Part I: The Age of the Electron
The commodity of the future is the electron. While fossil fuels have dominated since the late 1800’s, in one form or another, their time is approaching its end. But why, and how? What does this mean and what does the future look like?
While our dominant fuel source over the past few centuries has changed, one thing has remained constant: combustion, or heat, acting as the prime mover in energy consumption and conversion. Boilers, turbines, and internal combustion engines all involve igniting fossil fuels to heat our homes, power our grid, or move our vehicles. These underlying technologies have required an approach to building infrastructure that maximizes thermodynamic efficiencies. But the rules of the game are changing, and thus the ways in which we build and interact with our world will as well.
We as a species will radically re-orient our habits, economies, and geopolitics around a new system, gradually and due to superior offerings to consumers. New end-use (or demand-side) technologies that consumers love are driving this change. Meanwhile, on the supply-side we will continue to swap coal plants for solar, wind, geothermal, and hopefully nuclear, and natural gas peaker plants for batteries.
As a result, in our lifetime electricity will overtake oil as the single most important commodity in the world and usher in the Age of the Electron. New institutions will emerge around new fundamentals and retire the old. Over the course of a four-part series I will do my best to depict this transition. It’s important to envision what the world will look like, because only then will we be able to start grappling with what the institutional power structures (governmental, private, or otherwise) of tomorrow can and should look like.
The transition is a battle being waged on two fronts: electrification and decarbonization. The thinking is that we must convert generation of power to clean energy resources (decarbonization) while also converting end-uses to electricity consumption from combustion processes (electrification).
To electrify, technologies are changing how consumers use energy on the demand or consumption side of the market. Home and office heating is shifting from natural gas and oil combustion to electricity via heat pumps, and transportation is converting from combustion of gasoline to electricity via electric vehicles. There are other end uses that are changing, but these are the primary ones for now.
To decarbonize, we are then converting electricity generation to non-fossil fuel based resources. Wind, solar, batteries, geothermal, and nuclear will supplant coal and natural gas on the supply-side. For now, natural gas is emerging as a “transition” fuel that will meet growing electricity demand. But it too will be phased out as an electricity feedstock as battery storage and hopefully, nuclear, begin to surge in the coming decades.
Electrification
Currently, electricity only makes up 38% of all energy consumption. I would argue by the time I die (I’m 29, so hopefully I’ve got at least another 40 years in me), it will be at least double that. Despite being the Age of Oil since World War II, oil has never been a meaningful contribution to electricity generation. As electricity comes to dominate as a source of work, oil’s power will fade.
In the Age of the Electron, what matters so much is not that electricity is generated by non-fossil fuel based feedstocks (although this is obviously important for decarbonization), rather that the drastic change in end-use consumption will alter consumer behavior in fundamental ways. As can be seen on the graph above, transportation, all from fossil fuel engines, constitutes 37% of end-use consumption, and commercial and residential are 10% and 12%, respectively, primarily from combustion-based space heating. Converting just these two to electricity driven processes (heat pumps and vehicle AC motors) will lead to more than doubling of electricity consumption as a proportion to all energy consumption during my lifetime. Aviation, industrial processes, shipping, and more will be the long-tail of the transition to potentially get us to 100%. This will have far-reaching consequences for the world around us.
Decarbonization
While end-uses convert to electricity consumption, upstream generation will be converting to cleaner fuel sources. This isn’t the first time macro-shifts like this have occurred, either.
In the 1800’s, wood and coal were used for home heating, and whale oil for lighting. Oil then first came to dominate as kerosene was used for home lighting as a replacement to whale oil (interestingly enough, the Standard Oil empire was built on kerosene, not gasoline), and coal emerged as the dominant feedstock for a growing electricity grid in the early 1900’s. As the electric lightbulb and thus coal overtook kerosene for lighting, the internal combustion engine in automobiles unlocked the true potential of oil (while saving it from obsolescence) in the realm of transportation. Coal and oil would continue to dominate electricity production and transportation, respectively, for the remainder of the century.
However, over the past decade, natural gas, solar, and wind have begun dominating coal in electricity generation, and the slow decline of king coal appears inevitable. This same trend will continue to attack petroleum as transportation becomes electrified. Gas will remain for a time to meet the growing demand of electricity, but as we decarbonize electricity generation, it will be the last hydrocarbon we ever depend on. By the end of my lifetime, nuclear, solar, wind, geothermal, and batteries will have developed far enough to prove more efficient in electricity generation than combusting hydrocarbons.
It is hard to overstate the stunning implications this transition will have for the way in which we build and interact with not just electricity grids, but the world around us. The Age of the Electron means that more and more end-uses will rely on the electricity grid, and for more “mission critical” processes like heat and driving (lights and dishwashers are great, but not having them will not kill us). Furthermore, boilers and internal combustion engines are not an interconnected network, they stand alone (although heating often relies on a natural gas distribution network). Now, these previously discrete sources are being adopted into a network.
In the past, utilities needed scale for thermodynamic efficiency which lead to large, centralized plants and static, monopoly-controlled distribution networks. In the future, our need for resilience in electricity due to our dependence on it for local heat and transportation, and the modular nature of these technologies, will lead to a distributed, digital, and dynamic network (see Part II). This will in time force consumers to have a stronger relationship with their electricity usage, leading to a cultural shift in the minds of consumers (Part III). New political, economic, and cultural institutions will emerge as we organize ourselves around the nuance of how to transport electricity (Part IV).
Today, market dominance is held by oil incumbents. As their power fades, a new class of incumbents will emerge: those with the best data and controls over moving around electrons, the invisible lifeblood of the future economic system.
