CleanTech: It’s All About Scale

I was recently asked why tidal power isn’t more widely adopted. Tidal power uses generators in the ocean or seas to harvest energy from regular changes in the tides. Unlike wind and solar, tidal power offers a more predictable and consistent source of clean power, and therefore could be an important piece of the renewable energy mix as the world shifts towards decarbonized power generation.

While there are several reasons why tidal power lags far behind solar and wind, at the heart of the issue is an answer common among many potentially game-changing clean technologies: it’s currently too expensive. Estimated levelized costs of wind and solar electricity are $26 and $29 per Mwh, whereas tidal is estimated at $130 to $280 per Mwh.1,2 Other promising, but early-stage clean technologies like heat pumps and carbon scrubbers currently suffer from the same challenge.

Greater Scale Reduces Costs

Making hardware-based technologies economically viable typically requires achieving greater scale. With higher production numbers, companies gain purchasing power and can negotiate lower input prices, business overhead shrinks as a percentage of unit costs, and perhaps most importantly, the experience curve effect means improving manufacturing processes eliminates additional time and expenses. The phenomenon of greater scale resulting in lower costs is captured by Wright’s Law, which holds that the doubling in output of a particular good reduces its costs by a fixed amount. It can be expressed mathematically as Y=Axb where Y is the cost to produce the latest unit, A is the cost to produce the first unit, x is the cumulative number of units produced, and b is a constant representing the slope of the learning curve.3

Over the last decade, substantial production increases of wind turbines, solar panels, and lithium-ion batteries have played an almost miraculous role in reducing the costs of these technologies. From 2010 to 2020, capacity increased nearly 4x for wind, 17.5x for solar PV, and 22x for lithium-ion batteries.4,5 With the rapid scaling of these technologies, cost declines range between 65-90%.

CleanTech Cost Declines

Source: Global X ETFs, BNEF, Lazard. Lithium-ion batteries measured by the volume-weighted average battery pack cost. Solar Photovoltaic (PV) and Wind measured by average levelized cost of energy.

Hacking Scale: Subsidies, Regulations, Priorities, New Economic Models, and Innovators

For promising new clean technologies, achieving greater scale is critical to becoming economically viable. But scale is a classic ‘chicken-or-the-egg’ problem: people generally avoid buying more expensive items, but items tend to be more expensive until more people buy them. So how does one ‘hack’ this problem and achieve scale in something like tidal power, particularly when the end-product, electricity, is highly commoditized? There are five commonly used approaches, discussed below.

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