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Getting Excited About PHEVs

by: Jim Kingsdale July 20, 2008 | about stocks: DBO / OIL    

Jim Kingsdale

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Gore vs. Pickens vs. Congress vs. McCain

The U.S. Congress is pursuing such brilliant energy policy alternatives as:

1. Suing OPEC for anti-trust

2.  Stopping “speculation”

3. Subsidizing corn-based ethanol while taxing imports of foreign ethanol.

  4. Leasing more U.S. land for oil and gas drilling.

These ideas range from idiotic (1 and 2) to counter-productive (3) to moderately useful in the longer term (4). 

To be more specific on drilling, my view is that since there would be no additional oil flowing from drilling the OCS or ANWR for 7 - 12 years, and since that is just when  we are likely to be experiencing the greatest oil supply crunch, we should in fact move now to pave the way for more domestic oil production that will become available then. But clearly it is only a way to mediate future economic pain and in no way contributes to a long term solution to our energy crisis.

So in sum, Congress, on a scale of 0 - 10 rates a minus 5 in my view.  They have been worse than useless. 

McCain

Two small but potentially useful ideas have been offered recently by John McCain.  He said we should subsidize the purchase of plug-in hybrids.  I think they’ll be so popular that car makers will not be able to keep up with demand, even at initially high prices (more below).  But McCain’s idea might help. 

McCain also had a wonderful idea, as reported here, which I have now added to my “Rx for U.S. Energy Policy” position paper.  He would allow individual states to set fuel economy standards.   The upshot would be that California would set U.S. fuel economy standards for everyone because no car company can afford to not sell cars there.  California has always had a more enlightened electorate on the whole than the people who elect Congress. 

Gore and Pickens

Fortunately some leaders are starting to get out front and begin to lead toward a real energy policy.  Both Gore and Pickens are making important contributions.  Gore, of course, comes to the issue primarily from the climate perspective.  But his position has the great benefit of being all about transitioning away from fossil fuels and toward electricity as the “driving force” for our economy - pardon the pun. 

Gore is not only directly on target in aiming at making the petro-to-electron transition.  But by emphasizing renewable sources of electricity he also deals with the great objection many people have to electric vehicles: that they just contribute to GHG production since so much of our electricity is now produced from coal. 

Pickens’ plan is a baby-step toward the future.  It helps transition us away from oil but relies on the temporary solution of natural gas.  It does make sense to produce more electricity from wind.  And in the short term it does make sense to use natural gas for local industrial traffic like garbage trucks and busses.  His plan is not counterproductive and it may even be more “practical” than Gore’s ideas in the short term sense of being implementable.  But it fails to provide the “big idea”, the “go to the moon” long term goal that can give the whole country a valid conceptual framework for thinking about the future.

Of course, Pickens is “talking his book.”  He has huge investments in wind generation and in natural gas.  I don’t hold that against him.  After all, I try to make money investing in ways that are consistent with how I see our energy future evolving.  In the short term that means much higher fossil fuels prices.  So I own oil and gas assets.  In the long term, it’s all about electricity, but investment options there are more indirect, often very expensive, and usually unlikely to pay off for many years.

PHEV’S: The Next Tsunami? 

I’m getting increasingly excited about the next generation of plug-in hybrid electric cars (PHEV’s) that will begin hitting the market in 2010 or 2011 though some, like Chrysler, will come to the party a few years late.  These PHEV’s will become so popular, I think, that manufacturers will not be able to make enough of them. 

What turns me on is visualizing that most people will use their cars every day only on battery propulsion and will come back home and plug them in at night at a fraction of the cost of buying gas.   That will happen because the cars will have a 40 mile or so (and growing every year) capacity for battery-only propulsion - read no use of gasoline -  which is all that most people drive in a day.   Americans are going to love that.

The beauty of the PHEV -as opposed to all-electrics - is that the gas engine takes away the fear of running out of electric juice.   As soon as the battery runs down far enough the low-power gasoline engine kicks in to recharge the battery. 

Moreover, based on reviews of the new Tesla Roadster it seems like battery driven performance will be very exciting.  This $110,000 all-electric sleek sports car is blowing away the racing crowd with its performance.   Of course, $30,000 PHEV’s will not give us quite that kind of 0 - 60 in 4 seconds thrills.  But my guess is that we will be quite satisfied - if not thrilled - with the pick up. 

So I am starting to think that the PHEV is going to be a very big deal.  Probably a Tsunami.  Whether it will be an investment tsunami or not is another issue.  The current directly related investment options are limited.  We have the major lithium producer (SQM) and a couple of publicly traded lithium ion battery companies, neither of which are “mainstream.”   They are Valance (VLNC) and Ener1 (HEV).  The major lithium battery makers are either subsidiaries of large Japanese companies or privately held.     

