Future of the aviation sector - what's it got to do with energy ?

(Image Courtesy: The Hindu)

Over the past few weeks, there have been a large number of high-profile reports about airline biggies facing turbulent economic times and incurring high losses as part of their day-to-day operations. The situation has become kind of a hard brownie lodged in the government's throat. Aviation is an integral part of the country's economy as it not only helps the corporates, small and medium enterprises with a quick transport option but also encourages international and domestic forms of tourism. So, it is imperative for all of us to come up with a solution that allows the aviation sector to sustain profitably for many generations to come.

Let me present a freakonomics-style picture of the aviation sector by showing how much money an airline makes by running a typical domestic flight.

Cost of an average-sized aircraft: 85 million dollars (Airbus A320 or Boeing 737)

Assume that occupancy of the aircraft is 120 passengers

Average running cost of trip (per mile): $15, including ground costs and airborne costs

Cost of energy consumed by an aircraft (per mile) is equal to: $7.87

Fare charged to the consumer per mile (per mile) is equal to: $0.13

Total fare charged to the consumers : $0.13 * 120 = $15.6 per mile = $16942 for a 1075 mile, three-hour flight running non-stop from New Delhi to Bangalore.

Total amount of oil consumed during this journey would be equal to $8460 ... at $3.2 per gal, this is equal to 2323 gal of fuel consumed.

Total cost of the trip would be equal to $16125.

This shows that airlines operate on very thin margins, and thus rely on scales to minimise and optmize operating costs, wherever possible.

One of the most important factors involved in obtaining a good margin is the cost of fuel, which is more than half of the cost of operation.

Even if you assume that the total number of trips made per annum by an average-sized aircraft is 1000, it still earns around $17 million dollars, which is less than half the cost of the aircraft itself. If you assume 5% profit (optimistic scenario) per flight run, the total profit achieved is equal to $0.85 million. The airline will have to run the aircraft for 100 years to extract its total cost, an almost impossibility considering technology advances and becomes obsolete so rapidly in today's scenario.

Thus, on a very slim margin, you cannot expect airlines to achieve break-even in a short span of time. Airlines are only delaying their doomsday if they continue to rely on oil to sustain their business.

The solution?

Use a cheaper, alternative fuel that costs much lesser than the currently used jet fuel.

Short-term options - Use bio-fuels

Long-term options - Use fuel cells, or large arrays of batteries to power the aircraft (this technology is yet to be launched). The price of the aircraft will increase by 30% due to battery costs. However, the cost of fuel will be slashed to 50%

(per mile you need 2.45 gal of oil, of which only ~25% gets utilised, i.e. ~0.9 gal, which is equivalent to 39.5 units; at a cost of $0.10 per unit you can purchase energy to run the aircraft for the entire trip for $4230, saving $4230 per trip, increasing profit per trip to 32%).

If you run such a system for 1000 trips per annum, you earn a total of $5.1 million. Even if the aircraft costs $110.5 (i.e 30% more), you achieve break-even in 20-22 years. The batteries will form a replaceable component of the aircraft, are fully recyclable and have a lifecycle of 30 years.

The increased weight of the aircraft due to storage of battery arrays on board is an issue of debate, but with futuristic and state-of-the-art energy densities being attained, the weight of the aircraft would increase by about 12 metric tonnes (70 tonnes is the maximum kerb weight of an Airbus A320 aircraft).

New-age energy distribution companies e.g. better place are working on battery replacement stations which can coordinate with airport authorities to come up with supplementary services. They can share half of the battery costs with the airline companies.

This will also generate the need for massive level-3 charging stations and power supply stations.

To supply energy to 200 such trips per day, we need 8.5 million units of energy per day. This can be supplied by a 360 MW thermal/nuclear power plant, or a 900 MW power plant. The cost of set up of such a solar power plant would be around $2.3 billion. For a power plant that has already broken even, the above is not a problem. However, solely by selling energy at $0.10 per unit, the plant breaks even in 10 years.

Now assume the airlines have a captive power plant, then all the energy generated is used by them only. In this scenario:

- Cost of fuel is 0

- Profit margin per trip is equal to 60%

- Amount earned per annum is equal to $10.2 million

- You earn the cost of your aircraft in 10-11 years

- Cost of set up of power plant is extracted in the next 2 years

In this approach, aviation sector would remain a long-term game but will be profitably sustainable in the long run.

