There is a lot of buzz around electrification as a major component to tackle the climate crisis. But electrification has its challenges too that need to be addressed in order to be a major part of the solution.
Electrification will only have the desired climate impact if the electricity comes from clean sources. In 2020, about 60% of the utility scale generation came from fossil fuel, with another 20% from nuclear and the remaining 20% from renewable. The use of renewable energy needs to be substantially ramped up, and energy sources like wind and solar need to be more abundant, more affordable, and more accessible to everyone. To address this, the Department of Energy (DoE) announced two bold goals in March of this year: to deploy 30 gigawatts of offshore wind within the decade, and to cut the current cost of solar energy by 60% by 2030. The new offshore wind goal would generate enough clean electricity to power over 10 million homes.
In many areas mature technology exists, and it is rather a question of deployment and associated funding. The financial crises resulted in the American Recovery and Reinvestment Act of 2009 (ARRA) where deployment was a vital part and a similar shift in focus by DoE and others is commonly expected.
Shortly after his inauguration in January, President Biden signed an Executive order stating the intention to replace all federal electric vehicles with EV produced by union workers in the U.S. Currently the federal fleet consists of 645,000 vehicles, including cars, trucks, mail trucks, military vehicles, and ambulances. In 2019 only roughly 4500 were electric. To support this, an additional 500 000 the charging stations needs to be built, a 20-fold increase from today´s level.
There are several challenges with this plan. The EV market is growing rapidly but is still only 2% of the market, and there are a limited number of U.S. made EVs. None of these meet the additional requirements of at least 55% of parts manufactured within the U.S. and having union employees. Domestic battery production needs to be significantly ramped up, today only 7% are made in the U.S. with the majority coming from Asia.
Another challenge is the financial side. The promise of tax credits for the EV industry in combination with a shift towards more EVs will result in reduced funding for The Federal Highway Fund unless the funding formula is revised. Most of the funding for The Federal Highway Fund, which is used for maintenance of the transportation infrastructure, comes from taxes from the auto fuels. Owners of EVs do not contribute to the fund since they qualify for tax credits today.
Other recent announcement includes funding opportunity for the next stage of the SuperTruck initiative targeting the electrification of medium- and heavy-duty trucks and freight systems.
We look forward to hearing about further announcements and plans for the decarbonization of industry where electrification could play a vital role.
For a major shift towards electrification systems issues will need to be addressed. The regulatory framework was written many years ago and is, at least in parts, not sufficient to meet the new energy future. The electric grid will need upgrades, but the time to get a new major transmission line installed can be 10-20 years, where the permit process and legal challenges takes up a big part of this time. Competence development is another area, both to prepare the new workforce for the new technologies while still maintaining competence to run the legacy systems which will be in place for years to come.
We expect an interesting period the coming years and will follow the development closely. As always, we welcome you to contact us if you want to discuss this further.