Eventually one or more of the vehicle manufacturers such as Toyota or Honda or possibly even an American car company may become screaming buys.  But they have to face a few very rough years directly ahead trying to peddle cars with obsolete technologies in a bad economy before they come out the other side into the sunlight of PHEV’s.   I think it’s still a little early for them.   And some may not even make it there before going bankrupt.

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This article has 8 comments:

  •  
    Jul 21 04:35 AM
    We may not have completely thought out this whole new energy policy concept. Most certainly our law makers have not.

    Yes, PHEV’s will become in great demand, which will elevate their price as a result of supply and demand forces. And, are you ready to pay $10,000 to replace a battery in your electric car?

    Once the rush to electric vehicles really begins, the law of unintended consequences will take over to wipe out any potential benefit. Since we will need more electricity than we can now generate, supply and demand forces will greatly increase the cost of electricity. Also, do you thing Uncle Sam and state governments are going to lay down for less tax revenue from ever reduced gas and diesel fuel sales? Not likely. Look for higher taxes to keep personal expenditure for energy at close to current or even higher cost.

    We are not currently building the nuclear power plants which will be needed to cope with much higher electricity demands to power vehicles. And, because of regulatory requirements any new nuclear plants will most likely not get up and running for many years. Wind power is not constant and therefore can not be depended on at all times. Also, it can cause power surge problems due to sudden high winds that can crash a whole grid network. Also, even if you have new power sources (nuclear, wind, geo) you will also need new transmission lines to get the power where it is needed. Time and cost to completion of the required new infrastructure is going to prevent any meaningful progress anytime soon. Hydrocarbon based energy will be with us for many more years.

    We need to transition to hydrogen based transportation fuels. That can best be achieved through the use of natural gas. It is immediately available and plentiful. Natural gas is low in objectionable emissions and in the form of Hythane, virtually pollution free. Also, through the mining of “methane hydrate” from deep sea trenches, natural gas is going to be available far into the future.
    Reply
  •  
    Jul 21 08:33 AM
    presumably charging of your battery-powered vehicle will be done @ night when daytime demand has gone to sleep & adequate power is available from the nukes which don't like to be cycled over 24-hr periods anyway. thus battery charging will replace pumped storage as a load-leveling mechanism for nukes.
    > jack
    Reply
  •  
    Jul 21 12:20 PM
    What your missing Jack is that electrical demand could easily be increased well beyond current and near future capabilities. Hello brown outs. And, there is no off peak in warm months when air conditining is running 24/7 and when transmission capability is still 1050's technology. It is doubtful that Nuke, Wind, Geo, Solar and the transmission infrastructure will be up to speed fast enough to keep up with additional demand caused by a large scale switch from gasoline and diesel fuels. If it is going to work at all we will most likely need another program similar to the government stimulated 1950's interstate highway expansion program.
    Reply
  •  
    Jul 21 12:47 PM
    Anyone know if the current Hybrids can be put on battery chargers, overnight, right now? Seems to me that produces the PHEV savings without having any upgrades and can be done right away.
    Reply
  •  
    Jul 21 01:21 PM
    I think phevs are perhaps the best long term option and it seems to me that concerns about stressing current grid capacity are obstacles which can be overcome. Various distributed power solutions from a variety of inputs will ramp up as demand increases. Photovoltaics are coming down the cost curve, wind is already competitive and nuclear must be part of the long term mix. We must avoid coal plants unless carbon sequestration becomes feasible.
    Reply
  •  
    Jul 21 07:32 PM
    Gore is irresponsible in his recent statements--re 100% carbon free electricity in 10 years. he may be correct in his vision, but to imply the impossible to an already naive populace will create more bad than good. this nation has neither the money, skills or production capacity to achieve this objective. it does not provide new plausible steps for a strategic outcome from whence we begin. this brings into question his integrity and judgement on the economics of his views[all].
    Reply
  •  
    Jul 22 07:06 AM
    Jumper: "And, there is no off peak in warm months when air conditining is running 24/7."

    Completely wrong. Go look at an hour-by-hour load graph of an ISO like PJM from any day last week (it was really hot). In that region, a 20GW difference between peak and off-peak is COMMON.
    Reply
  •  
    Jul 22 07:11 AM
    "Anyone know if the current Hybrids can be put on battery chargers, overnight, right now? "

    Yes, the Tesla has a fast-charge mode off a small generator that I think is around 3-5 hours. The EV1, way back in the 90's using NiMH batteries could get 80% charge in 2-3 hours, plugged into its special charging station.
    Reply
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