What is Electrify Everything?
Global Warming and Central Planning
Proposals from those concerned about global warming have varied over the years. Government intervention is trending less popular as the market delivers new technologies like cheap solar panels, cheap batteries, and desirable electric cars. Advocates favor intervention for the sectors that still lack market solutions. "Electrify Everything" is an offshoot of this trend.
The Reasoning Behind Electrification
The decline in the cost of wind and solar electricity has energized the climate movement. Batteries have also declined in price, making electric cars capable of competing with gasoline cars. In the US, transportation and electricity generation produces over 50% of greenhouse gas emissions.
Concern has shifted to the other half of emissions from industry, buildings (mostly heating), and agriculture.
Source: EPA
Buildings are especially tough because their replacement cycle is decades or even centuries. But another technology's improvement seems to offer a path to decarbonization. Air-source heat pumps are now cost-competitive with natural gas heating across most climate zones when installed in new buildings. Renewable electricity powers the heat pumps. The strategy is simple to understand. It has a nice slogan in "electrify everything." Advocates usually encourage the strict standard of banning any fuels other than electricity in new buildings. The justification is that building replacement cycles are so long that we have to start today.
Engineering and Economic Realities of Electrification
A nice-sounding slogan doesn't nullify the complexities of physics and economics.
Heating Uses More Energy Than Cooling
In July in Austin, TX, the average temperature throughout the day is ~85 F. An air conditioner has to change the temperature 10-20 degrees for comfort (with some extra BTUs to handle humidity). In January, the heater has to raise the temperature by 15-25 degrees. Heating degree days (HDDs) or cooling degree days (CDDs) quantify this concept. A heating degree day is one degree below 65F for that day. If the average for the day was 40F, that day contributed 25 HDDs. Cumulative yearly HDDs and CDDs define the heating or cooling load for a city or region.
| City |
HDDs |
CDDs |
| Austin, TX |
1688 |
3016 |
| Little Rock, AR |
3155 |
2005 |
| Nashville, TN |
3729 |
1616 |
| Buffalo, NY |
6747 |
477 |
Even in warm climates, cities tend to have more HDDs than CDDs.
Physics of Heat Pumps
Heat pumps move heat from one place to another. They make air conditioners and refrigerators possible and electric heating more efficient. Air conditioners transfer heat from inside the home (cold reservoir) to outside (hot reservoir). In heating mode, heat pumps do the opposite. In thermodynamics, fridges, ACs, and air-source heat pumps can be called heat pumps and are a subset of heat engines. In regular life, heat pumps refer to an HVAC unit that can reverse to do heating or cooling.
Without help, heat cannot flow from cold to hot because of the 2nd law of thermodynamics. Heat pumps use energy and clever engineering to move heat without violating the second law. Heat pumps have a fluid (like freon) that can be colder than the cold reservoir and hotter than the hot reservoir under different conditions. Heat flows from the cold reservoir into the heat pump's fluid. Electricity compresses the fluid, making it hot. The heat from the fluid flows into the hot reservoir. The fluid goes through an expansion valve, dropping pressure and temperature to restart the process.
Oversimplified Schematic
Resistive electric heating can only provide as much energy as the electricity is carrying. A heat pump can deliver more heat energy than the electricity that it uses. The coefficient of performance (COP) is the ratio of heat provided to electricity used. COP decreases as the temperature difference between the hot reservoir and cold reservoir increases. The COP might be four at 50F, but it could be less than one at 0F, which is why many heat pump systems have emergency resistive heating elements. The Carnot Cycle efficiency is the maximum theoretical efficiency at any two temperatures.
Ground source heat pumps minimize the problems of cold air temperature by using the steadier ground temperature as the cold reservoir. They are costly to install, making them a niche item.
The physics means air-source heat pumps have the feature of being very efficient at mild temperatures. As temperatures get colder, there is a double whammy of increased heating demand and increased electricity usage per unit of heat delivered because of dropping efficiency.
Capital Intensity of Electricity Production
Electricity production is capital intensive. With solar and wind, this is taken to the extreme because there are no fuel costs. Batteries are also capital intensive. Plants running at high utilization minimize electricity costs.
To keep the grid running, electricity supply from plants or batteries must perfectly match electricity demand. An electrical grid must have as much capacity as the all-time peak demand from consumers. If generation cannot meet demand, rolling blackouts stabilize the grid and prevent equipment damage.
Heating Economics Favors Energy Dense Fuels
Natural gas, heating oil, electricity, propane, and firewood provide heating energy in the US. Electricity is used primarily in the warmest areas, heating oil in New England and natural gas everywhere else.
Imagine if Texas was 100% electric heat. Source: EIA
Because HDDs vary so much by geography, electric heating's share of BTUs provided is a fraction of the share of houses using electric heat. We can use natural gas usage as a proxy for heating demand.
Spiky. Source: EIA
Heating demand concentrates in a short period. The residential and commercial demand for natural gas shows large spikes in the winter. The peak natural gas heating usage is enough to generate 25-30% of US electricity demand. Warm states meet electrical heating demand with the same peaking assets that handle summer demand. Cold regions do not have this luxury.
