How Cheap Can Electric Vehicles Get?

This is part 5 of a series looking at the economic trends of new energy technologies. Part 1 looked at how cheap solar can get (very cheap indeed). Part 2 looked at the declining cost and rising reliability of wind power. Part 3 looked at how cheap energy storage can get (pretty darn cheap). Part 4 looked at how far renewables can go. Now let’s talk about electric vehicles.

EVs are a Disruptive Technology

If current trends hold, EVs will, within a decade or two, be the cheapest vehicles on the market. And that, if it happens, will lead to market dominance. Electric Vehicles are a disruptive technology.

The Plunging Price of Electric Vehicles

The past four parts of this series have all covered electricity generation. But electricity is only perhaps a quarter of worldwide carbon emissions. What about transportation, where oil-burning cars dominate?

Electric Vehicles, like virtually all other manufactured goods, are likely to have a learning curve, meaning that greater production will mean reduced price. Batteries, a large fraction of the cost of EVs, appear to have a learning rate of around 21%, meaning that every doubling of scale will reduce costs by 21%.

What about whole vehicles? The Ford Model T had a learning rate of around 16%. Let’s use that for the entire vehicle, including the battery. That gives us a conservative estimate of the cost improvement rate.

Last year, EVs grew at around 60% annually, to around 1 million total EVs ever sold. Sources in China tell me they expect several hundred thousand EVs to be sold there in 2016 alone. Growth could easily be 60% again in 2016. Even so, growth will eventually slow. Bloomberg New Energy Finance expects 30% long term growth. Let’s use that for now, to be conservative.

Those assumptions lead to a world where, by roughly 2030, EVs with a 200 mile range are cheaper than the cheapest car sold in the US in 2015.

Electric Vehicle Learning Curve - EVs Dropping Below Cost of Gas Cars - 30percent CAGR - 16percent LR

Is this plausible? Yes. EVs are simpler devices than gasoline-powered vehicles. They have a smaller number of parts, making them easier to assemble. At similar scale to gas vehicles, electric vehicles should indeed be lower cost to built.

In addition, EVs have many fewer moving parts (in the engine and drivetrain in particular) than internal combustion vehicles. That further means lower construction cost for the most complex and costly part of a vehicle, and far lower maintenance cost.

On Cost-Per-Mile, EVs Win Even More

Electric vehicles, today, have lower total costs per mile than equivalent gasoline-powered vehicles, due to lower energy costs of electricity and the lower maintenance costs. At 30% growth rate, EVs will have roughly half the up-front cost of gasoline-powered vehicles in roughly 10-12 years, around 2027 or 2028. At that point, the total cost per-mile-driven of EVs will also be roughly half the cost of gasoline powered vehicles.

That, in turn, means that to the extent that transportation becomes a service, with people increasingly paying for rides (ala Uber) instead of paying to purchase cars, the cheapest rides will be in electric vehicles. If you call an Uber, or its future equivalent, it will almost certainly be electric.

Put it all together: Electric vehicles are already cheaper to own and operate than gasoline vehicles. At current rate, within a decade, they’ll be markedly cheaper to purchase up-front, and half the total price to own and operate. And within 20 years, if trends hold, 200-mile-range 4-seater EVs, with awesome acceleration and modern amenities, will be cheaper than the cheapest cars sold in the US today.

That is a coming disruption.

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APEX Wins the Philip K. Dick Award!

PKD Award

Tonight, in Seattle, I was in the crowd when my novel Apex won the Philip. K Dick Award.

 

Apex is the third and final book of the Nexus Trilogy. Those books have now collectively won the Prometheus Award, the Endeavor Award, been listed on NPR’s list of Best Books of the Year, and been shortlisted for the Arthur C. Clarke Award and the Kitchies Golden Tentacle Award. They also earned me a nomination for the Campbell Award for Best New Author in 2014.

To say I’m pleased would be an understatement.  The PKD is a juried award, meaning that a panel of 5 judges picked Apex as the most deserving paperback-original science fiction novel of the year, out of the more than 100 titles that were submitted.

I’m also pleased because Philip K. Dick wrote about topics that I care about: Identity, memory, surveillance, the inner workings of the mind and the structure of society. Those are the very same topics I tried to touch on in the Nexus books.

My fellow nominees (Marguerite Reed, Adam Rakunas, PJ Manney, Douglas Lain, and Brenda Cooper) are all awesome. Brenda was one of the first professional writers to take the time to read Nexus and to give me advice and encouragement on publishing. PJ and Adam are both old friends. And I look forward to becoming friends with Marguerite and Doug.

The six of us teamed up to give away copies of all six finalist books. It’s too late to enter that giveaway (almost 4,000 people did), but you can still visit the site to learn more about all six books.

Here’s all of us hanging out before the award.

PKD Nominees - Black and White

Thank you everyone who helped make Apex and the Nexus books great, including Molly (who read every page of each of those books, usually on the day I wrote it), my agent Lucienne Diver, my editor Lee Harris and publisher Marc Gascoigne, the almost 60 beta readers who read one or more drafts of those three books (sometimes many more than one draft) and gave feedback to make them better, and especially the fans who bought them, shared them, and told everyone else to go read them.

Onward and upward.

APEX (1)

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Why I’m Starting the First AngelList Cleantech Syndicate

I’ve been writing and speaking about the incredible pace of solar, wind, and storage for years. I’ve been quietly investing in startups in that space as well.

