Rating: High school and post-secondary
Summary: Markham interviews economist Werner Antweiler from the Sauder School of Business about how cheap renewables (solar and wind) are poised to begin displacing fossil fuels (coal, oil, natural gas), ushering in the Second Age of Electricity.
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This interview has been lightly edited.
Markham Hislop: Today we’re going to be talking to professor Werner Antweiler about the 2nd Age of Electricity. I interviewed you earlier this year for my book and we talked about the 2nd Age of Electricity, which essentially I interpreted as being the electrification of everything. Currently, fossil fuels are the world’s primary energy source, about 80 to 82% globally right now. And let’s say that we flipped that on its head and 82% or 80% of primary energy is electricity generated by low or zero-carbon technologies like wind, solar, tidal, etc.
Could you give me your take on this transition to the 2nd Age of Electricity?
Werner Antweiler: There’s great potential to change a lot of services that currently rely on fossil fuels to using electricity. And there are some areas where it’s going to be easier and some areas that’s going to be harder.
I already see a transition happening for electric vehicles. There was a massive investment by automakers into the, the new batteries that we will need to make electric vehicles an affordable reality and not just a technical reality. We are generally expecting something called a battery price parity in the mid-2020s. That means the point where electric vehicles will be competitive fully to internal combustion engine vehicles.
It will be more difficult for other areas. For example, ships and airplanes, because they need a lot more power and batteries are quite heavy.
And so this transition will be much more in some sectors, but in terms of weaning ourselves off fossil fuels, it really requires, two things to come together. One, achieve a cheap source of electricity that’s essentially cheaper than fossil fuels. Two, the ability to transmit this electricity to where we need it and to store it because many sources of renewable energy are intermittent.
Now that is a challenge ahead. And, once these two things come into play is that you reach the point where electricity is sufficiently cheap and storable then, we will see significant changes in the way we consume energy.
Markham Hislop: Now my understanding from a study by the Rocky Mountain Institute and interviews with some UV experts is that we may actually be very close to the $100 a kilowatt-hour mark already with batteries. There’s a little bit of dispute around that. Volkswagen is hinting that it has already reached that, but some people are skeptical. Surely we’ll reach it within two, three, four years.
And this Rocky mountain Institute study says that we have a new generation of batteries by 2030, and that will be solid-state and probably $50 a kilowatt-hour. It sounds like you agree with that. If we think of the technology adoption S-curve as a hockey stick, we’ve already progressed from the heel of the blade to the toe and now those technologies are on the shaft with rapid ascent in terms of adoption.
Werner Antweiler: Economics always applies and the new technology has to be cheaper than something else to really become a dominant form of use. That happened with the internal combustion engine in the 20th century, when essentially that became a more affordable solution than what was at the time actually already electric vehicles too.
This is the point we will be getting to in the next few years for sure. In part, because of scaling up going on.
We have all heard about the Gigafactory that Tesla has been putting into place together with Panasonic. And so there’ll be more efforts to scale up to the production of batteries and we are getting to better battery technology itself. More energy-density. That means we can store more energy per kilogram of weight. We will see a safer generation of batteries with solid-state rather than liquid polymers in batteries.
Werner Antweiler: So there is huge innovation underway because we see big companies, the car makers, being committed to producing that. But it will not stop there because in addition to putting batteries into vehicles, we will also see these batteries in storage. At wind farms, we will see storage possibly through a connected grid at net metering.
The one other piece that needs to come into place is a smarter grid. And that means a significant infrastructure investment that has to happen from the utilities and from governments. And that is where things are a little bit slower because the planning horizon is much longer than for buying a new car.
Markham Hislop: A couple of weeks ago, I interviewed Professor Lucas Davis from Berkeley, and we were talking about a blog post that he wrote where he described how the United States had arrived in 2017 at 38% of all US households heating their homes with electricity. That’s a very, very high percentage. And he said that it was because [adopted occurred quicker] in some States where electricity was less expensive. And so the economics made sense.
Now, if we have cheap, abundant renewable energy, can we apply that example of heating in the US to other industries so that we can say cheap, abundant electricity now gets us to electrify things that maybe we couldn’t do before.
Werner Antweiler: Yeah, economics is still true: if it’s cheaper, we’re going to use it. We actually see it in those jurisdictions here in Canada, but we have cheap hydro Quebec, Manitoba, British Columbia electricity is being used for heating purposes. Whereas in other places, it’s mostly natural gas. So the economics really matters.
And the same applies to electric vehicles. Now for example, in Canada in many jurisdictions, electricity is cheaper than even parts in the United States and it’s also clean because we have hydro in the mix. The majority of our electricity in Canada already is clean unlike what happens in the Eastern grid in the United States. So we have a unique opportunity here in Canada to make the case for transitioning to electric vehicles because of these unique advantages. It’s clean, it’s cheap, and it starts to compete earlier than in other places in the world.
