Gasoline vs Electric Vehicle Future Fuel Costs
This was originally a comment on David Middleton’s post, https://wattsupwiththat.com/2019/10/31/the-oil-age-is-doing-just-fine-bloomberg-new-energy-finance-notwithstanding/
The original comment was from Detengineer, in reply to another comment from Mark, so the 2nd paragraph is directed at Mark, not David.
Detegineer goes into very good detailed calculations, on replacing ICE with EVs. Mod.
I think David is on solid ground regarding the future of the oil industry.
I read through your links and noted there were a lot of assertions, but very little in the way of data or logic to support the assertions. I agree with you that autonomous vehicles and transportation as a service (TAAS) will come to dominate the vehicle market. However, an autonomous vehicle can be powered by anything; batteries, an internal combustion engine, fuel cell, or even compressed air. Whether electric or internal combustion vehicles dominate the future market comes down to economics and project execution capabilities, and I believe we can make a fair estimate of this.
1. There will be no Idiot Swan events. There will be no outright bans on drilling or frac’ing. Tax policy will not provide heavy subsidies for renewable power or batteries, nor will tax policy unduly burden oil and gas production.
2. The difference in purchase price for an EV and ICE vehicle will be almost immaterial to the economics of vehicle choice. This is based on the assumption that TAAS will push vehicle lifetime mileage closer to 1,000,000 miles, at which point the dominant economic driver will be fuel cost.
Vehicle Fuel Cost:
Based on today’s cost of gasoline and electricity (my latest bill) the cost of each at the wheel is:
• Gasoline: $0.3415/kWh ($2.50/gallon, 20% efficiency)
• Electricity: $0.2667/kWh ($0.16/kWh, 60% efficiency)
This places gasoline at a 30% price disadvantage relative to electricity (not the more than 2:1 price disadvantage in your link https://www.globalxetfs.com/future-of-transportation-is-autonomous-electric)
So if fuel cost for an electric vehicle is lower and the initial purchase price differential is assumed to not be a factor and TAAS effectively eliminates the charging management and range issues that affect EV acceptance, then why do I believe the EV’s will not take over the world anytime soon?
Simple. I have reason to believe that the cost of electricity will rise both because of rising demand and the move to renewable power generation. I also have reason to believe that the availability of electricity will be a constraining factor; we just can’t build it fast enough.
The Future Cost of Electricity:
Moving to 100% renewable electricity power generation will considerably increase the cost of electricity.
The installed cost of solar PV, wind, and for comparison combined cycle natural gas turbines (CCGT) are:
• Solar: $3,000/kW (multiple sources)
• Wind: $1,400/kW (https://www.conserve-energy-future.com/windenergycost.php and
• CCGT: $965/kW (EIA)
Of course to get the costs on a consistent basis we should include the cost of fuel for the expected life of the shortest lived capital investment, estimated at 20 years.
• Natural Gas NPV: $3,108/kW ($4.00/MSCF 2019 pricing from EIA, 2.5% interest rate)
This yields an equivalent installed cost for a combined cycle natural gas turbine of $4,073/kW.
So it appears that renewables really are cheaper, quite a bit cheaper, than all the other power sources. Could the proponents of renewable power be right?
No. We all know that we have to look at what it costs to provide reliable 24/7/365 power, which is a vastly different proposition than installing ‘nameplate’ power. To supply reliable power requires the installation of additional solar PV or wind turbines to produce enough power above immediate consumption to meet 24/7 power demand and batteries and inverters to store the power until needed. So we need installed cost for inverters and batteries:
• Inverters: $392/kW (National Renewable Energy Laboratory: “2018 U.S. Utility-Scale
Photovoltaics-Plus-Energy Storage System Costs Benchmark”)
• Batteries: $73/kWh (Also from “The Future of Electric Vehicles”, 2030 estimated
Based on this the estimated installed cost to deliver 1 kW of power continuously is:
• Solar: $17,792/kW
• Wind: $11,246/kW
• CCGT: $ 4,244/kW
• Solar: 8 hours minimum daylight in winter, no more than 1 day without sunlight, and 2 days to recharge after discharge.
• Wind: Average generation at 30% of nameplate, no more than 1 day without wind, and 2 days to recharge after discharge.
• CCGT: 85% mechanical availability.
Obviously how you play with the assumptions has a huge impact on cost. For solar I assumed a southwest desert climate with relatively long winter days and short periods without sunlight. Similarly for wind I assumed nearly continuous wind as one would expect in the mountain west.
