s offshore oil and gas industry.
The problem is that the current fall in oil prices has been artificially engineered by Saudi Arabia and its close allies within the Organisation of the Petroleum Exporting Countries (Opec). They are determined to win back lost market share from US shale oil drillers at any cost, and are keeping their spigots open with the knowledge that prices will whiplash back even higher. The latest data released by the International Energy Agency (IEA) and Opec’s research office prove that this strategy is already working after only a few months.
The IEA now predicts that oil supplies from producers outside Opec will grow at a much slower rate this year than it had previously forecast. The Paris-based watchdog has revised down its estimate by 350,000 barrels barrels per day (bpd), which is roughly equivalent to six “Elephant” scale oil fields worth of output. It now expects non-Opec countries to produce an additional 950,000 bpd this year, bringing total production excluding the cartel to 57.5m bpd in 2015. Opec’s secretariat has also made a similar call and now sees US frackers under severe pressure from falling prices.
In the current rush to predict a floor to the oil prices it is easy to forget that over the next 25 years rising populations and economic growth will require significantly more energy. Demand for energy will double over the next 50 years but the IEA still forecasts that crude oil output from wells producing in 2011 will have dropped by almost two-thirds by 2035. Opec itself expects oil prices to be somewhere in the region of $177 per barrel by 2040 as the world will require 111m bpd of crude, up from just over 91m bpd at present.
Irrespective of the final outcome of Opec’s oil price war with US shale drillers in North Dakota and Texas, the next 20 years will continue to see a historic shift in the world’s economy. This will see billions of people in China, India, Southeast Asia and possibly Africa emerge from poverty, increasing demand on the world’s finite resources.
Don’t get too used to the price of petrol at pumps falling; it could be shooting up again all too soon.
One of the things my readers ask me most often, in response to this blog’s exploration of the ongoing decline and impending fall of modern industrial civilization, is what I suggest people ought to do about it all. It’s a valid question, and it deserves a serious answer.
Now of course not everyone who asks the question is interested in the answers I have to offer. A great many people, for example, are only interested in answers that will allow them to keep on enjoying the absurd extravagance that passed, not too long ago, for an ordinary lifestyle among the industrial world’s privileged classes, and is becoming just a little bit less ordinary with every year that slips by. To such people I have nothing to say.
Those lifestyles were only possible because the world’s industrial nations burnt through half a billion years of stored sunlight in a few short centuries, and gave most of the benefits of that orgy of consumption to a relatively small fraction of their population; now that easily accessible reserves of fossil fuels are running short, the party’s over.
Yes, I’m quite aware that that’s a controversial statement. I field heated denunciations on a regular basis insisting that it just ain’t so, that solar energy or fission or perpetual motion or something will allow the industrial world’s privileged classes to have their planet and eat it too. Printer’s ink being unfashionable these days, a great many electrons have been inconvenienced on the internet to proclaim that this or that technology must surely allow the comfortable to remain comfortable, no matter what the laws of physics, geology, or economics have to say. Now of course the only alternative energy sources that have been able to stay in business even in a time of sky-high oil prices are those that can count on gargantuan government subsidies to pay their operating expenses; equally, the alternatives receive an even more gigantic “energy subsidy” from fossil fuels, which make them look much more economical than they otherwise would. Such reflections carry no weight with those whose sense of entitlement makes living with less unthinkable.
I’m glad to say that there are fair number of people who’ve gotten past that unproductive attitude, who have grasped the severity of the crisis of our time and are ready to accept unwelcome change in order to secure a livable future for our descendants. They want to know how we can pull modern civilization out of its current power dive and perpetuate it into the centuries ahead. I have no answers for them, either, because that’s not an option at this stage of the game; we’re long past the point at which decline and fall can be avoided, or even ameliorated on any large scale.
Folks who pay attention to energy and climate issues are regularly treated to two competing depictions of society’s energy options. On one hand, the fossil fuel industry claims that its products deliver unique economic benefits, and that giving up coal, oil, and natural gas in favor of renewable energy sources like solar and wind will entail sacrifice and suffering (this gives a flavor of their argument). Saving the climate may not be worth the trouble, they say, unless we can find affordable ways to capture and sequester carbon as we continue burning fossil fuels.
On the other hand, at least some renewable energy proponents tell us there is plenty of wind and sun, the fuel is free, and the only thing standing between us and a climate-protected world of plentiful, sustainable, “green” energy, jobs, and economic growth is the political clout of the coal, oil, and gas industries (here is a taste of that line of thought).
