Tesla Battery Economics: On the Path to Disruption

Update: The Tesla battery is better than I thought for homes. And at utility scale, it’s deeply disruptive.

Elon Musk announced Tesla’s home / business battery today. tl;dr: It’ll get enthusiastic early adopters to buy. The economics are almost there to make it cost effective for a wide market. [Update: It might actually be cost effective in the US today. See the third cost estimate down below.] And within just a few years, it almost certainly will be cheap enough to be cost effective for a broad market. Not a complete game changer for the home mrket today, but a shot fired in an incredible energy storage disruption.

At the utility scale, it may actually be even more disruptive. Tesla appears to be selling the utility scale models at $250 / kwh. Multiple utility studies suggest that such a price should replace natural gas peakers and drive gigantic grid-level deployments.

[If you want to understand the overall energy storage technology race and market, read this: Why Energy Storage is About to Get Big, and Cheap.]

Here are the specs, from Tesla’s Powerwall site.

Gizmodo has more details.

$3500 is, as some people online have noted, less than a fully decked out Mac. There will be some set of early adopters who buy this because they love the idea, because they dislike utility companies, because they’re committed to solar, or because they love Elon Musk. Indeed, across my feed, I’ve seen quite a large number of people already announce that, at $3000 or $3,500, they’re just going to buy it, and ROI be damned.

There’s also an economic case for anyone to whom outages are extremely expensive and cutting off even one or two outages in the lifetime of the battery is worth the purchase price.  (Movie theaters are one set of customers I’ve heard are looking closely at this.) As competition against a backup generator, the battery has huge advantages. [Seamless, no fueling, less maintenance, can save money on day-to-day operations, etc…] That alone may power early sales.

Beyond that, is the battery cheap enough to make storing your self-generated solar power worthwhile for hundreds of thousands or millions of homes across the US and overseas? If not, how close is it?

As I’ve written before, the number that really matters is the round-trip cost of electricity over the lifetime of the battery. How much do you pay for every kilowatt-hour put into the battery and then retrieved later?  We can talk about this as LCOE (levelized cost of electricity).

Here are two (make that three) ways we can calculate the LCOE of the Tesla Powerwall.

1. Rule of Thumb: 1,000 Full Charge Cycles. This gives an LCOE of $0.35 / kwh.  That compares to average grid electricity prices in the US of 12 cents / kwh, and peak California prices on a time-of-use plan of around 28 cents / kwh.

2. 10 Year Warranty + Daily Shallow Cycles. Tesla is offering a ten-year warranty on these batteries, which is bold. Yet evidence shows that Tesla automotive batteries are doing quite well, not losing capacity fast. Why? It’s because they’re rarely fully discharged. Most people drive well under half of the range of the battery per day. So let’s assume 10 years of daily use (3650 days, if we ignore leap days) and 50% depth of discharge on each day. Using the 7kwh battery, that gives us a price of around 23-24 cents / kwh.

3. UPDATE: 10 Years of 7kwh Cycles. Cheap Enough. I’m adding this after some twitter conversations with Robert Fransman. Let’s assume for a moment that the Tesla Battery actually can be used for full 7kwh charging and discharging every day during its 10 year warranty. That would make the cost around 12 cents / kwh.

[I had initially assumed that daily 7kwh cycling was impossible, despite the specs Tesla provided. No Li-ion battery today can handle 3650 discharges to 100% depth. But Robert Fransman has done the math on the weight of the battery vs. Tesla car batteries. He suggests that the 7kwh battery is actually a 12kwh battery under the hood. Discharging a battery to 60% 3650 times is still a stretch, but much closer to plausible. Tesla may here be just assuming they’ll have to replace some on warranty before 10 years, but given that the price of batteries is plunging, future replacement is far less expensive. Smart.]

All three of these prices are the price to installers. It’s not counting the installer’s profit margin or their cost of labor or any equipment  needed to connect it to the house. So realistically the costs will be higher. If we add 25% of so, the bottom price, the one backed by the warranty, is around 15 cents per kwh. 

Tentative Conclusion: The battery is right on the verge of being cost effective to buy across most of the US for day/night arbitrage. And it’s even more valuable if outages come at a high economic cost.

In Sunny Countries: Bigger Impact, Drives Solar

Outside the continental US, the battery’s economics look far better, though. 43 US states currently have Net Metering laws that compensate solar homes for excess power created during the day. A good Net Metering plan is simply a better deal for most solar-equipped homes than buying a battery.

