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29 October 2015, Gateway House

How technology can cap oil prices

Developments in electric vehicles, battery technology, and renewable energy can make oil, coal, nuclear power interchangeable, if the appropriate technology is developed and marketed well.  And since the benefits include a permanent cap on energy prices, India must promote  its own industries in these areas and not remain a passive beneficiary.

Fellow, Energy & Environment Studies Programme

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Are the prices of fossil fuels such as oil, natural gas, and coal close to being capped permanently? Developments in renewable energy, electric vehicles, and energy storage could mean fossil fuel prices may be under a permanent ceiling. India will benefit directly, as it is a major importer of energy. But India must also put in places policies to encourage renewable and electric vehicle industries to fully benefit from this emerging trend in the energy sector.

Modern energy needs comprise electricity and transport. Electricity is generated using coal, hydropower, natural gas, and nuclear energy; transport uses fuels such as diesel and petrol, derived from crude oil. So far, these have been almost independent of each other—coal cannot be used to run vehicles and oil is too expensive to burn for power. Therefore, the two products are priced differently—for instance, crude oil is priced four to five times that of coal for the same energy value.[1]

What is changing? It’s the advent of electric vehicles (EV), which can bridge the gap between transport and electricity. These vehicles run on an electric motor instead of an internal combustion (IC) engine, and instead of a fuel tank they carry a battery. An electric motor has fewer moving parts, unlike an IC engine which runs on controlled explosions of fuel—this entails lower maintenance costs and a lesser need for spares.

But electric vehicles have suffered from two major drawbacks—performance and convenience (see Table 1).

Table 1: Comparison of an electric 2-wheeler with a 100-cc motorbike

  Hero Passion Pro[2] Hero Electric Photon[3]
Type Petrol Electric
Price (Rs) 45,680 52,790
Power/output 7 bhp 2 bhp
Range (km) 1,092 80
Top speed (km/hr) 85 45
Refuelling/recharging Time Negligible 6-8 hours
Running cost Rs/100 km 81 12

 

This problem is being worked on, primarily in the U.S. Tesla, a pioneer in EV technology, has high-performance sports cars and can run 400 kilometres on a single charge.[4] Special ports can charge these cars within minutes instead of hours. BMW, Fiat, Ford, Kia, Renault-Nissan, and Volkswagen all sell electric cars. They’re expensive but gaining: worldwide, EV sales crossed the 1 million mark in September 2015, indicating some scale as well.[5]

Some observers expect petrol driven cars to be entirely replaced by EVs by 2030.[6] E-bikes, or two wheelers using an electric motor, have become very popular in China, with 230 million sold so far.[7] This should be of interest to India, because the bulk of vehicles sold  here are two-wheelers.

What this means is that electric cars make energy markets fungible—oil can be replaced by electricity and it will have to compete with coal and renewable energy on price. This will put a permanent cap on the price of oil.

Advances in solar-power and battery technology mean that the concept of fungibility can extend to renewable energy as well. Solar power is limitless—but like EVs it has been too expensive and therefore has not substituted traditional fuels[8]. And it is intermittent, available for only a few hours a day. The technology to store it in sufficient quantities for commercial and residential use also does not exist.

But solar technology is developing and prices have fallen—to as low as Rs. 5 per kilowatt-hour (kWh) for new plants in India, compared to over Rs. 7 per kWh just a year ago.[9] Prices are expected to fall further, and can become competitive with coal in some years.[10] Solar energy is nearing a tipping point—the total energy produced from solar power has gone up ten-fold globally in five years. Worldwide, solar power accounted for 0.33% of total energy production—but its share is as high as 2.5-3% in markets such as Germany and Italy.[11]

Adding to the research by electric car and solar power companies are the manufacturers of cellular phones, tablets, and laptop computers. With electrical technology leaders like Siemens and General Electric investing in battery and renewable energy research, it is likely to be mainstreamed soon. Already, the cost of lithium-ion batteries used in cell phones, tablets, and automobiles has halved from $1,000 per kWh in 2007 to $410 per kWh in 2014.[12] This could become $145 per kWh next year, and just $100 per kWh by 2021.[13]

