BCG report finds advanced biofuels, concentrated solar power, and solar photovoltaic tracking to make significant market impact sooner than commonly assumed
|BCG’s analysis finds that cellulosic ethanol is on the verge of becoming cost-competitive with gasoline at $3/gal US. Click to enlarge.|
Advanced biofuels, concentrated solar power (CSP), and solar photovoltaic power (PV) will see accelerating adoption and growth and are on track to change the global energy mix far earlier than is often assumed, according to a new report from The Boston Consulting Group (BCG). The costs of these alternative energy technologies are falling rapidly, and they are on the path to becoming cost-competitive within the next five to ten years, if not sooner.
The report, “What’s Next for Alternative Energy?,” also sees steady adoption of on-shore wind and electric vehicle technologies, but suggests that off-shore wind and carbon capture and sequestration look likely to fade or decline. The report examines the state of those seven technologies and assesses each in terms of three issues:
- Can it achieve cost-competitiveness with conventional energy by 2020 and be economically viable without subsidies?
- Can it overcome barriers to rapid adoption once cost-competitive?
- Can it reach penetration levels by 2025 that disrupt the status quo?
The fortunes of alternative energy have historically waxed and waned with the price levels of oil, gas, and other energy sources, rising when prices are high only to fall once they retreat. For the most part, the focus has been on the technical feasibility of various technologies, required subsidies, or need for carbon prices to make those technologies viable. We believe, however, that this time is different. The debate is moving to when and how—not whether—alternative energy can move beyond the realm of subsidies to compete with conventional energy sources. For some alternative-energy industries—CCS and off shore wind, for example—real competitiveness is still a distant probability. For others, that reality could be a lot closer than is commonly assumed.—“What’s Next for Alternative Energy?”
The high level findings include:
Advanced biofuels are moving rapidly down the cost curve and are on a path to becoming cost competitive in the next few years. Once they are cost competitive, advanced biofuels will face several structural barriers to rapid adoption, the biggest of which is likely to be the vast investments needed to build the necessary conversion capacities and other infrastructure.
If these barriers can be overcome, advanced biofuels could significantly disrupt the status quo in fuel markets.
Electric vehicles (EVs) will become economically attractive for lead market segments by 2020, but broader adoption will require major declines in battery costs.
Base case economics for EVs in North America are very challenging, absent significant disruption in oil price or battery cost. Click to enlarge.
EVs are likely to achieve a 5 to 10% share of new-vehicle sales by 2020; however, under aggressive assumptions regarding battery cost declines or fuel prices, EVs could become economically attractive to more than 20% of some vehicle segments. However, even with higher adoption rates, EVs are unlikely to become a material part of the vehicle fleet in the coming decade, because fleet turnover is slow.
If there is insufficient low-carbon power-generation infrastructure, EVs will struggle to be seen as a solution for reducing carbon emissions significantly.
CSP is also moving quickly down the cost curve and could become competitive with conventional generation sources in lead markets even in the next five to ten years. By 2020, CSP could provide power at $0.10 or less per kilowatt-hour and be competitive with conventional energy sources.
Coupled with the ability to utilize thermal storage to provide on-demand power, CSP is a likely candidate to disrupt the status quo in power generation by 2025 if major barriers, such as limitations in transmission infrastructure, can be overcome.
Solar PV’s costs are also declining rapidly, and the technology will see accelerated adoption; on-shore wind, already cost competitive in many instances, will see steady adoption.
Without breakthrough declines in energy storage costs, however, inherent challenges posed by the intermittent nature of these technologies will limit their combined penetration to no more than approximately 25% of the total power-generation mix. Even at these levels, these technologies could have disruptive effects on the status quo.
Off-shore wind will struggle to move beyond purely subsidy-driven growth or to reach economic viability on its own before 2020. Its growth will be limited to a few regions or countries hat are committed to meeting aggressive carbon-reduction targets but have few other renewable resources.
Cleaner coal through carbon capture and sequestration will have very slow adoption and won’t be viable for the next decade or two. However, the technology is vital for cutting global carbon emissions from the vast existing and rapidly growing global coal-fired power-generation fleet and for addressing the energy security concerns of countries such as China.
There are a number of reasons why it will develop slowly, including the technology’s slow progress toward demonstrating large-scale viability and moving down the cost curve.
The report concludes with a discussion of the implications of these findings for oil and gas companies, utilities and power producers, emerging alternative-energy pure-play companies, industrial suppliers, and governments.
Balu Balagopal, Petros Paranikas, Justin Rose What’s Next for Alternative Energy? (BCG, November 2010)