To come up with this class of aircrafts, we need a team effort by entrepreneurs from different domains, namely - energy storage technology, energy distribution, battery charging and replacement, solar power generation, aircraft manufacturing and of course, the government.

The above might look unfeasible today, but think of it this way: a remote-controlled toy aircraft can be powered by batteries. Why not have a full-blown version of it ? Also, necessity is the mother of invention, so we must devise a smart and sustainable solution to fly across the planet before it's too late !

Disclaimer: The above facts are based on empirical studies and might not be accurate to the letter. An approximate picture tending towards the future has been presented in this article.

Energy and Inflation

My previous article highlighted how solar energy can be accepted / harnessed at an individual level. This article highlights how solar energy can help governments to sustain and succeed at the national level.

As most of you know already, India is one of those countries that consumes more energy than it produces currently. In spite of having one of the largest reserves of coal in the world, the hunger that our nation has for energy cannot be satiated by just this form of energy indefinitely. This has compelled us to take respite in our middle-eastern neighbors who supply fuel to us at highly cartelized rates. This causes any sensitive event happening in their region to cause a ripple effect on oil prices, global stock exchanges and the global economy at large. India is one such victim.

A very visible effect of this energy dependency has been in the form of rising inflation in our country. Fuel prices have gone up by approximately 80% in the last 3 years, leading to higher costs in travel and transportation. Supply of even the most basic necessities and raw materials gets proportionally dearer, leading to higher cost of manufacturing and delivery of processed goods, e.g. the FMCG segment.

Mind you, this kind of inflation has got nothing to do with the amount of liquidity that is currently floating in the current Indian economy. Government cannot tackle this inflation by increasing repo rates / interest rates ... this will simply stifle the people more than they already are.

Take an analogy of diamonds. Assume that only 1 million diamonds are available in an exchange for purchase. The exchange has the right to change the price of diamonds as per the availability of raw diamonds in its reserves, or for other undisclosed reasons. As the number of diamonds decreases, the price of each remaining diamond would be greater than before. Even though people have an indefinite amount of money, they can't do much if there are no diamonds to purchase. Do you solve this problem of increasing diamond prices by supplying more diamonds to the exchange or controlling the amount of pocket money that people have thinking that this a simple demand-supply scenario ?

Even the Planning Commission has admitted to this fact that inflation has multiple aspects and these kind of inflationary components cannot be controlled by economic policy changes. So how we tackle this ?

The answer to this problem is energy insurance. This can be achieved by a stronger commitment towards setting up of alternative energy sources and an aggressive energy generation policy. The government of India already has aggressive electrification plans especially in the rural areas. They need to change their game plan just a little bit - instead of setting up end-to-end power generation stations, set up electrical energy grids that can be fed by different kind of energy sources - renewable (sun, biomass, wind, water) and non-renewable (coal, nuclear). Having a strongly connected, national-level electrical grid provides an excellent opportunity of energy farmers at the individual / mass level to provide their contributions and earn handsome rewards. At the same time, the government needs to ease its worries about energy generation and rather focus on energy procurement from such sources.

Energy farms with alternative energy sources is a new and fast-catching on trend, globally.

See links below:

http://www.triplepundit.com/2010/02/rajasthan-desert-solar/

http://www.renewableenergyworld.com/rea/news/article/2011/07/solar-farming-a-transformative-resource-for-india

In the case of solar energy, the idea is to install arrays of solar panels over large spaces having easy access to sunlight. This has tremendous potential to generate enough energy not only to be consumed in the real-time but also to be stored and consumed at a later hour.

Governments can encourage such energy farms by allowing easy purchase, manufacturing and / or import of solar farming equipment. As with any new technology, the cost of utilisation comes down dramatically with mass production and consumption. If the government takes proper steps to get the ball rolling and attain critical mass for such projects, we will be looking at energy independence by the end of the decade !

Looking at the concept of inflation in terms of the bigger picture of the global economic depression looming upon over the last 4 years, India can say it has something to be proud of. The higher savings rates of Indians and stricter loan provisioning policies of Indian banks not only sailed us through the tough times in 2008-09 but also forced other global banks to take lessons from us. If India performs steps as explained above to tackle its economic challenges, it will be termed as anther radical and bold example set by us for the world to follow.

