Tesla

Two straightforward concepts drive the inevitable marketplace defeat of nuclear power in most power markets:  incremental innovation and lot size.  People are quite clever in making many things, but we also frequently screw up.  We learn by educated trial and error, and we get better bit-by-bit over time. 

If we have many people working on a problem; and we have many chances to try something new and tweak it to make it work better, the probability of a successful outcome (increased durability, lower cost, better performance) goes way up.  It's not because our initial trials are necessarily more successful in power storage than in fission reactions (even Tesla's recent storage product is hardly problem-free), but rather because we get so many more chances.

This, in a nutshell, is the structure of efforts to improve battery storage for electric power: huge experimentation on storage chemistry and business models (business models can matter as much or more than technical gains at particular stages of product development) across multiple related markets, and an ability to integrate small improvements into product cycles again and again.  In combination, the pace at which power storage is becoming a competitive threat to nuclear (and to many other energy market incumbents) is accelerating.

Nuclear proponents agree with the general approach:  they, too, want incremental and experiential innovation to improve their product.  The idea is behind many of their public policy statements on the future role they want nuclear to play, and the concept that even though the first-of-a-kind reactors (FOAK) may be exorbitantly expensive, they pinky-swear that unit costs will drop sharply in later units (though this hasn't happened historically). 

The structure of the nuclear power industry, however, is far less amenable to this type of innovation than are batteries.  There are a small number of firms making a small number of enormously expensive reactors.  The machines, and their related installations, are complex with many things that can go wrong.  And the limited number of reactors being built are going in over a very long period of time, dampening innovative momentum.   Costs of failure are quite high, both financially and in terms of potential damage to human health and the environment.  This makes technical risk-taking imprudent, further constraining opportunities for innovation. 

Industry efforts to overcome these limitations by streamlining regulation, reducing public oversight, and promoting larger production runs of smaller reactors may offer some benefits, but don't change the core competitive constraints.  The differential in lot sizes between reactors and power storage devices remains overwhelming; and the ability to work small innovations into products across markets and time is dramatically larger in the power storage sector.

While nuclear reactors can also benefit from power storage (by running full tilt and banking the extra power to sell during peak demand), batteries able to handle much smaller scale loads are likely to come to market well before products big enough to facilitate reactor-scale storage.  Instead, reactors will need to look to "bank" their surplus power in other ways -- such as through co-location with electricity-intensive primary industries like metal smelting or desalination.  This is an old idea, but has not proven particularly successful.  If the associated industry is also hugely capital-intensive (as it often is) and needs to run at full tilt to be economic (as it often does), the ability to dump only surplus power into the alternative use can be more limited than what is needed for these industries to serve as a "battery" for the reactor.

Here are some numbers to illustrate the competitive wall nuclear faces -- even assuming the myriad subsidies to the nuclear fuel cycle continue:

Nuclear power plant market size

930 Gigawatts - Nuclear generation that the Nuclear Energy Agency projects will be required by 2050 in their 2 degree warming scenario, comprising 17% of global electricity production.  Of this, about 400 GW replaces the closure of existing units.[fn]Nuclear Energy Agency, Technology Roadmap: Nuclear Energy, 2015, p. 5.[/fn]

580 - 775 - Number of new reactors built to supply this target.  Low-end of range assumes roll-out of 1600 MW Areva EPR; high end of range assumes 1200 MW Westinghouse APR.  The reactor count is already significantly lower than what the NEA projected in their 2010 Technology Roadmap for nuclear, and worsening economics even for existing nuclear reactors make the 2015 projection optimistic as well.

$4,400,000,000,000 - Estimated investment over the next 35 years to build these reactors per the NEA estimates (p. 23).  This figure  includes few, if any, of the many government subsidies to the nuclear fuel cycle -- meaning that the real cost of this expansion would be much larger than $4.4 trillion.

35 years - Time period over which these reactors will be deployed in the NEA 2 degree scenario.

22 - Average number of reactors per year being built around the world over the 2015-2050 time frame modeled by NEA in its 2 degree scenario.  The actual lot size per year will be smaller due to country-specific customization required, multiple reactor types, and multiple manufacturers.  These factors all impede the technical and administrative learning that can occur to improve the competitiveness of the new plants.

100% - Share of reactors in NEA scenario that seem to be supported by significant government interventions to guarantee debt, invest capital directly, guarantee purchases of power, or support the fuel cycle in other ways.

0 - Number of repositories for high level nuclear waste currently operating in the world.  There are one or two operating sites for centralized interim storage, but none for permanent disposal.[fn]World Nuclear Association, "Radioactive Waste Management," March 2015 update, accessed 7 May 2015.[/fn]  The vast majority of the technical and economic risks for building and operating these facilities around the world is borne by taxpayers, not waste generators.