Electrifying heating means building low utilization electrical generation and transmission in cold states, increasing electricity costs. Batteries are not a good solution because they also need high utilization to be cost-effective. In a solar, wind, and battery system, batteries can charge and discharge twice daily. Using batteries to meet demand from rare cold snaps means only getting a few cycles per year. The grids in question all have electrical generation capacity markets to pay rarely used peaking plants. The capacity market clearing price would increase significantly to spur new supply. Capacity markets do not allow solar and wind to bid. Capacity payments would go to new fossil plants.
Even worse, heating becomes fragile. When the temperature is coldest, electric heating creates spiraling electricity demand from the decreasing efficiency of heat pumps and increasing demand for heat to maintain indoor temperatures. Extreme cold can also make running power plants harder. The grid fails, and homes lose power when they need it the most to preserve lives and property.
Studies like those from Rocky Mountain Institute show the cost of electrifying heating using current market prices. If everyone in a cold region used electric heating, the cost of electricity would rise, and electric heating would no longer be cost-effective.
Heating economics favor high energy density fuels because peak demand is short and enormous compared to baseline demand.
Alternatives to Electrification
Heating can have zero net emissions without being electrified.
Markets Are Weird
Natural Gas Storage Industry
Markets find ideas that aren't obvious. The natural gas storage industry is a perfect example. Historically, the Southwest produced natural gas while the Northeast and Midwest consumed it. Pipelines sized to move the winter demand would be empty most of the year. Gas wells in the Southwest would have to shut in during summer and only sell gas during the winter. Storage solves this problem, but natural gas tanks are impractically expensive. The industry realized that it could inject gas in depleted gas fields near the demand centers, allowing wells and pipelines to run at steady rates. Oil companies discovered oil and gas reserves, produced the oil and gas, then pumped gas back in them!
After deregulation, demand for gas from power plants and traders increased. The old storage facilities slowly built up storage in the summer and then discharged it in the winter. The low permeability of the depleted fields limits injection and production rates. New users needed their gas faster for trading and to meet swings in electricity demand. Storage companies came up with the idea of drilling into massive salt domes (literally giant blobs of underground salt) and pumping water into them to dissolve salt to make caverns. Gas could flow in and out rapidly of the empty caverns. Again, who had that on their bingo card?
Applications for Heating Decarbonization
With the electrification of heating, we are back to the 1920s pipeline company problem. It is not ideal to size our grid and generation capacity to meet peak winter heating demand.
There are solutions that no one has imagined yet. Some ideas have serious regulator and consumer adoption hurdles. Nuclear radiators, anyone? The simplest solution is to make drop-in fuels that utilize our existing infrastructure.
Making Carbon Free Fuels
There is more than one way to skin a cat.
Basic Chemistry
Many processes exist to turn hydrogen and carbon dioxide into fuels like methane (natural gas), methanol, and other liquids like gasoline. Conveniently, there are many ways to make hydrogen and carbon dioxide is what we want to remove from the air.
The first step is making hydrogen. The carbon-free way to do this is by splitting water using electricity via an electrolyzer into hydrogen and oxygen.
Hydrogen from Solar + Wind
Solar and wind produce variable electricity that is likely to be in surplus part of the year, especially in the spring and fall. The extra electricity can make hydrogen.
The plus is that surplus electricity is likely to be very cheap. The negative is that electrolyzers to make hydrogen by splitting water are expensive. It is more cost-effective to run them full time. Additionally, hydrogen is costly to transport. Users consume hydrogen within a few hundred feet of its production. Applications that use hydrogen as an intermediate to make higher-value products with higher break-even electricity prices, allowing near 24/7 operation, make more sense than hydrogen alone.
Given the growth of solar and wind, low-temperature electrolyzer designs are seeing a lot of hype. Manufacturing learning curves that decrease electrolyzer prices could allow hydrogen production at increasingly economic prices and overcome some utilization problems.
Hydrogen from Nuclear
I am pretty skeptical that new nuclear can compete with solar + wind + batteries in providing bulk electricity. Not because of physics, but because of regulatory barriers that increase costs. Nuclear is more competitive in producing hydrogen.
Most of the focus has been on low-temperature hydrogen production using only electricity. There are hundreds of possible pathways to make hydrogen using combinations of heat and electricity. Heat is cheaper than electricity, possibly reducing the cost of hydrogen production. A typical nuclear power plant converts heat to electricity at 35% efficiency. Low-temperature electrolysis splits water at 70%-80% efficiency. Some thermochemical processes can convert heat and electricity to hydrogen at 90%+ efficiency.
Nuclear plants run 24/7, increasing equipment utilization. Integrating hydrogen production with the production of synthetic fuels can lower the cost even more. Making fuel releases heat. Integrated plants can recycle the heat into more hydrogen production.
At first, CO2 could come from biogenic sources like ethanol plants. Further scaling would require air-captured CO2 or other integrated processes.
There are still high regulatory barriers. The plant design would be different than a plant optimized to produce electricity, requiring a new regulatory process. Some existing nuclear plants are looking at producing hydrogen because they are becoming uneconomic at wholesale electricity costs. I can't imagine the hurdles they face even modifying their NRC permits.
Hydrogen from Geothermal
Geothermal, like nuclear, provides 24/7 operations. It only converts 8%-20% of energy to electricity. Producing hydrogen, specifically co-located with synthetic fuel production, potentially offers better economics and faster time to market than selling electricity.
