Innovative Visions  –  Art of the Possible Potential for Dramatic Energy Mix Shift Mary Tolan Chief Executive Resources Gr...
Scenarios <ul><li>Way beyond conventional expectations </li></ul><ul><li>Requiring truly breakthrough innovation </li></ul...
<ul><li>Attacking Conventional Wisdom </li></ul><ul><ul><li>Accelerating Change in the Energy Mix </li></ul></ul><ul><ul><...
Challenge Scenario <ul><li>Weak global economy </li></ul><ul><li>Oil price inflation and expectations of more inflation sh...
How Different? <ul><li>Whereas environmental concerns provoke only modest immediate concern and change scenarios </li></ul...
Transportation Focus <ul><li>Where do we focus?  </li></ul><ul><ul><li>The pressure to  reduce the risk  of petroleum driv...
G8 Petroleum Consumption Transportation Share of Total Petroleum Consumption for G8 - 2001 G8 Petroleum Consumption and Fo...
New Mandates Transportation Fleet to Hydrogen <ul><ul><li>So… </li></ul></ul><ul><ul><li>New Mandates are Created   </li><...
<ul><li>Attacking Conventional Wisdom </li></ul><ul><li>Path to Changing the Energy Mix </li></ul><ul><li>Business Model I...
Hydrogen <ul><li>Achieve material displacement of petroleum </li></ul><ul><li>Greater energy supply diversity = greater se...
Theory of the Possible <ul><li>What would it take to significantly advance the take up of  hydrogen vehicles to have a maj...
Accelerating Change Petroleum Consumption Transportation Fleet –   G8 Countries Source: Accenture analysis Hydrogen Fuel C...
Accelerating Change Hydrogen Fuel Cell Vehicle Annual Sales – G8 Countries Source: Accenture analysis Petroleum Consumptio...
Cost Challenge <ul><li>Relatively little investment to date to drive down fuel cell cost </li></ul><ul><li>Automobile manu...
Fuel Cell Vehicle Cost Cents per mile Fuel Cell Vehicle Cost Reduction Impacts Total ownership cost Reduce fuel cell cost ...
Fuel Cell Vehicle Cost Cents per mile Fuel Cell Vehicle Cost Reduction Impacts Total ownership cost Reduce fuel cell cost ...
Fuel Cell Vehicle Cost Cents per mile Fuel Cell Vehicle Cost Reduction Impacts Total ownership cost Reduce fuel cell cost ...
Upfront subsidy required Subsidy for Adopting Fuel Cell Vehicle G8 Countries
Public Will <ul><li>Cost breakthrough a function of effort and investment </li></ul><ul><li>Effort and investment are a fu...
Advantaged Cost <ul><li>How do we </li></ul><ul><li>Deliver the Energy </li></ul><ul><li>to get to a </li></ul><ul><li>Fue...
<ul><li>Attacking Conventional Wisdom </li></ul><ul><li>Path to Changing the Energy Mix </li></ul><ul><li>Business Model I...
Alternative Paths to Hydrogen Reformation Liquid/ Gas Fuels <ul><li>Natural Gas </li></ul><ul><li>Ethanol </li></ul><ul><l...
Natural Gas Reforming <ul><li>Need to expand and build natural gas infrastructure </li></ul><ul><ul><li>Long-haul transpor...
Natural Gas Reformation – Capital Capital Investment to 2020 – Decentralized Natural Gas Reformation* $B * Source: Accentu...
Natural Gas Reforming <ul><li>Natural gas deliveries could increase by 50-75% in some areas </li></ul><ul><li>Creative pri...
Ethanol Reforming <ul><li>Potential to serve as additional source of energy for reforming to hydrogen </li></ul><ul><li>Ma...
Alternative Paths to Hydrogen Reformation Liquid/ Gas Fuels <ul><li>Natural Gas </li></ul><ul><li>Ethanol </li></ul><ul><l...
Electrolysis <ul><li>Utilize available off-peak capacity </li></ul><ul><ul><li>Off-peak power produced from low cost sourc...
Leveling Electricity Load Typical Electricity Load Profile Hours GW Excess baseload capacity during off-peak hours – could...
Power Generation Equivalent Source: Accenture analysis, US Department of Energy – Energy Information Association, European...
Natural Gas Reforming <ul><li>Significantly increased sales/utilization of base-load plants </li></ul><ul><li>Time of day ...
