Clean Energy Disruption – Video from South Africa

I spoke at the SingularityU South Africa Summit earlier this year, about the way that solar, wind, storage, and electric vehicles are disrupting the $6 Trillion a year energy industry worldwide, and the opportunities for South Africa and the whole of the African continent.

It was a great event. Here’s video of my talk.

New Record Low Solar Price in Abu Dhabi – Costs Plunging Faster Than Expected

The price of solar power – in the very sunniest locations in particular – is plunging faster than I expected. I’ve been talking for years now about the exponential decline of solar power prices. I’ve often been called a wide-eyed optimist. Here’s what those projections (based on historical learning rates) look like.

Future Solar Cost Projections - PPA LCOE

In fact, if anything, my forecasts were too conservative. The solar prices I expected have been smashed by bids in the Middle East and in Latin America. I will need to update the model above in a future post.

The latest record is an incredibly low bid of 2.42 cents / kwh solar electricity in Abu Dhabi. That is an unsubsidized price.

Let me put that in perspective. The cost of electricity from a new natural gas powerplant in the US is now estimated at 5.6 cents / kwh.  (pdf link) That is with historically low natural gas prices in the US, which are far lower than the price of natural gas in the rest of the world.

This new bid in Abu Dhabi is less than half the price of electricity from a new natural gas plant.

What’s more, it’s less than the cost of the fuel burned in a natural gas plant to make electricity – without even considering the cost of building the plant in the first place.

The solar bid in Abu Dhabi is not just the cheapest solar power contract ever signed – it’s the cheapest contract for electricity ever signed, anywhere on planet earth, using any technology.

Nor is this bid a fluke. Three other bids in Abu Dhabi’s latest power auction came in at less than 3 cents / kwh:

Bidder Bid per MWh (in USD)
Masdar, EDF, PAL Technology 25.4
Tenaga, Phelan Energy 25.9
RWE, Belectric 29.1

Nor is it limited to just Abu Dhabi.

In Chile, just a month ago, a new record low price for solar was set, at 2.91 cents / kwh.  That record lasted less than 5 weeks.

In Mexico, the average price of new solar bids in April was 5.1 cents per kwh, and the cheapest solar bid in Mexico was 3.5 cents per kwh.

These price improvements are not coming primarily from the price of panels dropping. They’re coming from reductions in the total cost to deploy solar, increases in solar capacity factor, ever-lower operating costs, and fierce competition to win bids in the solar industry.

The solar industry is learning faster than expected.

Now, let’s watch and see if energy storage prices can drop as fast as solar.

 

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.

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”.

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

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

How Cheap Can Solar Get? Very Cheap Indeed

This is part 1 of a series looking at the economic trends of new energy technologies. Part 2 looks at the dropping price and increasing reliability of wind power. Part 3 looks at how cheap energy storage can get (pretty darn cheap). 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. For now, let’s start with solar:

What’s the future price of solar?

I’ll attempt to make some projections (tentatively) here.

tl;dr: If current rates of improvement hold, solar will be incredibly cheap by the time it’s a substantial fraction of the world’s electricity supply.

Background: The Exponential Decline in Solar Module Costs

It’s now fairly common knowledge that the cost of solar modules is dropping exponentially. I helped publicize that fact in a 2011 Scientific American blog post asking “Does Moore’s Law Apply to Solar Cells?” The answer is that something like Moore’s law, an exponential learning curve (albeit slower than in computing) applies. (For those that think Moore’s Law is a terrible analogy, here’s my post on why Moore’s Law is an excellent analogy for solar.)

Solar Electricity Cost, not Solar Module Cost, is Key

But module prices now make up less than half of the price of complete solar deployments at the utility scale. The bulk of the price of solar is so-called “soft costs” – the DC->AC inverter, the labor to install the panels, the glass and aluminum used to cover and prop them up, the interconnection to the grid, etc..  Solar module costs are now just one component in a more important question: What’s the trend in cost reduction of solar electricity? And what does that predict for the future?