The hundreds of possible thermochemical processes have varying temperature requirements and efficiencies. Geothermal could provide low temperature (<300C) process heat that some steps use. An advantage of co-locating with synthetic fuel production is that many fuel synthesis processes produce high-temperature heat, mitigating geothermal's low-temperature disadvantage. Instead of competing with solar and wind at 10%-20% efficiency, geothermal might make synthetic fuels at 40%-70% thermal efficiency, depending on what designs are feasible.
Almost all the research on thermochemical hydrogen production has had 800C nuclear heat in mind. It might take a fair bit of research and experimentation to find a process that best minimizes CAPEX and maximizes efficiency while taking advantage of geothermal's parameters. If one exists.
Additionally, this would require scale. There is significant CAPEX associated with equipment, which is why it needs to run 24/7. Scale impacts the cost because vessel volume increases faster than the surface area (the steel) as diameter increases.
If there is an application in the decarbonization of energy where integrated oil majors have a comparative advantage, here it is.
Direct Air Capture
If direct air capture and sequestration fall rapidly in price, it may be cheapest to continue burning fossil fuels and sequester the carbon.
A company like Charm Industrial is focused singularly on sequestration. They use plants to capture carbon dioxide and pyrolysis (super hot reactor without oxygen) to turn the biomass into char and bio-oil. The bio-oil gets pumped underground, sequestering carbon.
Other techniques that capture CO2 from the air with solvents produce CO2 that industrial processes can use, like synthetic fuel production.
You can buy offsets from Charm right now for $600/ton. The market is nascent. Studies suggest $100-$200/ton for solvent techniques is possible within a few years. Some wild-eyed ideas like olivine weathering have the potential to be as low as $10/ton.
Aqueous Chemistry
There are milder approaches to producing hydrocarbons from water and air beside the old school, metal bashing approaches. Prometheus is an example of one startup pursuing solutions using aqueous chemistry (reactions that happen in water).
There are several steps in Prometheus's process.
-
Contact air with a water-salt mixture that absorbs CO2 from the air.
Capturing CO2 at 400 ppm and purifying it for a traditional chemical process is expensive and energy-intensive. Aqueous chemistry can use small concentrations, simplifying the solvent and eliminating the need for solvent regeneration.
-
Apply electrical current to the CO2 rich water in the presence of a copper and carbon nano-catalyst to produce alcohols like ethanol.
These catalysts only became practical a few years ago, and improvements have been rapid. The need for using a stand-alone electrolyzer to split water is eliminated, providing CAPEX savings. Efficiency can roughly double with further progress in catalysts, which will be critical for reducing costs. Prometheus licensed their technology from researchers at the Oak Ridge National Lab (ORNL).
-
Use a carbon nanotube filter to separate the alcohols and water.
Water and ethanol mixtures are difficult to separate, requiring a lot of energy and equipment. Using the traditional distillation process would kill the economics. The founder/CEO of Prometheus started his career in water purification, inventing a desalinization process that used less energy. Before starting Prometheus, he worked for almost a decade developing nanotubes that block water but let other compounds pass. Developing this technology involved solving some long-term nanotube challenges like producing uniform sizes/properties, orienting them in the correct direction, and finding production processes that could scale at a reasonable cost. Possible use cases before separating fuels included degreasing water and other types of water purification. Energy use is reduced by 90% compared to distillation.
-
Use a catalyst to upgrade the alcohols to jet fuel precursors.
Catalysts in this area have recently improved as well. Prometheus licensed technology from ORNL that allows a single-step reaction with milder conditions than previous technology.
Aqueous chemistry does not require high pressures or temperatures, lowering capital costs. The disadvantage of this chemistry is lower conversion efficiency. Break-even requires electricity prices around $0.02/kWh. Lower CAPEX means running only when electricity prices are low is more feasible, nullifying the efficiency disadvantage. A technology like this is more likely to fill the niche of using extra wind and solar than electrolyzers making hydrogen.
Prometheus is already at the pilot scale. The classical chemical engineering challenge of moving from pilot to industrial production is ahead of them. They hope to have cost-competitive fuels within the next two years. Some sales to climate-conscious consumers will be possible even if they are not fully competitive, allowing scaling and further development. Jet fuel is refined heating oil, and Prometheus's product is a drop-in replacement for ~10% of heating emissions.
Synthetic Fuels and Carbon Offsets
Different hydrocarbons have different prices based on their supply and demand. Liquid fuels are typically more expensive on a BTU basis. Crude oil at the wellhead has recently been 5x-10x the dollars per BTU as wellhead natural gas. As you might guess, synthetic fuel adoption has focused on oil products or even higher value specialty chemicals.
In the past, synthetic fuels had to be cost-competitive with fossil fuels to have any investment, which meant there was none. Today, there is a recognition that some consumers and companies are willing to pay for carbon sequestration. Early adopters allow the technology to scale and achieve cost reductions through learning.
The flexibility of these technologies means production can be closer to consumers. In the US, Natural gas at the wellhead might earn $1-$3/MCF. Industrial prices in California are over $8/MCF. Synthetic gas can skip expensive gathering, processing, and transportation steps. It could be several times the cost of wellhead gas and be competitive.
Industrial Synergies
Energy use in the heating, industrial, and agriculture sectors has synergies. They use fossil fuels for process heat, building heat, and feedstock for industrial processes. Agricultural chemicals are a sizable portion of chemical production.
The processes of producing hydrogen, carbon dioxide, and hydrocarbons can ripple through these sectors. Using zero-carbon feedstocks in materials sequesters carbon, reducing CO2 concentration in the atmosphere. Some intermediate processes are producers of hydrogen or carbon dioxide, creating opportunities for a new industrial ecosystem.