Hydrogen Suppliers <ul><li>New opportunities for expanded sales in a sector not significantly served before </li></ul><ul>...
Review <ul><li>Wholesale replacement of petroleum in the biggest sector it serves </li></ul><ul><li>Development of a distr...
Risks <ul><li>Ability of the fuel cell and automobile manufactures to bring down the total cost of the vehicle </li></ul><...
<ul><li>Attacking Conventional Wisdom </li></ul><ul><li>Path to Changing the Energy Mix </li></ul><ul><li>Business Model I...
Likelihood of Political Will <ul><li>Weak Global Economy </li></ul><ul><li>Energy Inflation Risks </li></ul><ul><li>Geopol...
Upside <ul><li>What other investment could target this level of impact? </li></ul><ul><ul><li>Energy Sector Investment </l...
Subsidy & Spending Examples <ul><li>$230 Billion  OECD taxpayer and consumer support to agriculture  </li></ul><ul><li>$37...
Barriers <ul><li>Public/private sector unintentional miscues </li></ul>Stated hydrogen enthusiasm <ul><li>1.7 Billion spen...
Requirements <ul><li>Double digit spending kick-start over next 3-4 years  </li></ul><ul><ul><ul><li>e.g.: $10 – 20 Billio...
Putting it into Perspective
The Prize <ul><li>Bigger prize </li></ul><ul><li>Higher probability of success </li></ul>
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Hydrogen Big Bet AD Little

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Hydrogen Big Bet AD Little

  1. 1. Innovative Visions – Art of the Possible Potential for Dramatic Energy Mix Shift Mary Tolan Chief Executive Resources Group, Accenture
  2. 2. Scenarios <ul><li>Way beyond conventional expectations </li></ul><ul><li>Requiring truly breakthrough innovation </li></ul><ul><li>Almost always surfacing significant opportunities </li></ul>Evaluation of Accelerated Change Scenarios
  3. 3. <ul><li>Attacking Conventional Wisdom </li></ul><ul><ul><li>Accelerating Change in the Energy Mix </li></ul></ul><ul><ul><li>Transportation is the Key </li></ul></ul><ul><li>Path to Changing the Energy Mix </li></ul><ul><ul><li>Hydrogen Fuel Cell Vehicle is an Answer </li></ul></ul><ul><ul><li>Petroleum Down, Other Fuels Up </li></ul></ul><ul><ul><li>Cost is the big challenge </li></ul></ul><ul><li>Business Model Implications for Energy Providers </li></ul><ul><ul><li>Paths to Hydrogen </li></ul></ul><ul><ul><ul><li>Reforming </li></ul></ul></ul><ul><ul><ul><li>Electrolysis </li></ul></ul></ul><ul><ul><li>Implications </li></ul></ul><ul><ul><ul><li>Gas and power </li></ul></ul></ul><ul><ul><ul><li>Risk </li></ul></ul></ul><ul><li>Political Will as the Necessary Catalyst </li></ul>
  4. 4. Challenge Scenario <ul><li>Weak global economy </li></ul><ul><li>Oil price inflation and expectations of more inflation shave 1-2% off G8 GDP growth </li></ul><ul><li>Geopolitical concerns lead to growing view of petroleum supplies – “Unacceptable Risk” </li></ul>Political Will for Structural Resolution Set up Scenario:
  5. 5. How Different? <ul><li>Whereas environmental concerns provoke only modest immediate concern and change scenarios </li></ul><ul><li>Economic and national security motives create perception of acute nature of risk – providing significantly accelerated change </li></ul><ul><li>We see seeds of this paradigm shift beginning to emerge </li></ul>Why does this accelerate change? Wild Card: Political Will
  6. 6. Transportation Focus <ul><li>Where do we focus? </li></ul><ul><ul><li>The pressure to reduce the risk of petroleum driven inflation and/or energy related disputes quickly puts the spotlight on the </li></ul></ul>Transportation Fleet
  7. 7. G8 Petroleum Consumption Transportation Share of Total Petroleum Consumption for G8 - 2001 G8 Petroleum Consumption and Forecast – 1995-2015 Source: US Department of Energy – Energy Information Administration, International Energy Outlook , Annual Energy Outlook 2002 Source: US Department of Energy – Energy Information Administration, International Energy Outlook , Annual Energy Outlook 2002
  8. 8. New Mandates Transportation Fleet to Hydrogen <ul><ul><li>So… </li></ul></ul><ul><ul><li>New Mandates are Created </li></ul></ul><ul><ul><li>Pick a date – 2013 . . . 2015 . . . 2018 </li></ul></ul><ul><ul><li>For Conversion of the </li></ul></ul>
  9. 9. <ul><li>Attacking Conventional Wisdom </li></ul><ul><li>Path to Changing the Energy Mix </li></ul><ul><li>Business Model Implications for Energy Providers </li></ul><ul><li>Political Will as the Necessary Catalyst </li></ul>
  10. 10. Hydrogen <ul><li>Achieve material displacement of petroleum </li></ul><ul><li>Greater energy supply diversity = greater security </li></ul><ul><li>More efficient conversion of energy </li></ul>Why Hydrogen?
