Some thoughts on the electrification of the car - Irbaris
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Some thoughts on the electrification of the car Excerpts and key messages from a presentation to the European Fuels Conference in Paris (March 2011) March 2011 This document is solely for the use of client personnel. No part of it may be distributed, quoted, or reproduced without the prior written approval of Irbaris LLP. This material was prepared by Irbaris for use during an oral presentation, it is not a complete record of the discussion. Copyright: Irbaris LLP 2011
Introduction
This material is derived from a recent Irbaris presentation at the
European Fuels Conference on the “Potential Impact of Disruptive
Technologies, Business Models & Regulations”
The original material was prepared by Irbaris for use during an oral presentation,
it is not a complete record of the discussion
It is a summary of a number of observations and is not an exhaustive evaluation
of the issues
Please contact Peter Durante or David Hampton if you have any
questions or would like a more detailed discussion of the issues
around the electrification of transport
Contact details are provided on the final page of this document
Electrification.March2011
© Irbaris LLP 2011 1
Many companies in the fuel and power sector do not yet see
the full range of threats or opportunities from electrification
Current forecasts for the market penetration of electric vehicles by 2020 are for slow growth
based on incremental and evolutionary changes: 2020 Penetration
– Hybrid Electric Vehicles (HEVs):
Most predictions for the penetration of electric vehicles by
2020 are based on incremental and evolutionary changes
CONVENTIONAL WISDOM
• Battery prices show only gradual / modest declines over next 10 years
Technology • No lower than $500/kWh by 2020
• Government support will largely be limited to R&D, pilot charging projects, vehicle
Regulations purchase tax breaks
Demand • Retail early adopters in cities buy EVs for ‘eco-credentials
Business • Continue existing model of selling car at full price, including battery to early adopters,
model with vehicle and battery leasing available
• Public charging infrastructure is required before uptake of electric vehicles.
Infrastructure • This infrastructure will not be profitable enough to incentivise private construction.
Electrification.March2011
© Irbaris LLP 2011 3
There is real scope however for disruptive developments in a
number of areas that could drive more rapid development
POTENTIAL DISRUPTORS
• New technologies such as range extenders
Technology • Much lower costs for batteries
• Specific government intervention (e.g., mandate zero-emission-vehicles,
Regulations convert own fleets, etc)
• (Unintended) consequence of regulations across all related industries
• Early adoption driven by non-retail sector(s), driving down price and
Demand increasing awareness and infrastructure
• Innovative new solutions
Business • Service delivery (e.g., Battery swapping, retrofits)
model • Economic models (e.g., Telecoms service / mobility model)
• Home charging actually the key
Infrastructure • PHEVs/EREVs radically reduce need for public charging infrastructure
• Telecoms & swapping model could change requirement and profitability
PHEV – Plug-in Hybrid Electric Vehicle; EREV – Extended Range Electric Vehicle
Electrification.March2011
© Irbaris LLP 2011 4
Technology
There are various potential technology breakthroughs that
could dramatically improve the economics of electric cars
Range-extenders
• Technology
• Downsized ICEs improve conventional cars, but also EREVs/PHEVs through weight reduction
and space saving
• Turbines – Jaguar/Tata/Rover prototype uses turbine which could increase efficiency and reduce
weight. Picture (left) = 50kW range-extender that weighs less than 2.0kg
• Impact
• Eliminate ‘range anxiety’ but still allow large majority of driving on electricity
• Charging infrastructure requirement greatly reduced (home charging is priority)
• Reduced need for all-electric range reduces battery requirement (cost and weight)
• Increases diversity of supply (electricity + diesel/petrol/biofuels/methanol/etc)
Batteries
• Chemistries / Technology
• US, China and others leading aggressive battery R&D efforts
• MAIL (Metal-Air-Ionic-Liquid) Battery, Carbon nano-tubes and others
• Super-capacitors and other fast-charging
• Potential for massive range improvements through increased energy density
• Price
• Incremental improvements and production scale of existing technology already dropping prices
• New technologies / chemistries could drastically reduce price / kWh
• Battery-version of ‘Moore’s Law’ ?
