Closed loop: The disruption of electricity and fuel distribution

The new range of electric cars are priced in the $35,000-$40,000 bracket. Solar PV and home energy storage costs are falling fast. A green, closed loop of self-generation and consumption is on offer that could meet not just an individual’s electricity needs, but their transport requirements as well. These early adopters can opt out of the megalithic supply and distribution chains of the oil and electric industries. It may not quite add up yet, but for many, the difference is so small it doesn’t matter.

Transportation and electricity provision are two fairly distinct markets, each with their own supply chains and market structures. Liquid fuels are distributed by ships, pipes, trains and trucks, electricity by wires. Both operate on a massive scale.

Renewables have disrupted these megalithic industries. They have done so in many ways, but there are three that are particularly important:  the reversal of the trend towards scale, the move behind the meter to allow self-generation, and the simplification of technology.

This is a powerful combination because it makes electricity generation accessible to the consumer. But it also means that if electricity becomes a means of transport then it puts transport fuel behind the meter (or pump) as well.

Solar panels are the perfect embodiment of this: they are small, safe, modular and require no operation and maintenance. They cut through the barriers to market entry of cost and expertise that formerly dominated the electricity industry, representing both a huge addition of capacity and a mobilization of capital which is not controlled by the electricity industries’ traditional incumbents.

This has given rise to the much-documented ‘utility death spiral.’ This is the idea that as consumers source less electricity from the grid, the unit cost of maintaining the grid for its remaining users increases, creating an unsustainable spiral of rising costs. These are passed from the grid operator to generators and consumers, increasing the incentive to disengage. It is a vicious circle in which small-scale generation becomes increasingly viable as it escapes the common costs of distribution.

However, the potential for change goes even further. Power is about to be transferred in part to the end user not just for electricity generation but for transportation. And it will rejuvenate or create a different set of major industrials — the original equipment manufacturer.

The PV panel, battery and EV combination implies a revolutionary reformulation of both the transport and electricity generation supply chains. The idea is that the homeowner, using solar PV panels, generates electricity to supply both home and car.

The storage capacity of this new economic unit would be that of the car battery and the home battery combined. The home owner, in theory at least, would have no need of an electric or gas utility, or grid, except as back-up, and no need of a gasoline station and the lengthy supply chains that fill it.

They would have moved from a continual supply and small-scale expenditure model to lump sum investment in major pieces of equipment that require little servicing, a fundamental change in the relationship between energy supplier, whether electricity or liquid fuel, and the end-user. Energy would no longer be about supply and distribution, but equipment provision: solar panels, inverters, batteries and car bodies.

Does it pay?

According to US Federal Highway Administration data, the average American drives 13,476 miles a year, which, with a 24 miles per gallon vehicle, means consumption of 561.5 gallons of gasoline. The average retail price of gasoline of all grades in the US in early April was put by the US Energy Information Administration at $2.185/gal, which means the average US driver will spend $1,227 on fuel a year.

The average price of residential electricity in the US as of January was 12.01 cts/kWh. And 0.3 kWh will drive an EV one mile. So the equivalent fuel cost for an EV for the average US driver would be $485.54, giving an annual saving of $741.46. As there are fewer mechanical components in an EV, servicing costs are also expected to prove lower than a typical gasoline engine.

With EVs sub-$40,000, the typical US driver could buy an EV — and the solar panels and home energy storage system to power it — for somewhere in the region of $75,000 and have fuel and electricity for 20 years.

The key trends are that the price of lithium-ion batteries are very close to the point where EVs are genuinely competitive vis-à-vis a conventional car, and solar PV generation is close to competitive vis-a-vis retail electricity prices. But perhaps the really important point is that electricity (even solar-generated electricity) is cheaper as a transport fuel than oil, even when the latter is down in the dumps at $40/barrel.