Tom Rand is a managing partner at ArcTern Ventures, which invests in early stage clean-tech startups. Mike Andrade is CEO of Morgan Solar, a solar technology company.
With Canadian energy executives and politicians ensnared in endless regulatory and climate debates, global forces of technological disruption that respect no borders pose the real threat to Canadian economic health.
No policy or established incumbent could prevent, or even slow, prior tech disruptions such as the industrialization of agriculture, automation of manufacturing or digitization of communications. Global energy systems are today going through a similarly inevitable and deep disruption, driven by innovation and steep cost reductions in renewables and electric vehicles.
While we bicker about pipelines to tidewater and the effects of a tiny incremental price on carbon, the cost of solar and wind continue to plummet – driven by the inevitable declining cost curves associated with all technologies as they scale, from cellphones to drones. Batteries are doing the same. The threat these technologies pose to the status quo is based on (largely Western) innovations brought to industrial scale by an aggressive Chinese state. Neither the pace of innovation nor scale of production show any signs of slowing. Indeed, the opposite is true. Fast-forward a decade or two: Clean tech will take down incumbent energy industries that make the same old assumptions about demand for their product.
How fast is this happening? Recent analysis by BNP Paribas, titled Wells, Wires and Wheels, argues that to be competitive as a transport fuel, oil must be priced between US$9 and US$20 a barrel – today. Every dollar invested in renewables generates more than five times the motive energy for our cars and trucks than the same dollar spent on gas or diesel. It will take time to build an equivalent scale of infrastructure, of course, since the fossil fuel folks have a multidecade head start. But as investors make decisions about oil fields and pipelines that rely on decades of production to return capital, more and more will give the thumbs down. Maybe the Saudis can compete in that world, but Canada can’t.
This isn’t a future scenario, but happening right now. Coal died first. Global investment dropped by three-quarters in just the past three years and more coal plants came offline than were commissioned in 2018 for the first time since the Industrial Revolution. Next comes oil. There are enough electric buses in China alone to offset 350,000 barrels a day of oil – or a quarter of Britain’s total oil demand. And China is just getting started. Its planned battery-production capacity is three times the rest of the world’s combined. And solar energy keeps getting more efficient, batteries get lighter and more energy dense, wind turbine blades get lighter and stronger. None of these technological trends can be reversed.
There are obvious repercussions for Canada. The economic fragility associated with being the world’s marginal oil producer on cost is clear. Contrary to pundits eager to vilify climate policy and a lack of pipelines, Alberta’s oil patch woes are macroeconomic and its heavy oil is destined to be uncompetitive. This isn’t a matter of us choosing between clean tech and heavy oil – that choice is being made for us.
More important, we can grab a piece of that growing clean-tech economic pie. It’s huge – estimated globally to be more than US$3-trillion annually in a decade. We are a deeply innovative country. We took an outsized portion of the digital and optical revolutions (however badly managed at Nortel), and can do the same with clean tech. We’ve got good horses in this race and partnering with incumbents brings scale, engineering capacity, capital and market access to those emerging clean-tech stars. If Canada takes just our pro-rata share of that market, our clean-tech industry will dwarf our auto sector.
But we have to stop being distracted by the past. Incumbent industries hold our national narrative on energy in a headlock, defending yesterday’s success stories – not defining or shaping tomorrow’s. That dynamic doesn’t serve our long-term national interest. We must reshape that narrative to anticipate a world dominated by low-cost distributed energy technologies in just a few decades. Decisions we make today define our role in that world. What services and equipment will be needed? How do we leverage existing expertise and technology? What outsized market share might we take, and how?
What kills incumbent industries is not a lack of innovation, but inertia. Eastman Kodak invented the very digital camera that killed them. Exxon held many of the original solar patents, but never derived any value from them. If you make lots of money doing something, it’s natural to want to keep doing the same thing. Dominant market players will try to defend and extend the status quo. That strategy works well – until it doesn’t. It will take longer for clean tech to disrupt incumbent energy systems than it took Uber to disrupt taxis or mobile phones landlines. But change will be faster and more unreasonable than we think. Let’s talk about it.