Happy Independence Day!

Happy Independence Day, America!

As United States gets ready to celebrate it’s 237th Birthday, a lot of us will travel this weekend to places near and far.  Perhaps Independence Day is also a good time to reflect on the energy independence for America, especially the energy for our transportation needs.

Imported liquid fuels, either in the form of raw crude or refined products, have provided a bulk of our transportation needs for the last nearly hundred years.  There are many changes taking place now that have the potential of changing this scenario in the next 10-15 years.  While increased domestic production of oil and gas has been much talked about and projected to be the key in making US energy independent, I would argue that other developments, that are still being scorned as waste of effort by some, will turn out to be just as important in us becoming energy independent as the increased production of fossil fuels.

Solar and wind power generation are still a drop in the bucket of our electricity generation pool.  But, both these continue to grow rapidly as the costs continue to drop, technology becomes more mature and suitable infra-structure gets built.  Solar panel costs have dropped nearly ten-fold in the last few years and wind power generation costs are now nearly in line with other commercial power generation technologies.  Progress is still being made in bringing the costs down further and new power capacity based on these renewable technologies continues to come on line.  Some independent studies now suggest that solar and wind power could provide high single digit percentage of nation’s electricity in 15-20 years.  It looks more and more plausible solar and wind power will not need the subsidies that fueled their early growth in not too distant future.

Combining the generation of renewable electricity with electrification of vehicular transportation will really put a dent on the liquid fuels demand.  While EV and PHEV sales are still tiny, they continue to grow at a rapid pace.  Last month, nearly 7000 Tesla, Chevy Volt and Nissan Leaf were sold in the US.  At this pace, 100,000 EV and PHEV sales per year in the US seem just around the corner.  Someone could argue that these sales are partially driven by federal tax credits and these vehicles will not be viable on their own.  I remember similar murmurings about Toyota Prius just a few years ago when Prius was being subsidized by tax credits.  Toyota clearly has shown us that they don’t need the federal subsidies anymore and Prius is now as ubiquitous as any other Toyota model.  Tesla is attracting customers to its Model S sedan not because of tax breaks, but because it is a really great car that is also electric.  The build-out of charging infra-structure to alleviate range anxiety continues to grow at a steady pace.  Tesla’s quick battery replacement technology announcement for occasional need will further alleviate the range issue.  As the costs of designing and building these cars continue to come down and automobile manufacturers learn to design and build more appealing EVs and PHEVs, I am confident that they will likely follow growth curves similar to that of Prius.  Thus, the electrification of US automobile fleet will become increasingly important in reducing our dependence of imported liquid fuels.

Overall, I feel great about the prospects our energy independence because of many developments that are happening across the entire energy value chain.  It is time indeed to celebrate our independence.  Happy 4th of July, everyone!

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