Diatribes of Jay

This is a blog of essays on public policy. It shuns ideology and applies facts, logic and math to economic, social and political problems. It has a subject-matter index, a list of recent posts, and permalinks at the ends of posts. Comments are moderated and may take time to appear. Note: Profile updated 4/7/12

27 May 2008

A Solution to Our Energy Crisis: The Chevy Volt


[For the latest on the Volt and the auto-industry bailout as of 11/21/08, click here.]

The Volt Concept
The Volt’s Operating-Cost Advantage: Better than Dollar-a-Gallon Gas
Why the Volt is Revolutionary
The Obstacles to Success
Conclusion: A New Manhattan Project?
Update (7/15/2008)

World-changing products come only a handful a century. The last century saw the airplane, radio, television and the personal computer. Except for the PC, each took decades to reach its full potential.

In the next two or three years, we may witness the introduction of another world-changing product. Surprisingly, its maker will be one of our stodgiest and least innovative manufacturers. The product, called the “Volt,” will appear under General Motors’ “Chevrolet” trademark.

I’ve already written a post about the Chevy Volt, in which I enthused about its potential from a consumer’s perspective. This essay explains why the Volt is potentially a world-changing product that deserves the attention of politicians and policy makers.

As its name suggests, the Volt is essentially an electric car. As such, it will help solve four of our nation’s four most pressing energy problems.

First, it will dramatically reduce our economic and security vulnerability, which derives from relying on a single fuel (oil) for virtually all of our transportation needs. It will do so by allowing over half of our commuting and most short-haul light transportation to run on any source of power capable of generating electricity.

Second, because electrical energy costs much less than gasoline, the Volt will slash the cost of short-haul transportation by as much as a factor of ten. It will therefore give us economic breathing space to implement rational long-term energy policy.

Third, since about a quarter of our electrical energy comes from carbon-neutral nuclear and renewable sources, the Volt will reduce our transportation’s contribution to global warming by at least one-eighth (25% of the half that switches to electrical power) in the very short term.

Finally, by running on battery-supplied electricity—which produces no air pollution whatsoever—the Volt will shift transportation-generated air pollution from cities into the countryside, where power plants are located. It will thus make our crowded cities more livable. To the extent we also convert our electric-power infrastructure to nonpolluting nuclear and renewable sources, the Volt will reduce pollution in both city and countryside.

The rest of this essay explains how and why a single product will have these dramatically salubrious effects.

The Volt Concept

GM’s Volt will be a “plug-in hybrid.” Like Toyota’s Prius, it will have an internal combustion engine to provide motive power from fuel. Unlike the Prius’ engine, the Volt’s combustion engine will run on gasoline, ethanol, or any combination of the two. General Motors may use a small three-cylinder, flexible-fuel engine already in production in Brazil, where the vast majority of cars can run on any gasoline-ethanol mix.

But none of this makes the Volt revolutionary. What does is the Volt’s “plug-in” character. The Volt is essentially a fully electric car with an internal combustion engine for long-range and emergency use. In fully electric operation, it can recharge itself in several hours by plugging into a normal electrical outlet in your garage.

The difference between the Volt and the Prius is in batteries. The Prius’ batteries can move the car unaided only for short distances. In contrast, the Volt’s batteries will allow it to make a reasonable commute on battery power alone. The design specifications provide for a round-trip commute of forty miles—twenty each way—on nothing but battery power. According to GM, that length of trip accommodates more than half of commuting by American consumers.

The Volt’s Operating-Cost Advantage: Better than Dollar-a-Gallon Gas

When using gasoline or ethanol as combustible fuel, the Volt will have a range of about 400 miles on six to seven gallons of gas. In that respect it will be comparable to the best small cars now on the market, and better than most.

Yet what makes the Volt potentially so revolutionary is that it can run without any combustible fuel at all. Many consumers will be able to use it for daily commuting without ever buying gasoline or ethanol. Instead, they will recharge it by plugging it into a normal electrical socket in their homes, reserving the Volt’s liquid fuel for longer trips and emergencies.

Buried in the Volt’s website is a crucial design parameter: 8 kilowatt-hours of electrical energy stored in the Volt’s batteries give it 40 miles of range. That’s five miles per kilowatt-hour. To calculate the cost of operation per mile, simply divide the price per kilowatt-hour of electricity at your home by that number.