  11. 11. Theory of the Possible <ul><li>What would it take to significantly advance the take up of hydrogen vehicles to have a major impact on reducing petroleum consumption? </li></ul>
  12. 12. Accelerating Change Petroleum Consumption Transportation Fleet – G8 Countries Source: Accenture analysis Hydrogen Fuel Cell Vehicle Annual Sales – G8 Countries Source: Accenture analysis MM
  13. 13. Accelerating Change Hydrogen Fuel Cell Vehicle Annual Sales – G8 Countries Source: Accenture analysis Petroleum Consumption Transportation Fleet – G8 Countries Source: Accenture analysis Total transportation demand with 50% FCV penetration by 2015 MM FCV capture 100% of new vehicle sales
  14. 14. Cost Challenge <ul><li>Relatively little investment to date to drive down fuel cell cost </li></ul><ul><li>Automobile manufacturers developing novel solutions to drive down costs </li></ul><ul><ul><li>Manufacturing costs </li></ul></ul><ul><ul><li>Fuel cell performance </li></ul></ul><ul><ul><li>Revenue opportunity </li></ul></ul>Biggest Challenge – Fuel cell cost and performance
  15. 15. Fuel Cell Vehicle Cost Cents per mile Fuel Cell Vehicle Cost Reduction Impacts Total ownership cost Reduce fuel cell cost * Includes advances in conversion efficiency, reduced hydrogen compression, storage and dispensing loss rates Fuel Body/ BOS Fuel Cell Reduce fuel cell cost from $250/kw to $30/kw Conventional Vehicle
  16. 16. Fuel Cell Vehicle Cost Cents per mile Fuel Cell Vehicle Cost Reduction Impacts Total ownership cost Reduce fuel cell cost * Includes advances in conversion efficiency, reduced hydrogen compression, storage and dispensing loss rates Increase fuel cell life Reduce body & BOS cost Fuel Body/ BOS Fuel Cell Reduce fuel cell cost from $250/kw to $30/kw Conventional Vehicle
  17. 17. Fuel Cell Vehicle Cost Cents per mile Fuel Cell Vehicle Cost Reduction Impacts Total ownership cost Reduce fuel cell cost * Includes advances in conversion efficiency, reduced hydrogen compression, storage and dispensing loss rates Increase fuel cell life On-Peak Power Sales Revenue Reduce body & BOS cost Reduce system energy costs* Long-term goal Fuel Body/ BOS Fuel Cell Reduce fuel cell cost from $250/kw to $30/kw Conventional Vehicle
  18. 18. Upfront subsidy required Subsidy for Adopting Fuel Cell Vehicle G8 Countries
  19. 19. Public Will <ul><li>Cost breakthrough a function of effort and investment </li></ul><ul><li>Effort and investment are a function of perceived return on investment </li></ul><ul><li>Only way to create major demand is through near-term incentives and mandates – by 2013/2015 </li></ul>What will it take to drive down these costs?
