Old Boys' Club


By Monish Chhabra ǀ 30th December 2014

“Do I get one of those?” – a police officer asked the 12-year old boy, who had a sign saying "free hugs" around his neck.

The boy was part of the rally protesting the death of black American teenager Michael Brown at the hands of a white policeman. He obliged.

What followed was a striking moment of human solidarity.

Police Sgt. Bret Barnum hugs 12-year-old Devonte Hart during a demonstration in Portland, Ore., Nov. 25, 2014
Source: Johnny H. Nguyen, TIME magazine

Protests were also seen at the OPEC meeting this month, but to no avail. Despite oil prices falling 18% in November alone, the cartel leaders decided against cutting supply.

Why is there excess supply of oil today?

Thanks to the shale oil revolution, the US production of crude oil is at its 30-year high.

If we add all the liquid petroleum products, the US production is at its 44-year high. It may exceed Saudi Arabia's production this year, making US the largest petroleum producer in the world.

For the first time in 40 years, the US exported oil. In July this year, a Singaporean tanker carried $40 million worth of crude from Texas to South Korea.

Oil demand, on the other hand, needs some oiling.

Japan's oil demand is down by a quarter over the last 20 years. Europe's oil usage has diminished by 7% over the last 5 years.

Economic slowdown and the improved efficiency of motor vehicles are the key factors.

What about other fossil fuels? Well, all are under the threat of renewables.

Germany today gets more of its electricity from the renewable sources than from any of the fossils. The country has pledged to meet 80% of its energy needs from the green sources by 2050, up from 30% now.

In the US, the solar-electricity will be cheaper than fossil-electricity in almost all states by 2020. The key contributor is the cost of solar installations, which has crashed by 70% over the last 15 years.

In Denmark, wind energy provides 33% of the power consumed in the country. It would rise to 50% by 2020. By 2030, the country would eliminate all coal-use.

In Australia, 1 in 5 homes across the country already have roof-top solar. By 2040, over half of all electricity in Australia may be generated and stored at the place of consumption, completely eliminating the traditional grids.

This is the energy of future – produced onsite by the consumers themselves, not at the power plants.

Not only the technology is becoming better and cheaper, it also saves the distribution cost of delivering electricity over long distances through cables.

Termed 'distributed energy', it is particularly useful for the developing countries of Asia and Africa, where the central grid hasn't penetrated all corners and is often unreliable.

What then happens to the traditional utility companies?

This month, Germany's biggest utility company EON announced a radical restructuring, completely abandoning its traditional business. The overhauled company would retain 2/3rd of its employees and engage only in renewables (primarily wind and solar), distribution networks and customer solutions.

All its conventional energy generation (fossil-fuel plants), energy trading and exploration businesses would be spun off into a separate company, along with 1/3rd of its work force.

Earlier this year, Finnish utility Fortum shut one of its coal-fired plants. In May, Sweden's Vattenfall announced the closure of one of its coal plants by 2016. Lithuania also announced the shutdown of one of its gas-fired plants by 2016.

However, the biggest nightmare for the utilities is not the plant, but the grid. A power plant can be shut down, but not the grid.

The more households switch to solar power, the more utilities bleed, as they still have to maintain the distribution network.

Worse if the consumers sell solar power back to the company, through those very lines that they don't buy electricity from. The grid then becomes the coffin that the utility companies create themselves.

For its own survival, the role of the grid would change in future. It would become an agent for 'collection' as much as for 'delivery'. It would become highly informative and innovative. It may also install and manage the on-site energy solutions.

We may also see smaller players managing the distributed energy needs of local communities in more nimble and efficient ways, than what the big archaic national grids may offer.

There is another revolution underway that completely bypasses the central grid. It's the battery.

As the battery capacity improves and costs fall, many consumers would store their own production or even sell to others. Better batteries would also dampen the oil demand through their use in electric cars.

Tesla is building the world's largest factory to produce batteries. It would supply them not only to the cars that the company sells but also to homes and businesses to store the solar power. This factory itself would not be connected to the electric grid at all. It would generate its own energy and store it.

Battery storage costs have fallen by 80% over the last 5 years. Over the next 5 years, they are expected to drop by another 80%. There are numerous other innovations underway to make the batteries lighter, more efficient, charge faster, store more and last longer.

While the production and distribution of energy is rapidly changing, its need is falling, at least in some places.

An average person in the UK consumes 10% less electricity today than 5 years ago. This is made possible by devices which are more energy-efficient, despite each individual using more devices now.

Lesser energy. Greener energy. Cheaper energy.

In 20 years' time, an oil cartel may become completely irrelevant, marking a triumph of technology.

If the same happens to the racial cartels, that would be a triumph of humanity.

Best for 2015!

This write-up is for informational purpose only. It may contain inputs from other sources, but represents only the author’s views and opinions. It is not an offer or solicitation for any service or product. It should not be relied upon, used or construed as recommendation or advice. This report has been prepared in good faith. No representation is made as to the accuracy of the information it contains, nor any commitment to update it.