America's carbon policy has started to fundamentally change the country's relationship with energy, and in the process it will also reshape the geopolitical energy map. The largest fuel shift in world history is central to these changes, and it will push the nation's antiquated electricity system to evolve into a smart grid.
Long Arm of Carbon Policy
At the time of Barack Obama's inauguration in January 2009, the goal of an 80 percent emissions reduction by 2050 quickly became the basis for landmark carbon policy as America stepped out of the shadows to take a leadership role on climate change. The long arm of the nation's carbon policy is starting to reach into every aspect of the economy to adjust or totally overhaul practices that will no longer be relevant in a low-carbon economy. Among the items in need of a total overhaul are the nation's electrical system and our dependence on petroleum for transportation. Together accounting for 60 percent of U.S. greenhouse gas (GHG) emissions, it is no surprise to find these sectors converging as we look to the future.
The electrical power industry will soon be the beneficiary of the first major fuel shift since the introduction of electricity at the turn of the 20th century. Regulators are concluding that elimination of the ubiquitous internal combustion engine (ICE) provides our only chance to meet the 80 percent reduction target. While hybrid vehicles will still burn fuel to charge batteries, core engine technology and drive systems will all be electric.
To this end, California officials are crafting policy to electrify the light-duty fleet (cars and small trucks) and have presented a scenario where conventional ICEs fall from today's 95 percent penetration to only 10 percent by 2050—with 70 percent being plug-in hybrid electric, battery electric, or hydrogen fuel cell, and 20 percent hybrid electric. Off the record, regulators have predicted even more aggressive targets, with sales of conventional engines gone by as early as 2025, a mere 15 years from now.
Lure of Electrification
The lure of plug-in vehicles is the ability to leverage existing electricity infrastructure and tap into available off-peak power for the equivalent of 90 cents per gallon of gasoline. If the entire U.S. fleet of light-duty vehicles were converted to electric, the nation's current generation capacity has the potential to charge 43 percent of all light-duty vehicles during nighttime and 73 percent if charging includes off-peak times during the day. While daytime charging pushes costs over one dollar per equivalent gallon, the resulting flat 24/7 demand profile sets the stage to lower average electricity prices by converting gas-fired peaking generation to more efficient base-load systems.
Though fully electric and plug-in electric hybrids can synergistically use this latent capacity of the existing grid, the demand for electricity will grow as electric vehicles become pervasive. In the past, the answer to increasing electricity demand was a corresponding increase in generation, plus a little extra to ensure adequate supply. Today as a result we are served by a supersized version of our grandfather's grid. The new demand from vehicles, combined with the forecasted increases in traditional electricity demand, will overwhelm our antiquated grid. There comes a point when we simply cannot supersize it again.
Breaking the Addiction to Oil
The electrification of transportation is unique in that it intersects national security, economic, and climate change agendas. In what seems to be a rare occasion these days, there is something to please both political parties.
By shifting the primary fuel for light-duty vehicles from oil to electricity, the U.S. Energy Department estimates that the United States stands to reduce petroleum consumption by as much as 6.2 million barrels of oil per day, eliminating 52 percent of current petroleum imports. Those concerned with national security note that these savings exceed total oil imports from OPEC countries (5.9 million barrels per day).
Meanwhile, those interested in trade deficits focus on the $150 billion per year that would remain in the United States (assuming $70 per barrel oil). Though oil will remain important for the foreseeable future, electrification of the transport sector is America's first real chance to break its oil addiction and sets the stage for sweeping changes throughout a previously petroleum-dominated geopolitical energy landscape.
Black vs. Green Electrons
On the climate change front, the switch from petroleum to electricity represents significant GHG reductions. Transportation is responsible for 27 percent of the nation's GHG emissions, and 62 percent of transportation emissions comes from light-duty vehicles. Switching to electricity naturally raises the question of black electrons versus green electrons, with conventional coal-fired generation squaring off against renewable energy. But it turns out that switching to electricity wins the carbon fight each time. Even when powered by electricity from the nation's older and dirtier coal plants, the carbon intensity of a plug-in hybrid is 70 percent that of conventional gasoline. This figure drops as low as 33 percent when the electricity comes from nuclear or renewable energy sources.
With coal representing half of the nation's current electricity generation, the carbon density of a plug-in hybrid powered by the grid is about 55 percent that of conventional gasoline. Applied across the entire light-duty fleet, the shift to plug-in hybrid vehicles would cut more than one-quarter of the total transportation emissions—or close to 7 percent of the nation's total GHG emissions.
Further Greening of Electrons
Renewable Portfolio Standards (RPS) mandating minimum levels of renewable energy generation will further enhance GHG savings. Just over half of the states have developed renewable portfolio standards calling for up to 20 percent of electricity from renewable sources. California, always the leader, just raised its RPS, mandating 33 percent of electricity from renewable sources by 2020.
At the national level, the House of Representatives passed a national RPS of 15 percent as part of the American Clean Energy And Security Act earlier this summer. The greening effect of a 15 percent nationwide RPS would result in plug-in hybrids with half the carbon intensity of gasoline and fully-electric vehicles with only a quarter.
The upcoming cap-and-trade system will add further momentum to the greening of the grid. Putting a price on carbon tilts the financial dynamics in favor of lower-carbon base-load generation. Although there are numerous hurdles with nuclear generation, it has the lowest carbon intensity of all consumable fuel sources for base-load power. With carbon intensity less than 2 percent of coal, nuclear stands to be a big winner depending on the price of carbon.
Dawn of the Smart Grid
The missing link to enable these changes is the evolution from an antiquated electricity system to a smart grid. Our century-old power grid currently struggles to meet the demands of the traditional electricity market. The added scale of vehicle electrification and the advanced metering functions it requires, such as dynamic pricing, cannot be addressed by the legacy infrastructure alone. Nor can the influx of renewable energy from state and national renewable portfolio standards be accommodated.
A bi-directional 21st century smart grid is required, enabled by a digital communications and control layer to open a new world of applications. Set in motion by Obama's far-reaching carbon policy, our current generation will be one of the few to witness a fundamental transformation of the global energy business—a transition away from Big Oil toward increasingly greener electrons. This transformation begins with the dawn of a smart grid and the end of an ICE age.