Markham Hislop: So let’s assume that Canada continues to either build more hydro dams – as Quebec and Manitoba are planning to do – or installs a lot of solar and wind, which the Prairie provinces could certainly do, and maybe even Ontario as well. If we had abundant cheap electricity, and I’m talking now maybe down around the three to five a cent kilowatt-hour, would that then enable us to get a head start on other countries in terms of developing industries that rely on cheap, plentiful electricity? And I’m thinking of all sorts of manufacturing like 3D printing, that sort of thing.
Werner Antweiler: Yeah. Maybe we could look at the industries that are really electricity-intensive, things like aluminum smelting. Yeah, there is a comparative advantage.
We see countries that have cheap electricity attracting those electricity-intensive businesses. The ones that are really mattering today in our economy are called computing “clouds.” And those cloud farms use an enormous amount of energy simply because they need to cool the processors.
So cheap, clean energy is a very attractive feature in a world where IT plays a big role. Less so in manufacturing. I think manufacturing has a few niche areas where electricity does play a significant role, but I think it’s really easy IT sector and a way where we need to warehouse big data where Canada kind of, I could actually see potentially gain a bit of an advantage. Compared to other locations. You see actually Iceland of all places attracting a lot of computing, unfortunately not for Bitcoins and for cloud storage. But, where electricity is cheap, we see a comparative advantage happening.
Markham Hislop: This is very interesting because I spend a lot of writing about and thinking about energy narrative. And when we talk about the Canadian energy narrative around switching to renewables – and I’m thinking primarily wind and solar – we think of it in terms of replacing maybe nuclear but we rarely talk about it in terms of attracting industry as an economic development tool. Would you agree with that?
Werner Antweiler: Yeah it’s a complex mix of factors that comes together. We’re going to be attracting industries. It’s not just electricity that matters because it’s not the only factor in the production process. Often it has to also come together as labor and capital in that right constellation.
If you look at IT we know how important certain companies are in that sector. Amazon and Google and others, and they make decisions about location that aren’t just driven by the cost of electricity, but also the cost of labor and the ability of hiring a qualified personnel and get acclimation advantages to locations that have a critical mass of capital and labor.
I would be hesitant to say this is all working in Canada’s favour. The fact that we have cheap electricity also means that we can export it. And and that is what we’re seeing. We see new transmission lines being put into place in Ontario. Sometimes now they’re crossing through lakes. We do see the potential for new high voltage lines.
So whether we gain in terms of the industrial footprint or rather we gain in terms of exporting electricity to the United States it’s probably going to be a mixture of those two.
Markham Hislop: Can you describe the difference between the 1st Age of Electricity and the 2nd Age of Electricity?
Werner Antweiler: The 1st Age of Electricity was the revolution that we had at the turn of the 20th century. At the end of the 19th-century electricity first was being used in various applications in industrial processes. And obviously electrification actually throughout the first 20th century, reaching rural areas in in Canada and the United States. And that has of course allowed many new processes to take place, like refrigeration. That was very essential for agricultural products to industrial activities that require machinery that runs on electricity. So all of this has taking the span of at least 50, 60 years to put into place the electricity grid and the various industries that depend on it.
Now in the second half of the 20th century. So a bit of a steady-state of the electrical grid, it hasn’t really matured very much. We reached 50 years earlier heard more news of it and essentially the technology hasn’t really evolved.
Now we at a critical juncture where new technologies – like new types of storage – are entering the electrical system. We are only at the beginning of this because you haven’t seen massively scaled up safe batteries or other types of storage. But you’re also seeing the smarter grids. You see new technologies in terms of net metering so that our individual households can be both consumers and producers of electricity.
We see the rise of better ways to price of electricity. Now, 20 years ago we all priced electricity at the wholesale level on the novel of regions, big regions. Now we see the ability to use IT to calculate local marginal prices that allow us to pinpoint where electricity is in short supply and maybe put in more transmission capacity or more storage. And so the electricity grid is becoming a whole lot smarter than it was 20 years ago.
Even at the level of transmission, we see high voltage direct current lines on routes everywhere from China to Brazil to North America where you see massive investment into the infrastructure that wasn’t actually very attractive 20 years ago.
All that’s coming together to revolutionize our electrical grid, our infrastructure and the ability to do new things. This is the electricity that we can harvest from renewable sources.
Markham Hislop: Now everybody’s talking about the pace of the energy transition these days. This amuses me to no end because two or three years ago I would talk to people in – particularly in Alberta who were in the hydrocarbons industry – and they would say, “just because you spell it with a capital E and a capital T doesn’t make the energy transition real.” And of course, now we know we have a much better handle on that.
But what about pace? There are a number of schools of thought that we’re going to have a rapid pace, which means rapid electrification. And others will say, no going to be slower. Where do you fall on that?
Werner Antweiler: Well, I always look for tipping points, when one technology becomes cheaper than something else, then you see a massive change. Because if my electric car is cheaper than my internal combustion car, it’s a no brainer. I’m going to buy the one that has all the right features and it’s cheaper. And we see those trends happening when we reach those critical tipping points and we look at that for electric vehicles in particular, which we call a battery parity and that has been batteries are sufficiently cheap.
