Renewable s May Become the Netflix of the Energy Sector RSS Feed

Renewables May Become the Netflix of the Energy Sector

A new Wood Mackenzie paper looks at six energy market disruptions that are “rewriting the whole economy.”

Six key markers of market disruption hint that the energy sector might be the next industry in line for upheaval, according to a recent paper from Wood Mackenzie.

In the past century, the rapid uptake of new technologies has completely remade certain markets. Take the conversion from horses to cars for example; just over a century ago, a car would stick out on a crowded street. Thirteen years later, though, a horse-drawn carriage became the outlier.

According to Wood Mackenzie, the energy industry presents all the signs of an industry on the cusp of disruption. Positioned at the center of the shift is the “drive for deep carbonization and the falling cost of renewables,” according to the report. Essentially, the sharp drop in prices, as well as technological advancements, have created a perfect storm to upend energy normalcy.

“This is not just about decarbonization,” said Prajit Ghosh, head of power and renewables research at Wood Mackenzie. “It’s about rewriting the whole economy.”

The first qualifying marker is a vehicle — such as the smartphone — that can change how customers utilize services.

In the energy sector, the vehicle is less tangible than something you can hold in your hand: it’s the electrons shuttling through your wires to power everything you do. Natural gas has already overtaken coal as the largest source of power in the United States — a phenomenon the Trump administration sees as a significant disruption. Now renewables are encroaching on gas, and energy-efficiency gains have decreased demand for electricity.

Wood Mackenzie identifies rapid technological advancement as the second indicator of disruption. “’Rapid’ is the core word here,” said Ghosh, offering examples of the swift developments in higher masts and turbine size in the wind sector. Between 2007 and 2016, utility-scale PV systems also fell in price by almost 80 percent. Battery prices have fallen precipitously as well, having already hit cost projections for 2030.

These developments have brought about the third marker: technological convergence. Solar and wind have become more viable as replacements for traditional fuel sources when paired with storage capacity.

The lower costs of renewables, in addition to innovations in battery capacity, led Tesla to become a beacon of another essential marker: technology converging with industry. Since their introduction in 2012, Tesla’s electric vehicles have made up a larger and larger portion of the approximately 17.5 million cars the U.S. sells per year. And although Tesla’s heavily anticipated Model 3 has hit numerous snags, most recently with the company’s firing of hundreds of employees, the vehicles have still been able to make the jump from a niche market to a larger audience.

The fact that traditional automakers are eyeing the electric space further illustrates technological convergence with industry. Volvo and General Motors have both committed to dramatically increasing the number of electric models they offer.

The case of electric cars, and their ability to cause a large-scale shift in energy markets, is analogous to Netflix overtaking video rentals. The on-demand entertainment company originally started delivering DVDs to consumers’ doorsteps, taking a chunk of demand and putting companies like Blockbuster out of business. But when Netflix began offering streaming and producing original content, it started to go after the larger television industry, compelling many traditional players to innovate just to keep up.

Renewables are applying the same pressure to oil and gas majors. Just last week Shell purchased a Dutch electric-car charging company, announcing it was setting its sights on the electric future.

Ghosh said based on examples like Netflix, it’s essential for the entire energy sector to reflect on the side effects of drastic market shifts. “As you go through this change, you have to think about the unintended consequences…and who comes out as winners and losers,” he said. Many majors have expressed similar sentiments, increasing investment in renewables so as not to be left behind.

In the early 1900s, Ghosh explained, cars were seen as a solution to the piles of manure and rotting horse carcasses clogging city streets — a win for everyone. But few imagined the invisible puffs of pollution and smog that would come to choke urban areas, the dense highway systems that would change the landscapes of cities, or the cultural repercussions of domestic gender roles in suburban areas. Identifying the deep impacts that renewables have the capacity to inflict on the energy sector will give industry players a head-start on the disruption.

Read full article at GreenTech Media