What’s driving the cost is the need to install 5+ kW of nameplate capacity plus 40+ hours of batteries to support 1 kW of reliable 24/7/365 power. Costs escalate precipitously for conditions in the northeast (less sunlight, less wind). This is just a hugely inefficient use of capital (but an interesting spreadsheet exercise.)
Based on the installed cost we can estimate consumer power cost:
• Solar: $0.4059/kWh
• Wind: $0.2566/kWh
• CCGT: $0.0486/kWh
I’ve assumed a 5 year simple payout on capital invested. The fuel component of the power cost for the CCGT is the price of natural gas prorated for turbine efficiency of 60%.
When we including delivery charges we get a total cost of:
• Solar: $0.4959/kWh
• Wind: $0.3466/kWh
• CCGT: $0.1386/kWh
I chose a flat $0.09/kWh based on my power bill. This is likely underestimated in all cases as I would expect solar and wind to have higher delivery costs due to the geographically diffuse nature of the systems and the CCGT cost excludes natural gas delivery to the plant.
Vehicle Fuel Cost in a Renewable World:
The cost of power at the wheel again assuming 60% conversion efficiency in an EV.
• Solar: $0.8265/kWh
• Wind: $0.5777/kWh
• CCGT: $0.2310/kWh
• Gasoline: $0.3415/kWh
As we can see solar and wind are not at all competitive with gasoline, running respectively 242% and 169% relative to the price of gasoline. This is not going to incentivize anyone to buy electric cars; certainly not fleet owners. However we can see that natural gas retains a strong economic advantage over gasoline and assuming suitable supplies could support the conversion to electric cars.
The Future Cost of Gasoline:
Should electric vehicles start to reduce the demand for oil I would expect to see the price of gasoline drop, potentially quite a lot. On the low side the price of oil is limited by the cash flow requirements to keep production going. In refining margins would drop through cost cutting and the closure of high cost/bbl refineries and is limited by cash flow requirements. Speculating here but in dire circumstances gasoline prices could drop to between $1.00 and $1.50/gallon.
The one thing we can say with reasonable certainty is that the supply of oil will be adequate for the next several decades. Therefore the cost of gasoline is not likely to rise precipitously and drive the economics toward electric vehicles.
Converting Transportation to Electricity:
Thinking about it, in 2016 fossil fuels used for transportation represented 26.44 quads of energy (EIA). To put this in perspective fossil fuels represented 23.54 quads to electricity generation; transportation and electricity generation consume about the same amount of fossil fuels. The total fossil fuel contribution to electricity generation and transportation comes in at 49.98 quads. The cost to convert this infrastructure to renewables is below (in $Trillions):
What I never see mentioned is what it will cost to convert all the fossil fuels used in transportation to renewable electricity. Does nobody think about these things?
Transportation Electricity Total
• Solar $15.73 $14.00 $29.73
• Wind $9.94 $8.85 $18.79
These numbers exclude distribution costs and EV support infrastructure costs. If we call this an additional 25% to 50% above solar or wind installation costs then we are talking in round numbers $24 to $44 trillion. To put this in perspective the GDP of the US in 2018 was $20.5 trillion. To eliminate fossil fuels in transportation and electrical power generation by 2050 we need to invest $1 – 1.5 trillion every year, or 5-7.5% of the US’s GDP. (Note that this excludes nuclear and fossil fuels used by industry.)
Another way to look at this is we need to execute 1,000 – 1,500 separate billion dollar projects every year. My personal experience with multi-billion dollar projects is they take 8-10 years to execute and finding qualified people is like finding hen’s teeth. The management, engineering, and skilled trade resources are just not out there to execute in effect 10,000 separate billion dollar projects in parallel for 30 years. (Finding qualified people for a multi-billion project during the financial downturn in 2008-2010 was just about impossible.) Finally, if we were to try, the competition for resources would drive engineering and construction costs up tremendously.
Oil will remain the primary transportation fuel for the next several decades. While a superficial look at today’s prices for electricity and gasoline seem to indicate a strong economic driver for converting automobiles from internal combustion to electric a deeper look at the probable future cost of electricity versus gasoline shows a strong economic advantage for gasoline over electricity derived from renewable sources. Electricity sourced from natural gas (combined cycle gas turbines) retains an economic advantage over gasoline and assuming suitable supplies exist could support the conversion to electric cars.
Regardless of economics, the large cost and skilled labor demands of converting the economy to renewables makes it highly unlikely that a significant portion of the fossil fuel supplied portion of the transportation market can be converted to renewables by 2050. Even if we limit the project scope to using natural gas derived electricity to support the conversion to battery powered cars limited management and technical resources will likely constrain the pace of the conversion.