Electrification.March2011
© Irbaris LLP 2011 5
Technology
Battery prices could decline far more quickly than previously
forecast –recent predictions for 2020 are already outdated
800 EVOLUTION OF BATTERY COST ESTIMATES & ACTUAL COSTS
Previous price
700 predictions already
out of date
600 Industry
Average
Battery Price ($/kWh)
Ambitious targets being
set by industry
500 consortiums and others
400 Price required for
‘mass adoption’3
300
200
100 EV potentially
‘cheaper’ than diesel3
0
2009 2011 2013 Cost Estimates Potential Target
Actual Actual Cost Estimates1 (made 2008-11) Costs2 Costs
United States Advanced Battery
Costs1 Costs1 (made 2011) 2020 Consortium (USABC)
Batteries for Electrical Energy
Note 1: Based on assorted published reports, media reports and Irbaris discussions with industry Storage in Transport (BEEST)
Note 2: Illustrative costs based on CAGRs from base 2010 cost of $600/kWh. High: -6%, Med: -8%, Low: -10% Other US Dept .of Energy
Note 3: Cost points based on published reports and proprietary Irbaris analysis. Contact Irbaris for more details. backed R&D programmes
Electrification.March2011
© Irbaris LLP 2011 6
Regulations
The collective impact of changes in regulations in different
sectors could have significant impact on GHG emissions
Oil & Gas Industry
• Taxation on fuels to
discourage consumption
• CO2 content
Auto Drivers /
• Local pollutant content Manufacturers Consumers
• Mandates for alternative • CAFE standards • Tax bands based on
(non-oil based) fuels fuel efficiency of
• gCO2/km
vehicles
• Local pollution
controls • Congestion charging
• Mandated flex-fuel • Tax incentives for
(including electric) purchase of higher
The Power Industry vehicles efficiency vehicles
• Electricity decarbonisation • Per km road-charging
• Requirement to provide
electricity and charging
infrastructure for plug-in
vehicles
• Smart metering
Electrification.March2011
© Irbaris LLP 2011 7
Demand
Early demand is not all (or even mostly) about retail users
Delivery / Fleet Taxis
•Already starting to adopt •Relatively small number of
EVs, even with current vehicles, but account for a
high battery prices disproportionate % of fuel
•TCO (Total Cost of consumption
Ownership) a key driver, •Well-suited to battery-
as is sustainability swapping model
• Increases visibility • Enable many to
familiarise with technology
• Can create beachheads
for electrification
Buses Retail / Private
• Relatively small volume, (incl rental)
but high fuel usage
• Roll-out in other
• High visibility segments can help roll-out
• Significant impact on local here
air quality • Amplified by high oil
prices, supply concerns,
security concerns
• Technology aspirational
(i.e. Cool!)
• PHEV / EREV the most
popular with consumers
Electrification.March2011
© Irbaris LLP 2011 8
Business models
Innovative business models could accelerate electrification
and create new threats and opportunities
Evolutionary Disruptive Revolutionary
Today’s model used for New models that bring in Innovative models that
new product new players or open up could create mass
market adoption on their own
Conventional purchase Charging Network Service Battery Swap
Telecoms Pricing
Lease vs. Purchase vehicle Lease battery separately Battery Down-cycle
- Battery remains an - Reuse battery in less
Full cost for installation of asset for the critical application
home charging points supplying company V2G
- Use vehicle storage
as part of grid
optimisation
Retrofit batteries to
existing ICE vehicles
Electrification.March2011
© Irbaris LLP 2011 9Developments in electrification will create a range of
challenges and opportunities for the oil & gas industry
Gasoline/ Diesel • What will be the impact on the demand for gasoline and for diesel?
demand • How will this affect refinery utilisation, margins and refined products trading?
• How will the progress of electrification affect biofuels and other alternative fuels?
Alternative fuels • What impact will Flex-fuel EREVs/PHEVs have?
Other refined • What is the impact on rest of the barrel (jet, bunkers, etc)?
product • What opportunities or threats does this present for ‘alternative refining’?
• How will electrification impact demand for these high-margin products?
Lubricants • What impact does electrification have on petrochemicals more broadly?
Retail network & • How will demand destruction impact for retail fuels networks?
distribution • What new business opportunities does electrification create for such networks?
• What are the implications and opportunities for power generation and distribution?
Electricity • What are the implications for gas demand in the power sector?
• What opportunities does electrification create in electricity markets?
Financing & • How does electrification affect investor attitudes to financing long-term
investment investments in liquid fuels industry?
Electrification.March2011
© Irbaris LLP 2011 10Possible questions for discussion
What does the company need to do to prepare for and respond to
evolutionary or disruptive progress on electric vehicles?
How could electrification affect the performance of key company assets
– What does it mean for investment and performance priorities?
What does the company see as its core business in the long term: liquid fuels, energy,
mobility (or something else)?
What are the implications for involvement in the electricity market either directly or as a
supplier of gas?
What strategic partnerships should the business be forming now to benefit from
electrification or to mitigate risks?
– What new capabilities are needed?
What regulations should the company be advocating or be concerned about?