However, we need to act upon this while the window of opportunity is still open. High inflation can even topple governments - unless we want the common man loses it after buying 1 kg of onions for Rs. 200, we must lay the necessary groundwork for the new energy-independent economy.

Adopt Solar Energy - it's time !

Human civilizations in all form have worshiped the sun in some form or the other. In fact, our proximity to the sun is one of the primary reasons why life spawned on this planet. Sun continues to be our primary source of energy and the biggest form of natural energy.

However, in man's race for technological advancement, he seems to have sidelined this very important fact. We started relying on a different form of energy, namely fossil fuels in order to fulfill our daily needs. This was one of the first ways in which we started disturbing our environment. Not only did we start filling the atmosphere with pollutants, but we also started depleting the non-renewable resources provided by nature at an extremely rapid rate. Consider the fact that the amount of fossil fuels that the world has consumed over the last 400 years is almost equal to the amount of fossil fuels generated over a period of millions of years. Why do we continue to be the only unproductive species on this planet - adding millions like us to the planet and giving nothing back in return ?

Now, we stare at a situation where the world is grappling for whatever is left of these fossil fuel reserves - be it coal, natural gas or mineral oil. Estimates suggest that we will deplete all form of mineral oil reserves by the end of this century. The gradual shortening of fuel supplies is already shooting fuel prices up to the sky and burning the common man's pockets. We are rapidly running towards a dead end !

Fortunately, there is still time before we reach this scenario. There are non-exhaustive sources of energy ( and non-polluting too) which is available around us in abundance - the energy of solar radiation. It is high time we started using this as a strong alternative to our rapidly dying fossil fuel reserves. We already satisfy our bodily energy intake by indirectly consuming solar energy - plants tap solar energy via photosynthesis to create carbohydrates and other nutrients. Why don't we take this one step further and use the same form of energy to drive our needs of transportation, lighting and entertainment ?

Fortunately, most nations have realized the importance of this call and have started making efforts in satisfying their energy needs via solar energy.

Now, for some stats:

Current energy requirements of India - 159 GW

Energy requirements by 2030 - 965 GW

Potential capacity of solar power generation in india - 2100 GW

Useful links:

http://www.solarpanels.in/is-solar-electricty-viable.html

http://en.wikipedia.org/wiki/Solar_power_in_India

http://www.eia.doe.gov/cabs/india/Full.html

http://mnre.gov.in

Although we should try to understand how developed countries are adopting the renewable energy model, we don't necessarily need to emulate them. India's energy requirements have shaped up in a manner very different from the already developed world. While the developed world tries to experiment with the approach of photovoltaic power generation plants at high cost of production, we could do something something indigenous and innovative.

Solar cookers - this is a non-glamourous product out in the market but has been a quality tested approach to our day to day cooking needs. It is a cheap and non-polluting alternative to our LPG based pressure cookers or the desi sigris that people use in villages. A solar cooker costs approximately Rs. 2000/- which is about the same as a decent mobile phone.

Solar water heaters - this is a more popular option that people have started adopting only slowly. People can save large chunks of their electricity bill by installing solar water heaters on their rooftops. This works even better if you are in a cooperative housing society as you have greater area to expose to the sun.

Solar lanterns - extremely viable option for people with no access to electricity. You can charge this during the day and utilise it overnight.

Solar panels on rooftops - this is one of the most practical solutions recommended by experts. A one-time installation of this setup can cost you upto 20,000/- but works out cheaper after you apply government subsidies and go for a group investment, as in the case of cooperative housing societies. This setup can be especially handy to sail you through the dreadful summer - the sun itself would provide you power to rotate the fans in your homes and proves useful during power cuts.

Of course, as technological refinements and industry-size solutions shape up, our large-scale dependencies on fossil fuels will gradually decrease. But from a domestic front, we can set an example to the world and our very own government that we do not need to rely blindly on the traditional electricity supply anymore.

Watch out for more articles in this space.

Disclaimer: The above opinion is based on facts that are constantly subject to change. Please feel free to reply with disagreements or suggestions, if any.