Which message is right? Will our energy future be fueled by fossils (with or without carbon capture technology), or powered by abundant, renewable wind and sunlight? Does the truth lie somewhere between these extremes—that is, does an “all of the above” energy future await us? Or is our energy destiny located in a Terra Incognita that neither fossil fuel promoters nor renewable energy advocates talk much about? As maddening as it may be, the latter conclusion may be the one best supported by the facts.
If that uncharted land had a motto, it might be, “How we use energy is as important as how we get it.”
1. Unburnable Fossils and Intermittent Electricity
Let’s start with the claim that giving up coal, oil, and gas will hurl us back to the Stone Age. It’s true that fossil fuels have offered extraordinary economic benefits. The cheap, concentrated, and portable energy stored in these remarkable substances opened the way, during the past couple of centuries, for industrial expansion on a scale previously inconceivable. Why not just continue burning fossil fuels, then? Over the long term that is simply not an option, for two decisive reasons.
First, burning fossil fuels is changing the climate to such a degree, and at such a pace, that economic as well as ecological ruin may ensue within the lifetimes of today’s schoolchildren. The science is in: either we go cold turkey on our coal, oil, and gas addictions, or we risk raising the planet’s temperature to a level incompatible with the continued existence of civilization.
Second, these are depleting, non-renewable sources of energy. We have harvested them using the low-hanging fruit principle, which means that further increments of extraction will entail rising costs (for example, the oil industry’s costs for exploration and production have recently been soaring at nearly 11 percent per year) as well as worsening environmental risks. This problem has been sneaking up on us over the last ten years, as sputtering conventional oil and natural gas production set the stage for the Great Recession and the expensive (and environmentally destructive) practices of “fracking” and tar sands mining. Despite the recent plunge in oil prices the fossil fuel party is indeed over. Sooner or later the stark reality of declining fossil energy availability will rivet everyone’s attention: we are overwhelmingly dependent on these fuels for nearly everything we eat, consume, use, and trade, and—as Americans started to learn in the 1970s as a result of a couple nasty oil shocks—the withdrawal symptoms are killer.
So while fossil fuel promoters are right in saying that coal, oil, and gas are essential to our current economy, what they omit mentioning is actually more crucial if we care how our world will look more than a few years into the future.
Well then, are the most enthusiastic of the solar and wind boosters correct in claiming that renewable energy sources are ready to substitute for coal, oil, and gas quickly enough and in sufficient quantity to keep the global economy growing? There’s a hitch here, which critics are only too quick to point out. We’ve designed our energy consumption patterns to take advantage of controllable inputs. Need more power? If you’re relying on coal for energy, just shovel more fuel into the boiler. But solar and wind are different: they are available on Nature’s terms, not ours. Sometimes the sun is shining or the wind is blowing, sometimes not. Energy geeks have a vocabulary to describe this—they say solar and wind power are intermittent, variable, stochastic, or chaotic.
Jeremy Grantham is not a believer in the shale fracking boom.
Back in November, we highlighted Grantham’s full quarterly letter to GMO clients, in which he said, among other things, that the US shale boom had been “a very large red herring.”
So while some say the fracking boom has helped keep oil prices low and aided the US on its path to energy independence, Grantham thinks it might have set us on a path to nowhere.
“Its development has been remarkable,”
Grantham writes.
“It will surely be seen in the future as a real testimonial to the sheer energy of American engineering at its best, employing rapid trials and errors — with all of the risk-taking that approach involves — that the rest of the world finds so hard to emulate. Similarly, it will always stand out as remarkable proof that, so late in the realization of the risks of climate change and environmental damage, the US could expressly deregulate such a rapidly growing and potentially dangerous activity.”
The overall thrust of Grantham’s letter is that the world will soon be devoid of the resources it is going to need to sustain our current economic model, which over the past 150 or so years has been predicated on cheap energy, namely oil.
A concern Grantham has with fracking is that the boom hasn’t been accompanied by any real concern as to the environmental damage it may be inflicting. But Grantham is also hugely skeptical on the potency of the shale boom because it doesn’t address the problem of our need for cheap oil.
Grantham writes:
Fracking “has not prevented the underlying costs of traditional oil from continuing to rise rapidly or the cash flow available to oil-producing countries like Saudi Arabia, Iran, and especially Venezuela from getting squeezed from both ends (rising costs and falling prices).”