It’s a massive global shift, and India must participate beyond being a passive beneficiary of the trend. India imported 189 million tonnes of oil and 200 million tonnes of coal during FY15, for $128 billion.[14] [15] That’s expensive, and using the strength of our market size, we must catalyse the shift towards electric vehicles and solar technology, and develop these industries domestically. This will also help achieve the climate goals of the Modi government, which sees a bigger role for renewable energy in its aim to reduce the carbon intensity of India’s GDP.[16]

As of now, just one firm, Mahindra & Mahindra, manufactures and sells electric cars in India. In the case of e-bikes, Hero, TVS, and some smaller firms have products in the market. One reason take-off has been slow for these products is the lack of infrastructure/fuelling stations, which deters consumers. The small market size in turn keeps manufacturers from investing in products, manufacturing, and sales.

This cycle needs to be broken. Just as the government has done with LED lights, by using them for streetlamps and encouraging their use among domestic consumers,[17] it can do with autos:

  • Make a percentage of EV sales mandatory for automakers; this will encourage research and development in EVs.
  • Invest in, and create, infrastructure for solar power and for electric vehicles. India has already done this once—setting up firms such as Mahanagar Gas (Mumbai) and Indraprastha Gas (Delhi) that created CNG fuelling stations, pipelines, and other infrastructure. In later stages, public sector oil majors such as Bharat Petroleum, Hindustan Petroleum, and Indian Oil took over. The same model can be used for setting up EV infrastructure. India has declared a goal of setting up 100,000 mw of solar power capacity by 2021.[18] A part of this capacity should be in cities to provide the infrastructure for recharging vehicles.
  • Move public transport to EVs, creating a critical mass of vehicles. This approach was followed when Delhi and Mumbai shifted to CNG in the 1990s and early 2000s. Public vehicles moved to CNG first and cleared many of the apprehensions about the new technology, and private vehicles are now following.
  • Most heavy vehicle sales in India require finance. Just as customers are able to get a loan to buy a vehicle, they should be able to get a loan to buy an EV along with solar panels to recharge it. Banks can create products catering to this market.

EVs can be cheaper to operate and are better for the environment compared to oil-fuelled vehicles. The focus of the government must be on providing supporting infrastructure, policy, and finance—if the technology is a winner, markets will do the rest. But the most time-consuming part of the entire process will be getting  auto and solar industries to invest in capacity. This will not happen till there is some visibility in the market and on the policy side.

With the possibility that technology can cap the low energy prices of the last year for good, as a major energy importer it is time for India to initiate and catalyse the development and adoption of these technologies.

Amit Bhandari is Fellow, Energy & Environment Studies, Gateway House.

This article was exclusively written for Gateway House: Indian Council on Global Relations. You can read more exclusive content here.

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References

[1] “BP Statistical Review of World Energy 2015.” British Petroleum. 2015. Accessed October 25, 2015. http://www.bp.com/en/global/corporate/energy-economics/statistical-review-of-world-energy.html.

[2] “Hero Passion PRO.” Accessed October 25, 2015. http://www.bikewale.com/hero-bikes/passionpro/?ltsrc=k1767&gclid=CKDFqK260MgCFYYljgodAn8PyQ.

[3] “Hero Electric Photon.” Accessed October 25, 2015. http://www.bikewale.com/heroelectric-bikes/photon/?ltsrc=19320&gclid=COe4t–60MgCFRYMjgodUV0C9Q.

[4] “Model S.” Accessed October 25, 2015. http://www.teslamotors.com/models.

[5] Cobb, Jeff”One Million Global Plug-In Sales Milestone Reached.” September 16, 2015. Accessed October 25, 2015. http://www.hybridcars.com/one-million-global-plug-in-sales-milestone-reached/.

