Zero Marginal Cost Energy

Earlier this year, I published a post that was very bullish on an emerging electricity grid powered primarily by distributed energy resources (DERs) like solar, wind, and batteries. The crux of the piece was simple: decades of compounding 10-20% cost reductions present us with a world where it’s now cheaper to build new DERs than it is to operate existing coal or natural gas plants. I did add one caveat, however, in declaring that we’d likely always need some amount of non-variable electricity generation from natural gas or nuclear to solve the DER variability challenge (i.e. the sun doesn’t always shine).

I now think that my initial article was not bullish enough. Based on some compelling research from Tony Seba’s RethinkX think tank, it seems realistic that over the next decade we can meet at least 100% of our current societal electricity demand with a mixture of solar, wind, and storage alone. The important insight is that by dramatically overbuilding the amount of solar and wind that we think we need, we can also dramatically reduce the amount of batteries that we need to install. With an overabundance of solar panels and turbines, we can quickly charge our batteries when there’s excess sunlight or wind. And, as an added bonus, accelerating DER deployment would also accelerate their cost decline from a current 2-5 cents / kWh to < 1-2 cents / kWh.

But this, of course, assumes that we figure out what to do with all of that excess electricity when our batteries are fully charged. A surplus of DERs already presents a massive challenge for grids from Texas to Germany, a problem colloquially known as the duck curve. And overbuilding solar and wind capacity would only exacerbate the issue. Grid operators are currently solving the problem with curtailment – they literally pay power plants to shut down during congested periods. This has always struck me as remarkably inefficient. But what if the solution to our problem is actually just a shift in thinking? What if instead of declaring “too much” cheap electricity a problem, we embrace it as an opportunity. An opportunity akin to the proliferation of information brought about by computers and the Internet. 

The key idea is zero marginal cost. As the marginal cost of creating and sharing information approached 0, it led to orders of magnitude more information being produced and a flourishing of human creativity in the arts and entrepreneurship. Consider that >90% of the world’s information was created in the last two years — and that trend is only accelerating. Now, as the marginal cost of producing electricity drops to near zero, we can either try and stop a natural force by sticking to our old utility models and paying to curtail energy or we can let nature do its thing and expand the space of the possible.

Just imagine: what could humanity do with 2-3x the amount of electricity on today’s grid (what Seba calls “SuperPower”)? How about 10x? 100x? Here are some initial ideas:

  • Desalinate water at scale 
  • Create green hydrogen to power a clean industrial economy (especially for otherwise hard to decarbonize sectors like aviation or concrete and steel production) 
  • Rapidly accelerate direct carbon capture to help solve climate change
  • Secure a decentralized, global, and sound currency + payments network 
  • Run massive compute networks to accelerate humanity’s knowledge loop 
  • Power networks of 3D printers to create nearly free amalgamations of atoms (i.e. 3D print whatever you can imagine)
  • Help humanity reach Type I civilization status so that we can start exploring the stars 
  • Or maybe just serve up a lot more cat videos? 

If we don’t limit our imaginations to yesterday’s energy uses and limitations, what sorts of new innovations and businesses can we build? For what would you use (near) zero marginal cost energy?

And lest you think these predictions seem a bit unrealistic, I leave you with this excellent RethinkX passage that analogizes an >100% clean energy grid to similar disruptions with the advent of electricity, refrigeration, and smartphones: 

“Electric lighting, for example, did not simply replace candles and oil lamps on a 1-to-1 basis, but instead opened up entirely new residential, commercial, industrial, artistic, and scientific applications. Refrigeration did not just replace ice boxes on a 1-to-1 basis, but instead found new applications ranging from air conditioning and dehumidification to cryogenic industrial processing and ice skating. The smartphone did not simply replace flip phones on a 1-to-1 basis, but instead created an entirely new and much larger communication and information system that extends far beyond telephony alone to touch virtually every aspect of our lives. These disruptive technologies, like hundreds of others throughout history, wiped out their incumbent predecessors within just a few years of becoming cost competitive, and the new industries and markets were much larger than the ones they replaced. Clean energy super power from a 100% [Solar, Wind, & Battery] system will dramatically expand the societal capability frontier of regions in the same way.”

One final caveat: I’m aware that the tone of this post is very utopian. The reality of a superabundance of energy is that it merely represents the possibility of new societal arrangements such as overcoming physical scarcity. But actually making that jump will require massive political and social alignment. That topic is perhaps more important, but something that we’ll explore another day as we consider how humanity can peacefully jump from the industrial to information age. 

 If you’re an entrepreneur working on achieving or harnessing “SuperPower,” please reach out! 

 

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