MAKING EFFICIENCY PROFITABLE

Hugo was invited to  ‘pitch’ his vision of how to de-carbonise road transport in a ‘Dragon’s Den’ style event hosted by Policy Exchange on January 27th 2017. The audience voted it the winning vision. Here it is in full, delivered in 7 minutes.

How to de-carbonise road transport?

The answer is that we need to make efficiency profitable.  This may sound glib but it is the core of Riversimple’s proposition.

By this I mean that the principal barriers are not technical, but to do with people, politics and business inertia.  If we make the pursuit of efficiency a source of profit, the technology is available to transform the carbon performance of our vehicles.  I am not saying that it’s easy, there’s a lot of work to do, but technology is not one of the showstoppers, although it does unfortunately dominate the debate.

Riversimple is currently developing Hydrogen Fuel Cell Vehicles (HFCVs) – we appear to be the only independent hydrogen fuel car company in the world. However, we are a sustainable car company not a hydrogen car company.  We do need a portfolio of solutions and we support the appropriate use of Battery Electric Vehicles (BEVs) for short range applications with overnight charging to stabilise the grid, but the reason we are developing hydrogen vehicles is that there is nothing else that can be remotely as efficient as an HFCV, on a Well to Wheel (WtW) basis, for the sort of range to which we have become accustomed.  And it is the one area in which the potential of the technology is not being realised, so it is an opportunity.

The car that we have developed with support from the Welsh Government, the Rasa (as in Tabula Rasa), has a 300 mile range and its calorific energy consumption is equivalent to 250mpg on petrol.  Its CO2 emissions, if using hydrogen from natural gas, based on oil industry figures from the CONCAWE report, are only 40g/km, half that of anything claimed for any BEV.  Until we make more progress on decarbonising the grid, the last thing we can afford to do is dump transport demand onto it – we will make more impact on carbon emissions if we use green electricity to displace coal rather than petrol.

An HFCV also requires much less behaviour change than a BEV, with a similar range and refuelling experience to petrol.  This brings us to the biggest difference from an implementation point of view.  As we scale the volume, it becomes progressively harder to support BEVs and much easier, and more economic, to support HFCVs.  If we were to replace the 20 pumps at a typical motorway services with the charging capacity to support the same throughput of battery cars, using Tesla’s figures, we would need a 14.4MW substation, which to put it in perspective is the average consumption of 27,400 homes in the UK.  So the idea of replacing our 30 million combustion-engined cars with batteries is utterly inconceivable.

There is a chicken and egg question over the critical scale of infrastructure required to unlock a commercial market for hydrogen cars, a few hundred for the UK, and we need a transition strategy.  If we start with cars for local use, a large proportion of the UK fleet of 30 million, this critical scale comes down to one filling station.  If you put a single filling station in a small city, such as Oxford, anybody who wants a car for local use and has a reason to come into Oxford once a week is a potential customer.  That is the reason for our 300 mile range, not 300 mile journeys.  And if you put 50 cars into the market there, the filling station has 50 captive customers and will break even more quickly, so the investment case is stronger.  You can then grow the network, one filling station at a time, allowing you to grow the skeleton of a nationwide network without ever taking a nationwide gamble.

But I’d like to return to my initial point.  A VW Beetle in 1948 did 38mpg. 60 years later, a new VW Beetle did – 38mpg!  It was obviously faster and safer but we must remember that less than halfway through this period, in 1973, was the oil crisis, so we might reasonably have expected more progress than this. Unfortunately, if you sell cars, there is no incentive to improve efficiency, because customers always discount future costs almost to zero – other than regulation, and that is a blunt instrument, as we have seen.  If we want to make progress, we must make energy efficiency profitable. We can, and this is a huge opportunity.

Instead of selling cars, if we sell performance contracts, all-inclusive contracts that cover all aspects of car usership, such as insurance and critically fuel, the manufacturer of the car is the one that receives the benefit of fuel efficiency – efficiency then becomes profitable.

This is much more effective than any mandate; a mandate gives an incentive to comply but not to excel. Whilst compliance eats into very tight margins, the incentive is to lobby against them and then to cheat when they’re in force.  Performance contracts require next to no behaviour change, as it is similar for the customer to leasing a car, only more convenient.

  • It generates stronger margins at lower prices to the customer.
  • It embraces car sharing in all its forms, as we are selling mileage rather than cars, whereas car sharing is an unwelcome trend if you sell cars.

It changes the financial drivers from obsolescence to longevity, from resource throughput to resource conservation, amortising embodied energy over as long a period as possible.

It aligns the interests of manufacturers with those of customers, of society and of policy objectives.

In fact, I don’t see that we can ever hope to have a sustainable industrial society based on rewarding industry for the opposite of what we are trying to achieve.

It also transforms the economic barriers of bringing new technologies to market; no premium is necessary, the cars can be supplied to customers at an equivalent cost of ownership long before the supply chain costs match those of combustion engines.

It even addresses professional car theft – who’s going to steal a car that you can’t sell?

What is more is that not only is a profitable industry a self-fulfilling prophesy but it needs less public subsidy.  However there are barriers.  Pump priming will make a dramatic difference to the speed at which we can achieve this; like acupuncture, small but well-targeted interventions will have a disproportionate impact in stimulating this change and unlocking an enormous economic opportunity for the UK.

In summary:

We need to take the long view and support a portfolio of technologies to reduce carbon emissions and energy consumption, as any sustainable system has to use available renewable energy as efficiently as possible, on the basis of well to wheel rather than tailpipe figures.

We need to support a realistic transition strategy for hydrogen infrastructure that enables early adoption and points the way for private sector investment.

The circular economy offers more resilient business models that profit from solving the problems we face.  They all generate significant debt requirements that will unlock a range of new financial products, but until the models are proven, government loan guarantees would significantly accelerate their uptake and the benefits they will yield.

And finally, hydrogen and electricity as our two primary energy vectors can deliver far greater economic utility than either on their own, but hydrogen is the one critical element of the puzzle that we do not yet have in place.

Thank you.

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