Saturday, September 06, 2008

"Beyond Oil"

I just spent two days over the past week at a conference hosted on the Microsoft campus called "Beyond Oil". Its purpose was to discuss how we can successfully wean our transportation system from oil in the coming decades in a manner that is cost effective, sustainable (from both a fuel-source perspective as well as from an environmental perspective), and which enables the economy to grow. This is an area that I have been thinking a lot about (including my recent post on the need to electrify the transportation system, a point that was reiterated a lot at the conference).

This wasn’t a greenie conference, it wasn’t an alarmist liberal “global warming is going to kill us all”, nobody was talking about people sacrificing and conserving (though a lot of people talked about efficiency); it was all about how we can sustainably support our (global) growing economy and energy needs. There were more entrepreneurs starting companies and deploying technology than any other group. There were a number of people who focus on policy, as well as a number of politicians from both sides of the aisle, including Washington Governor Christine Gregoire, former senator Slade Gorton, and former CIA director James Woolsey (who talked about the national security implications of shifting trillions of dollars a year to folks like Chavez, Ahmadinijad, and the Saudis). There were academics, researchers, utilities, and mass transit operators. And thankfully, the discussions were all remarkably non-political and non-partisan. (Heck, both Obama and McCain got credit for actually recognizing the issues here and for both having reasonable approaches.)

What got me most excited was all of the talk about plug-in hybrid electric vehicles ("PHEV"), which are just like regular hybrids except that they have bigger batteries which you can plug into a wall socket to charge. I shouldn't say "talk," because there were a number of converted PHEVs on display, ranging from small cars to pickup trucks and even a converted PHEV school bus! The huge advantage of these vehicles is that on a full charge you can go 30-40 miles before the gasoline engine kicks in (at which point you behave like a regular hybrid). Given that most people drive less than 20 miles each way to/from work for most of their driving, a PHEV enables people to do most of their driving entirely on electricity (especially if they can also plug in at work). This can result in real mileage of 150-200mpg. And when you divide the cost of the battery pack by it's expected lifetime miles and add in electricity at $0.10-0.15/kWh, the cost to go a mile on electricity is only about 5-7 cents per mile. At $4/gallon, a 25mpg car costs 16 cents per mile, and that's not even factoring in the cost of the engine. The technology works well for larger cars as well as smaller (although larger cars obviously require a larger battery pack and more charge), which represents an easy way to dramatically improve mileage. There are a number of PHEV conversion kits available for existing hybrids, and the first mass-produced PHEVs should be hitting the streets in the next two years, led by the Chevy Volt.

One other nice thing about PHEVs is that they are mostly charged at night, which is when electric utilities normally have the lightest loads, so there is actually enough spare capacity in today's existing grid to handle substantial PHEV fleet penetration. Adding to this advantage is the fact that we are deploying more and more wind farms nationwide, and the wind tends to blow the most at night when demand is weakest; PHEVs, thus, provide a nice storage mechanism for wind (or other intermittant renewable) power that might otherwise go unused.

I learned a ton over the two days, and came away with a feeling that, while we obviously have major challenges ahead of us, there is a tremendous amount of opportunity here to innovate, make money, and move towards diversified fuel sources for our transportation needs.

I had 3 other observations as a result of the conference:
  • It was pointed out numerous times that oil has a monopoly as a fuel for transportation today, and that electrification is key. I obviously agree with this (per my earlier post), but I want to reiterate that the critical benefit of electrification is that it is fuel neutral. Liquid-fuel engines are very sensitive to variations in the formulation of their fuel - you can greatly damage an airplane engine that runs on aviation gasoline by putting automotive gasoline in it, for example, even though the two fuels are virtually the same. But an electric engine, while sensitive to getting the right amount of voltage and current, does not care how the electricity was generated. You can create the electricity by burning coal, splitting atoms, or having gerbils run in cages; it simply doesn't matter. And that, in the long term, is the key reason that I believe electricity to be critical.
  • Emerging economies such as China and India, who are still developing their infrastructures, are surely looking at how to leapfrog an oil-based infrastructure. Think about what happened with telecommunications in developing countries: most of the 3rd world bypassed land-line telephones and went straight to cellular networks. It is my belief (and worry) that countries like India and China will do a similar leap-frog with transportation, and deploy an electrical infrastructure in their countries before we do in ours. I say "worry" not because I think this would be a bad thing for them; on the contrary, it would be wonderful, and I believe they are quite capable of doing it. I say "worry" because I worry that the United States will be a follower, not a leader. The leading wind companies today are in Denmark. The leading solar companies are Chinese. Given what a huge part of the world economy transportation and transportation infrastructure is, it would be a shame for the US to be anything other than a leader in electrified transportation, but I worry that this is in fact the direction we are headed.
  • The whole debate about off-shore drilling completely misses the point. We are going to end up drilling, there's no way for us to avoid it (although frankly, I'd rather wait to do it until after we've finished draining the Saudi/Venezualan/Iranian oil...). So score one for the republicans. But anyone who thinks that drilling will solve anything - especially prices at the pump - is delusional. Demand is growing so fast and the pace of new discoveries is so slow that any incremental supply provided by coastal or ANWR oil will simply help to meet that demand, not provide any of the supply cushion that would be necessary for prices to actually fall. President Bush has said we are addicted to oil. He's right. But the answer to addiction is not to find lower cost drugs or to get more drugs. It's to figure out how to diversify so that you don't have a single critical-source dependency.

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