  20. 20. Advantaged Cost <ul><li>How do we </li></ul><ul><li>Deliver the Energy </li></ul><ul><li>to get to a </li></ul><ul><li>Fuel Cost Advantage? </li></ul>We can get to parity in vehicle costs…
  21. 21. <ul><li>Attacking Conventional Wisdom </li></ul><ul><li>Path to Changing the Energy Mix </li></ul><ul><li>Business Model Implications for Energy Providers </li></ul><ul><li>Political Will as the Necessary Catalyst </li></ul>
  22. 22. Alternative Paths to Hydrogen Reformation Liquid/ Gas Fuels <ul><li>Natural Gas </li></ul><ul><li>Ethanol </li></ul><ul><li>Etc. </li></ul>Retail Site Reformer Hydrogen Vehicle Electrolysis Low Cost Fuels <ul><li>Coal </li></ul><ul><li>Nuclear </li></ul>Base Load Generation Hydrogen Vehicle Retail Site Electrolysis <ul><li>Off-Peak Generation </li></ul><ul><li>40% Net Conversion efficiency </li></ul><ul><li>70% Conversion Efficiency </li></ul><ul><li>70% Conversion Efficiency </li></ul>3.0 cents/mile Note: Gasoline is about 5.2 cents/mile before tax 3.1 cents/mile
  23. 23. Natural Gas Reforming <ul><li>Need to expand and build natural gas infrastructure </li></ul><ul><ul><li>Long-haul transportation </li></ul></ul><ul><ul><li>Local distribution </li></ul></ul><ul><ul><li>Reforming capacity at retail sites </li></ul></ul><ul><li>Increase gas production by 20-25% over current growth plans by 2020 </li></ul>Natural Gas Reforming at Retail Sites
  24. 24. Natural Gas Reformation – Capital Capital Investment to 2020 – Decentralized Natural Gas Reformation* $B * Source: Accenture analysis ~90% vehicle fleet is Fuel Cell Vehicles – 75% supplied by Natural Gas ------------------US--------------------- -----------------Europe------------------
  25. 25. Natural Gas Reforming <ul><li>Natural gas deliveries could increase by 50-75% in some areas </li></ul><ul><li>Creative pricing and supply approaches to manage peak loads could lessen incremental investment requirements </li></ul><ul><li>As in power, gas producers may benefit from time of day meters and pricing which reflects true capacity costs </li></ul><ul><li>With sophisticated pricing, retailers would have incentive to build the appropriate intra-day storage capacity </li></ul>Implications for Natural Gas Business
  26. 26. Ethanol Reforming <ul><li>Potential to serve as additional source of energy for reforming to hydrogen </li></ul><ul><li>May be best suited for regional plays </li></ul><ul><li>Requires changes in production techniques versus today </li></ul><ul><ul><li>Alternate, non-food based crops </li></ul></ul><ul><ul><li>Large-scale ethanol production facilities – 10X today? </li></ul></ul><ul><li>Would further diversify energy sources </li></ul><ul><ul><li>Increased security from supply risks </li></ul></ul><ul><ul><li>Different pricing dynamics from Natural Gas – Competition and risk issue </li></ul></ul>Implications for Ethanol and other Bio-fuels
  27. 27. Alternative Paths to Hydrogen Reformation Liquid/ Gas Fuels <ul><li>Natural Gas </li></ul><ul><li>Ethanol </li></ul><ul><li>Etc. </li></ul>Retail Site Reformer Hydrogen Vehicle Electrolysis Low Cost Fuels <ul><li>Coal </li></ul><ul><li>Nuclear </li></ul>Base Load Generation Hydrogen Vehicle Retail Site Electrolysis <ul><li>Off-Peak Generation </li></ul><ul><li>40% Net Conversion efficiency </li></ul><ul><li>70% Conversion Efficiency </li></ul><ul><li>70% Conversion Efficiency </li></ul>3.0 cents/mile Note: Gasoline is about 5.2 cents/mile before tax 3.1 cents/mile
  28. 28. Electrolysis <ul><li>Utilize available off-peak capacity </li></ul><ul><ul><li>Off-peak power produced from low cost sources, such as coal and nuclear </li></ul></ul><ul><ul><li>Opportunity to “store power” </li></ul></ul><ul><ul><li>As much as 25% of the fleet requirements might be met </li></ul></ul><ul><ul><li>Leverages spare capacity to minimize new capital requirements </li></ul></ul><ul><li>On-peak power not economic to use </li></ul><ul><ul><li>Natural gas better used in reforming route to power </li></ul></ul><ul><ul><li>Would require significant investment in new power plants </li></ul></ul>Electrolysis at Retail Sites
  29. 29. Leveling Electricity Load Typical Electricity Load Profile Hours GW Excess baseload capacity during off-peak hours – could supply 25% of US Vehicle Fleet US Profile