[6] “Clean Disruption of Energy & Transportation.” Accessed October 28, 2015. http://tonyseba.com/portfolio-item/clean-disruption-of-energy-transportation/.

[7] “Global EV Outlook 2015.” 2015. Accessed October 7, 2015. http://www.iea.org/evi/Global-EV-Outlook-2015-Update_1page.pdf.

[8] “Comparative Cost of Generation of Electricity.” August 13, 2014. Accessed October 25, 2015. http://164.100.47.132/LssNew/psearch/QResult16.aspx?qref=4083.

[9] Bhaskar, Utpal. “India Plans to Provide Solar Power at New Low of Rs4.75 per Unit to States.” October 13, 2015. Accessed October 25, 2015. http://www.livemint.com/Industry/VX5VHoVjZ1vvjFPyhFItrL/India-plans-to-provide-solar-electricity-at-a-new-low-of-Rs4.html.

[10] “Deutsche Bank Report: Solar Grid Parity in a Low Oil Price Era.” March 10, 2015. Accessed October 25, 2015. https://www.db.com/cr/en/concrete-deutsche-bank-report-solar-grid-parity-in-a-low-oil-price-era.htm.

[11] “BP Statistical Review of World Energy 2015.” British Petroleum. 2015. Accessed October 25, 2015. http://www.bp.com/en/global/corporate/energy-economics/statistical-review-of-world-energy.html.

[12] Nykvist, Bjorn, and Mans Nilsson. “Http://www.nature.com/articles/nclimate2564.epdf?referrer_access_token=ijP0NAXv53MKaNEbm0iZYtRgN0jAjWel9jnR3ZoTv0M00Vb3KgW1MD8qozWNCeynX5JKQONiV–BT6Ji5jH_R776sBiES132yC_4wlqeIQ0iygOMUu2ccQLjS-9lBvJevJHCl2n_jC0QPvrAR2RJfewlqjn6A9Fifj1SjKGR5Qg=&tracking_.” March 23, 2015. Accessed October 25, 2015. http://www.nature.com/articles/nclimate2564.epdf?referrer_access_token=ijP0NAXv53MKaNEbm0iZYtRgN0jAjWel9jnR3ZoTv0M00Vb3KgW1MD8qozWNCeynX5JKQONiV–BT6Ji5jH_R776sBiES132yC_4wlqeIQ0iygOMUu2ccQLjS-9lBvJevJHCl2n_jC0QPvrAR2RJfewlqjn6A9Fifj1SjKGR5Qg=&tracking_.

[13] Cobb, Jeff. “GM Says Li-ion Battery Cells Down To $145/kWh and Still Falling.” October 2, 2015. Accessed October 25, 2015. http://www.hybridcars.com/gm-ev-battery-cells-down-to-145kwh-and-still-falling/.

[14] “Snapshot of India’s Oil & Gas Data, September 2015.” October 1, 2015. Accessed October 25, 2015. http://ppac.org.in/WriteReadData/Reports/201510200302227457313SnapshotofIndiasOilandGasdataRR-September2015.pdf.

[15] https “Provisional Coal Import Statistics 2014-15.” October 1, 2015. Accessed October 25, 2015. http://coal.nic.in/sites/upload_files/coal/files/webform/notices/Provisional_Coal_Statistics_2014-15.pdf.

[16] “India to Reduce the Emissions Intensity of Its GDP by 33 to 35 Per Cent by 2030 from 2005 Level.” October 2, 2015. Accessed October 28, 2015. http://pib.nic.in/newsite/PrintRelease.aspx?relid=128403.

[17] “Shri Piyush Goyal Launches Energy Efficient Lighting Initiatives in Varanasi.” June 9, 2015. Accessed October 27, 2015. http://pib.nic.in/newsite/PrintRelease.aspx?relid=122378.

[18] “General Budget 2015-16: Highlights & Summary.” February 28, 2015. Accessed October 27, 2015. http://pib.nic.in/budget2015/budgetdoc/gbEngRelease.pdf. pp10

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