The future of alternative energy is arriving faster than you might think.
Advanced biofuels, solar thermal power and solar photovoltaics are all on a path to being cost-competitive with fossil fuels. Wind is already there.
So, at least, says the Boston Consulting Group, the big global management consulting firm that advises many FORTUNE 500 companies, in a report out today called What’s Next for Alternative Energy? [PDF, download]
The report says that advanced biofuels, solar thermal (also known as concentrated solar power or CSP) and solar PV will accelerate their growth in the next decade–so much so that incumbents in the transportation fuels and power-generation sectors should take notice.
Electric cars and onshore will be grow steadily, if not as rapidly, while offshore wind and carbon capture and sequestration (CCS) will be adopted much more slowly.
While forecasting is a risky business, as the report’s authors acknowledged at a news conference, the BCG report is well worth a read: It delivers a fact-based, pragmatic analysis of key technologies available to deal with the rising demand for energy, climate change and energy security in the U.S. Even in light of the uncertainties over government subsidies and the future price of oil and gas, the report says that several alternative energy technologies are approaching inflection points in their development:
The debate is moving to when and how–not whether–alternative energy can move beyond the real of subsidies to compete with conventional energy sources. For some alternative energy industrys–CCS (carbon capture and sequestration) and offshore wind, fore example–real competitiveness is still a distant probability. For others, that reality could be a lot closer than is commonly assumed.
The 32-page report goes into considerable detail about all this, but two of its conclusions got my attention. The first is that solar power–today one of the most expensive ways to generate electricity–could reach cost competitiveness by 2020. That surprised me, and of course it’s good news for anyone who worries about climate change. The second is that capturing and storing CO2 from coal fired power plants will have “very slow adoption and won’t be viable for the next decade or two.” That’s bad news for the climate, of course, but it confirms my own skepticism about CCS, despite the considerable hype from the utility industry (and generous subsidies from the energy department) aimed at boosting the technology. Nuclear power, by the way, wasn’t covered in the report, presumably because it isn’t considered “alternative.”
Here are a few more highlights from the BCG report and news conference:
Advanced biofuels: The future’s bright for these transportation fuels, which differ significantly from corn ethanol or biodiesel derived from palm oil because they deliver at least a 50% reduction in carbon emissions and come from dedicated energy crops like switchgrass and miscanthus that don’t compete with food crops. Numerous companies are trying to turn cellulosic feedstocks into biofuels, or derive oils from algae. (See Solazyme’s amazing algae.)
A combination of reduced enzyme costs and higher yields from feedstocks is bringing production costs down, said Balu Balagopal, a senior partner at BCG’s Houston office. “Cellulosic ethanol is on the verge of being cost competitive,” he said, assuming $3 per gallon gasoline. Still, he noted, certain infrastructure barriers (transportation and storage of the fuels) need to be overcome to speed rapid adoption of biofuels, and more flex-fuel cars need to be on the roads for advanced biofuels to really scale.
Electric cars: These will take longer to arrive, the report says, mostly because of the high costs of batteries. Until those costs drops, electric cars will make economic sense (again, assuming $3 gas) only for those who drive lots of miles, put lots of miles, because the upfront cost of the battery is only gradually recouped over time by lower operating/fuel costs. “When you think about electric vehicles, the most thing to consider is the total cost of ownership,” said BCG principal Justin Rose.
A fun fact from the presentation: Only about 12% of U.S. drivers drive their cars 25,000 miles or more; by contrast 52% go 10,000 miles or less. The trouble is that, with their limited range, electric cars make practical sense for those who drive less, but they make economic sense only for those who drive more. Because cars are replaced at a rate of about 6% a year, it will take a long time, even under the best of circumstances, for electric cars to reach mass penetration, Rose said. Building a public infrastructure of charging stations is also costly, and there’s no business model in sight. Electric cars, he said, “will certainly be a big business opportunity” for automakers, but they will see a steady rather than rapid rampup, barring a technology breakthrough.
Solar power: Several factors will drive concentrated solar power’s LCOE (levelized cost of energy) down to less than 10 cents per kwH by 2020, the report says, including economies of scale, learning curve effects and the benefits of locating lots of generation capacity on one site. Barriers include the need for desert land, permitting and funding issues. “It’s difficult to convince investors that a project will produce a consistent rate of return because there aren’t many examples in the marketplace,” Rose said. As for solar PV, the report predicts that solar panels will become more efficient at turning light into electricity and the low manufacturing costs will drive adoption.
All of this, of course, should be read with a skeptical eye. Forecasts are notoriously unreliable. What’s valuable here, though, is the analysis of forces that will drive adoption of clean energy, and those that stand in the way.