What UBS’s death-of-centralized-power-plants prediction means for CDR

UBS has a new report out predicting that:

“Large-scale power generation…will be the dinosaur of the future energy system: Too big, too inflexible, not even relevant for backup power in the long run.”

In short, UBS argues that distributed solar photovolatic (PV) systems, battery storage, and electric vehicles (EVs) will drop in price dramatically over the coming decades. When these developments (along with advances in utilities’ “smart grids” and demand-side management programs) occur, large-scale, centralized power plants will no longer prove economically viable.

UBS

Source: UBS

If UBS’s prediction is accurate, it has a number of important implications for the CDR field.

But first, is UBS’s prediction about the death of large-scale power plants fundamentally sound? Having looked at UBS’s model, I remain unconvinced. Here’s why: As distributed generation technology costs come down like UBS (and many others estimate), so too do the costs of utility-scale renewable+storage installations. If utilities can adjust power prices fast enough to reflect this lower cost of centralized generation (a critical assumption that likely doesn’t hold in many cases), then the investment case in distributed power systems remains harder to justify. This is because utility-provided generation would be so cheap that individuals would have less incentive to buy their own distributed systems (even though these systems themselves might be inexpensive compared to the prices of today’s systems). I don’t see any analysis in UBS’s paper comparing the economies of scale from centralized solar PV + storage systems to the distribution cost of this centrally-generated power, or any analysis about regulatory ability of utilities to adjust prices to reflect lower costs of centralized generation. UBS hints at these issues at one point in the report:

“By 2025, everybody will be able to produce and store power. And it will be green and cost competitive, ie, not more expensive or even cheaper than buying power from utilities. It is also the most efficient way to produce power where it is consumed, because transmission losses will be minimised.”

The last sentence in this excerpt, however, is a gross over-simplification of the economics of central v. distributed power, as many more factors besides transmission losses go into the efficiency of a PV power system (like local solar radiation profiles, balance-of-system components, etc.). And so in my mind, it remains unclear whether UBS’s overall prediction on the death of large-scale power generation is based on sound economics.

But if it proves that solar PV + storage has relatively few economies of scale and/or utilities are unable to provide consumers with lower costs of centrally-generated power, then UBS’s prediction may well turn out accurate. And if it does, it has important consequences for how we pursue CDR as a society.

First, this shift away from centralized generation would be bad news for advocates of bioenergy + carbon capture and sequestration (bio-CCS). Many scientists estimate that bio-CCS will be the largest contributor to a gigatonne-scale CDR portfolio in the future. That said, bio-CCS systems have large economies of scale, as today’s carbon capture and carbon transportation/storage technologies have very large fixed-cost components. Without strong markets for centralized power generation, bio-CCS systems could be rendered prohibitively expensive (or carbon prices could raise to very high levels if few other large-scale CDR approaches emerge).

Second, this prediction would suggest that smaller scale power generation technologies capable of CDR might have a brighter future than currently assumed. For example, biochar is viewed in many circles as too small scale to contribute significantly to a large-scale CDR portfolio. But if small-scale biochar-generating pyrolysis electricity systems proliferate as a potential complement to solar energy, then biochar might play a greater role in a carbon negative economy than previously assumed.

Finally, this prediction challenges the entire notion that removing carbon from the atmosphere is an energy problem. Without large-scale markets for centrally-generated power, CDR might have to turn to other markets to generate additional revenue streams, such as agriculture, building materials, and forestry.

It will be interesting to watch the degree to which UBS’s predictions come true over the next decades. Regardless of what happens to centralized power plants over this timeframe, it is important to keep these macro-level trends in the utility industry in mind as CDR approaches continue their commercialization.

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