And as we saw last week, OPEC announced that it would not impose production cuts despite the sharp decline in oil prices seen over the past few months, and it seems unlikely that Grantham would be surprised by this.
Because if your national economy is chiefly predicated on exporting oil, you have made your bed and therefore must lie in it as oil prices drop.
Dr. Robert I. Bell proposes that instead of Cap & Trade or taxing carbon, governments instead reward investment in renewable energy by removing taxes that penalize investors.
Although millions of persons obviously are aware of the magnitude of the climate crisis, no one seems to know how to get out of it. The current public discussion focuses on reducing the consumption of carbon. Entire UN conferences are held on it; international treaties, which are then either not ratified or ignored (or both) come out of these conferences. Wall Street financial companies set up markets to trade certificates to raise the price of carbon; and they don’t work, the price of carbon keeps falling, thereby encouraging its use. Why don’t these systems work?
They focus on a negative, reducing carbon consumption, and set extremely difficult objectives from a political standpoint—taxing existing activities, by imposing a carbon tax or a complex and essentially opaque cap and trade system. Cap and trade is simply open to too many abuses—including issuing too many permits from the get-go (often giving them away). It also has a conceptual mismatch which is a killer. Trading is inherently short term, buying and selling in fractions of a second, but global warming is ponderously long term, as it settles in over decades. The few cap and trade systems to deal with global warming which have been tried have been embarrassingly ineffective. Carbon taxes, so far, have been politically impossible; no significant carbon tax exists—nearly every political leader who proposes or institutes one either backs off or gets defeated in the following election. The evidence for the failure of these approaches is clear and compelling.
Both cap and trade and carbon taxes punish what we don’t want—carbon.
These systems have failed because the emphasis has been on the problem, carbon, and not on the solution—another source of energy. Roughly 80% of final energy consumption is now produced by fossil fuel. To replace it by nuclear (currently just under 3% of final energy consumption) would require, worldwide, increasing the existing 434 reactors by a factor of 30—to some 13,000 reactors! Considering problems of terrorism, and events such as Fukushima and Chernobyl, the nuclear path clearly could be as challenging, if not more so, than global warming itself. Shale gas, even if it were economically viable, which it certainly is not, even in the U.S.1, still produces carbon. By default, all emphasis should be put on driving massive investment in renewable energy.
LEVA’s Ed Benjamin enumerates the many reasons that plummeting oil prices will not only be short-lived, but that multiple other drivers will compel a shift to electric vehicles
As I write this, the price of Brent Light Crude is $51.35 / bbl. That is down from about $110 / bbl. 7 months earlier.
Filling a car, or an airplane, or a motorcycle, has become much more affordable.
It is easy to believe that this is a serious blow to electric vehicles. We have seen in the past that high fuel price helps move people, investment, and interest to electric vehicles of all sorts.
For many in the electric vehicle business, a high price for oil is a hoped for dream – that appeared to be occurring until last year.
Over the 150+ years of the world oil industry, there has been a repetitive cycle of rising and falling prices. Boom and bust for both oil men and their customers. It is easy to believe that 2014 was simply more of the same. That the high prices of 2008 would never come back, and that technology has solved the oil supply problems of the world. We can relax and keep on buying gasoline cars with confidence…
In my career, I have monitored the price of oil, read on the economics of the oil industry, and been oft surprised at the complex, seemingly mysterious events and contortions of the oil market due to the many forces that act on it.
So when the price of oil dropped so dramatically in 2014, surprising me once again, I looked a bit harder.
A premise that has been floated in the media, was that the Saudis had arranged to pull the price down to destroy the efforts of oilmen who were bringing oil sands, oil shales, and extensive fracking into production. These sources of oil (along with deep ocean wells) are MUCH more expensive sources of oil than the oil fields of the Middle East.
I have seen generalizations that it might cost $1-2 / bbl to find and extract oil from the Saudi wells compared to $70 / bbl for these more difficult sources.
So cheaper oil is still profitable to the Saudis, went the thinking, but discouraging of production, exploration and investment for oil sands, oil shales, fracking and deep ocean production.
Another idea that has some play is that advances in petroleum extraction technology have restored the USA to a nearly self sufficient level of production, and this, plus cheap natural gas, has pushed the price down.
These may be part, but not be the whole, or even the most important part of the story.
A key factor in oil price is the match between supply and demand.