I will go more into detail on these industrial synergies in a later post.
Interruptible Demand Increases Grid Capacity
If lower electricity prices lead to more year-round electricity demand, electric heating could happen without raising electricity prices. The catch is that the new sources of electricity demand have to be interruptible. If electricity prices skyrocket on a cold night because heating demand is up, it needs to make economic sense for them to shut down during the high-priced period.
Some current industrial users, like aluminum plants, have high costs from shutdowns and would run right through high-demand events. If new users like indoor agriculture or fuel production handle temporary shutdowns at low cost, the electricity they free up can heat homes. Electrify everything!
Pure Hydrogen
Hydrogen causes metal embrittlement and tends to leak. Pipeline companies set low limits to how much hydrogen they allow. Storage of hydrogen is expensive because its density is low. There is a reason that hydrogen transportation and storage are rare.
Unknown Unknowns
Making ethanol using aqueous chemistry and base metal catalysts did not seem like a promising technology. One of the breakthrough experiments involved copper nanoparticles that performed much better than expected. The researchers investigated and found the copper particles were self-organizing into cubes and catalyzing the reaction more efficiently. Chance plays a role in many of our most important scientific discoveries.
There is so much we don't know about the world. Researchers and entrepreneurs have only focused on cleantech for 10-15 years. We are only getting the early returns for those investments. There are many other technologies uncovered here. Cheaper ground source heat pumps and solar thermochemical hydrogen, among others, could see unexpected breakthroughs.
Don't Fight Consumers
You catch more flies with honey than vinegar.
Consumers Love Gas
There is a subset of people that have feelings about gas like others do about the 2nd Amendment. People love gas for stoves, grilling, cheaper heating, and water heaters. Induction ranges arent't the rage on HGTV yet.
Use Subsidies and Mandates Wisely
Mandates and subsidies are expensive in dollars and lost consumer surplus. Drop-in fuels mean that we don't have to criminalize gas furnaces. Even if new gas furnace sales are banned, consumers facing expensive building retrofits will continue to repair old furnaces longer than current replacement cycles. Trying to speed up this adoption becomes extremely expensive in terms of subsidies or requires a high level of authoritarianism. As an example, China's political class was unhappy with pollution around the capital several years ago. They went door to door, ripping out coal furnaces in provinces around Beijing, leaving many poor Chinese staring longingly at their coal piles they could no longer burn. Uncle Xi needed fresh air!
Waiting for markets to provide options is a more humane and practical strategy. If in 2040 there is still concern about carbon emissions and not yet adequate solutions available, subsidies could bridge the gap for drop-in fuels at feasible costs. By 2040, alternatives will likely be even closer to cost if they haven't eclipsed the cost of fossil fuel.
Raise the Status of Carbon Offsets
There has long been a subset of customers that spend extra for lower carbon emissions. The smaller the cost increase, the more they will buy. Encouraging consumers and companies to buy offsets helps technologies scale and raise capital. A removal cost or premium of $100/ton of CO2 would increase the cost of gas by $5 per MCF. Offsets are manageable for many in California and other states, where residential and commercial gas costs $20/MCF and heating is a small portion of consumers' budgets.
International Considerations
The US is rich and has superior oil and gas production technology that gives us cheap natural gas. Most of the world does not have as sturdy electricity and gas distribution.
The developing world needs liquid fuels like propane and butane for heating and cooking. There are billions of people burning solid fuels that harm their health and cause air pollution. If cleaner fuels are available, they are often several times more expensive than what we pay in the US because pipelines and import infrastructure are lacking. Producing these fuels independent of creaky power grids and without extensive port infrastructure would improve quality of life.
In developed nations like Europe and Japan, synthetic fuels can be competitive earlier because fuel prices are higher, and the EU has carbon prices.
Give Markets Time
Heating demand is satisfied by a diverse set of fuels. Natural gas provides the lion's share of heating, while electricity serves mild climates, and propane and heating oils fill their niches. Using mandates like forcing buildings to be all-electric or creating massive subsidies for conversion ignore economic considerations and could cause a backlash among consumers. Electric heating may become dominant without subsidies and mandates, but it would need to be pulled by excess electricity generation.
Investors have shown a willingness to fund an incredible range of alternatives while early adopters help them scale. Patiently letting these technologies grow will decarbonize heating much faster and cheaper because drop-in replacements can improve emissions faster than putting electric heat pumps in every home. Setting standards for using electrical heating could deter investment in alternatives.
Oil and gas have a supply curve like any product. Natural gas has high fixed transportation and processing costs that make it vulnerable to technologies that can locate near end users. If synthetic natural gas reaches price parity, regional adoption curves could be steep. Ethane, propane, and butane are co-products from natural gas and have a less flexible supply curve. Crude-derived fuels will see more deflation and a longer adoption cycle once competition between fossil and synthetic products intensifies, as the crude market is global with a range of supply prices.
Several questions will determine the winners and losers.
- How fast will electrolyzer costs fall?
- How much new, interruptible electricity demand emerges?
- How far will carbon sequestration prices fall?
- Will nuclear and geothermal on public lands get better regulation?
- Can aqueous chemistry catalysts improve enough to allow other products besides high-value liquids to reach cost parity?
Markets are great at sorting out these kinds of questions.
