Have you ever wondered where the term ‘horsepower’ came from? Or why we still use it nearly a hundred years later? James Watt, the inventor of the steam engine, first coined the term following a calculation that deduced a single horse could push up to 33,000 pounds one foot in a minute. Since then, we’ve experienced multiple transformations in energy – bringing us to 1,000-horsepower Electric Vehicle (EV) engines.
For more than 200 years, both government and industry have jointly built a national network of energy infrastructure to support population growth and economic expansion within the United States. This network is expansive, well-connected, and visible from space: 3 million miles of natural gas pipelines, nearly 200,000 miles of petroleum pipelines, hundreds of electric generating stations, and millions of miles of transmission and distribution lines connecting them to many more customers. Our will and ability to repurpose this infrastructure is perhaps the greatest advantage for the U.S. to reduce emissions in hard-to-abate sectors.
“Energy Transitions” are typically marked by a milestone year, like when energy consumption from coal exceeded that from wood for the first time in 1885. But, it’s important to remember that it took coal over 140 years from its first commercial use in 1748 to reach the “transition” milestone. Historically, transitions have been accompanied by increases in energy demand, driven by population growth or industrialization, and characterized by adding to the energy mix to meet that demand.
Looking at the chart above, you’ll notice that coal did not eliminate wood, which still provides four percent of US energy consumption today, and itself remains a heavily relied upon source of electricity production despite the emergence of oil and gas and the intensifying urgency to reduce emissions.
We are on the brink of a remarkable and novel energy transition. There are numerous cost-competitive and commercially viable low-carbon energy sources (everything from fusion to geothermal) to compete with the 79 percent share that fossil fuels currently represent of the United States’ energy consumption. And while some characteristics may mirror prior energy transitions, this period will be neither gradual nor additive against the backdrop of the United States’ 2050 deadline to achieve net-zero greenhouse gas emissions.
Words that have historically defined the energy transition fail to accurately describe the challenges and opportunities of today. What was once gradual, is now rapid. What was once additive, demands reduction. While Energy Transition 1.0 was hard work and required ingenuity, its pace was manageable. In contrast, Energy Transition 2.0 will have a chaotic, demanding pace, defined by speed and substitution.
Not only is this a necessity to meet the 2050 net zero deadline that the US shares with most countries around the world, but it is an economic reality caused by simultaneous technology breakthroughs across so many energy technologies. Investors, entrepreneurs, and incumbent energy companies have come to see this as a gold rush – a once-in-a-generation business opportunity.
To date, substitution has been relatively rare in energy. In early Energy Transition 2.0, we’re warming this muscle up by replacing (hard though it has been) the easy stuff – focused on pairing the deployment of renewables with electrification of end-use applications, primarily in transportation and residential sectors. We can see this progress in the declining cost of renewable electricity, increased adoption (and lower prices) of electric vehicles, the millions of buildings equipped with solar, and especially in the declining capacity factors and increasing pace of coal retirements (power production as a percent of capacity for coal plants fell to 49.3 percent in 2021 from 67.1 percent in 2010, accompanying an average of 9,450 megawatts of retirements each year).
As we enter the heart of Energy Transition 2.0, we’ll replace our primary energy supply and the commodities or products throughout our economy that are produced from petrochemicals.
For example, gray hydrogen (produced from natural gas) is already a feedstock in many industrial processes. Green (and blue) hydrogen can be an effective replacement in those, as well as other processes where hydrogen isn’t considered. At a molecular level, it is identical to its gray counterpart. Up and down the industrial supply chains that support our economy, these types of replacements are being evaluated for their unit economics and emissions reduction potential.
While many aspects of these transitions will be complex – the US has one distinct advantage: existing infrastructure available to be repurposed. The two largest sources of energy in the U.S. are petroleum (36 percent) and natural gas (32 percent), which emerged as additions to the energy supply in the twenty-first century. In September 2022, the U.S. produced over 12 million barrels a day of crude oil, primarily from horizontal wells – these barrels are moved across 190,000-plus miles of pipeline and refined into gasoline, diesel, and petrochemical feedstocks for the manufacturing industry. The U.S. produced an average of 94.6 billion cubic feet per day of natural gas in 2021. Natural gas quite literally powers the country’s economy – from electric generation to process heating. It’s delivered throughout the country by a three million-mile network.
This is what the path to reaching net-zero goals looks like.
We have trillion-dollar industries engineered around the production, transportation, and storage of hydrocarbon molecules. Replacement of these is uncharted territory; navigating it will require navigating entrenched stakeholders, developing new technologies, and strong regulatory support. New technologies and infrastructure will inevitably be part of the solution – but effective reuse of the existing infrastructure and resources enabling the hydrocarbon economy will be what allow us to meet 2050’s deadline.
We always need to build novel infrastructure to complete energy transitions. We constructed railroads for coal, pipelines for oil, different pipelines for gas, and an entire web of power generation and distribution for electricity. There have been some building blocks – pipelines were first used in the U.S. to move manufactured ‘town gas’ to consumers before they were adapted to move oil – but for the most part, we’ve built from the ground up. With Energy Transition 2.0, we have a first-of-its kind opportunity to accelerate transition through reuse of our existing infrastructure.
There are a clear number of similar examples as you explore the implementation needs across the varied Energy Transition 2.0 technologies from CO2 to synthetic fuels. From the $755 billion alone invested in green energy technologies in 2021, it is clear the development of those examples will be well-funded.
While the world often looks to startups, venture capital, and Silicon Valley to lead innovation and transform industry (and in this case, that may be true), a large amount of the economic benefit of that is likely to still go to these incumbents – who have better physical and cost positioning to deliver us the future, on a faster timeline than a new entrant can replicate.
If the U.S. is going to beat its 2050 net zero deadline, it’s not going to be because of a scientific breakthrough nor a rapidly scaling startup alone – it is going to be on the backs of our existing energy industry – poised to repurpose itself to deliver us that future once we give them the right tools.
About the Author
Since 2008 Mr. Rapaport served in various roles at Cyrus Capital Partners, where he is still a Partner, including responsibility for certain investments in the industrial, transportation, financial technology, and energy sectors. Previously, Mr. Rapaport was an associate at Sankaty Advisors LLC, a division of Bain Capital LLC. Mr. Rapaport has also been a Lecturer in the Economics Department at Yale University. From 2009 until its sale to Alaska Airlines in 2016, he served on the board of Virgin America and has served on a number of other public and private corporate boards. Mr. Rapaport holds a B.A. degree, Magna Cum Laude, from Harvard University.
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