Monday, June 03, 2013

...and Two Steps Back for Cleantech

  • The Better Place bankruptcy ends an interesting effort to circumvent some big impediments to the wider adoption of electric vehicles.
  • DESERTEC's original concept would have matched European solar investment with superior North African solar resources, but was no match for European politics.
Within the last week two of the previous decade's Big Ideas for accelerating the shift from fossil fuels to renewable energy--or at least to electricity generated from a variety of cleaner sources--have come up short.  On May 26th electric-vehicle-battery-swapping firm Better Place filed for bankruptcy liquidation in Israel, and just a few days later the DESERTEC Foundation reportedly "abandoned its strategy to export solar power generated from the Sahara to Europe".  Both of these concepts originally looked promising, and I take no satisfaction in their apparent failure.  However, these events must be telling us something.

Better Place was aimed squarely at two of the largest perceived barriers to wider acceptance of electric vehicles (EVs): the limited range of today's EV batteries and the relatively long times required to recharge them, compared to a typical three-minute fill-up at the gas pump.  Better Place's big idea involved the standardization of EV battery packs on a design that could be quickly removed from the vehicle and robotically replaced with a fully charged battery. This required large up-front investments in facilities and hardware, but the firm didn't fail for lack of capitalization. 

Despite having raised around $800 million since its founding in 2008, and convincing French carmaker Renault to produce vehicles designed to work with their technology, Better Place failed to standardize the emerging EV battery market.  Tesla used a different battery configuration from the start and has focused on its own fast-charging technology, while even Renault's global alliance partner Nissan didn't make compatibility with Better Place a standard feature of its Leaf EV in markets like the US or Australia. That led Better Place to invest in building more-conventional EV recharging networks to accommodate other EVs, diluting both its capital and its concept. 

I see two lessons here. First, EVs and related services are still a niche market, and in spite of its aspirations Better Place became a niche within this niche, largely dependent on the success of EV manufacturers at growing their potential market.  That's a poor place from which to launch a business that ultimately depends on achieving high volumes.  The other lesson is that when you can't make sense of a company's revenue and working-capital model, there's probably a good reason.  At this stage in their development, EV battery packs are apparently still too expensive to sit idle in large numbers, waiting for a swap, when the hardware to exchange them requires the same retail footprint as a car-repair bay--all this to support a service arguably only worth a few hundred dollars per year to an EV owner, compared to the normal cost of recharging.

DESERTEC's big idea was even simpler than Better Place's.  A well-sited solar array in North Africa would inherently generate at least twice as much electricity per year as the same array in Germany, the Netherlands, or Belgium.  All else being equal, it would make more sense to invest in solar where the sun shines brightly for more than 6 hours a day, on average, and to send it by wire to the cloudy, northern countries that want more green power.  Of course physics can't always trump politics, and I suspect that this has more to do with DESERTEC's withdrawal from its basic concept than the cited concerns about transmission capacity and grid congestion across Spain and France. 

Politics enter the story in two main ways.  Renewable energy in the EU is deeply entangled with industrial policy and green jobs. From that standpoint, it's even better if a PV panel in Germany produces half the output as one in Morocco, because you can sell twice as many, all installed by local firms and workers. Then there's the interaction between the EU's generous solar subsidies and the solar manufacturing incentives in Asia and elsewhere, resulting in enormous overcapacity, relative to demand, and a now-global wave of solar bankruptcies and defaults.  This has pushed PV module prices down to a level at which the other costs of solar energy, including installation and transmission, begin to outweigh the module costs. That erodes North Africa's solar advantage relative to its northern neighbors. Throw in the lingering effects of the financial crisis, and a once-big idea looks like an unworkable dead end, at least for now.

Neither the failure of Better Place, which might yet find a bargain-hunting savior, nor the retreat of DESERTEC looks like a mortal blow to the long energy transition now underway.  However, they do suggest that the timeline is a little less likely to be shortened by the kinds of big leaps they offered.  EVs will have to gain market share the hard way, with better, cheaper batteries and ample recharging infrastructure--plus continued taxpayer subsidies--while inefficient solar subsidies continue to divert investment away from some of the world's best renewable energy resources, keeping the technology's global contribution smaller for longer.    


Ed Reid said...

"Don't begin vast projects with half-vast ideas."

There is a long and expensive history of products introduced to the market when they were "not ready for prime time". The usual result is a delay of a decade or two before market introduction is attempted again; or, abandonment.

Geoffrey Styles said...

That's very true, though I think it applies a lot more to Better Place than to Desertec. The European solar market is almost entirely the result of EU and national policies; absent those, there wouldn't be a European solar market to speak of. So it's not a question of market readiness, but of the conscious choices of policy makers and bureaucrats.

Germany has installed around 33 GW of PV in the last decade, in a place with an average capacity factor of around 11%. Their neighbors have a few more GW under similar conditions. For roughly the same cost, including the 10-year feed-in tariff commitments, they could have installed that much PV in southern Spain and North Africa, where the capacity factor is more like 25%, along with the necessary transmission upgrades, and be much farther along towards the updated grid necessary to integrate higher percentages of intermittent renewables. In the process, they would have promoted development in North Africa and contributed much less to the global PV manufacturing overhang that has crushed margins and put so many PV firms out of business or in jeopardy. That isn't hindsight so much as a plausible alternative scenario not chosen.