Hydrogen from Nuclear Overview
Industrial Natural Gas Prices, by State
Residential Natural Gas Prices, by State
The Prometheus Story
Transformer Copper Nano-particles
Detailed Economics of Prometheus
Electrify Everything is Slow
2021 September 7 Twitter Substack See all postsElectrifying heating is unimaginative.
What is Electrify Everything?
Global Warming and Central Planning
Proposals from those concerned about global warming have varied over the years. Government intervention is trending less popular as the market delivers new technologies like cheap solar panels, cheap batteries, and desirable electric cars. Advocates favor intervention for the sectors that still lack market solutions. "Electrify Everything" is an offshoot of this trend.
The Reasoning Behind Electrification
The decline in the cost of wind and solar electricity has energized the climate movement. Batteries have also declined in price, making electric cars capable of competing with gasoline cars. In the US, transportation and electricity generation produces over 50% of greenhouse gas emissions.
Concern has shifted to the other half of emissions from industry, buildings (mostly heating), and agriculture.
Source: EPA
Buildings are especially tough because their replacement cycle is decades or even centuries. But another technology's improvement seems to offer a path to decarbonization. Air-source heat pumps are now cost-competitive with natural gas heating across most climate zones when installed in new buildings. Renewable electricity powers the heat pumps. The strategy is simple to understand. It has a nice slogan in "electrify everything." Advocates usually encourage the strict standard of banning any fuels other than electricity in new buildings. The justification is that building replacement cycles are so long that we have to start today.
Engineering and Economic Realities of Electrification
A nice-sounding slogan doesn't nullify the complexities of physics and economics.
Heating Uses More Energy Than Cooling
In July in Austin, TX, the average temperature throughout the day is ~85 F. An air conditioner has to change the temperature 10-20 degrees for comfort (with some extra BTUs to handle humidity). In January, the heater has to raise the temperature by 15-25 degrees. Heating degree days (HDDs) or cooling degree days (CDDs) quantify this concept. A heating degree day is one degree below 65F for that day. If the average for the day was 40F, that day contributed 25 HDDs. Cumulative yearly HDDs and CDDs define the heating or cooling load for a city or region.
Even in warm climates, cities tend to have more HDDs than CDDs.
Physics of Heat Pumps
Heat pumps move heat from one place to another. They make air conditioners and refrigerators possible and electric heating more efficient. Air conditioners transfer heat from inside the home (cold reservoir) to outside (hot reservoir). In heating mode, heat pumps do the opposite. In thermodynamics, fridges, ACs, and air-source heat pumps can be called heat pumps and are a subset of heat engines. In regular life, heat pumps refer to an HVAC unit that can reverse to do heating or cooling.
Without help, heat cannot flow from cold to hot because of the 2nd law of thermodynamics. Heat pumps use energy and clever engineering to move heat without violating the second law. Heat pumps have a fluid (like freon) that can be colder than the cold reservoir and hotter than the hot reservoir under different conditions. Heat flows from the cold reservoir into the heat pump's fluid. Electricity compresses the fluid, making it hot. The heat from the fluid flows into the hot reservoir. The fluid goes through an expansion valve, dropping pressure and temperature to restart the process.
Oversimplified Schematic
Resistive electric heating can only provide as much energy as the electricity is carrying. A heat pump can deliver more heat energy than the electricity that it uses. The coefficient of performance (COP) is the ratio of heat provided to electricity used. COP decreases as the temperature difference between the hot reservoir and cold reservoir increases. The COP might be four at 50F, but it could be less than one at 0F, which is why many heat pump systems have emergency resistive heating elements. The Carnot Cycle efficiency is the maximum theoretical efficiency at any two temperatures.
Ground source heat pumps minimize the problems of cold air temperature by using the steadier ground temperature as the cold reservoir. They are costly to install, making them a niche item.
The physics means air-source heat pumps have the feature of being very efficient at mild temperatures. As temperatures get colder, there is a double whammy of increased heating demand and increased electricity usage per unit of heat delivered because of dropping efficiency.
Capital Intensity of Electricity Production
Electricity production is capital intensive. With solar and wind, this is taken to the extreme because there are no fuel costs. Batteries are also capital intensive. Plants running at high utilization minimize electricity costs.
To keep the grid running, electricity supply from plants or batteries must perfectly match electricity demand. An electrical grid must have as much capacity as the all-time peak demand from consumers. If generation cannot meet demand, rolling blackouts stabilize the grid and prevent equipment damage.
Heating Economics Favors Energy Dense Fuels
Natural gas, heating oil, electricity, propane, and firewood provide heating energy in the US. Electricity is used primarily in the warmest areas, heating oil in New England and natural gas everywhere else.
Imagine if Texas was 100% electric heat. Source: EIA
Because HDDs vary so much by geography, electric heating's share of BTUs provided is a fraction of the share of houses using electric heat. We can use natural gas usage as a proxy for heating demand.
Spiky. Source: EIA
Heating demand concentrates in a short period. The residential and commercial demand for natural gas shows large spikes in the winter. The peak natural gas heating usage is enough to generate 25-30% of US electricity demand. Warm states meet electrical heating demand with the same peaking assets that handle summer demand. Cold regions do not have this luxury.