My own latest electric bill, for example, shows an average price of about seven cents per kilowatt-hour. Divide by five miles per kilowatt-hour, and I get 1.4 cents per mile. At four dollars per gallon, an average small car with 20 miles-per-gallon efficiency costs 20 cents per mile to run. For me, the Volt would have a cost advantage over a gas-driven car of 20/1.4, or about fourteen times. With the Volt, consumers in most of the country will realize short-haul transportation cost savings of more than a factor of ten.

Of course the Volt’s actual performance will depend on driving conditions. No doubt the design specification is based on travel over level ground. Commuting over hilly terrain will probably require more energy—even though the Volt, like every hybrid, is designed to recharge the battery from the car’s kinetic energy as it goes downhill.

But even if GM’s specifications are high under practical driving conditions by as much as a factor of three, a Volt charged from an electric socket will still have a four-times cost advantage over gasoline. Running one on electric power alone will be better than having dollar-a-gallon gas again.

How do we know this promise is real? GM claims it has already assigned more than 200 engineers and 50 designers to work on the Volt, and an additional 400 to work on its subsystems. It has spent millions on design, engineering and promotion. Historically, GM has been one of the stodgiest and least innovative auto companies in the world. It would not be investing in the Volt without reason to believe that its effort will command success in the marketplace. Its chief reason to expect success is the huge cost advantage that using electrical energy to commute will provide.

Why the Volt is Revolutionary

What makes the Volt so revolutionary is not its “Gee Whiz!” factor, but something much more pedestrian: its operating-cost advantage over internal-combustion engines using oil as fuel. Consumers can use it to commute less than 40 miles round trip to work or school without ever buying fuel.

If the cost advantage of electric power motivates millions of consumers to do so, the Volt will produce four dramatic changes in our nationwide energy picture.

First, it will produce a massive shift in energy usage from gasoline (and ethanol) to electric energy. In so doing, it will help solve our national problem of dependence on foreign oil.

To the extent consumers charge their Volts from the electric grid, they will power their personal transportation by burning coal, our principal source of electricity at present. To a lesser extent (and depending on their location) they will power their commutes using nuclear, hydroelectric, wind, or solar power.

If millions of consumers use their Volts in this way, they will significantly reduce our reliance on foreign oil and the economic, balance-of-payments and national-security problems that it creates. These benefits will not require any significant increase in plant capacity, at least initially, since most consumers will recharge their Volts at night, when usage of existing electrical capacity is low.

Second, the Volt will vastly improve the flexibility and resilience of our national transportation infrastructure. Right now, our nation’s entire transportation infrastructure runs on a single fuel—oil—of which we produce less than half our needs. By relying on electricity, the Volt will give our infrastructure much greater flexibility. Whatever power source generates electricity will be the power source that consumers use to commute. They can travel on coal, nuclear power, solar or wind power, or any other means of generating electricity, including means not yet invented.

As we discover new means of generating electricity, we can transition to them easily and quickly, without having to replace millions of automobiles in private hands. All we have to do is build new power stations. Even distributed power generation will work with the Volt.

Third, the Volt will help solve the problem of global warming. In the short term, the additional demand for electric power that the Volt creates will likely come from burning coal—the dirtiest fuel known to mankind and the greatest cause of global warming. In the longer term, a rational national energy policy should shift the additional necessary production of electric power to carbon-neutral sources, including nuclear, hydroelectric, solar, wind, geothermal and biomass. As this transition occurs, the carbon “footprint” of our national transportation infrastructure will decrease.

Finally, the Volt will help solve the problem of air pollution in big cities. The Volt is likely to see its primary use in crowded cities, where commutes are short and electricity plentiful. A Volt running on power from the electric grid produces no air pollution whatsoever. Even if Volts run on coal-generated power, they will push air pollution out of cities and into the countryside where coal power plants are located. As other sources of power replace coal in generating electricity, the Volt will reduce pollution not only in crowded cities, but in the countryside as well. Thus the Volt can help both city dwellers and country folk breathe clean air again.

The Obstacles to Success

All this sounds a bit utopian, doesn’t it? Yet the obstacles to the Volt’s success are surprisingly few in number. GM already has experience with “flex-fuel” internal combustion engines in Brazil. Its electric motors and power systems are no different in principle from those that power Toyota’s Prius, which now enjoys sales of nearly thirty thousand cars per month and high ratings for reliability. The Volt’s design involves no basic problems in physics (requiring new technology) or energy economics (requiring rethinking the business model).

The only obstacles to success of the volt are practical. They break down into two categories: engineering and political.