Let’s look at some data.  Here are cost of solar Power Purchase Agreements (PPAs) signed in the US over the last several years. PPAs are contracts to sell electricity, in this case from solar photovoltaic plants, at a pre-determined price. Most utility-scale solar installations happen with a PPA.

In the US, the price embedded in solar PPAs has dropped over the last 7-8 years from around $200 / MWh (or 20 cents / kwh) to a low of around $40 / MWh (or 4 cents per kwh).

The chart and data are from an excellent Lawrence Berkeley National Labs study, Is $50/MWh Solar for Real? Falling Project Prices and Rising Capacity Factors Drive Utility-Scale PV Toward Economic Competitiveness

This chart depicts a trend in time. The other way to look at this is by looking at the price of solar electricity vs how much has been installed. That’s a “learning rate” view, which draws on the observation that in industry after industry, each doubling of cumulative capacity tends to reduce prices by a predictable rate. In solar PV modules, the learning rate appears to be about 20%. In solar electricity generated from whole systems, we get the below:

This is a ~16% learning rate, meaning that every doubling of utility-scale solar capacity in the US leads to a roughly 16% reduction in the cost of electricity from new solar installations. If anything, the rate in recent years appears to be faster than 16%, but we’ll use 16% as an estimate of the long term rate.

Every Industrial Product & Activity Gets Cheap

This phenomenon of lower prices as an industry scales is hardly unique to solar. For instance, here’s a view of the price of the Ford Model T as production scaled.

Like solar electricity (and a host of other products and activities), the Model T shows a steady decline in price (on a log scale) as manufacturing increased (also on a log scale).

The Future of Solar Prices – If Trends Hold

The most important, question, for solar, is what will future prices be? Any projection here has to be seen as just that – a projection. Not reality. History is filled with trends that reached their natural limits and stalled. Learning rates are a crude way to model the complexities involved in lowering costs. Things could deviate substantially from this trendline.

That said, if the trend in solar pricing holds, here’s what it shows for future solar prices, without subsidies, as a function of scale.

Again, these are unsubsidized prices, ranging from solar in extremely sunny areas (the gold line) to solar in more typical locations in the US, China, India, and Southern Europe (the green line).

What this graph shows is that, if solar electricity continues its current learning rate, by the time solar capacity triples to 600GW (by 2020 or 2021, as a rough estimate), we should see unsubsidized solar prices of roughly 4.5 c / kwh for very sunny places (the US southwest, the Middle East, Australia, parts of India, parts of Latin America), ranging up to 6.5 c / kwh for more moderately sunny areas (almost all of India, large swaths of the US and China, southern and central Europe, almost all of Latin America).

And beyond that, by the time solar scale has doubled 4 more times, to the equivalent of 16% of today’s electricity demand (and somewhat less of future demand), we should see solar at 3 cents per kwh in the sunniest areas, and 4.5 cents per kwh in moderately sunny areas.

If this holds, solar will cost less than half what new coal or natural gas electricity cost, even without factoring in the cost of air pollution and carbon pollution emitted by fossil fuel power plants.

As crazy as this projection sounds, it’s not unique. IEA, in one of its scenarios, projects 4 cent per kwh solar by mid century.

Fraunhofer ISE goes farther, predicting solar as cheap as 2 euro cents per kwh in the sunniest parts of Europe by 2050.

Obviously, quite a bit can happen between now and then. But the meta-observation is this: Electricity cost is now coupled to the ever-decreasing price of technology. That is profoundly deflationary. It’s profoundly disruptive to other electricity-generating technologies and businesses. And it’s good news for both people and the planet.

Is it good enough news? In next few weeks I’ll look at the future prospects of wind, of energy storage, and, finally, at what parts of the decarbonization puzzle are missing.

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If you enjoyed this post, you might enjoy my book on innovating in energy, food, water, climate, and more: The Infinite Resource: The Power of Ideas on a Finite Planet

New Solar Capacity Factor in the US is Now ~30%

The capacity factor of new utility scale solar deployed in the US in 2010 was 24%. By 2012 it had risen to roughly 30%.