Oil is produced in immense quantities, and then used in immense quantities.
Enough oil is produced every day to fill 600 average oil tankers. Add in the oil that is in motion at any one time…through pipelines, tankers, trucks, and there is a lot of oil requiring storage and transport. Think of it this way: If all oil moved by tanker (more moves by pipeline) and the average time for a tanker to make it’s destination and return was 20 days, then the world would need about 12,000 tankers plying the oceans just to keep the world moving. (But only about 4,000 tankers exist…)
The oil industry depends on smooth and reliable movement of oil from well to refinery to consumers at about the pace in which it is created and consumed. There is limited ability to deal with any sort of disruption, slow down, or sudden extra demand. (Since I live in Florida, I have had direct experience with this. When a hurricane caused shipments of oil to be postponed a few days, nearly every gas station in the southern half of the state was sold out of gasoline in about 30 hours.)
If the world is using 85 million barrels of oil per day…and the oil industry is producing very close to that amount per day….and then demand changes….the results can be dramatic.
If oil demand was only 1% less than production – the result would be about 850,000 extra barrels of oil EVERY day. There are not a lot of ways for the industry to store extra oil, and one way to think of this is that the extra oil would, in one month, fill about 150 average oil tankers swinging on their anchors with no place to take the oil. The oil storage facilities of the world are simply not big enough to handle such mismatches in production and demand.
Oil tankers anchored offshore (Image: EV World)
Such a mismatch exists today. Partly blamed on mistakes in projections of world use, partly due to the increased supplies coming in the USA.
Graphs of fuel consumption in the developed world show that, unlike expectations that there would be a steady growth in fuel consumption, today’s consumption is declining instead. This may have contributed to errors in planning of production.
This reduced consumption is attributed to cars with better gas mileage, reduced mileage being driven by Americans, and a less than stellar economy world wide.
Consumption in the developing world is both heavily affected by price, and is the primary driver of increased oil consumption world wide. Thus, high prices limit growth. Which combined with decreased consumption by the “high price” market, the slow down hit oil predictions hard.
So the oil price must drop until it is low enough to spur enough consumption to use all the oil being produced. Normally this would happen in combination with production being slowed and prices being kept relatively high – but in 2014, the Saudis did not decrease production, as they have in the past, keeping the mismatch going. So the price kept dropping. We can speculate that this will not continue for a long time, since every one in the oil business, including the Saudis, suffers from this big dip in revenue.
Something else to understand is that the world is currently using, mostly, oil that comes from huge oil fields that were discovered decades in the past. These fields could be tapped by drilling a well, and the pressure present in the oil field would push oil into the well in …. ever decreasing quantities as the field was depleted. And when the well was on land – even in a desert, it was vey convenient, and inexpensive to drill and transport. The discovery of such oil fields peaked in the 60’s and 70’s and the far fewer recent discoveries are in places that are… hard and expensive to reach.
The oil from such fields is what most refineries are designed to handle, and that is also very important. Refineries are designed to handle certain sorts of oil. When an oil is different, it may need to be shipped great distances to appropriate facilities. And refineries are multi billion dollar investments that are built rarely. (Most USA refineries were built in the 60’s and 70’s. )
These fields, near 1000 “giant” oil fields share some important characteristics. First, they are ALL in decline. Most of them are in politically unstable places. They have been worked as hard as technology and investment knows how, and there is probably not much that can be done to improve their decline in production. In the last decade, only about 75 new giant oil fields have been discovered, and except for the ones in the Arctic, they are in the same general areas as the existing fields.
New discoveries in oil supplies can be generalized as: Expensive, inconvenient, and often the wrong type of oil.
The USA consumers and much of the world are currently relaxing in the face of low gas prices. Overall, it is very good news as the vast amounts of money that are being saved by consumers is not only improving their lives, but is also being spent on goods an services instead of being stored in the accounts of sovereign wealth funds, or pockets of billionaires. This is a much needed help in today’s difficult economy.
But there are some issues that are not obvious.
Much of the increased oil production in the USA is lighter crude. Not only is that not the most useful or versatile oil, but is is refined by only a few plants.
Oil from oil sands and oil shales is energy intensive to extract and refine. While the technology changes all the time, at present there is avery large amount of energy required to extract oil from oil sands, as a percentage of the total energy that is created as usable fuels. There are some dramatic environmental costs associated with that. And this means that is is more expensive in many dimensions.