Electrifying heating means building low utilization electrical generation and transmission in cold states, increasing electricity costs. Batteries are not a good solution because they also need high utilization to be cost-effective. In a solar, wind, and battery system, batteries can charge and discharge twice daily. Using batteries to meet demand from rare cold snaps means only getting a few cycles per year. The grids in question all have electrical generation capacity markets to pay rarely used peaking plants. The capacity market clearing price would increase significantly to spur new supply. Capacity markets do not allow solar and wind to bid. Capacity payments would go to new fossil plants.
Even worse, heating becomes fragile. When the temperature is coldest, electric heating creates spiraling electricity demand from the decreasing efficiency of heat pumps and increasing demand for heat to maintain indoor temperatures. Extreme cold can also make running power plants harder. The grid fails, and homes lose power when they need it the most to preserve lives and property.
Studies like those from Rocky Mountain Institute show the cost of electrifying heating using current market prices. If everyone in a cold region used electric heating, the cost of electricity would rise, and electric heating would no longer be cost-effective.
Heating economics favor high energy density fuels because peak demand is short and enormous compared to baseline demand.
Alternatives to Electrification
Heating can have zero net emissions without being electrified.
Markets Are Weird
Natural Gas Storage Industry
Markets find ideas that aren't obvious. The natural gas storage industry is a perfect example. Historically, the Southwest produced natural gas while the Northeast and Midwest consumed it. Pipelines sized to move the winter demand would be empty most of the year. Gas wells in the Southwest would have to shut in during summer and only sell gas during the winter. Storage solves this problem, but natural gas tanks are impractically expensive. The industry realized that it could inject gas in depleted gas fields near the demand centers, allowing wells and pipelines to run at steady rates. Oil companies discovered oil and gas reserves, produced the oil and gas, then pumped gas back in them!
After deregulation, demand for gas from power plants and traders increased. The old storage facilities slowly built up storage in the summer and then discharged it in the winter. The low permeability of the depleted fields limits injection and production rates. New users needed their gas faster for trading and to meet swings in electricity demand. Storage companies came up with the idea of drilling into massive salt domes (literally giant blobs of underground salt) and pumping water into them to dissolve salt to make caverns. Gas could flow in and out rapidly of the empty caverns. Again, who had that on their bingo card?
Applications for Heating Decarbonization
With the electrification of heating, we are back to the 1920s pipeline company problem. It is not ideal to size our grid and generation capacity to meet peak winter heating demand.
There are solutions that no one has imagined yet. Some ideas have serious regulator and consumer adoption hurdles. Nuclear radiators, anyone? The simplest solution is to make drop-in fuels that utilize our existing infrastructure.
Making Carbon Free Fuels
There is more than one way to skin a cat.
Basic Chemistry
Many processes exist to turn hydrogen and carbon dioxide into fuels like methane (natural gas), methanol, and other liquids like gasoline. Conveniently, there are many ways to make hydrogen and carbon dioxide is what we want to remove from the air.
The first step is making hydrogen. The carbon-free way to do this is by splitting water using electricity via an electrolyzer into hydrogen and oxygen.
Hydrogen from Solar + Wind
Solar and wind produce variable electricity that is likely to be in surplus part of the year, especially in the spring and fall. The extra electricity can make hydrogen.
The plus is that surplus electricity is likely to be very cheap. The negative is that electrolyzers to make hydrogen by splitting water are expensive. It is more cost-effective to run them full time. Additionally, hydrogen is costly to transport. Users consume hydrogen within a few hundred feet of its production. Applications that use hydrogen as an intermediate to make higher-value products with higher break-even electricity prices, allowing near 24/7 operation, make more sense than hydrogen alone.
Given the growth of solar and wind, low-temperature electrolyzer designs are seeing a lot of hype. Manufacturing learning curves that decrease electrolyzer prices could allow hydrogen production at increasingly economic prices and overcome some utilization problems.
Hydrogen from Nuclear
I am pretty skeptical that new nuclear can compete with solar + wind + batteries in providing bulk electricity. Not because of physics, but because of regulatory barriers that increase costs. Nuclear is more competitive in producing hydrogen.
Most of the focus has been on low-temperature hydrogen production using only electricity. There are hundreds of possible pathways to make hydrogen using combinations of heat and electricity. Heat is cheaper than electricity, possibly reducing the cost of hydrogen production. A typical nuclear power plant converts heat to electricity at 35% efficiency. Low-temperature electrolysis splits water at 70%-80% efficiency. Some thermochemical processes can convert heat and electricity to hydrogen at 90%+ efficiency.
Nuclear plants run 24/7, increasing equipment utilization. Integrating hydrogen production with the production of synthetic fuels can lower the cost even more. Making fuel releases heat. Integrated plants can recycle the heat into more hydrogen production.
At first, CO2 could come from biogenic sources like ethanol plants. Further scaling would require air-captured CO2 or other integrated processes.
There are still high regulatory barriers. The plant design would be different than a plant optimized to produce electricity, requiring a new regulatory process. Some existing nuclear plants are looking at producing hydrogen because they are becoming uneconomic at wholesale electricity costs. I can't imagine the hurdles they face even modifying their NRC permits.
Hydrogen from Geothermal
Geothermal, like nuclear, provides 24/7 operations. It only converts 8%-20% of energy to electricity. Producing hydrogen, specifically co-located with synthetic fuel production, potentially offers better economics and faster time to market than selling electricity.
