By Yoon Byung-suk
There has always been much hype surrounding alternative energy. Yet turning that hype into reality has proven to be rather challenging. Investors, stung by a series of false dawns for the sector, have pulled back further, sensing that alternative energy is destined to remain tomorrow’s story for the foreseeable future. And stakeholders conclude from the ongoing stalemate in global climate talks that there is little shared commitment or sense of urgency regarding the development of energy sources beyond fossil-based fuels.
The skeptics are right to say that conventional energy sources will remain the lion’s share of the world’s energy mix for at least the next couple of decades. Yet technologies in some alternative-energy sectors are approaching inflection points in their development and are on a path to becoming viable on a standalone basis, either completely decoupled from subsidy programs or requiring much less assistance. The skeptics are wrong to be so dismissive of the new technology. It is time for them to realize a new reality: several alternative energy technologies are poised to go mainstream.
A silent revolution is under way. The economic viability of advanced biofuels will ultimately be governed by their ability to compete directly as substitutes for hydrocarbon fuels such as gasoline. LC ethanol, especially, is on the verge of being cost competitive with gasoline: large-scale LC facilities are expected to reach unsubsidized retail-cost parity with $3 per gallon gasoline by 2012 to 2015. Other advanced biofuels that can substitute for diesel are not too far behind. And two types of solar-generated electricity ― concentrated solar power and solar photovoltaic power ― are on track to achieve cost competitiveness and move past subsidy-driven growth. They will compete on price with fossil-based fuels without the helping hand of subsidies by 2020.
The disruptive potential of these new technologies within a relatively short space of time is huge. This is no exaggeration. Until just a few years ago, North America was expected to be short of natural gas, yet within the span of a few years, technical advances in drilling for shale gas have created a new reality of plentiful natural gas. Shale gas has transformed a nation needing to import natural gas into one with a massive gas surplus. Or consider that flexible-fuel vehicles’ share of total light-duty-vehicle sales climbed roughly 70 percent in little more than five years in Brazil.
As noted, several alternative-energy technologies are poised to make their presence felt in the global energy landscape in the coming decade. Other alternative-energy sectors, however, will continue to be no more than promises for at least the next decade. Therefore, it is vital that companies, governments, and other stakeholders in the energy ecosystem recognize and understand the differences among these sectors. For each of these sectors, they can assess its prospects vis-à-vis three questions: Can it achieve cost competitiveness with conventional energy by 2020 and be economically viable without subsidies? Once it is cost competitive, can it overcome barriers to rapid adoption? Can it reach penetration levels by 2025 that disrupt the status quo?
For advanced biofuels, concentrated solar power and solar photovoltaic power, the answer to each question is yes. They will form an initial wave of energy technologies that will crash with significant disruptive force.
According to the three criteria, onshore wind and electric vehicles show real commercial promise. The former already has a large generation capacity. Without cost-effective storage, however, there will be limits to the success of onshore wind technology. Likewise, electric vehicles will have a notable impact, but the cost of batteries will need to fall dramatically before there can be broader adoption of this technology. Offshore wind will struggle to become cost competitive and will be limited to countries willing to provide hefty subsidies. And clean coal through carbon capture and sequestration will not make a big difference for the next decade or two.
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 sources, achieving real competitiveness is still a distant prospect. For others, that prospect could be a lot closer than is commonly assumed.
Alternative energy will profoundly impact the energy landscape. We're talking about a sea change. The future is closer than commonly assumed, and companies must actively revisit their alternative-energy strategies. Should you play defense, offense, or both? The answer depends on a host of variables unique to your situation. But dismissing alternative energy’s prospects because of, for example, the current uncertainties of climate legislation is unwise and potentially costly.
You can no longer assume that alternative energy is tomorrow’s problem. You need to begin to address it today. Study the landscape and try to determine the key risks ― and opportunities ― that these specific new energy technologies pose and present.
The day may soon arrive when alternative energy will cease to be just an 'alternative.' Determine how attachments are handled.