Today I’m taking a new step: I’m launching an AngelList Syndicate specifically focused on investing in clean energy technology. If you’re an angel investor, I invite you to come join me.

Why am I doing this, and why now?

1. Clean Energy is a Disruptive Technology

The word “disruption” gets thrown around a lot. Clean energy is a technology that truly is disruptive. The cost of solar power has plunged by a factor of four in the last five years, with more reduction to come. Batteries are poised to follow a similar price decline. Wind power, electric vehicles, IoT, and software platforms that manage and accelerate clean energy are all booming in capabilities and plunging in price.

Allance Bernstein Welcome to The Terrordome Solar Price Disruptive - Header Removed

We’ve coupled the price of energy to the ever-decreasing price of technology. There’s no going back.

2. The Transition Will Be Trillions

We will transition to clean energy. The world has no choice. The trajectory of policy is towards ever more downward pressure on fossil fuels. And every unit of renewables deployed brings down their price, making them more competitive.

That transition will involve tens of trillions of dollars of investment.

Today we’re only 1% of the way into that transition. Solar just hit 1% of world electricity. Wind power is a few percent. Energy storage and clean transportation are both closer to one tenth of one percent of the scale they need to be at.

Energy transitions are huge undertakings. That means both a need for investment in R&D and an opportunity for the companies that create the new innovations that power the world, and the investors who back them.

3. Investment is Growing

Clean energy spending around the world hit a new record of $329 billion in 2015, topping the previous record of 2011, and nearly 6 times the amount the world spent in 2004.

2015 Record Cleantech Spending - BNEF

And for the first time in history, the world installed more peak capacity of clean electricity generation than fossil electricity generation, as the chart below shows, in GW of new capacity per year. Fossil fuels still produce more total new energy each year, due to the intermittency of renewables. But the point where renewables amount to more total new energy on the grid each year than fossil fuels is now in sight.

Clean Electricity and Renewables New Nameplate Capacity Passes Fossil Fuel Electricity - BNEF

4. R&D Funding Is Poised to Grow Again

Venture funding in cleantech has been low in recent years. But that’s poised to change with Bill Gates, Jeff Bezos, Mark Zukerberg, and a coalition of governments and large investors aiming to boost cleantech R&D funding to $20 Billion per year.

Some of that funding will come as early-stage government R&D funding. Some of it will come as venture funding. Both are good for angel investors.

5. AngelList is the Right Platform

AngelList itself is a disruptive innovation for startup investing. It turns a process (raising money for your startup / investing in startups) that was previously shrouded in mystery, hugely time consuming, and heavily dependent on knowing the right people, and flattens that process. It’s a landscape-leveler for startups and investors alike. And through the ability of investors to join syndicates, they can draft on the knowledge and expertise of others.

I’ve been investing on Angel List for two years now, joining the syndicates of others. It’s given me access to investment opportunities that I never would have had, previously. And it’s allowed me to back startups that I think have the opportunity to change the world for the better.

There’s no place better or easier to do this than on Angel List.

(I’ll also remain a part of other angel networks, specifically Element 8 in Seattle.)

6. We Have a Moral Responsibility 

The CO2 we emit into the atmosphere lingers there for a century. The warming it causes may last a millennium. The scars in our biosphere may last millions of years. We are leaving the natural world, and all the future generations who’ll live in it, impoverished.

I believe strongly in leaving a better world for our kids, their kids, and for all the generations to come. That’s why I focus on this sector in particular. And in the process of investing in clean technology, I see an opportunity for a triple bottom line: A return in financial gain, a return in a better world, and a return for billions of people who’ll get to enjoy that world.

If this interests you, and you’re an angel investor, I invite you to come join me.

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My Carbon Price Presentation to the Washington Legislature

On Friday Feb 19th I testified before the Washington House Environment Committee on the topic of carbon pricing, both from the point of view of a member of the executive committee of CarbonWA (I-732) and as a concerned citizen.

You can watch the full testimony (including other witnesses) at TVW:

My full slides are here (5MB PPTX). They include a number of appendix slides with more details.

Mez WA Legislature House Environment Committee Carbon Pricing Testimony Screenshot

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Renewables are Disruptive to Fossil Fuels

A shorter version of this post first appeared at the Marginal Revolution blog.

Cleantech, and specifically renewables like solar and wind (and their fellow traveler energy storage) are disruptive to fossil fuels.

Over the last 5 years, the price of new wind power in the US has dropped 58% and the price of new solar power has dropped 78%. That’s the conclusion of investment firm Lazard Capital. The key graph is here (below is a version with US grid prices marked). Lazard’s full report is here.

Solar and Wind Price Reduction 2009-2014 Lazard - With National Grid Costs

Utility-scale solar in the West and Southwest is now at times cheaper than new natural gas plants. In Feb 2016, the City of Palo Alto announced a solar deal signed at an incredible 3.676 / kWh. Even after removing the federal solar Investment Tax Credit of 30%, the Palo Alto solar deal is priced at 5.25 cents / kwh. By contrast, new natural gas electricity plants have costs between 6.4 to 9 cents per kwh, according to the EIA.

(Note that the same EIA report from April 2014 expects the lowest price solar power purchases in 2019 to be $91 / MWh, or 9.1 cents / kwh before subsidy. Solar prices are below that today.)

