Disruptive innovation in power sector

By Roopen Roy May 12 2015

Tags: Knowledge

Who would have believed that the staid and stable power industry is at the cusp of innovative disruption? And guess what? The seeds of this innovation were sown in the R&D laboratories of automobile companies! There are two alternative roadmaps in this disruption: (a) The combined solar energy and battery vision of Elon Musk — founder of Tesla Motors, and, (b) The Hydrogen Society vision of Japanese innovators pioneered by Toyota and massively supported by the Japanese government.

Both roadmaps are trying to find new answers to an old question: how do you efficiently store electricity? The Elon Musk solution is to pack solar energy in lithium-ion batteries. The alternative answer is to store electricity in the form of liquid hydrogen. Musk put it rather simply: “The obvious problem with solar power is that the sun doesn't shine at night. We need to store the energy to use at night.”

Tesla is tasting early success after its announcement on May Day. It has already accepted 38,000 orders for its home system called the “Powerwall.” It means the order book is full until mid-2016. It sells two versions — a 7kWh and a larger 10kWh unit — which cost $3,000 and $3,500 respectively.

Tesla is also building what it calls a gigafactory in Nevada in collaboration with Panasonic at a cost of $10 billion. The gigafactory is designed to increase scale and reduce costs dramatically. By 2020, it will produce more lithium ion batteries annually than were produced worldwide in 2013. By the end of the first year of volume production, Tesla expects the gigafactory will have driven down the per kWh cost of battery packs by more than 30 per cent.

Musk has also claimed that Tesla will manufacture systems that are infinitely scalable. He has announced the powerpack for industrial-strength generation. It is an “infinitely scalable system” that can work for even public utility companies. It comes in 100 kWh modules that can scale from 500 kWh all the way up to 10 MWh and higher.

“Our goal here is to change the way the world uses energy at an extreme scale,” as Musk put it. In short, Musk wants to change the way the world generates, stores and consumes electric power and do so in a clean and green manner.

Most Americans and, many Indians by now, know about Musk, the gigafactory and his plans. But fewer know about the Hydrogen Society. After the Fukushima disaster in 2011, Japan became averse to creating new nuclear energy capacity. It needed energy innovation pretty desperately, so it came up with the concept of a hydrogen society.

As prime minister Abe described it in a seminal policy speech, “Hydrogen is the energy of the future. We’ve deregulated rules involving various ministries that used to hinder hydrogen development. The Hydrogen Society used to be a dream, and now it is about to become reality.”

Why do we need hydrogen energy? The Japanese government set out four compelling reasons — energy-saving, environment, energy security and industrial competitiveness. It is well known that hydrogen emits no carbon dioxide when burned, so it is considered clean energy that can greatly help reduce greenhouse gases.

Like Musk’s battery-inverter plan, hydrogen fuel cells also eliminates transmission. An apartment building will produce its own power needs through a hydrogen fuelled “generator” and the power will be consumed in the apartment complex. While theoretically this is possible, in all probabilities it will be connected to some form of smart micro-grid.

The vision is to obtain hydrogen from water using electrolysis, with the process being powered by such renewable energy sources as solar and wind. That will allow hydrogen to be produced without carbon emissions. But the plan of a 100 per cent renewable energy plan seems a bit utopian at this point. Generating power from renewable energy remains expensive and unreliable due to its reliance on the weather. A mixed energy approach for electrolysis may be more realistic.

Which one is a better answer — battery or hydrogen? It is very difficult to make the call right now. It is quite possible that it is not an“ either/ or” scenario. A coexistence of both systems is likely. The battle will be won or lost based on five parameters: safety, cost, speed of adoption, carbon footprint and ease of transportation. It is my hunch that based on these parameters, particularly cost — and ease of transportation — hydrogen has a brighter future.

What should India do? We should be like Panasonic. It is investing in Musk’s gigafactory and it is also invested in the Hydrogen Society. It is watching how the game plays out. While doing the same, we should be agile. We should be prepared to switch more investments to one or other as the battle outcomes become clearer. What is already clear, however: the power industry landscape will soon change dramatically and we are at the cusp of a technological revolution.

(The writer is the Managing Director of Deloitte Consulting, India)