A switch happening because electricity per kilometre is already much cheaper than fossil fuel. So at the level of the variable cost, your Audi clearly is there, but the high upfront cost for the batteries holds back this particular adoption. I already see a trend towards more plugin hybrids.
And of course, we need complementary technologies too; it’s not just the vehicle that needs to be cheaper. It also needs to include the cost of the charging stations. And here we need to post public and private infrastructure that has to happen at the same time.
New buildings. for example. Because of changes to the building code, we will have charging stations built into parkades off multi-unit residential buildings. And so the new generation, of buildings will have this infrastructure. Others need to be retrofitted.
And so this is what’s really holding back a little bit of that process. Even if you reach grids parity for renewables and we reach battery parity for electric vehicles, we still need infrastructure to catch up. And so that is really what’s holding back.
That prevents this tipping point from making this huge switch right away. And of course, there is the fact that when you own a car already you’re not replacing it right away. A car had a certain life cycle. So for cars, the life cycle is about 10, 12 years. And, and so this is the time frame you’re looking at for these transitions to happen.
But I’m an optimist when it comes to this what I call grid parity for renewables and for a battery period or for that degree vehicles because we always see cost parity for equipment. We also see parity for geothermal that we haven’t even tapped in Canada, but has been tapped in other jurisdictions.
So we do see these technological trends unfolding because of investment and commitment from major companies to pursue these new markets because they are extremely attractive.
Markham Hislop: I make the point all the time that the energy transition is not a creature of climate policy. It is a thing that stands on its own. It is a process that’s independent of policy, influenced by but independent of and really driven by the things that drive every economic transformation like changing technology, capital investment, markets and consumer. All of that is changing.
I think from my point of view, professor, the change is coming faster than I expected. I thought it would be because of high costs of things like batteries. I thought it would, it would proceed much more slowly than it is. Are you a little surprised how the pace has picked up even in the last couple of years?
Werner Antweiler: I’m pleasantly surprised that the pace has picked up. There is a critical point where the big players in the markets sink money into more development and more innovation. We see innovation now being accelerated after many false starts. And now we see first the hybrids plug in hybrids and fully battery electric vehicles taking because we have reached a sweet spot where these vehicles not only provide a cleaner use but they also have really great performance and that is what people care about. And that’s the reason why companies like Tesla and others like BMW that have brought all fully electric vehicles are, are being seen in the marketplace because they combine the electric component.
But with these extra features, they are luxury vehicles. So that’s the reason why at the first we see an uptake in that market segment. But now it’s extending to a broader use. We see the Nissan Leaf and other vehicles in the marketplace that are geared at different kinds of consumers.
So the transition is happening at a more rapid pace. Now it’s only to a small extent are driven by climate policy because not very many jurisdictions have climate policies. It’s really driven by the fact that we’ve had certain breakthroughs in technology that make EVs attractive.
I should also mention a little bit about the role that fossil fuels still have to play because natural gas still has an important role to play as a backup for renewables for a number of years. And so we won’t see a very quick exit from fossil fuels in all areas because they still have a very important role to play in certain parts.
Trucks on average are much more difficult to electrify, but eventually, we may get there. But technology makes it more attractive to use fossil fuels for some time.
You’ll see the same in the aeronautical business. There are some experiments with hybrid planes and we may actually see hybrid planes in the next number of years. Airbus and other companies are working on those technologies, but we won’t see fully electric planes for many years to come simply of the weight of batteries.
If you do see some commercial use of batteries and planes – Harbour Air here in Vancouver is actually not just experimenting, this the first fully electric plane – it’s going to be taking some time. Especially for a larger commercial jet before we see any major uptake of electrical turbines.
Markham Hislop: Any final thoughts on the 2nd Age of Electricity?
Werner Antweiler: I’m an optimist. When it comes to electricity, I sees that there is both a huge opportunity to wean ourselves off fossil fuels in applications like the use of cars. And that has not only the benefit of being good for reducing climate impact but also for reducing urban pollution because vehicles contribute a lot to pollution.
So there are multiple benefits from this transition even though we are of course focused on this situation with our climate. But it also has very important local benefits and it will transform our industries simply because we are moving into many applications where electricity is a key form of energy. And I mentioned IT earlier and information technology is of course electricity intensive. So as we are moving more into these kinds of services at the penalty electricity, you’ll see more use of that.
And, but we’re still catching up in terms of infrastructure. So in addition to your, and my choice about, for example, what kind of car we own. It’s also as the investments we need into the infrastructure for the electricity grid that will play a very important role because renewable energy can be harvested more cheaply, is often at a large distance to get people would like to use electricity. So we do need investments are coming from the public sector as well. And and that is not just driven by climate policy, but it needs to be driven by decisions made by the utilities and governments to invest into that infrastructure all the 21st century.
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