Ultimately, electrification will affect the company’s relationship
with auto manufacturers and with the power sector
Electrification.March2011
© Irbaris LLP 2011 11Appendix
About Irbaris
Electrification.March2011
© Irbaris LLP 2011 12Irbaris is a specialist carbon, climate change and cleantech
advisory business with wide-ranging international experience
Country specific
project activity
Pan-regional
project activity
Irbaris office
Electrification.March2011
© Irbaris LLP 2011 13Irbaris has recently worked on a range of projects which
span the energy chain, in four continents
SELECTED EXAMPLES
The electrification of the car and the implications for the energy sector
The impact of CCS on the commercial attractiveness of different investments in the energy
sector
The use of renewable electricity to power mobile base stations and electrification in rural
Africa
The potential benefits of mobile and wireless technologies for Smart Grid, Smart
Buildings and Intelligent Transport
The opportunities in forestry offset projects (in Africa and Latin America), including impact
of different regulatory scenarios as well as implementation support for carbon funds
investing in forestry
The development and launch of the Carbon Disclosure Project’s Water Disclosure
initiative
Electrification.March2011
© Irbaris LLP 2011 14In the past year, we have also advised our clients on some
challenging issues across the energy business system
• How do different scenarios for the deployment of CCS impact the electricity industry?
The CCS • Under what conditions might CCS be installed on gas CCGTs?
industry • Are there potential markets or business partners that are more attractive because of
the current/future electricity market regulations?
• How will developments in the power industry affect the development of carbon
Future carbon targets and regulations?
regulations • What are the key messages that power companies should deliver to regulators and
stakeholders?
• How will the changing shape of the electricity sector impact the electrification of
Transport transport?
electrification • What will be the net effects of transport electrification on the customer load shapes
and transmission infrastructure?
• What are potential new business opportunities in renewables/storage businesses?
Renewables • Which parts of the value chain are likely to most profitable? Most competitive?
• Which markets/technologies are likely to be most attractive?
Electrification.March2011
© Irbaris LLP 2011 15Our core team comprises professionals with deep expertise
and wide-ranging international experience (Page 1 of 2)
David Hampton (British). 25 years international experience as a strategy consultant with particular
experience in energy and natural resources. A leading carbon/climate change expert with deep
expertise in the strategic, economic and commercial aspects of managing carbon and adapting to
climate change
Andrea Biden (Australian). Nearly 10 years international experience managing programmes and
transformation in oil & gas and consumer goods. Particular expertise in the change management
challenges associated with the organisational consequences of climate change and developing real
capabilities in sustainability
Will Lynn (Irish). Wide-ranging international experience advising on the strategic issues around
carbon and climate change and broader sustainability issues in a range of industries, with particular
expertise in oil & gas and in issues around climate change and around water
Michael Woods (British) Over 20 years experience in international environmental and sustainability
issues working as a lawyer and adviser in private practice and the public sector on policy, regulatory
and commercial strategies. A recognised leader on climate change/carbon, renewable energy,
biodiversity resources and sustainable forestry, including compliance and voluntary markets
Electrification.March2011
© Irbaris LLP 2011 16Our core team comprises professionals with deep expertise
and wide-ranging international experience (Page 2 of 2)
Paul O’Rourke (American). Over 30 years international strategy consulting experience working for
both private and public sector clients. Wide experience in the energy sector, especially electric power,
renewables and energy efficiency. Deep expertise advising on the effects of structural industry
changes on business value, as well estimating the economic value of environmental amenities
Joanne Jordan (American). 20 years experience in environmental and energy issues as an
environmental attorney, consultant, and business development professional. Particular interest in
business matters related to water and water scarcity, as well as broader challenges related to climate
change and environmental sustainability
Peter Durante (American & British). 10 years experience in the global energy industry, focusing
primarily on frontline commercial roles as a trader, risk manager, and business developer in both oil
and environmental markets. 5 years parallel experience as advising on energy / environmental issues
to various policy-makers and organisations in the USA and the UK
We also have a number of Affiliates and experts around the
world that we work with on a part-time/as needed basis
Electrification.March2011
© Irbaris LLP 2011 17To discuss further… David Hampton Peter Durante david.hampton@irbaris.com Peter.Durante@irbaris.com Direct: +44 7785 308 579 Direct: +44 7794 453 420 www.irbaris.com LONDON WASHINGTON DC Irbaris LLP Irbaris (US) LLP Centre Point 1875 Eye Street 103 New Oxford Street Washington London, WC1A 1DD DC 20006 England United States of America Office: +44 20 3102 5455 Office: +1 (202) 429 8424 Electrification.March2011 © Irbaris LLP 2011 18
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