There is a dramatic increase in the production of natural gas in the USA. And the technology for this increase is expected to result in major increases in natural gas production world wide in coming years. NG is used in minor quantities for vehicle fuels, but very heavily for electrical generation. It has replaced some oil that was burned for electricity.
The extraction methods for this NG, and for the oil are controversial, with claims that there is substantial environmental damage – especially to water supplies.
New NG supplies have the primary effect of reducing the demand for coal. (And NG has fewer adverse environmental effects.)
Should we fear that the lower price of oil, no matter what the reason, will hamper the development and sale of electric vehicles?
My answer: Maybe a little.
I am not going to change my career, for I see this as a temporary factor, one that is good for consumers, and has limited long term effect on either human energy use, or on electric vehicles.
There are many reasons to expect a return to oil priced at more than $100 / bbl.
All the big oil fields are declining in production. This is not news, but is more and more apparent each year. This decline is substantial.
Discoveries do not keep pace with consumption
Newer sources of fossil fuels cost dramatically more to exploit than older ones. $70 / bbl is an oft citied floor for such sources. Many new discoveries will not be profitable until oil is even more expensive than that.
The expanded production in the USA is very light crude, and thought to be limited in quantity.
Many existing fields are in places that are in political turmoil, or bordered by such turmoil. War, sanctions, unrest, sabotage, neglected infrastructure, and other problems are found at the locations of perhaps half the world’s oil.
The economies of major oil producers (Russia is an example) depend on high priced oil. Russia is similar to Saudi Arabia in oil production quantity and they, and other producers, will strive to get the price back up. And even for the Saudi’s, higher oil prices are very good for their pockets.
The claimed reserves of any and all oil producers must be regarded as suspect. Over history, what the industry claims to have, often seems to be fiction.
They have had huge and sudden adjustments (usually downward) to what they claim to have available as taxes, quotas, and politics affect them. And in some cases (Saudi Arabia) their claims have never been audited by outside parties. Even the claims of USA oil and gas producers are controversial, with some voices predicting that the fracking and NG boom of today is going to be much shorter lived than the producers claim.
So, I predict, with confidence, that we will see $100/bbl oil again, and soon.
All of the oil producers are eager to see high priced oil as soon as possible. The economies of several nations depend on the revenues, and we can rely on them to find a way to increase the prices.
And the booms in energy production created by numerous new wells in existing fields, new methods of extraction and fracking are going to be short lived. Although it is hard to say exactly what that will mean. It could range from a few years to a few decades, but experts are saying it is more likely to be shorter than longer.
But…oil price is not the only driver for the electric two wheeler market. We do not depend on high priced oil as much as might be thought. (And keep in mind that $53.00 / bbl oil is low priced only compared to recent years. Not long ago (2000) we thought $12.00 /bbl was a reasonable price…)
I have come to believe that these drivers are much more important than the price of oil:
Humans all over the world are moving into bigger and denser cities. This is typified by 20 odd story apartment buildings standing a few meters apart, for many square kilometers. There is no need for a car since most daily services are within a short walk, and the workplace is reached by a metro or bus that can be reached on foot or bicycle. When 45,000 or more people live in a square kilometer, there is no room for big roads, no parking lots, no tolerance for noise or air pollution. Bicycles, electric bikes, and electric scooters are better choices.
People are starting to understand that electric vehicles are functional, affordable, reliable, and superior in many ways. This has been a lesson slow to be learned, but with Tesla the new status automobile, the Prius the suburban mom required vehicle, and electric vehicles of all sorts proliferating – the public gets it.
The world population is also aging. While we have some nations that are, on the average, quite young…many important nations have average ages that make them very interested in electric bikes as extenders of enjoyment and transportation.
Electric bikes for sport and recreation are now coming into their own. Electric mountain bikes, rental electric bikes at tourist destinations, touring on electric bikes instead of manual bikes are all important extensions of the product.
Government regulation encourages electric vehicles in many places, and in many ways.
Many people seek ways to reduce their personal carbon footprint. Electric vehicles are an affordable way for nearly anyone to do this.
As the developing world increases in wealth, many will buy cars. But many more will buy powered two wheelers. And today, the electric powered two wheeler is a viable competitor in many cases.
Air pollution is an important issue for much of humanity. Electricity for charging a two wheeler can easily come from a variety of renewable sources. Or from the existing grid. There is no “tail pipe” to dirty the air.
