Over the last few years, there has been a lot of loose talk about ‘disruptive technology’ in the transport space. For instance, in 2014 researchers down in Wellington started talking about how autonomous vehicles, electric vehicles, and ride-hailing apps would ‘disrupt’ the entire transport sector. From an Idealog article at the time:
In about 15 years, how we move on the roads will be completely disrupted. Yet we continue to build roads assuming it will be business as usual, according to the New Zealand Institute of Economic Research’s researcher Nick Allison.
Allison notes the history of New Zealand’s transport policy has been non proactive. “A period of under-investment in land transport has led to the congestion problems in Auckland. Today we continue to build roads assuming a business-as-usual future,” he says in his paper (Disruption on the road ahead! How auto technology will change much more than just our commute to work)
At the time, I wrote a few blog posts expressing my skepticism. I pointed out that the history of transport technology innovation showed that changes to how people travel occur infrequently and incrementally, that there were likely to be significant lags up uptake of new technology, and that, most of all, the technology spruikers seemed to be ignoring electric bikes, which are revolutionising many people’s bike commutes in real time.
— Bruce Englehardt (@SounderBruce) May 5, 2017
I remain skeptical. But of course, assumptions about what is possible can change quite rapidly – that’s literally what ‘disruption’ means.
So I thought it would be instructive to look at a market where disruption has come hard and fast: the electricity market. Over the last decade, the price of solar power has dropped dramatically, which is rapidly upending the market and leaving forecasts behind:
I made a graph showing the historic track record of the IEA in predicting solar: reality steeply increasing but IEA is having none of it. pic.twitter.com/Mq5Jx8LY6z
— AukeHoekstra (@AukeHoekstra) May 21, 2017
In the wake of Trump’s decision to pull out of the Paris Agreement to halt climate change, the falling cost of solar power is an important bright spot. As Paul Krugman wrote in the New York Times, it means that economics, not policy, may be enough to forestall catastrophe:
At this point, claims that trying to limit emissions would cause vast economic harm have lost all credibility: The same technological progress in alternative energy that is marginalizing coal would make the transition to a low-emissions economy far cheaper than anyone imagined a few years ago.
But disruption always creates winners and losers. As Krugman points out, falling costs for solar power have boosted that industry – but they have also cut the legs out from under coal mining. That was starkly highlighted in recent news from India: Ian Johnston reported in May that India is cancelling its plans to expand coal-fired power plants as solar electricity is now cheaper than coal:
India has cancelled plans to build nearly 14 gigawatts of coal-fired power stations – about the same as the total amount in the UK – with the price for solar electricity “free falling” to levels once considered impossible.
Analyst Tim Buckley said the shift away from the dirtiest fossil fuel and towards solar in India would have “profound” implications on global energy markets.
According to his article on the Institute for Energy Economics and Financial Analysis’s website, 13.7GW of planned coal power projects have been cancelled so far this month – in a stark indication of the pace of change.
In January last year, Finnish company Fortum agreed to generate electricity in Rajasthan with a record low tariff, or guaranteed price, of 4.34 rupees per kilowatt-hour (about 5p).
Mr Buckley, director of energy finance studies at the IEEFA, said that at the time analysts said this price was so low would never be repeated.
But, 16 months later, an auction for a 500-megawatt solar facility resulted in a tariff of just 2.44 rupees – compared to the wholesale price charged by a major coal-power utility of 3.2 rupees (about 31 per cent higher).
“For the first time solar is cheaper than coal in India and the implications this has for transforming global energy markets is profound,” Mr Buckley said.
“Measures taken by the Indian Government to improve energy efficiency coupled with ambitious renewable energy targets and the plummeting cost of solar has had an impact on existing as well as proposed coal fired power plants, rendering an increasing number as financially unviable.
This is having knock-on effects on the Australian economy, which has been relying on India as a destination for its coal exports. For instance, house prices in Perth are falling as economic and population growth from their mining boom begins to unwind. And it illustrates a broader point: When disruption does happen, it means that companies’ and governments’ investment plans must change in response.
Put simply, when the price of solar panels drops dramatically, you can’t keep building coal-fired generation. Some coal plants you had planned will never be built – and some that you’ve already built will have to close early, at a loss.
If you think there is a significant chance of a major disruption in transport technology, then it should make you more cautious about your about investment plans. That’s because future disruption will raise the risk associated with building things today to meet long-term demands. Some of them may turn out to be unexpectedly bad ideas.
Another approach you could take would be to build things that are more adaptable to future disruption. That means, for instance:
- Building infrastructure that can easily be re-purposed for alternative uses or adapted to changing needs. The Northern Busway was brilliant on this, as the same space could be used for cars, trucks, bicycles, flying car landing strips, or many other things, if the busway wasn’t a success. (Which it was, in spades.)
- Not building ‘gold-plated’ infrastructure when there are cheaper, more flexible options that could be built at a lower cost without preventing you from pursuing a higher standard of infrastructure in the future. Looking at you, East-West Link…
A second important consideration is that if there is a substantial risk of disruption, you should absolutely not have rules that are premised upon the idea that existing patterns will continue indefinitely into the future. Transport and urban planning is guilty as sin on this front: it generally looks at the behaviour of today and assumes that it will remain fixed for all of time.
What do you think about the odds of disruption in the transport sector?