The Palo Alto solar purchase is the latest in a string of ever-cheaper solar deals, including:

  • NV Energy buying 100MW from First Solar at 3.87 cents / kWh.
  • Xcel signing a PPA with NextEra at 4.155 cents / kWh.
  • Austin Energy (Texas) signed a PPA for less than 5 cents / kWh for 150 MW.
  • Salt River Project (Arizona) signed a PPA for roughly 5.3 cents / kWh.

These are prices that undercut natural gas, and would even without subsidies. They’re limited to extremely sunny areas, but that zone will grow over time.

Wind prices are also at all-time lows. Here’s Lawrence Berkeley National Laboratory on the declining price of wind power (full report here):

After topping out at nearly $70/MWh in 2009, the average levelized long-term price from wind power sales agreements signed in 2013 fell to around $25/MWh.

In 2014 it fell even further, to around $20/MWh, or 2 cents per kWh.

Wind PPA Prices 2014 Wind Technologies Market Report

After adding in the wind Production Tax Credit, that is still substantially below the price of new coal or natural gas.

Wind and solar compensate for each other’s variability, with solar providing power during the day, and wind primarily at dusk, dawn, and night. Wind power is also becoming more reliable as new technology is developed and deployed.

Energy storage is also reaching disruptive prices at utility scale. The Tesla battery is cheap enough to replace natural gas ‘peaker’ plants. And much cheaper energy storage is on the way.

How Cheap Can Energy Storage Get

Renewable prices are not static, and generally head only in one direction: Down. Cost reductions are driven primarily by the learning curve. Solar and wind power prices improve reasonably predictably following a power law. Every doubling of cumulative solar production drives module prices down by 20%. Similar phenomena are observed in numerous manufactured goods and industrial activities,  dating back to the Ford Model T. Subsidies are a clumsy policy (I’d prefer a tax on carbon) but they’ve scaled deployment, which in turn has dropped present and future costs.

By the way, the common refrain that solar prices are so low primarily because of Chinese dumping exaggerates the impact of Chinese manufacturing. Solar modules from the US, Japan, and SE Asia are all similar in price to those from China.

Fossil fuel technologies, by contrast to renewables, have a slower learning curve, and also compete with resource depletion curves as deposits are drawn down and new deposits must be found and accessed.  From a 2007 paper by Farmer and Trancik, at the Santa Fe Institute, Dynamics of Technology Development in the Energy Sector :

Fossil fuel energy costs follow a complicated trajectory because they are influenced both by trends relating to resource scarcity and those relating to technology improvement. Technology improvement drives resource costs down, but the finite nature of deposits ultimately drives them up. […] Extrapolations suggest that if these trends continue as they have in the past, the costs of reaching parity between photovoltaics and current electricity prices are on the order of $200 billion

Renewable electricity prices are likely to continue to drop, particularly for solar, which has a faster learning curve and is earlier in its development than wind. The IEA expects utility scale solar prices to average 4 cents per kwh around the world by mid century, and that solar will be the number 1 source of electricity worldwide. (Full report here.)

Bear in mind that the IEA has also underestimated the growth of solar in every projection made over the last decade.

Germany’s Fraunhofer Institute expects solar in southern and central Europe (similar in sunlight to the bulk of the US) to drop below 4 cents per kwh in the next decade, and to reach 2 cents per kwh by mid century. (Their report is here. If you want to understand the trends in solar costs, read this link in particular.)

Analysts at wealth management firm Alliance Bernstein put this drop in prices into a long term context in their infamous “Welcome to the Terrordome” graph, which shows the cost of solar energy plunging from more than 10 times the cost of coal and natural gas to near parity.

Welcome to the Terrordome

The full report outlines their reason for invoking terror. The key quote:

At the point where solar is displacing a material share of incremental oil and gas supply, global energy deflation will become inevitable: technology (with a falling cost structure) would be driving prices in the energy space.

They estimate that solar must grow by an order of magnitude, a point they see as a decade away. For oil, it may in fact be further away. Solar and wind are used to create electricity, and today, do not substantially compete with oil, until electric vehicles are a substantial fraction of transport. For coal and natural gas, the point may be sooner.

Unless solar, wind, and energy storage innovations suddenly and unexpectedly falter, the technology-based falling cost structure of renewable electricity will eventually outprice fossil fuel electricity across most of the world. The question appears to be less “if” and more “when”.

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Win Copies of All Six Philip K. Dick Award Finalists

I’m up for the Philip K. Dick Award, which pleases me to no end, since Dick wrote some excellent, mind-bending, ground-breaking sci-fi about the nature of memory, identity, and much else.

It also pleases me to no end that, on most sci-fi award slates, the authors are much more supportive of each other than competitive. This one is no exception. And so the six of us finalists (Marguerite Reed, Adam Rakunas, PJ Manney, Douglas Lain, Brenda Cooper, and myself) have banded together to create a giveaway. Six lucky winners will each win a copy of all of the books that made the final list.

You can enter the giveaway here: http://pkdnominees.xyz/

PKD Award Covers

 

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How Far Can Renewables Go? Pretty Darn Far

This is part 4 of a series looking at the economic trends of new energy technologies. Part 1 looked at how cheap solar can get (very cheap indeed). Part 2 looked at the declining cost and rising reliability of wind power. Part 3 looked at how cheap energy storage can get (pretty darn cheap). Part 5 looks at how cheap electric vehicles can get, and how they’ll disrupt oil. Now let’s talk about how far renewables can go.