The rising capacity factor of new solar projects is part of why the cost of electricity from new solar is dropping faster than the installed cost per watt. Installing solar at a 30% capacity factor produces a quarter more electricity than the same number of watts of solar deployed at 24%.  The rise in capacity factor effectively reduces the price of electricity by 20%.

The chart and data are from an excellent Lawrence Berkeley National Labs study, Is $50/MWh Solar for Real? Falling Project Prices and Rising Capacity Factors Drive Utility-Scale PV Toward Economic Competitiveness

The EIA shows similar numbers, showing that the capacity factor of the entire solar PV fleet in the US in 2014 (including projects deployed before 2012) was 27.8%.

As newer projects come online, they’ll likely move the average capacity factor of the total fleet upwards.

Solar Cost Less than Half of What EIA Projected

Skeptics of renewables sometimes cite data from EIA (The US Department of Energy’s Energy Information Administration) or from the IEA (the OECD’s International Energy Agency). The IEA has a long history of underestimating solar and wind that I think is starting to be understood.

The US EIA has gotten more of a pass. The analysts at EIA are, I’m certain, doing the best job they can to make reasonable projections about the future. But, time and again, they’re wrong. Solar prices have dropped far faster than they projected. And solar has been deployed far faster than they’ve projected.

Exhibit A. In an update on June 2015, the EIA projected that the cheapest solar deployed in 2020 would cost $89 / mwh, after subsidies. That’s 8.9 cents / kwh to most of us. (This assumes that the solar Investment Tax Credit is not extended.)

Here’s the EIA’s table of new electricity generation costs. I’ve moved renewables up to the top for clarity. Click to see a larger version.

How has that forecast worked out? Well, in Austin, Greentech Media reports that there are 1.2GW of bids for solar plants at less than $40/mwh, or 4c/kwh. And there are bids on the table for buildouts after the ITC goes away at similar prices.

That’s substantially below the price of ~$70/mwh for new natural gas power plants, or $87/mwh for new coal plants.

And the prices continue to drop.

The reality is that solar prices in the market are less than half of what the EIA projected three weeks ago.

When you hear numbers quoted from EIA or IEA, take this into account. As well-meaning as they may be, their track record in predicting renewables is poor, and it always errs on the side of underestimating the rate of renewable progress.

There’s more about the exponential pace of innovation in solar, storage, and other technologies in my book on innovating to beat climate change and continue economic growth:The Infinite Resource: The Power of Ideas on a Finite Planet

Solar: The First 1% Was the Hardest

Solar power now provides roughly 1% of the world’s electricity. It took 40 years to reach that milestone. But, as they say in tech, the first 1% is the hardest. You can see why in this chart below.

As solar prices drop, installation rate rises. As the installation rate rises, the price continues to drop due to the learning curve.

How fast is the acceleration?

Looking at the projections from GTM, it will take 3 more years to get the second 1%.

Then less than 2 years to get the third 1%.

And by 2020, solar will be providing almost 4% of global electricity.

GTM expects that by 2020, the world will be installing 135 GW of solar every year, and will have reached a cumulative total of nearly 700 GW of solar, roughly four times the 185 GW installed today.

For context, at the end of 2013, after almost 40 years of effort, the world had a total of 138 GW of solar deployed. We’ll deploy almost that much in a single year in 2020. And the numbers will keep on rising.

The growth of the total amount of solar deployed around the world continues to look exponential, with a growth rate over the last 23 years of 38% per year. Over the last three years it’s slowed to a mere 22% per year. All exponentials become S-curves in the long run. But for now, growth remains rapid, and may indeed accelerate once more as solar prices drop below those of fossil fuel generation and as energy storage plunges in price.

The first 1% was the hardest.

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There’s more about the exponential pace of innovation in solar, storage, and other technologies in my book on innovating to beat climate change and continue economic growth:The Infinite Resource: The Power of Ideas on a Finite Planet