In the second part of the Podcast-Session with Prof. Dr. Christof Flath, we talked about the German energy transition, regulatory obstacles and how data can improve the market mechanism. Moreover, we discussed the inefficiencies of the current mobility system and the opportunities of sharing concepts, autonomous driving cars and eMobility.
Energy transition – from uniform to differentiated product quality
German policy has made the decision to follow a new energy policy with a strong focus on renewable energy resources. The plan is to replace the traditional nuclear-based energy production by renewable energy sources by the year 2050. This leads to totally new market conditions and regulation and brings numerous challenges. The supply side, that has formerly been very stable, now becomes highly volatile. One issue is the contrast between the laissez-fair approach to the demand side (consumer can consume energy any time they want) and the volatility on the supply-side. In a regulatory context, it is important to find a mechanism that creates incentives and controls the supply and demand side.
One of the biggest challenges can be seen in getting people accustomed to a new mindset in energy consumption. The problem with electricity is, that it is just so ubiquitous and we have never even tried to think about alternative ways of consuming it or paying for it. Electricity is always there, in our expectation and so we’ve essentially formulated a product with perfect quality. What is actually needed under the new circumstances are quality differentiated services for the electricity market. For instance, people could have contracts for example for charging their cars or for heating water with electricity capacity that is not 100% reliable at attractive rates and some kind of guaranteed flat rate for a higher price.
Fundamentally speaking, in energy economics there is energy trilemma of ecological sustainability, cost efficiency and reliability. These three elements are essential, and there is always a trade-off. So, for instance if you’re going solely with renewable energy sources, you are essentially losing reliability and you are facing a very expensive system. If you are fully committed to brown coal, it is going to be low cost and reliable but highly unsustainable. Interestingly, in public discussions it’s mostly about cost and CO2 pollution and less about reliability questions – because people are afraid of losing energy reliability. But a lot of electricity usage is ultimately flexible and we need to develop a world where we have two markets which is high quality electricity, which is more less perfectly reliable and low quality tiers of electricity which are more flexible and the end use is not as time critical. Prof. Flath states, that although research has made considerable progress in the last years, solutions still have not really been entering the market due to consumer’s preferences, regulatory frameworks and suppliers that currently think that there is still enough business doing it “the old way”. Sadly, this is not a promising picture in a very important market.
A promising opportunity can be seen in the ubiquitous computing, networking and communication capability. It is technically possible to send a digital signal which triggers a boiler or a washing machine, a dishwasher and thereby leverage consumer flexibility – the basic idea of smart grids. There has been a lot of research – but what we’re still seeing are big prototype-projects and no real market break-through. One reason here, once again, is the complex and tight regulatory environment.
New mobility systems – from owning to sharing + autonomous driving + electric vehicles
Mobility, especially concerning the usage of cars – is a highly inefficiency field. In Germany for instance, there are 45 Mio. registered cars that are moved on average 1h/day. The big question with regard to a new mobility system is, how do we scale this inefficient usage. Sharing concepts offer opportunities to increase the average usage of cars by the factor of ten, i.e. up to 10-12 h/day. Ideally, we shouldn’t buy a car, moreover we should use it with other people – the concept of car sharing. From an economical point of view, this trend has the power to change markets and business models. Car sharing services have improved a lot lately. Digital car sharing services make it possible to find, access and pay for the vehicles via apps. Especially in urban areas, this is a promising complement to existing public mobility infrastructure. Note, in this description so far, we’ve completely omitted the idea of self-driving cars. Taking self-driving cars into these concepts, it will not be necessary to drop off the car anymore, because the car will drive on and pick up the next person. There are estimates, that with self-driving cars integrated in shared mobility concepts, we can reach utilization rates of around 20 hours per day – another factor of two.
We haven’t been talking about electric mobility yet. The numbers of registration are still more or less disappointing – especially in Germany and it is questionable if they are the huge driver for sustainability in the automotive sector. In the first step, it would be more efficient to get more cars off the street and more people involved in sharing concepts – the savings would exceed savings that can be made by replacing cars by electric vehicles. If we are making progress in increasing utilization levels of vehicles and combining this with the introduction of electric vehicles, it becomes a very attractive future mobility approach. Especially in urban areas, where we have small average driving distances, we find ideal electric vehicle usage patterns.
Concepts are at hand – but there is no hype, yet. This might be linked to the fact that the approach is not sexy because it feels like giving something up. As the concepts further improve and new generations are getting used to it, shared mobility concepts (+including elements of autonomous-driving cars and eMobility) are a dominant business model. Therefore, the automotive sector has to prepare for a shift in these patterns.
For more details, listen to the full Podcast!