Renewables like solar and wind are plunging in price. But there are impediments to powering a grid entirely, or even primarily, with renewable energy. How far can they go? A new paper in Nature Climate Change suggests that wind and solar could power roughly 60% of the US’s electricity needs, given a national grid, without any energy storage, and without massive overbuild. Another roughly 20% of the grid’s electricity would come from carbon-free hydro and nuclear.

This paper is carefully done, and is likely quite conservative, as I’ll show below. The real fraction of grid electricity that solar and wind can provide is almost certainly higher, due to technology trends not reflected in the Nature Climate Change paper’s simulations.

The Headwinds Against Renewables

First, it’s worth looking at what gets in the way of renewables achieving high penetrations.

The core problem is intermittency. The sun doesn’t always shine. The wind doesn’t always blow. That creates two separate problems:

  1. The Physical Problem of Intermittency – How do you provide energy during those times? There are multiple options here, including overbuild (building far more solar/wind than one needs, so more is available during the low times) and energy storage. Both of those are part of the solution. Both face their own daunting issues.
  2. The Economic Problem of Intermittency (and Overabundance) – The second problem is more subtle. Wholesale electricity prices are substantially affected by supply and demand. Prices at the peak of demand (late afternoon and early evening) are much higher than prices in the middle of the night (when demand is low). Adding a large amount of solar, say, to the grid, floods the market with electricity at certain hours (daytime, particularly in the summer). That, in turn, lowers the wholesale price of electricity at those hours. That, in turn, makes it less profitable to build new solar – the price you can fetch for it on the market drops.

Problem #2 is thought of as solar and wind “eating their own lunch”.

Back in May of 2015, Jesse Jenkins and Alex Trembath ably described these headwinds in a post on “Is There an Upper Limit to Variable Renewables?” The article concludes that it’s tough to imagine a grid where solar + wind combined supply more than one third to one half of the electricity.

If you’re an energy geek, go read their post now. It’s one of the most cogent, data-based illustration of the challenges to deep decarbonization through renewables out there.

Renewables Can Go Much Further

While I agree with Jesse Jenkins and Alex Trembath in concept, their analysis misses some very important factors that increase the amount of solar and wind that can be integrated onto the grid. Three of those factors come to mind:

  1. Rising Capacity Factors – Solar and wind are getting better and better at producing energy more steadily, during more of the day. That’s especially true for wind power, where new turbines at high quality sites are expected to have capacity factors as high as 60%, making wind power increasingly reliable and increasingly less intermittent. More on this below.
  2. Energy Storage Price and Abundance Energy storage is plunging in price. It’s headed for prices so low that it makes sense for grid operators to deploy huge amounts of it, even in the absence of solar or wind. Once it’s there, however, storage is a resource that changes the game for solar and wind. More on this below.
  3. Continent-Scale Grids – The wider the area that solar and wind are integrated over, the more reliable they become. Going from a grid the size of Texas or Germany (the models used in many studies) to a grid the size of the continental US or EU changes the game. That’s what this present study addresses.

A Continent is the Right Size for a Grid

The new study in Nature Climate Change looks at issue #3 – turning the US’s three separate grids into a single, integrated grid, linked by High-Voltage DC (HVDC) lines.

They simulated weather patterns and hourly electrical grid over a period of three years (by taking detailed data from 2006-2008 and extrapolating it to 2030) and made the system optimize the number and placement of solar and wind sites.

What they found is a grid like this:

Cost-optimized grid for solar wind HVDC

Further, they found that making the US grid this comprehensive (as opposed to the three separate grids we have today) had benefits:

  1. Renewables Go Up – If you integrate over the size of the continental US, you can integrate more electricity from renewables.
  2. Costs Go Down – The overall cost of the plan is cheaper than the business-as-usual cost forecast for electricity in the US in 2030. And the wider the area you integrate, the cheaper.

Here’s one of the key charts, finding that in the low-cost renewables scenario (which is pretty conservative on cost), the US could lower electricity sector emissions by 78%, with an average retail cost of electricity that’s cheaper than the 2030 baseline case.

78 Percent Decarbonization with Solar and Wind and HVDC Grid - Nature Climate Change - Alexander E Macdonald

The second figure shows that, the larger the area one integrates over, the higher the percentage of grid electricity that can be supplied by carbon-free sources, getting up to a ballpark of 80% when the grid covers an area roughly the size of the continental US (8 million square kilometers). Roughly 60 out of that 80% would be wind and solar.

Carbon Free Energy As Function of Grid Size - Nature Climate Change - Alexander E Macdonald

Why does linking power systems over a wider area help? There are multiple reasons.

  1. You can Bring in Power from the Best Sites – Wind power from the great plains and solar from the south are far cheaper than the alternatives. A large-scale-grid allows that cheap energy to reach the places where consumers are.
  2. Weather Doesn’t Correlate – Over the size of a state, weather patterns can be brutal for renewables. A bad summer storm can knock down solar output over most of Texas.  A particularly calm weather system can slow wind turbines over hundreds of miles. But over the size of a continent, there’s minimal correlation in weather patterns. Sure, the sun or wind may be underperforming in one area – but they’re probably overperforming in another.
  3. The Sun Hasn’t Set Yet – In the West – Finally, the peak of electricity use starts in the late afternoon, and continues into the early evening. This is a problem for solar, given that the sun has already set by evening (by definition). But it hasn’t set a thousand miles to the west. So for east cost and midwestern cities, a national grid can bring in solar electricity from states west of them for those critical early evening hours.