The hundreds of possible thermochemical processes have varying temperature requirements and efficiencies. Geothermal could provide low temperature (<300C) process heat that some steps use. An advantage of co-locating with synthetic fuel production is that many fuel synthesis processes produce high-temperature heat, mitigating geothermal's low-temperature disadvantage. Instead of competing with solar and wind at 10%-20% efficiency, geothermal might make synthetic fuels at 40%-70% thermal efficiency, depending on what designs are feasible.
Almost all the research on thermochemical hydrogen production has had 800C nuclear heat in mind. It might take a fair bit of research and experimentation to find a process that best minimizes CAPEX and maximizes efficiency while taking advantage of geothermal's parameters. If one exists.
Additionally, this would require scale. There is significant CAPEX associated with equipment, which is why it needs to run 24/7. Scale impacts the cost because vessel volume increases faster than the surface area (the steel) as diameter increases.
If there is an application in the decarbonization of energy where integrated oil majors have a comparative advantage, here it is.
Direct Air Capture
If direct air capture and sequestration fall rapidly in price, it may be cheapest to continue burning fossil fuels and sequester the carbon.
A company like Charm Industrial is focused singularly on sequestration. They use plants to capture carbon dioxide and pyrolysis (super hot reactor without oxygen) to turn the biomass into char and bio-oil. The bio-oil gets pumped underground, sequestering carbon.
Other techniques that capture CO2 from the air with solvents produce CO2 that industrial processes can use, like synthetic fuel production.
You can buy offsets from Charm right now for $600/ton. The market is nascent. Studies suggest $100-$200/ton for solvent techniques is possible within a few years. Some wild-eyed ideas like olivine weathering have the potential to be as low as $10/ton.
Aqueous Chemistry
There are milder approaches to producing hydrocarbons from water and air beside the old school, metal bashing approaches. Prometheus is an example of one startup pursuing solutions using aqueous chemistry (reactions that happen in water).
There are several steps in Prometheus's process.
Contact air with a water-salt mixture that absorbs CO2 from the air.
Capturing CO2 at 400 ppm and purifying it for a traditional chemical process is expensive and energy-intensive. Aqueous chemistry can use small concentrations, simplifying the solvent and eliminating the need for solvent regeneration.
Apply electrical current to the CO2 rich water in the presence of a copper and carbon nano-catalyst to produce alcohols like ethanol.
These catalysts only became practical a few years ago, and improvements have been rapid. The need for using a stand-alone electrolyzer to split water is eliminated, providing CAPEX savings. Efficiency can roughly double with further progress in catalysts, which will be critical for reducing costs. Prometheus licensed their technology from researchers at the Oak Ridge National Lab (ORNL).
Use a carbon nanotube filter to separate the alcohols and water.
Water and ethanol mixtures are difficult to separate, requiring a lot of energy and equipment. Using the traditional distillation process would kill the economics. The founder/CEO of Prometheus started his career in water purification, inventing a desalinization process that used less energy. Before starting Prometheus, he worked for almost a decade developing nanotubes that block water but let other compounds pass. Developing this technology involved solving some long-term nanotube challenges like producing uniform sizes/properties, orienting them in the correct direction, and finding production processes that could scale at a reasonable cost. Possible use cases before separating fuels included degreasing water and other types of water purification. Energy use is reduced by 90% compared to distillation.
Use a catalyst to upgrade the alcohols to jet fuel precursors.
Catalysts in this area have recently improved as well. Prometheus licensed technology from ORNL that allows a single-step reaction with milder conditions than previous technology.
Aqueous chemistry does not require high pressures or temperatures, lowering capital costs. The disadvantage of this chemistry is lower conversion efficiency. Break-even requires electricity prices around $0.02/kWh. Lower CAPEX means running only when electricity prices are low is more feasible, nullifying the efficiency disadvantage. A technology like this is more likely to fill the niche of using extra wind and solar than electrolyzers making hydrogen.
Prometheus is already at the pilot scale. The classical chemical engineering challenge of moving from pilot to industrial production is ahead of them. They hope to have cost-competitive fuels within the next two years. Some sales to climate-conscious consumers will be possible even if they are not fully competitive, allowing scaling and further development. Jet fuel is refined heating oil, and Prometheus's product is a drop-in replacement for ~10% of heating emissions.
Synthetic Fuels and Carbon Offsets
Different hydrocarbons have different prices based on their supply and demand. Liquid fuels are typically more expensive on a BTU basis. Crude oil at the wellhead has recently been 5x-10x the dollars per BTU as wellhead natural gas. As you might guess, synthetic fuel adoption has focused on oil products or even higher value specialty chemicals.
In the past, synthetic fuels had to be cost-competitive with fossil fuels to have any investment, which meant there was none. Today, there is a recognition that some consumers and companies are willing to pay for carbon sequestration. Early adopters allow the technology to scale and achieve cost reductions through learning.
The flexibility of these technologies means production can be closer to consumers. In the US, Natural gas at the wellhead might earn $1-$3/MCF. Industrial prices in California are over $8/MCF. Synthetic gas can skip expensive gathering, processing, and transportation steps. It could be several times the cost of wellhead gas and be competitive.
Industrial Synergies
Energy use in the heating, industrial, and agriculture sectors has synergies. They use fossil fuels for process heat, building heat, and feedstock for industrial processes. Agricultural chemicals are a sizable portion of chemical production.