Battery market size

All of the markets below involve high value applications of portable power, where customers pay a premium for lighter, more durable, and longer battery life.  While the technologies may not be identical to the storage approaches most applicable to power plant or distributed generation power storage, there is a great deal of spillover.  The frantic pace of innovation in the sector, the huge amounts of revenue-supported private funds invested into technical learning and production improvements, and the common performance goals across many of the market sectors all support the idea that the combined demand from the sectors below are quite relevant to power storage in the electricity sector. 

Note as well that battery storage in the power sector can support multiple power generation technologies, not just solar; and can substitute for existing cost centers such as emergency backup power.  These attributes increase the competitive threat storage plays to nuclear (since multiple technologies open more pathways to cost reductions) and reduce the cost barriers for commercial or industrial customers to invest in battery storage since they need to pay for backup capacity anyway. 

293,245 - Number of plug-in electric vehicles, each of which contains multiple batteries, sold worldwide during 2014.[fn]http://www.hybridcars.com/top-6-plug-in-vehicle-adopting-countries-2014/, accessed 6 May 2015.[/fn]  The pace of adoption is accelerating.

148,000,000 - Number of laptop computers shipped by original device manufactures (the firms supplying most of the major brand names) in 2013. [fn]http://en.wikipedia.org/wiki/List_of_laptop_brands_and_manufacturers, accessed 5 May 2015[/fn]

230,000,000 to 285,000,000 - Estimated number of tablet computers shipped during 2014.[fn]http://tabtimes.com/resources/the-state-of-the-tablet-market/, accessed 5 May 2015.[/fn]

1,300,000,000 - Number of smart phones shipped during 2014.[fn]http://www.idc.com/prodserv/smartphone-market-share.jsp, accessed 6 May 2015.[/fn]

6,800,000,000 - Number of cell phone lines in the world as of February 2014, nearly all of which have an associated mobile device and battery.[fn]http://qz.com/179897/more-people-around-the-world-have-cell-phones-than-ever-had-land-lines/, accessed 5 May 2015.[/fn]

14 seconds - Amount of time for the lot size of batteries produced for the above devices alone to equal the number of nuclear reactors that would be built over the next 35 years under the NEA scenario.

So which sector would you bet will have the most significant technological improvements and cost reductions over the next two decades?  Arnie Gunderson, a frequent critic of the nuclear industry, framed the issue nicely in a recent Forbes magazine article on Tesla's threat to nuclear:

[T]he nuclear industry would have you believe that humankind is smart enough to develop techniques to store nuclear waste for a quarter of a million years, but at the same time human kind is so dumb we can’t figure out a way to store solar electricity overnight. To me that doesn’t make sense.

His sentiment matches my take on meetings I attended last year at the IEA on finalizing the updated nuclear technology roadmap report.  The majority of participants were nuclear proponents interested in expanding the number of reactors and the market share of nuclear power.

The belief that nuclear was the only viable mechanism to provide large scale, low-carbon power was also widespread. This perspective was particularly striking to me given the long time horizon being discussed.  The scenarios included new plant starts through 2050, which, with operating lives of at least 40 years means the solutions being proposed will span three quarters of a century.  The technical change that will occur during this period will be stunningly large -- think how much has changed since 1939, 75 years ago.  It is hard to believe that nuclear's main competitive advantage over other low-carbon resources (i.e., it is not intermittent) won't be solved during the next few decades; and if it is solved, I'd hate to have national governments guaranteeing trillions of dollars of nuclear debt.  Whereas the nuclear buildout scenarios involve roughly 1,000 new reactors, the pressure for improved power storage will be coming from many different sectors (primarily consumer electronics and phones, electric vehicles, and power storage) with unit counts in the billions.  The range for innovation, incremental technical change and improvement, and cost reductions will be vastly larger than in the nuclear sector.

Ahh, how the petty world of politics doth make fools of us all.  It is not enough that Elon Musk is trying to start a new car company in a market segment ruled by massive multinationals.  He is ratcheting up the risk level by taking on a  great deal of technology risk as well.  And in the process, he is doing tremendous legwork for future producers to get an electric drive train working well, and also to create an electric vehicle that onlookers envy rather than mock. 