This is Still A Deeply Conservative Study

While this study’s findings are encouraging, I find that the assumptions in it remain conservative.

  1. Solar and Wind Cost – In the study’s “low cost” renewables scenario, solar CapEx plus OpEx drops to $1.19 per Watt by 2030. On-shore wind CapEx plus OpEx drops to $2.16 per Watt by 2030. These numbers are likely to be beaten by 2020. Actual numbers in 2030 (after adjusting for rising capacity factor) may be half this expensive. That would mean twice as much solar and wind electricity per dollar.
  2. Rising Capacity Factors – The Nature Climate Change paper seemed to assume that capacity factors for solar and wind in 2030 are essentially the same as today.
  3. No Storage – This Nature Climate Change paper doesn’t model the inclusion of energy storage at all.

In a real world, with solar and wind prices dropping much further than this study sees by 2030; with wind, in particular, having a higher capacity factor (meaning that it blows more steadily); and with energy storage plunging in price, 60% of electricity from solar and wind is a low, conservative estimate.

The Other Aces for Renewables

We’ve discussed continent-scale grids. Now let’s go into the other two reasons solar and wind can go substantially farther than projected by most analysis: Rising capacity factors, and cheap and abundant storage.

1 – Rising Capacity Factors

A key point in Jesse and Alex’s analysis (and in other analyses they base theirs on) is the limitation imposed by the capacity factor of renewables. In general, it’s tough to imagine an energy source producing a higher percent of a grid’s electricity than its capacity factor.

The capacity factor is a measure of how much of its potential energy production a renewable source (like a solar array or a wind farm) actually produces. A solar array may be rated for 100 megawatts. That’s the maximum amount it can produce. But if it’s in Alaska, it may only produce an average of around 10 megawatts. Even in sunny places like southern California, capacity factors are somewhere around 30%. Half the day, the sun isn’t shining at all. And another 20% or so of the possible energy is lost due to clouds, poor angles of the sunlight (at dusk or dawn), occlusion, etc..

What Alex and Jesse miss (because the analysis they base their article on miss it) is the rising capacity factors of solar power and (especially) wind power.

In 2010, new solar power in the US had an average capacity factor of under 25%. In 2012, it was 30%.

Wind is even more impressive. Today, a best-class wind site in the US might have a capacity factor of 40%. But NREL expects next-generation wind turbines to reach an incredible 60% capacity factor over almost a quarter of the US in the next decade.

In short, current models of solar and wind that penalize them for being variable are increasingly out-of-date, or seem likely to become so. Solar and wind are variable, but they’re less so than they used to be.

2 – Cheap and Abundant Energy Storage

I’ve written extensively about how energy storage prices are plunging. That, in turn, stands to change the game for renewables.

Jesse and Alex do make a nod to energy storage in their analysis of the limits of renewables. They point to the oddly conservative MIT Future of Solar study’s discussion of energy storage. That study finds that in a Texas-sized grid (technically an “ERCOT-like grid”, which means the same thing) having 100 Gigawatt-hours of energy storage slows the rate at which solar “eats its own lunch” by roughly half, but doesn’t totally eliminate it. With 100 GWh of storage, solar can reach 42% capacity at a price of around 60 cents per watt.

That is actually quite a fine result. The Texas grid in the US consumes about 50 GWh of electricity per hour. So 100 GWh of storage is around 2 hours of storage for the full grid. That is, by today’s standards, an almost incomprehensibly huge amount. But for a future grid, it’s not. It’s actually less storage than the grid would benefit from in a cheap-storage world, simply for the purpose of leveling out the daily supply/demand cycle.

Texas is somewhere on the order of 2% of world electricity demand. So if Texas had 100 GWh of storage, one might expect that the world as a whole would have 50 times that (1 divided by 2%), or roughly 5,000 GWh of storage. That is a point at which it’s quite conceivable that grid electricity storage would cost as little as 2 cents per kwh.

Today, for customers of Entergy in Texas, electricity consumed at the peak hours costs 14.4 cents per kwh, vs 2.4 cents per kwh for off-peak electricity. If energy storage costs less than the 12 cent gap between those two, it will be deployed. And the total amount that could be deployed profitably could be on the order of one third to one half of Texas’s daily electricity consumption. 2 cents per kwh storage would be a no-brainer. Even 6 cents per kwh storage would see many hours worth of storage deployed.

That’s perhaps  400 GWh – 600 GWh of storage which makes economic sense to deploy on its own merits in a Texas-sized grid. That’s 4x – 6x as much as was modeled in the MIT “Future of Solar” study. That storage on the grid would, as a side effect, create ample capacity for solar and wind to sell their excess energy into on a daily basis, effectively removing the “eats its own lunch” problem of oversupply for solar and wind.

Short version: Storage looks likely to get cheap enough that it will be deployed in large quantities, paving the way for wind and solar.

Renewables Have Powerful Tail Winds

In summary, three factors will help drive renewables forward (even over and above the the plunging prices of solar and wind).

