The next emerging concept we talked about is energy access. This is a very exciting and promising one where here's a nice quote. "Off-grid renewable energy systems have transformed our ability to deliver secure, affordable electricity to rural communities all over the world and are playing a vital role in breaking a cycle of energy poverty that is held back socioeconomic progress for hundreds of millions of people." There are hundreds of millions, maybe 700, 800, 900 million people around the world without reliable access to electricity and the availability of low cost small PV systems coupled with storage have the promise of providing electricity to areas that don't have that. A classic example, here's an example is a solar plant, solar PV electricity that powers a pump that provides water to a refugee camp, Darashakran refugee camp in Iraq, which has about 11,000 Syrian refugees. Now have reliable potable water that is made possible by solar PV. So that the promise of these new technologies for just amazing improvement in quality of life is tremendous. We talked briefly about finance. The issue being energy overall is a capital intensive sector. Energy hardware, energy infrastructure is expensive and renewable on the electricity side has a slightly different character than fossil electricity. Generally renewable electricity has higher fixed costs, capital requirements, and lower operating costs. The lowest renewable electricity generative technologies can make economic sense on a life-cycle basis or levelized cost. But they're just different. They're more capital intensive and the studies are pretty clear that moving to a lower zero-carbon future is going to require more capital because these technologies costs more upfront and furthermore, shifts in capital. We put some numbers on that. This is from the Arena study that if you look at the planned investments where the path run now, which is not a lower zero-carbon path. This is about how much money is expected to be spent on energy infrastructure. This is how much would need to be spent to essentially move to a zero-carbon future, a climate stabilized future. Notice, it's somewhat more money, 16 percent more money, but different money. Notice how fossil fuels go from $40 trillion to $20 trillion. So again, the investment summary is a low-carbon or zero carbon climate stabilize future costs more capital, 16 percent more. Even though, keep in mind that it's nest. That is a good investment, it pays itself back, but it is more capital-intensive. But perhaps important than the more capital is that different capital, capital needs to be invested in renewables and other issues rather than fossils. We then turn to electricity market design, which is a bit of a slightly esoteric topic but important. To summarize it, how electricity is bought and sold, particularly at the wholesale level, varies widely between countries, among countries, within countries and is changing quickly. But in general, electricity markets were designed for fossil fuel generation, which generally has, we talked about lower capital, higher operating costs. Generally, fossil fuel generation is more dispatchable than wind and solar PV. So those markets are, it's a bit of not a great fit. Now, the way forward optimal market design is not clear, but there's a lot of efforts to figure that out. Let me just give some specific examples of the challenge here. Again, wholesale markets were designed around the operating characteristics of fossil-fired power plants. To the extent a market is designed on an auction basis or to be dispatched in, it's called merit order. The lowest marginal cost first. It's almost always going to be wind and solar PV because they've essentially zero marginal costs. So as you have more wind and solar PV in the system, they're used more and more. That seems great, that's the goal. That means low-carbon, but that creates problems. What we call challenges. You still need some dispatchable generation. Now that need is fading as there's more storage on the system, but at least there in a transition time, it's still we're going to need some gas turbines in case just because they make the system work. But they may not be dispatch, so they'll need to be an operating reserve. It just gets complicated to make the pieces work. There's the missing money problem. If wind and solar PV bids close to zero and wins an auction, then they are dispatch. But of course there will be paid close to zero that doesn't provide any revenue to cover their capital costs. How do you run a market price that marginal costs price-based when you need capital to cover fixed costs. As I mentioned before, another challenge that storage doesn't fit well into the existing market, does not really supply and not really demand. It's either both or neither. Now these are solvable challenges and work is underway to figure them out, but it's going to take some time. We talked briefly about the utility death spiral, which sounds very dramatic and if it actually happened, it would be, I don't think it will. But the concept here is distributed energy rooftop PV, costs are coming down. Let's just imagine a scenario where a number of household put rooftop PV on their houses. Well, they're going to be using less grid electricity. But remember the grid electricity is very capital intensive. There's a lot of fixed costs that need to be recovered through rates. So the utility faced with this environment would increase their rates because they have fixed costs, they have to recover. But then rates go up, it pushes more people off the system and you can see the positive feedback here. It's important to see this in context that centralized goods pro, provide critical services, backup grid stabilization, and so on. That there's still economies of scale in electricity generation, but particularly in solar PV. So it's likely that big solar PV will generate electricity at a lower cost than rooftop systems, so maybe a mix might make sense. But the lesson learned from utility death spiral concept is that cost allocation is a continuing challenge that we need to pay attention to. We'll stop there and come back to talk about our last emerging challenge of marginal costs.