The fall in the price of oil and gas provides a once-in-a-generation opportunity to fix bad energy policies
MOST of the time, economic policymaking is about tinkering at the edges. Politicians argue furiously about modest changes to taxes or spending. Once in a while, however, momentous shifts are possible. From Deng Xiaoping’s market opening in 1978 to Poland’s adoption of “shock therapy” in 1990, bold politicians have seized propitious circumstances to push through reforms that transformed their countries. Such a once-in-a-generation opportunity exists today.
Oil Mountain (Image: D. Bacon/Shutterstock/Economist)
The plunging price of oil, coupled with advances in clean energy and conservation, offers politicians around the world the chance to rationalise energy policy. They can get rid of billions of dollars of distorting subsidies, especially for dirty fuels, whilst shifting taxes towards carbon use. A cheaper, greener and more reliable energy future could be within reach.
The most obvious reason for optimism is the plunge in energy costs. Not only has the price of oil halved in the past six months, but natural gas is the cheapest it has been in a decade, bar a few panicked months after Lehman Brothers collapsed, when the world economy appeared to be imploding. There are growing signs that low prices are here to stay: the rising chatter of megamergers in the oil industry is a sure sign that oilmen are bracing for a shake-out. Less noticed, the price of cleaner forms of energy is also falling, as our special report this week explains. And new technology is allowing better management of the consumption of energy, especially electricity. That should help cut waste and thus lower costs still further. For decades the big question about energy was whether the world could produce enough of it, in any form and at any cost. Now, suddenly, the challenge should be one of managing abundance.
Clean up a dirty business
That abundance provides the potential for reform. Far too many economies are littered with the detritus of daft energy policies, based on fears about supply. Even though fracking has boosted America’s oil output by two-thirds in just four years, the country still bans the export of oil and restricts exports of natural gas, a legacy of the oil shocks of the 1970s—and a boondoggle for American refiners and petrochemical firms. Congress also keeps handing out money to Iowa’s already coddled corn farmers to produce ethanol and has not reviewed generous subsidies for nuclear power despite the Fukushima disaster and ruinous cost over-runs at new Western plants. Instead, it has spent four long years bickering about whether to allow the proposed Keystone XL pipeline to Canada’s tar sands. In Europe the giveaways are a little different—billions have gone to wind and solar projects—but the same madness often prevails: Germany’s rushed exit from nuclear power ended up helping boost American coal and Russian gas.
The most straightforward piece of reform, pretty much everywhere, is simply to remove all the subsidies for producing or consuming fossil fuels. Last year governments around the world threw $550 billion down that rathole—on everything from holding down the price of petrol in poor countries to encouraging companies to search for oil. By one count, such handouts led to extra consumption that was responsible for 36% of global carbon emissions in 1980-2010.
Falling prices provide an opportunity to rethink this nonsense. Cash-strapped developing countries such as India and Indonesia have bravely begun to cut fuel subsidies, freeing up money to spend on hospitals and schools. But the big oil exporters in the poor world, which tend to be the most egregious subsidisers of domestic fuel prices, have not followed their lead. Venezuela is close to default, yet petrol still costs a few cents a litre in Caracas. And rich countries still underwrite the production of oil and gas. Why should American taxpayers pay for Exxon to find hydrocarbons? All these subsidies should be binned.
What a better policy would look like
That should be just the beginning. Politicians, for the most part, have refused to raise taxes on fossil fuels in recent years, on the grounds that making driving or heating homes more expensive would not only annoy voters but also hurt the economy. With petrol and natural gas getting cheaper by the day, that excuse has gone. Higher taxes would encourage conservation, dampen future price swings and provide a more sensible way for governments to raise money.
An obvious starting point is to target petrol. America’s federal government levies a tax of just 18 cents a gallon (five cents a litre)—a figure that it has not dared change since 1993. Even better would be a tax on carbon. Burning fossil fuels harms the health of both the planet and its inhabitants. Taxing carbon would nudge energy firms and consumers towards using cleaner fuels. As fuel prices fall, a carbon tax is becoming less politically daunting.
That points to the biggest blessing cheaper energy brings: the chance to inject some coherence into the world’s energy policies. Governments have a legitimate role in making sure that energy is abundant, clean and secure. But they need to learn the difference between picking goals and deciding how to reach them. Broad incentives are fine; second-guessing scientists and investors is not. A carbon tax, in other words, is a much better way to reduce emissions of greenhouse gases than subsidies for windmills and nuclear plants.