  1. Rising Capacity Factors – Such as for wind power.
  2. Cheap and Abundant Storage – Cheap, abundant energy storage now seems likely.
  3. Continent-Sized Grids – Of all the tail-winds, this is the one that most needs assistance from policy. Yet it makes sense. Integrating the grid over a wider area reduces costs for consumers and makes it easier to integrate more renewables.The next time someone complains about renewables in Germany or shows you a paper using a simulation of a Texas-sized grid, ask why it’s not a simulation of a continent-sized grid.

Are those three enough to reach 100% clean electricity? Maybe, maybe not. But they can very likely get us 90% or more of the way there.

—-

There’s more about the exponential pace of innovation in both storage and renewables in my book on innovating in energy, climate, food, water, and more:The Infinite Resource: The Power of Ideas on a Finite Planet

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How to Think About the Paris Climate Deal

Over the weekend, the world agreed to a new climate deal. Brad Plumer explains it well.

Global CO2 Emissions and COP21 Paris Commitments

Reactions range from celebration to dismissal of it as a fraud. It’s rare to see James Hansen (a tireless campaigner for addressing climate change) and Bjorn Lomborg (one of the climate confusers in chief) roughly in agreement. I won’t dignify Lomborg with a link.

Here’s what both miss.

Paris isn’t the beginning of progress on climate change. Nor is it the end. It’s another step, in a long chain of steps. To dismiss it as meaningless is to ignore that further steps will follow. Indeed, Paris sets up a process where every five years, nations will come together and agree to new carbon emissions reductions. A process that is likely to lead to a progressive tightening of emissions with each successive meeting. To ignore that is to pretend that Paris is the final action the world will ever take on climate change. It’s to think that across government, business, and technology, we’re done. This is it. This is all we’ve got.

Nope. We’ve got lots more. And as the price of clean energy drops, and they scale further, politicians and voters will be more willing to take more stringent steps. That, in turn, will continue to push down the price of clean energy, making it easier to take further steps, and so on.

Here’s an analogy:

You’re in a car, headed at breakneck speed towards the edge of a cliff and a long drop.

You turn the steering wheel. The car starts to respond as you do so, but it’s not instantaneous. Even turning the wheel isn’t instantaneous. You put your hand on it and pull hard around, and then replace your hands for another full rotation.

That’s us, right now. We’re spinning that wheel. We don’t have it hard over yet. There are more rotations to complete. And the car…the car has only just begun to respond to our rotation of the tires. It’s turned a bit, but you’re still looking out the windshield at that drop. But you know it’s going to turn, it’s going to respond to your hands on the steering wheel, and you reach out to turn it harder.

That’s us.

Paris (and all the events of the last two years that have led up to it) was maybe a half rotation of that steering wheel. Now, we have to take our other hand, put it on top, and get ready to turn that wheel some more.

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Did the One Child Policy Matter? Probably Not.

China’s one-child policy is ending. The policy, started in 1979-80, was aimed at slowing population growth, which was much more of a concern in the late 70s than it is now. China’s one-child policy was also horribly coercive. Men bursting in and forcing miscarriages. Forced abortions for millions. Really the stuff of dystopian nightmares.

Did that coercive policy have any impact at all on population? A look at the data suggests not, or at best, not much.

China Fertility Rate vs Hong Kong, Thailand, Singapor, Korea - One Child Policy - Demographics

You can look at the data yourself here.

Two observations:

  1. China’s birth rate was already plummeting. It fell rapidly from 1965 to 1980, when the policy went into effect. For the next decade, the first decade of the one-child policy, the birth rate stayed roughly flat.
  2. Other Asian nations saw birth rates plummet as much or more. Hong Kong, South Korea, Thailand, Vietnam, and Singapore – all rapidly developing, as China was – all saw their birth rates plummet. On a percentage basis, since 1980, Korea, Thailand, and Vietnam have all seen fertility drop more than in China

Now, all of these nations, and especially China, are dealing with a rapidly aging population, and a lack of young people. Ending the one-child policy, while good from the standpoint of freedom, is unlikely to substantially lift China’s birth rate.

The IMF agrees.

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How Cheap Can Energy Storage Get? Pretty Darn Cheap

This is part 3 of a series looking at the economic trends of new energy technologies. Part 1 looked at how cheap solar can get (very cheap indeed). Part 2 looked at the declining cost and rising reliability of wind power. Part 3, below, talks about storage. Part 4 looks at how far renewables can go (pretty darn far). Part 5 looks at how cheap electric vehicles can get, and how they’ll disrupt oil.

How Cheap Can Energy Storage Get?

Bill Gates recently told The Atlantic that “we need an energy miracle”. The same article quotes him as saying that storage costs roughly an order of magnitude too much. How quickly will the cost of storage drop? I attempt to answer that question here.

tl;dr: Predictions of the future are fraught with peril. That said, if the current trajectory of energy storage prices holds, within a decade or two mass energy storage of a significant fraction of civilization’s needs will be economically viable.

Disclosure: I’m an investor in two companies mentioned in this post: LightSail Energy and Energy Storage Systems.

Background: The Storage Virtuous Cycle

Before going further, you may want to read my primer on energy storage technology and economics: Why Energy Storage is About to Get Big – and Cheap.

In short, there are profitable markets for energy storage at today’s prices. And additional scale drives down the price further, opening up new markets. This is the Energy Storage Virtuous Cycle.