The processes of producing hydrogen, carbon dioxide, and hydrocarbons can ripple through these sectors. Using zero-carbon feedstocks in materials sequesters carbon, reducing CO2 concentration in the atmosphere. Some intermediate processes are producers of hydrogen or carbon dioxide, creating opportunities for a new industrial ecosystem.
I will go more into detail on these industrial synergies in a later post.
Interruptible Demand Increases Grid Capacity
If lower electricity prices lead to more year-round electricity demand, electric heating could happen without raising electricity prices. The catch is that the new sources of electricity demand have to be interruptible. If electricity prices skyrocket on a cold night because heating demand is up, it needs to make economic sense for them to shut down during the high-priced period.
Some current industrial users, like aluminum plants, have high costs from shutdowns and would run right through high-demand events. If new users like indoor agriculture or fuel production handle temporary shutdowns at low cost, the electricity they free up can heat homes. Electrify everything!
Pure Hydrogen
Hydrogen causes metal embrittlement and tends to leak. Pipeline companies set low limits to how much hydrogen they allow. Storage of hydrogen is expensive because its density is low. There is a reason that hydrogen transportation and storage are rare.
Unknown Unknowns
Making ethanol using aqueous chemistry and base metal catalysts did not seem like a promising technology. One of the breakthrough experiments involved copper nanoparticles that performed much better than expected. The researchers investigated and found the copper particles were self-organizing into cubes and catalyzing the reaction more efficiently. Chance plays a role in many of our most important scientific discoveries.
There is so much we don't know about the world. Researchers and entrepreneurs have only focused on cleantech for 10-15 years. We are only getting the early returns for those investments. There are many other technologies uncovered here. Cheaper ground source heat pumps and solar thermochemical hydrogen, among others, could see unexpected breakthroughs.
Don't Fight Consumers
You catch more flies with honey than vinegar.
Consumers Love Gas
There is a subset of people that have feelings about gas like others do about the 2nd Amendment. People love gas for stoves, grilling, cheaper heating, and water heaters. Induction ranges arent't the rage on HGTV yet.
Use Subsidies and Mandates Wisely
Mandates and subsidies are expensive in dollars and lost consumer surplus. Drop-in fuels mean that we don't have to criminalize gas furnaces. Even if new gas furnace sales are banned, consumers facing expensive building retrofits will continue to repair old furnaces longer than current replacement cycles. Trying to speed up this adoption becomes extremely expensive in terms of subsidies or requires a high level of authoritarianism. As an example, China's political class was unhappy with pollution around the capital several years ago. They went door to door, ripping out coal furnaces in provinces around Beijing, leaving many poor Chinese staring longingly at their coal piles they could no longer burn. Uncle Xi needed fresh air!
Waiting for markets to provide options is a more humane and practical strategy. If in 2040 there is still concern about carbon emissions and not yet adequate solutions available, subsidies could bridge the gap for drop-in fuels at feasible costs. By 2040, alternatives will likely be even closer to cost if they haven't eclipsed the cost of fossil fuel.
Raise the Status of Carbon Offsets
There has long been a subset of customers that spend extra for lower carbon emissions. The smaller the cost increase, the more they will buy. Encouraging consumers and companies to buy offsets helps technologies scale and raise capital. A removal cost or premium of $100/ton of CO2 would increase the cost of gas by $5 per MCF. Offsets are manageable for many in California and other states, where residential and commercial gas costs $20/MCF and heating is a small portion of consumers' budgets.
International Considerations
The US is rich and has superior oil and gas production technology that gives us cheap natural gas. Most of the world does not have as sturdy electricity and gas distribution.
The developing world needs liquid fuels like propane and butane for heating and cooking. There are billions of people burning solid fuels that harm their health and cause air pollution. If cleaner fuels are available, they are often several times more expensive than what we pay in the US because pipelines and import infrastructure are lacking. Producing these fuels independent of creaky power grids and without extensive port infrastructure would improve quality of life.
In developed nations like Europe and Japan, synthetic fuels can be competitive earlier because fuel prices are higher, and the EU has carbon prices.
Give Markets Time
Heating demand is satisfied by a diverse set of fuels. Natural gas provides the lion's share of heating, while electricity serves mild climates, and propane and heating oils fill their niches. Using mandates like forcing buildings to be all-electric or creating massive subsidies for conversion ignore economic considerations and could cause a backlash among consumers. Electric heating may become dominant without subsidies and mandates, but it would need to be pulled by excess electricity generation.
Investors have shown a willingness to fund an incredible range of alternatives while early adopters help them scale. Patiently letting these technologies grow will decarbonize heating much faster and cheaper because drop-in replacements can improve emissions faster than putting electric heat pumps in every home. Setting standards for using electrical heating could deter investment in alternatives.
Oil and gas have a supply curve like any product. Natural gas has high fixed transportation and processing costs that make it vulnerable to technologies that can locate near end users. If synthetic natural gas reaches price parity, regional adoption curves could be steep. Ethane, propane, and butane are co-products from natural gas and have a less flexible supply curve. Crude-derived fuels will see more deflation and a longer adoption cycle once competition between fossil and synthetic products intensifies, as the crude market is global with a range of supply prices.
Several questions will determine the winners and losers.
Markets are great at sorting out these kinds of questions.
Hydrogen from Nuclear Overview
Industrial Natural Gas Prices, by State
Residential Natural Gas Prices, by State
The Prometheus Story
Transformer Copper Nano-particles
Detailed Economics of Prometheus