By the same token, in the name of security of supply, governments should be encouraging the growth of seamless global energy markets. Scrapping unfair obstacles to energy investments is just as important as dispensing with subsidies. The more cross-border pipelines and power cables the better. America should approve Keystone XL and lift its export restrictions, while European politicians should make it much easier to exploit the oil and gas in the shale beneath their feet.
This ambitious to-do list will drive regiments of energy lobbyists potty. But for the first time in years it is within the realm of the politically possible. And it would plainly lead to a more efficient and greener energy future. So our message to politicians is a simple one. Seize the day.
If you thought low gas prices could kill the electric vehicle revolution, the industry’s record sales in December will come as a big surprise. According to InsideEVs, 12,874 EVs were sold in the U.S. during December, more than any month in history. This comes as gas prices were plunging toward $2 per gallon.
We shouldn’t draw too many conclusions from a single month, but this could be a sign that EVs have become a sustainable business, driven by more than just high gas prices.
EV sales jump in 2014
Overall, EV sales were up 23% in 2014 to 119,710 units, despite a lack of major product introductions. BMW was the only major newcomer to the EV market, launching the i3 and i8 in May and August, respectively, and BMW’s sales totaled just 6,647 units.
Incredibly, as gas prices fell, EV sales were constant to slightly higher, highlighted by record December sales of 12,874 units. Below, you can see how overall sales trended during 2014 versus gas prices. The correlation you might expect, of sales dropping as gas prices drop, hasn’t come to fruition yet.
2014 Electric Vehicle Sales vs. Gas Prices (Image: EIA/InsideEVs)
Part of that may be a lag between low gas prices and changing buying decisions, but SUV sales were up late in 2014, so other parts of the auto market adapted quickly to lower prices. Maybe EVs are becoming a mainstay in the auto industry?
Who is selling all those EVs?
Surprisingly, Tesla Motors (NASDAQ: TSLA ) wasn’t the leader in U.S. EV sales during 2014, despite leading the industry in headlines. The company sold and estimated 17,300 Model S during the year, less 15% of the market and only good enough for third place.
The industry’s leader was the Nissan Leaf, which sold 30,200 units, followed by General Motors’ (NYSE: GM ) Chevy Volt at 18,805 units. Toyota’s Prius PHV and the Ford Fusion Energi followed in 4th and 5th place, with 13,264 and 11,550 units, respectively.
Sales growth in 2014 is great, and December’s figure was impressive, but for EVs to be more than a bit player in the auto market, there still need to be more offerings and technology improvements that make them more competitive. That’s where 2015 could bring some key advancements.
The Tesla Model S has become an icon of the EV market, but it doesn’t lead the U.S. in sales.
How EVs can grow in 2015 and beyond
The last five years have shown that consumers are willing to trade in conventional vehicles for EVs if they can get where they need to go. The Chevy Volt, for example, is actually a hybrid, reducing EV range anxiety that buyers inevitably have. Tesla has answered the range question by offering nearly 300 miles in range in its high-end Model S. But further improvements have to bring adoption of EVs to an even wider audience. For now, it looks like most automakers are tiptoeing into the market with hybrids rather than betting the farm on a full EV.
In 2015, we’ll see a number of new EVs hit the road, most notably in the SUV and crossover market. Tesla’s all electric Model X is due out in the second half of the year and is the most anticipated EV of the year. The hybrid BMW X5 eDrive, Audi Q7 Plug-in, Volvo XC90 T8, and Mercedes-Benz GLE-Class Plug-in are a few others that could catch the attention of drivers.
Expanded product offering and investments by new EV players is good, but for EVs to grow significantly in 2015 and beyond, more companies need to advance EV range, beyond the 300 mile limit Tesla is bumping up against. To completely replace a conventional vehicle range anxiety can’t be an issue, and even at 300 miles, it would be a stretch for long trips. To move beyond that, battery technology likely needs to take another leap forward, which may take a few years.
EVs are showing some staying power
The 2014 sales numbers for EVs are impressive, and new vehicles coming out in 2015 should expand the market incrementally. But the challenge competing against $2 per gallon gas will come down to offering a vehicle that can go far enough on a charge to ease range anxiety and offers better performance than a standard car.
I’m bullish on the future of EVs, but it may be a while before a majority of the population sees them as a real option when buying a vehicle. Until then, small steps forward in EV offerings and technology will slowly grow the market until range anxiety is a problem of the past.