Energy Storage Virtuous Cycle

(Almost) Everything Gets Cheaper With Scale

As I mentioned in the post on how cheap solar can get, almost every industrial activity shows signs of a ‘learning curve’. That is to say, in industry after industry, as volume scales, prices drop. This is not simply the economies of scale. Rather, the learning curve is about both scale and about the integration of lessons and innovations that build up over time.

Evidence of the learning curve goes back to the Ford Model T.

Model T Price Learnin Curve

And the learning curve is clearly on display in exponentially declining solar prices and likely continues to play a role in declining wind power prices.

It shouldn’t be any surprise, then, to find that energy storage has a learning curve too.

The Lithium-Ion Learning Curve

How fast does energy storage get cheaper? Let’s start with lithium-ion batteries. Lithium-ion is the battery chemistry used in laptops, phones, and tablets. It’s used in electric vehicles. And it’s starting to be used at grid scale.

The price of small lithium-ion batteries dropped by roughly a factor of 10 between 1991 and 2005.

Lithium-ion battery price 1991-2005

Large battery formats, such as those used in electric vehicles and for grid storage, are more expensive than the smaller batteries used in mobile devices. But large batteries are also getting cheaper

Different analysts looking at the data draw similar but slightly different conclusions about the learning rate of large lithium-ion batteries. Let’s review those estimates now.

The Electric Power Research Institute (EPRI) reviewed a variety of data to find that lithium-ion batteries drop in price by 15% per doubling of volume. (What most would call a 15% learning rate, but which they instead call an 85% learning rate.)

EPRI Future Battery and Energy Storage Cost Curve - 95 and 90 Percent - by packs per year

Winfriend Hoffman, the former CTO of Applied Materials, and one of the first to apply the learning curve concept to solar, similarly finds a 15% learning rate in large format lithium-ion batteries

Battery Learning Curve hoffmann-grafik-1-01.

Bloomberg New Energy Finance (BNEF), meanwhile, uses more recent data, and finds a 21.6% learning rate in electric vehicle batteries. In fact, the learning rate they find is strikingly similar to the learning rate for solar panels.

BNEF Battery Energy Storage Learning Curve is the Same as PV Learning Curve

So the range of estimates of from 15% to 21%. How cheap does that suggest lithium-ion battery storage will get?

How Cheap Can Lithium-Ion Batteries Get - Energy Storage

All of today’s large-format lithium-ion batteries, combined, can store less than 1 minute of world’s electricity demand. As scale increases, that number will rise, and, if current trends hold, the price of new batteries will drop.

On that trend, starting with the assumption that batteries today cost somewhere around 25 cents per kwh sent through them, by the time the planet has sufficient lithium-ion battery storage to hold just 13 minutes of today’s electricity demand, lithium-ion prices will have dropped by a factor of 2 to 2.5, down to a range of 10-13 cents per kwh stored.

By the time the world has enough lithium-ion battery storage for roughly an hour of electricity demand, prices will be in the range of 6-9 cents.

And by the time the world can store a full day of electricity demand, prices (if current trends hold) would be down to 2-4 cents per kwh.

How Cheap is Cheap Enough?

If you’re informed on wholesale electricity prices, the prices above may sound ridiculously high. Wholesale natural gas electricity from a new plant is roughly 7 cents per kwh (though that doesn’t include the cost of carbon emitted). How could batteries priced at 25 cents per kwh, or even 10 cents a kwh, compete? Particularly when you also have to pay for electricity to go into those batteries?

The answer is that batteries don’t compete with baseload power generation alone. Batteries deployed by utilities allow them to reduce the use of (or entirely remove) expensive peaker plants that only run for a few hours a month. They allow utilities to reduce spending on new transmission and distribution lines that are (up until now) built out for peak load and which sit idle at many other hours. In a world with batteries distributed close to the edge, utilities can keep their transmission lines full even during low-demand hours, using them to charge batteries close to their customers, and thus cutting the need for transmission and distribution during peak demand. And batteries reduce outages.

To roughly estimate the value that batteries provide, look at the gap between the peak retail prices customers pay at the most expensive hours of the day versus the cheapest retail power available throughout the day. In a state like California, that’s a difference of almost 20 cents per kwh, from peak-of-day prices of more 34 cents to night time power that’s less than 14 cents. That difference is an opportunity for storage.

CA Time of Use Pricing Model

Another opportunity is the difference between the cheapest wholesale power price – wind at 2 cents per kwh – and peak of day wholesale prices from natural gas peaker plants, which can be over 20 cents per kwh. Again, the gap is close to 20 cents per kwh.

That said, batteries at 20 cents per kwh are only economical for a fraction of the day’s power needs. The cheaper batteries are, the greater the fraction of hours, days, weeks, and months that they’re economical for. And if we want carbon-free energy to be cheaper than coal or natural gas on a 24/7 basis, we need batteries that are extremely cheap – down to a few cents per kwh. Lithium-ion is on track for that, eventually. But, in my view, other technologies will get there first.

What’s Cheaper Than Lithium-Ion?

The cost of energy storage is, roughly, the up-front capital cost of the storage device, divided by the number of cycles it can be used for. If a battery costs $100 per kwh and can be used 1,000 times before it has degraded unacceptably, then the cost is one tenth of a dollar (10 cents) per cycle. [In reality, the cost is somewhat higher than this – there are efficiency losses and cycles in the far future are potentially worth less than cycles now due to the discount rate.]