The engineering challenge involves the batteries. The Volt’s batteries require advanced lithium ion technology, in which GM has no expertise. So it is relying on smaller companies for battery development. The batteries’ basic physics and chemistry are already proven; prototypes exist which meet the Volt’s design specifications.

The problem is reliability. Consumers have come to expect high reliability from gasoline driven automobiles. In order to match that reliability at reasonable cost, the Volt’s batteries must be capable of enduring thousands of charge-discharge cycles without deterioration. So far, the batteries have encountered unacceptable levels of deterioration. In some cases, they have caught fire.

There can be no guarantee that these problems will be solved soon. Honda’s chairman has reportedly [subscription required] bet against battery technology (and against GM), choosing instead to develop fuel-cell vehicles rather than battery-operated ones. But fuel cells require an additional step in the energy cycle: the generation of pure hydrogen or methane as fuel for the cells, using electricity. Batteries promise better efficiency and greater simplicity, if they can be made to work reliably.

Making the Volt’s batteries work reliably requires no new developments in physics or chemistry, just better reliability and quality control. Those are things at which both American and Japanese industry excel. The battery companies suffer no shortage of investment. Given their huge upside potential, they are probably one of the best speculative investments in recent industrial history.

Many industrialists have gone broke betting that something cannot be done. Honda may be one of those. Or its fuel-cell cars (if successful) may supplement the Volt for long-haul transport, beyond the range of the Volt’s batteries. There may be room for both Honda’s and GM’s new technologies.

Potentially more serious are the political obstacles. If the Volt works, it will be one of the most disruptive new technologies in history. By converting a large fraction of gasoline usage—first to coal and later to less polluting sources of electric power—it will render a large fraction of our energy infrastructure obsolete. It is therefore sure to encounter political opposition from the oil companies. It is also likely to encounter opposition from owners of independent service stations, many of whom the Volt will put out of business as consumers “fill up” from plugs in their homes.

Conclusion: A New Manhattan Project?

Of all the products and solutions now on the drawing boards to address our energy crisis, the Chevy Volt is the most promising and closest to fruition. In the short term, it can reduce our cost of transportation and dependence on foreign oil dramatically by shifting the power source for commuting and short-haul transport from gasoline to coal. In the longer term, it can help reduce global warming and air pollution as we develop “greener” forms of electricity production and discover new ones. In any event, the Volt will increase the flexibility of our transportation infrastructure by allowing it to run on any fuel or means capable of generating electricity.

As readers of this blog well know, I am no admirer of coal as an energy source. It is the dirtiest fuel known to mankind. Even at current levels of use, it already produces horrendous pollution, health and environmental problems, in addition to global warming. Therefore I have mixed feelings cheering a new development that, in the short run, is likely to produce a massive increase in the burning of coal.

Yet it is now apparent that our three-decade neglect of rational energy policy has produced a crisis of unprecedented proportions. Our economy, our middle class, and especially our poor already suffer greatly from high gasoline prices. So do our national budget and emergency and military preparedness. And there is no telling how much higher worldwide increases in demand and the perennial turmoil in the Middle East will drive gas prices.

Under these circumstances, shifting a significant fraction of our transportation power from high-priced foreign oil (which we do not control) to lower-priced domestic coal (which we do) is an unfortunate but necessary interim step toward economic stability, strategic safety, and a rational energy policy. The Volt, after all, is fuel neutral; any method of generating electricity will charge its batteries as well. It therefore offers not only quick relief from the high price and precarious availability of oil, but also the opportunity to address economic, strategic and environmental problems simultaneously as we make the transition from fossil fuels to nuclear and renewable sources of energy.

In all these respects, the Volt is a potentially world-changing product. As such, it deserves careful attention and nurturing on the part of industrialists, politicians, policy makers, and citizens.

The Volt’s maker, GM, is not without political clout and industrial resources. But GM has shelved promising projects before, including an electric car called the EV-1. Some suspect that its reasons for doing so had little to do with long-term marketability or public benefit, and a lot to do with maintaining returns from an obsolete and socially deleterious business model, namely, profitable sales of big gas guzzlers. Whatever the truth of those suspicions, politicians and policy makers should make sure that GM does not use its plans for the Volt as cover for ulterior business motives, such as fighting legislative fuel-efficiency standards.

GM itself has some incentive in that regard. It has performed abysmally in recent years, dramatically losing market share to foreign manufacturers, principally the Japanese. The Volt may be its last hurrah.