Many companies are considering providing workplace charging for their employees and finding they are in new territory with many options to consider. We at Plug In America would like to share what we have learned having been involved for over 10 years in both using charging infrastructure as drivers and advising site hosts of all types in how to provide effective charging facilities.
Goals
There are many reasons a company may be considering providing workplace charging. It could be to attract and retain forward-thinking employees, to enhance a company’s “green” image, to gain points toward LEED certification, or to raise awareness of electric vehicles.
Our analysis and recommendations are based on the goal of using workplace charging to increase the adoption of electric vehicles, which ties in with many of the reasons we find companies are considering making charging available in the workplace. Even when this is not an explicit goal at a given company, understanding the issues presented here may be helpful in evaluating charging options.
We also want to minimize the cost to the employer while meeting the goal of encouraging increased use of electric vehicles. These considerations include infrastructure costs, operating costs, maintenance costs, and efficient use of employee time.
There is certainly no one-size-fits-all approach that meets the goals and needs of every company. The ideas presented here are meant to serve as a starting point, a baseline plan that can be used to inform the analysis of corporate goals, infrastructure considerations, and employee interests.
Terminology
Level 1 refers to charging at 120V. This can be from an ordinary outlet using a portable charging device or from a dedicated Level 1 station that has the proper electronics and plug to connect directly to a plug-in electric vehicle. For long term loads, like charging a vehicle, the current drawn is generally limited to 12A, which yields 1.44 kilowatts (kW) of charging.
Level 2 refers to charging at higher voltage, 208V to 240V. This can also done from a 240V outlet (NEMA 14-50, for example) using a charging cord, but is more typically done with a dedicated charging station. The current limit for these stations is typically 30 to 32 amps (~7 kW), but can be anything from 15A to 80A (up to 19.2 kW).
DC Quick Charge This charging method bypasses the vehicle’s on-board AC charging equipment and sends high voltage (300V to 400V) DC directly to the battery, at rates between 20 and 130 kW. These are expensive to install and operate, and are typically used for road trips or other situations where extra charge is needed in a hurry, not for a workday charging session.
The “Just Right” Fee
Problem: Free Reduces Availability
Free charging sounds like the best incentive to get people to consider electric vehicles, but the cost of electricity is not a barrier to EV adoption. An exact comparison with gas depends on a number of factors, but think of driving on electricity as equivalent to getting gas for less than $1 per gallon. Free charging makes the cost benefit more apparent, but has a couple of problems. First, it sets an expectation that charging will always be free, something that generally isn’t sustainable. A short-term pilot with free charging can be very effective in kickstarting awareness of electric vehicles, and some companies may want to continue to provide free charging even as EVs rise in popularity.
However, if free charging drives demand to a level that can’t be met, the resulting oversubscription can create problems that reduce EV adoption. Free charging motivates everyone to charge at work because it’s cheaper than charging at home. Charging that is oversubscribed is undependable and therefore people who can’t charge at home won’t find it a viable option. The only people who can use free charging are those who don’t need it because they have a more reliable alternative. This creates conflict between drivers who need charging to get home and others who just want to charge because it’s free. This built-in conflict can even create a hostile environment at work. Who wants to get into a shouting match over fueling their car so they can get home?
When free charging leads to oversubscription and reduces charging availability for those who need to charge, it discourages EV adoption among those who could most benefit from charging at work.
Problem: Overly Cheap Charging Shifts Off-Peak Use to On-Peak
Like free charging, billing at a rate that’s below the market price for electricity incentivizes shifting charging from overnight at home to charging at work during the day. As EV adoption increases, this puts extra strain on the grid and increases energy costs.
Problem: Overly Expensive Charging Can Hurt Adoption Or Usage
Paid charging billed far above the cost of electricity erases the economic advantage of driving electric. People who can’t charge at home thus can’t use this as a way to make driving electric financially viable. This therefore will not increase EV adoption. Likewise it can’t substantially increase use of EVs if it makes driving electric cost more than burning gas.
Solution: Charge a Little Over Market Price
The solution is to provide charging billed at just a little above local home rates. This extends the economic advantages of driving electric to those who cannot charge at home. It also eliminates the incentive to shift charging from home to work, reducing the number of stations needed to satisfy demand. Together these benefits minimize the infrastructure cost of providing charging at work and focus the benefits on those who need it the most.
Note that billing for public charging is different; other issues are at play there.