Lithium-ion batteries suffer from fairly rapid degradation. Getting 1,000 cycles out of a li-ion battery with full depth of discharge (draining it completely) is ambitious. Tesla’s PowerWall battery is warrantied for 10 years, or 3,650 cycles, which appears to be possible only because the battery is never fully drained. What Tesla sells as a 7kwh battery is actually a 10kwh battery that never allows the final 3kwh to be drained.

Other energy storage technologies, however, are far more resilient than lithium-ion.

  • Flow batteries can potentially be used for 5,000 – 10,000 cycles, with complete discharge every time, before needing refurbishing.
  • Adiabatic compressed air energy storage (CAES) uses tanks and compressors that are certified for 30 years or more of continuous use, meaning more than 10,000 cycles, again at complete discharge rather than the 70% discharge possible in lithium-ion.(In addition, CAES can be used to store energy for weeks, months, or years, something that batteries can’t do due to leakage.)

As an added bonus, CAES systems and some flow battery systems can be made with abundant elements that are cheaper and available in higher volumes than lithium. For instance:

  • LightSail Energy‘s compressed air tanks are made of carbon fiber, the primary ingredient of which (carbon) is the 4th most abundant element in the universe, and roughly 1,000x more abundant in the earth’s crust than lithium.
  • ESS’s flow batteries are comprised almost entirely of iron, which is at least several hundred times more abundant in the earth’s crust than lithium.

[To be clear, lithium is available in quantities sufficient to make at least hundreds of millions of Tesla-class electric vehicles. There is no near-term lithium crunch. But there may be a long-term one.]

How big is the price advantage of more and deeper discharges? It’s difficult to compare apples-to-apples, because neither compressed air nor any flow battery chemistry have reached anywhere near the scale of lithium-ion. They haven’t gone nearly as far down the learning curve. At the same time, the cost of materials for a flow battery, for instance, should be comparable to or lower than for a lithium-ion battery.That’s approximately true for compressed air as well (though some more interesting differences apply, which I may return to in a future post.)

If we assume then that flow and compressed air have similar up-front costs to lithium-ion, and a similar learning curve, we can project what a unit of electricity stored and retrieved in them will cost. We’ll do so by giving them a (conservative) 50% cost advantage to account for their many times longer lifetime. In reality, their cost advantage in the long term may be larger than this.

Even at 50%, however, we find that flow batteries and compressed air are much cheaper than lithium-ion, and reach the price points of a few cents per kwh much sooner. In the graph below, we see that, assuming a similar learning rate, flow batteries and compressed air reach around 4 cents per kwh round-tripped at around 1 million MWh of storage versus 10 million MWh for lithium-ion. They reach a price of 2 cents per kwh round-tripped (a true fossil-fuel killer of a price) at around 10 million MWh stored, versus 80 million MWh for lithium-ion.

How Cheap Can Energy Storage Get

Obviously, the above is just a projection. And for flow batteries and CAES, we have far less of a track record than for lithium-ion. Some preliminary data does support the notion that they’ll be cheap, however.

  • Redflow, a maker of zinc-bromide flow batteries, sells batteries with a cost of storage around 20 cents per kwh. And zinc-bromide is well off the left side of the graph above, many many steps in its learning function away from the beginning of the chart.
  • ESS is a graduate of the ARPA-E GRIDS program, which set a goal of $100 per kwh capital costs of batteries, for batteries that can run for many thousands of cycles. The math there points to batteries that eventually cost a few cents per kwh.

We cannot be certain that any technology will follow a trajectory on a graph. Fundamentally, though, the presence of the learning curve in nearly all industrial activities, combined with the longer lifetimes of flow and CAES systems, suggests that their prices will drop well below those of lithium-ion.

The disadvantage of both flow batteries and CAES is that their energy density is low. To hold they same amount of energy, both flow and CAES are larger and heavier than lithium-ion. As a result, I expect to see a divergence over time:

  • Lithium-ion and its successor technologies (perhaps metal air) will be used for electric vehicles and mobile devices.
  • Bulkier, heavier, but longer-lasting and deeper-draining storage technologies like flow batteries and CAES will be used for stationary power for the electrical grid.

Cheap, Zero-Carbon Power, 24/7

Solar power and wind power are each headed towards un-subsidized prices of 2-3 cents per kwh in their best areas, and perhaps 4 cents in more typical areas.

Future Solar Cost Projections - PPA LCOEFuture Wind Price Projections - Naam - 14 Percent Learning Curve

New natural gas costs around 7 cents per kwh. As solar and wind steal hours from natural gas plants (because they’re cheaper when the sun is shining and the wind is blowing), natural gas plants will sit idle longer. As a result, the price of natural gas electricity will rise to perhaps 10 cents per kwh, as the up-front capital cost of natural gas plants is spread over fewer kwhs out.

To compete with that on a 24/7 basis, we need storage that costs no more than 5 or 6 cents per kwh, and ideally less.

In other words, we need to cut the price of energy storage by a factor of 5 or 6 from today’s prices.

We’ve already cut energy storage prices by a factor of 10 since the 1990s. And if current trends hold, the world is very much on path to achieving cheap enough storage to allow 24/7 clean energy, and doing so in the next 15-20 years.

How Cheap Can Energy Storage Get

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There’s more about the exponential pace of innovation in both storage and renewables in my book on innovating in energy, climate, food, water, and more:The Infinite Resource: The Power of Ideas on a Finite Planet

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