I’ve recently agreed to do a of couple presentations on "Investing In Green Energy" at conferences this October, and so I’ve decided it’s time to update and expand on some graphs I constructed this spring: I created a pair of graphs which give an overview of how different electricity generation technologies compare. These are not precise graphs with anything resembling scientific accuracy, but I think they’re a useful too for understanding the strengths and weaknesses of various technologies.
This is my attempt to do the same for transportation fuels. Note that I’m really only talking about cars and trucks here. In a discussion with a group of private equity investors, we came up with six to eight metrics that we thought would be useful for characterizing transportation fuels, and I then distilled them into three groups of similar metrics so that I could display them in graphic form. Here they are:
Quantity
How much of this fuel is available? How much capacity is there to replace the oil used to run our current transportation fleet with this fuel? (This is a measure of how much can be produced in a given year, not the ultimate size of the resource.) This is represented in the graphs below by the size of the spheres.
Availability
Represented on the horizontal axis; farther to the right is better.
Components:
- Infrastructure: How easily can we get this fuel to our vehicles?
- Density: Is the fuel both compact and light weight? How much will we have to change our existing infrastructure to use this fuel well? Is the energy storage medium sufficiently compact and light to fit into vehicles similar to the ones we use today.
- Safety: Is it safe enough to use in vehicles similar to those we use today?
MPC (Miles per Cost)
Represented on the vertical axis. Fuels that will take you farther for less cost (economic and social/environmental) are above more costly/damaging fuels.
Components:
- Mileage: How far can you go for $1?
- Social/Emissions/Environmental benefits: How far can you go on fixed level of emissions?
The scale is relative, and assumes vehicles of comparable weight and aerodynamics.
The Graphs
Taking it all together, the fuels I expect to be used the most will be the ones which are farther to the right (they are easier to use.) The first graph represents my understanding of the current transportation fuels landscape, while the second represents what I expect to be the case in 20-30 years.
Click on the graphs for larger versions with titles and key.
| Current Fuels Comparison |
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Future Fuels Comparison |
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If you don’t like my assumptions, you can also download the Excel Spreadsheet I used to generate them, and see how it looks with your changes.
Note that all these metrics involve a lot of qualitative judgment, and just plain guesswork when we’re talking about the future fuels graph. For an investor, refining your own view of where each potential fuel is headed will be the key to achieving the returns you hope for. The trick will be to invest in companies that will benefit as a fuel moves towards the upper right hand corner of the graphs, as it becomes more available and easier to use, or as it becomes less expensive to produce the same amount of travel relative to the other alternatives.
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