Trouble with the batteries?  No problem.  Just build a massive, multi-billion dollar factory (though maybe they can still change the name from "Giga Factory" to something a bit catchier...) to make lithium batteries at a scale that can bring costs down both through high volume production and through incremental learning and technical improvement.  And if you happen to have large volume production of these batteries while also being Chairman of a large solar panel leasing firm (Musk started Solar City), why not use some of those batteries to help the PV sites store power?  It's at least a twofer:  the storage helps better match onsite production with onsite consumption, and can also enable PV producers to sell stored power back to the grid during periods of higher value.  The expensive panels are being leased anyway; adding a few battery packs won't make it markedly more complex.  And if you upend the utility industry by boosting the ability of self-generated power to substitute for grid-supplied juice, all the better.

Let's give the guy credit.  Elon Musk is taking on the economies of scale for both electric vehicle and battery production -- high risk endeavors that, against huge odds, he may actually succeed at.  And Solar City isn't exactly low risk either. 

So Governor Christie ought to be out there thanking the guy for the work he's doing, knowing that the road to success remains long and hard, but nonetheless admiring Musk's role as an outsider taking on the power structure to build a better society.  That is, after all, what Christie himself did back in 2009.

If you add enough fixed costs, maybe even Elon will drown

Alas, Christie took the vested path instead.

His appointees issued a regulatory ruling to block direct Tesla sales in NJ without at least letting the issue be argued in court.  The effect is to lump on another layer of large fixed costs to roll out the vehicle -- adding the sales network to the already high risk areas of vehicle and battery manufacture. 

Selling too few cars to support a dealer network like GM can? Too bad:  Governor Chris says you need an independent network anyway.  Who cares if your product directly competes with the vehicles they are making most of their money on and might generate a conflict of interest.  Selling an idea as well as a car, and need a specially trained staff?  No problem: the existing dealers can do it.  People will flock to them to chat and learn:  after all, bartering for a vehicle is one of most people's favorite activities and car salepeople among their favorite teachers.  High level of training needed to explain the new technology and the complex financing approach?  Again, somebody in that independent dealer network could learn to be that trusted communicator.  They may have to:  the independent dealer networks receive regulatory protection from direct sales of automobiles in at least 48 states and dealerships with protected franchises that date back 99 years in some cases.   (Dan Crane did a nice write-up on the history of these market protections last year.)

Does it all tie back to the bridge?

Let's give Christie a break.  Maybe the decision to restrict direct sales in NJ really isn't about politics.  Maybe Chris Christie is just worried about the well-being of New Jersey residents, and felt that the charging station issue --  you know, range anxiety -- required him to act.  Christie knows that sometimes drivers in his state get tied up in massive traffic jams on the George Washington Bridge near Fort Lee.  Who knows when this will happen again? Or where?  It's not as though the GW Bridge is the only possible site: other places yet-to-be named could also experience one of Chris' trade mark "FLASH JAMS". 

So he is worried.  He is worried that people driving Tesla's on that bridge (or location to-be-named later) could suddenly find themselves not moving for hours.  And they would run out of power.  And be stranded, maybe forever (who knows -- Governors need to think about worst case scenarios).  To ensure this doesn't happen, maybe Christie is looking out for the little guy here to make sure Granny isn't left toothless on the bridge, and with no food or water or place to plug in. 

Well, this could be what is happening, couldn't it?  Quick:  somebody check the e-mails.  They keep finding new information.  Has anybody searched "Tesla" yet?

Gecko power

Hey, if it does turn out to be just routine political pandering, what is Tesla to do?  After all, vehicle sales aren't the only industry to be hamstrung by old regulations that protect incumbents against new ways to provide the same good or service cheaper, faster, or better.  Taxi-cabs are another great example.  They are often licensed at the town, city, or county level, rather than the State.  Those licenses (medallions) can be worth hundreds of thousands of dollars each (and more than $1 million in NYC) -- a good proxy for the value of the operating monopoly.  And as a result we have the rather bizarre outcome in which many suburban cabs drop customers off at the airports and leave empty while city cabs leave the airports full and come back from surrounding towns empty.  Both practices burn a ton of extra gas (and a ton of driver time).  Yet at the same time, we see growing regulations forcing cab companies to buy energy-efficient and more expensive "clean" cab fleets to reduce their climate and air pollution impact.

Market changes that affect entrenched industries or marketing arrangements often trigger fierce political battles.  Following the NJ ruling, Tesla's initial strategy is one of bypass, directing customers to check out showrooms in NY and PA.  But longer-term, Tesla should be looking for allies to help overturn restrictions on direct sales of automobiles.  The ideal candidate would be somebody in a related industry that has also faced challenges in being able to direct sell; who has enough clout and power to just perhaps get the rules rewritten; and who might see profits rise if the luxury Tesla vehicle starts to sell in larger numbers.  Any suggestions?