On the Opportunities and Challenges of Powering Biomanufacturing with Electricity
Planetary Technologies invests at the leading edge of industrial revolutions. We embrace two investment theses. First, biology is a foundational technology that is driving a fourth industrial revolution. Second, this revolution must be powered sustainably, which requires accelerating the transition to renewable electricity while reducing carbon emissions.
From our founding, a key investment hypothesis for Bioeconomy Capital, and now Planetary Technologies, was that, eventually, biomanufacturing would be powered not by sugar but rather by electricity drawn from the grid. We already have two portfolio companies doing just that: Upward Farms and Lumen Biosciences. Both companies have taken advantage of the precipitous drop in the cost of LEDs to grow photosynthetic organisms indoors at higher yields, and with far better economics, than outdoor production. As these companies scale up their manufacturing operations, we need to give careful thought to where all that electricity comes from. What good is carbon-negative, widely distributed biomanufacturing if it is ultimately powered by burning fossil fuels? This question points to the conundrum that biology, as powerful as it is, cannot, by itself, be used to solve all problems.
To that end, we have been on the lookout for opportunities that help accomplish our broader goal of reducing carbon emissions through accelerating the transition away from fossil fuels and towards electrification. That is where our portfolio company Tandem PV comes in. Tandem PV is commercializing a next generation photovoltaic (PV) material known as a perovskite. Perovskites can be tuned to absorb different wavelengths of light than existing commercial silicon solar cells, and therefore the two technologies can be combined into high efficiency "tandem" PV modules. Whereas commercial silicon cells today are about 21% efficient, and are on course to reach 25% in 2050, tandem modules should reach 25% efficiency within two years and then reach 30% efficiency within 5 years. Tandem PV is particularly focused on developing methods for large scale, high throughput manufacturing of perovskite layers on the large glass sheets used to enclose all silicon PV modules. This product will enable the Company to build so-called "mechanically stacked tandem modules" that combine its peroskite-coated glass with commodity silicon PV cells, or, in other words, to make customers of all existing module manufacturers. Tandem PV recently received a large US DOE grant in support of producing full size (1m x 2m) mechanically stacked tandem modules.
Next, once you start digging into limits on renewable electricity production, you soon discover that the bottleneck to deployment is not in building more wind or solar production, but rather in distribution. Consequently, Bioeconomy Capital recently led the Seed round for a StealthCo that is commercializing a new approach to point-to-point electricity distribution. There is already extraordinary demand for electricity distribution as a service — we closed this investment on a Friday afternoon, and contract negotiations with customers started the following Monday morning. The StealthCo will make noise, and move electrons, soon. In the meantime, here is a sample of our thinking about the challenges and opportunities to deploying renewable energy faster.
The Sun has won. According to the International Renewable Energy Agency (IRENA), the best new solar projects now provide the cheapest electricity in history. The fundamental reason that solar energy costs are low, and continue to fall, is a combination of technological progress and economies of scale. This cost trend has in turn led to an annual exponential increase in solar installations that has run for more than 25 years and that is likely to continue (Figure 1), if not accelerate, a topic we will take up in a forthcoming post. The unsubsidized cost of energy from new-build solar photovoltaic (PV) has already fallen below the marginal cost of operating coal or combined-cycle gas generation for half the Earth’s population, with the other half soon to follow. That is, new-build PV now costs less than buying coal or gas as fuel for existing facilities.
Figure 1. Global annual installations of PV have grown exponentially for more than two decades. (Sources: BloombergNEF, Bioeconomy Capital.)
In the U.S., more than 90% of coal and combined coal-gas capacity operated at a loss in 2020 compared to installing new PV. The EIA forecasts that from 2022 onwards, new renewables in the U.S. will displace both the share of natural gas in electricity production and the absolute volume of gas burned to produce electricity. Similarly, in Europe, new renewable electricity is already reducing natural gas use, even before war accelerated renewable installation plans.
Yet renewable energy deployment could be moving much faster than it is. In the U.S., at the end of 2021 there was nearly 700 GW of wind, solar, and storage — which is the equivalent of about 19% of existing U.S. electricity generation capacity — stuck in what is called the "interconnection queue", waiting for approval from grid operators and regulators to connect to the grid. Accelerating this construction would transform the American economy. The impact of this potential renewable revolution is frequently discounted even by knowledgeable industry observers, who simply say, based on history, "yes, but most of that will never be built". This has indeed been true in the past. But rather than accept this statement as a fact of life, we treat it as an opportunity to understand and profit from.
Electricity grids are complex engineering, economic, and political entities. Change can be slow. The owners and operators of regional electricity grids must approve applications to connect to those grids before new projects can exit the queue, which can take up to 8 years, depending on the jurisdiction and type of project. Moreover, due to overly bureaucratic restrictions on the structure of financing, constructing the interconnection itself for a new project can amount to as much as the rest of the cost of the project put together, thereby potentially doubling total project costs. New installations can also be slowed by local resistance to building transmission lines. These problems are also present in Europe, in particular in Germany, which has copious wind resources in the north, copious industry eager to electrify in the south, and copious NIMBYs in between.
Beyond the time and cost required to connect to the grid, simply transmitting electricity through existing wires has been getting more expensive in the U.S. for at least a decade. At present, approximately half the retail cost of electricity is due to pushing electrons through wires (Figure 2).
Figure 2. Electricity production costs have fallen for the last decade as more wind and solar is connected to the grid. In contrast, delivery costs for electricity in the U.S. have increased and are now approximately equal to production costs. (Source: EIA.)
America's grid is aging and requires upgrading. U.S. utilities have steadily increased spending on opex and capex for two decades (Figure 3). New investment includes underground lines, towers, overhead lines, poles, and substation equipment. Operations and maintenance includes substation equipment, load dispatch, power lines, transmission. To date, this spending has only increased transmission costs and thereby reduced the capital efficiency of the existing grid.
Figure 3. Opex and capex spending on the grid have both increased substantially on an annual basis for two decades. (Source: EIA.)
This combined cost and friction of building new electricity connections comprise a substantial stumbling block both for renewable energy producers and for new businesses that require access to those green electrons. Lumen Biosciences and Upward Farms have had to find creative solutions to ensure that they have access to sufficient electricity to power their biomanufacturing operations. But the problem is much broader and is faced by any company wanting to ensure it promptly receives adequate electricity, particularly if it needs to be certifiably renewable. Similarly, developers of wind and solar electricity generation capacity would benefit from expeditious and reliable means to deliver their power to customers. Recognizing that these are problems to be solved, rather than simply lamented, opens the door to considering fundamentally new approaches to distribute electricity. We look forward to sharing more as our StealthCo investment in this area matures.