  30. 30. Power Generation Equivalent Source: Accenture analysis, US Department of Energy – Energy Information Association, European Environment Agency Fuel Cell Vehicle Penetration Equal to Total Installed Electric Generation Capacity
  31. 31. Natural Gas Reforming <ul><li>Significantly increased sales/utilization of base-load plants </li></ul><ul><li>Time of day pricing necessary to provide incentive for retailers to build hydrogen storage capacity for on-peak deliveries </li></ul><ul><li>Switch from building and operating peaking plants to connecting and managing distributed “Power Parks” </li></ul>Implications for Power Business
  32. 32. Hydrogen Suppliers <ul><li>New opportunities for expanded sales in a sector not significantly served before </li></ul><ul><li>New investment opportunities from production to retailing </li></ul><ul><li>But, a new form of competition where power, gas, bio-fuels, and potentially others – all producing hydrogen – would compete daily for the same customer </li></ul>Hydrogen Summary – Either Reforming or Electrolysis
  33. 33. Review <ul><li>Wholesale replacement of petroleum in the biggest sector it serves </li></ul><ul><li>Development of a distributed generation fleet that swamps the size of the existing generation network </li></ul><ul><li>New forms of very dynamic competition between electricity and gas </li></ul><ul><li>Massive investments to produce the energy to manufacture hydrogen and to develop the infrastructure to deliver it </li></ul>Scenario Review:
  34. 34. Risks <ul><li>Ability of the fuel cell and automobile manufactures to bring down the total cost of the vehicle </li></ul><ul><ul><li>Reducing the cost of delivered hydrogen can help competitiveness of fuel cell vehicle </li></ul></ul><ul><ul><li>But ultimately, competitiveness will rest heavily outside the traditional gas and power businesses </li></ul></ul><ul><li>Therefore, the investment made today in preparing for the new hydrogen business environment is a bet on the come around the fuel cell technology </li></ul>Biggest Risks to Scenario:
  35. 35. <ul><li>Attacking Conventional Wisdom </li></ul><ul><li>Path to Changing the Energy Mix </li></ul><ul><li>Business Model Implications for Energy Providers </li></ul><ul><li>Political Will as the Necessary Catalyst </li></ul>
  36. 36. Likelihood of Political Will <ul><li>Weak Global Economy </li></ul><ul><li>Energy Inflation Risks </li></ul><ul><li>Geopolitical Risks </li></ul>Drivers of Political Will Add to this: Opportunities for Political and Economic Upside
  37. 37. Upside <ul><li>What other investment could target this level of impact? </li></ul><ul><ul><li>Energy Sector Investment </li></ul></ul><ul><ul><li>Transportation Sector Investment </li></ul></ul><ul><ul><li>Durable productivity enhancement through technological advancement </li></ul></ul><ul><ul><li>Potential for significant emissions reductions </li></ul></ul>Opportunities for Upside If you were a G8 Leader Trying to Stimulate your Economy…
  38. 38. Subsidy & Spending Examples <ul><li>$230 Billion OECD taxpayer and consumer support to agriculture </li></ul><ul><li>$37 Billion Homeland Security budget request for 2003 in the US </li></ul><ul><li>$160 Billion Annual gasoline tax across the G7 countries </li></ul><ul><li>$100 Billion Equivalent peak year spending of Apollo moon shot program </li></ul>The $225 Billion incentive this requires over 10 years is small relative to the annual size of other programs
  39. 39. Barriers <ul><li>Public/private sector unintentional miscues </li></ul>Stated hydrogen enthusiasm <ul><li>1.7 Billion spending over 5 years </li></ul><ul><li>2025 before things get interesting </li></ul>Private sector does not drive to action Biggest Barrier to Political Will
  40. 40. Requirements <ul><li>Double digit spending kick-start over next 3-4 years </li></ul><ul><ul><ul><li>e.g.: $10 – 20 Billion/year </li></ul></ul></ul><ul><li>Design of significant incentives to attract customer to the market ($225 over first 6 years) </li></ul><ul><li>8-10 year timeframe to reach full output from program </li></ul>What would it take?
  41. 41. Putting it into Perspective
  42. 42. The Prize <ul><li>Bigger prize </li></ul><ul><li>Higher probability of success </li></ul>

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