Another marginal cost bites the dust?

The story of renewable energy changing the world for the better has always been about solving two parallel concerns: figuring out 1) how to produce clean, renewable power cheaply and 2)how to store the power generated for long periods of time. Over the last decade the cost of solar and wind power generation has plummeted. It’s not just that its cheaper per megawatt than fossil fuels, its also that the rate of cost decline shows not signs of slowing. But to fully displace fossil fuels also requires solving the “intermittency problem”. You can store piles of coal and barrels of oil, but how do store solar power for use when the sun doesn’t shine?

If we allow ourselves a moment’s credulous excitement and believe the press releases from Form Energy, a major step towards solving the intermittency problem has been made. I am in no position to judge the credibility of their technology or their capacity to effectively scale its development and distribution, but I find the opportunity to engage in a little futurism too exciting to resist. (Warning: I’m an economist, not an engineer. But even if I have the specifics wrong here, it’s still a fun exercise.)

The new technology in question is an iron-based battery that stores power for upwards of 100 hours. This reads to me as meaning two things:

  1. Power is going to become very cheap
  2. The batteries are going to be heavy

The second part is important. These aren’t the batteries that Tesla wants to put in their cars. They are, however, the batteries that can make for a local power station…or perhaps enable a perpetually self-powered large train?

If you’ve been daydreaming about high-speed rail remaking day-to-day American life, today is potentially a very big day for you. If you want to see millions of travelers speeding along rails in the 21st century, however, you need to lure them out of their cars and business-class flights with a speed and cost proposition that is not just better, but irresistible. Even more, you need to lure them in numbers sufficiently vast that cities (states? nations?) face a value proposition so great that its worth making fixed cost investments measured in hundreds of billions of dollars. A 10% reduction in cost isn’t going to do that. Appeals to community, civic duty, environmental stewardship — I’m pretty sure that will have much effect. What I think might do it, however, is cutting travel costs in half.

Why stop at half though? What happens if a $500 billion investment means urban residents can travel for a twentieth of the cost we associate with cars and planes today? What if that investment only truly pays off if other cities on a route make commensurate investments? It’s easy to point out the challenges of multi-state coordination in a country with highly polarized politics. What’s maybe easier to forget are the challenges that success might bring.

In a world where public transit pushes the marginal cost of travel to a tiny fraction of that faced by travelers in regions without similar fixed cost investments, the urban-rural divide becomes all the starker. Furthermore, its not every urban center that participates – it’s only the ones in the network. Automobiles, while not necessarily inexpensive, evolved into a relatively democratic mode of travel. Combined with the interstate highway system, hamlets and towns could pop up all over the country, and sometimes hang around long after local industry had dissipated or fled. In a world extraordinarily low-cost transit, the gravity of the dense urban areas could become irresistible. Pick a side in a congress heavily gerrymandered along urban-rural lines, and imagine you’re a representative from either side, and it doesn’t take much reflection to realize that no one will be on the sidelines for these votes. If you’re from a rural district, your political life and the future of your party depends on stopping free high speed rail from ever seeing the light of day. Perhaps ironically, though, if the costs per mile of NYC subway are a relevant metric, union negotiated prices may be an even bigger obstacle.

We’ve spent the last year adapting to technologies that left us thinking half of us could work from home, that we could live anywhere, dispersing us to every corner of the globe in a thin layer of extremely online exurbanites. Today we got a glimpse of a different technology, one that might pull us closer together again while taking a major step towards addressing global climate change and increasing the wealth of billions of people at every decile of the income distribution. We’ve lived our lives on landscapes defined by the maps first drawn by sailors, caravans, and indigenous peoples. Maps full of rivers, mountains, and intricate webs of roads. If the next round of massive fixed costs investments allows those along its chosen network to enjoy the benefits of near costless travel, don’t be surprised when the defining maps of the future look like the London Tube.

One thought on “Another marginal cost bites the dust?

  1. Scott Buchanan July 26, 2021 / 8:27 pm

    Interesting points.
    Got me curious about how much of a current diesel fuel train’s costs are the fuel (I know railroads brag about how much less fuel per ton-mile they use compared to freight trucks…)
    So FYI, here is the first refc I came across:
    https://reasonrail.blogspot.com/2013/03/how-much-does-it-cost-to-run-train.html
    “…Metrolink [diesel fuel] averages 2.7 gallons per train-mile with their heavier new Rotem cars and long consists and budgets $3.75 per gallon, which represents $10.125 per mile. By way of comparison, an electric train which consumes 30 kWh per train-mile at 12¢ per kWh would have a fuel cost of only $3.60 per train-mile and many trains average less.

    With the proviso about equipment maintenance kept in mind, the total marginal cost of running a Metrolink train is $33.05 per mile. …”

    So…with current diesel fueled trains, the fuel cost is maybe 1/3 of total, so reduction in fuel costs alone may not give a step change in costs.The rest includes especially crew costs — – though maybe in the future with more automation we will need less crew – autonomous trains?

    Like

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