But far more is at stake in the Volt’s success than the survival of one company—even an American icon like GM. The success of the Volt and products like it offers the quickest, most painless and most market-driven path to energy independence and economic relief for our nation. Accordingly, its success is a matter of general importance, even national security.

The key technical challenge is the Volt’s batteries, now under development by small companies. If those firms show signs of stumbling, policy makers should give careful consideration to broadening the field and providing research assistance, whether in the form of government grants or direct assistance from national laboratories.

The success of the Volt—and of similar efforts by GM’s competitors—is too important to leave to the vagaries of the private marketplace. It should be a part of our nation’s industrial policy and of any political plan to address energy costs and energy independence.

Good industrial policy does not require picking winners. But it does require making sure that winning is limited only by technology and economics, not foot-dragging, stupidity, or ulterior business motives. Policy makers should insure that private actors do not sidetrack or suppress promising new technologies in order to prolong the profitability of obsolete business models having no long-term social benefit. We have suffered from an outmoded and poorly performing energy infrastructure far too long to tolerate additional foot dragging in the name of easy private profit, which often proves as evanescent as the sales of big SUVs today.

It bears repeating that the Volt concept requires only a single, minor additional innovation: making heavy-duty lithium-ion batteries reliable. All the rest of the technology needed for the Volt is ready off the shelf. In fact, it is running down the road in every Prius that you see around you. And reliable, mass-produced heavy lithium-ion batteries would have yet other immediate applications with dramatic impact on energy policy, such as making distributed solar power possible by providing an efficient and reliable way to store it at night.

Our Manhattan Project developed atomic weapons from a standing start in six years. It was entirely a federal government project, staffed by the best experts and brightest people in the nation. The development of reliable heavy lithium-ion batteries and processes to manufacture them is already well under way. Perfecting them is a task well within our nation’s collective technological competence. On the whole, it is a far easier task than was developing atomic weapons under wartime conditions in the early 1940s. If private industry cannot complete the task on schedule, then perhaps a new Manhattan Project is in order.

Update (7/15/2008):

The Seattle Times and New York Times have reported two important recent developments. First, as of June 4, GM’s board approved production of the Chevy Volt for 2010. Second, on June 30, GM’s Bob Lutz, its vice chairman and chief of product development, said the first generation Volt would sell for $40,000 and would lose money at that price. He also said that the Volt’s 40-mile range per battery charge would satisfy the commuting needs of 78 percent of U.S. commuters.

The new $40,000 price tag is 33% above GM’s initial estimate of $30,000. Undoubtedly it reflects increased cost for the batteries. With GM’s century-long experience in car production, it cannot have been so imprecise in predicting the cost of the mechanical and electrical systems that it will make and assemble. The price increase must reflect a revised estimate for the cost of the batteries, which GM itself will not make and which are still under development.

While the new price is disappointing, the new estimate and GM’s board approval suggest that sufficiently reliable batteries can be made; they will just be more expensive than originally expected. Presumably mass production and the production learning curve will bring the prices down with time.

Based on the new purchase price, the New York Times compared the price of the Chevy Volt to that of two Priuses. But the initial purchase price is not the relevant comparison. Operating cost is.

If you drive 40 miles per day, 365 days per year, you will drive a little less than 15,000 miles per year. At 20 MPG and $ 4 per gallon, that’s $3,000 yearly for gas. A Prius that gets 40 MPG will reduce that cost to half, or $1, 500. But a Volt will reduce the $3,000 price by a factor of ten or more. Therefore, assuming you don’t have to replace the batteries earlier, if you buy a Volt rather than a Prius you will recover the $20,000 price difference in about fifteen years. (Actually, the difference is less than $20,000 because a fully loaded Prius can cost up to $24,000).

That’s not particularly good, as few people keep their cars that long. But if the price of gas goes up to $ 8 per gallon, as many expect, you’ll recover the price difference in a mere 7.5 years. In the interim you won’t have to visit a gas station; you’ll just charge the car at home. You won’t be vulnerable to further gas price hikes. And you’ll have the knowledge that you are reducing air pollution and global warming by the percentage of your electricity that comes from sources other than fossil fuel.

That’s probably enough to get many people to buy a Volt, just as many have bought Priuses. But massive popular conversion to plug-in hybrids will depend on price reductions brought by mass production and perhaps new technology. They may well follow, as now GM is not alone. Toyota also has promised to produce a plug-in hybrid by 2010. If nothing else, GM will provide a nice price umbrella for Toyota’s competitive car.

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