In some of the sunniest places in the world, though, retail electricity prices from the grid are substantially higher than the US, plenty of sunlight is available, and Net Metering either doesn’t exist or is being severely curtailed.

Here’s a map from BNEF of sunshine vs grid electricity rates. Countries above the 2015 line have cheaper solar electricity than grid electricity today. But a number of those countries, including Australia, Spain, Italy, Turkey, and Brazil have no or severely limited ability for solar home owners to sell extra power back to the grid. In those sunny, policy-light countries, Tesla’s batteries make economic sense today, and will help drive rooftop solar. 

Even Germany, I’d note, gets enough sun that the price of rooftop solar is below that of grid electricity. And in Germany, feed-in-tarrifs to homes that put solar on the grid are plunging. There’s now a roughly 20 euro cent difference between the price of retail electricity and the feed in tariff in Germany. That’s 22 US cents. So if the Tesla battery is really 15 cents per kwh, it makes more sense for German solar customers to store their excess solar electricity in a battery than it does to provide it back to the grid.

The real prize, though, would be India. Northern India is sunny. The power grid struggles to provide enough electricity to meet the daytime and early evening peak. India is now rolling out Time-of-Day pricing to residential customers and reports indicate that retail peak power prices are edging towards 20 cents / kwh in some cities. (Most commercial customers in India are already on Time-of-Day pricing.) For now, the solar + battery economics aren’t quite there for Indians that have access to the grid, though with outages there so frequent, high-income urbanites and commercial power users may find that the reliability value puts it over the top.

Back to the US

For some parts of the US with time-of-use plans, this battery is right on the edge of being profitable. From a solar storage perspective, for most of the US, where Net Metering exists, this battery isn’t quite cheap enough. But it’s in the right ballpark. And that means a lot.

Net Metering plans in the US are filling up. California’s may be full by the end of 2016 or 2017, modulo additional legal changes. That would severely impact the economics of solar. But the Tesla battery hedges against that. In the absence of Net Metering, in an expensive electricity state with lots of sun, the battery would allow solar owners to save power for the evening or night-time hours in a cost effective way. And with another factor of 2 price reduction, it would be a slam dunk economically for solar storage anywhere Net Metering was full, where rates were pushed down excessively, or where such laws didn’t exist.

That is also a policy tool in debates with utilities. If they see Net Metering reductions as a tool to slow rooftop solar, they’ll be forced to confront the fact that solar owners with cheap batteries are less dependent on Net Metering.

As I mentioned above, the battery is right on the edge of being effective for day-night electricity cost arbitrage, wherein customers fill up the battery with cheap grid power at night, and use stored battery power instead of the grid during the day. In California, where there’s a 19 cent gap between middle of the night power and peak-of-day power, those economics look very attractive right now. Further price reductions will make this even more clear.

And the cost of batteries is plunging fast. Tesla will get that 2x price reduction within 3-5 years, if not faster. See below for a Nature Climate Change view of the pace of battery price declines.

What About Utility Deployment?

The above analysis is for homes and businesses. But what about utilities deploying the battery themselves?

The impact there may be far bigger. Elon Musk has tweeted that the cost to utilities is $250/kwh.

$250 / kwh appears to be cheap enough to replace natural gas peakers and motivate hundreds of gigawatt hours of deployment across the US.

For example, a study conducted for ERCOT, the Texas power grid, found that below a cost of $350 / kwh, ERCOT would benefit from deploying 8 gigawatts and 24 gigawatt hours of battery storage.

This is a potential huge impact on utilities, the power grid, and electricity markets. If you want to understand more, read my primer which goes into more depth on energy storage innovation and markets.

In Summary: Disruption is Coming

Net, on the home front, I think this battery will sell quite a lot of units to early adopters and those with a low tolerance for outages. As a substitute for a backup generator, it has huge advantages. For utilities, it may have tremendous bang for the buck. And early adopters and utilities will fund the price continuing to decline. Tesla’s strong brand, and the compact, convenient nature of lithium-ion will help sell this into enthusiastically pro-solar homes. For anywhere that doesn’t have Net Metering or a high feed-in-tariff rate today, or where Net Metering is getting full (Australia, Germany, Spain, Hawaii, etc..) this is a slam dunk and a balance-of-power shifter beween home owners and utilities.

All that said, for large scale grid deployment (outside of the home), it still looks like flow batteries and advanced compressed air are likely to be far cheaper in the long run.

Batteries are going to keep getting cheaper. This is just the beginning.

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

China Isn’t the Reason Solar is Cheap. Innovation Is.

“The only reason solar is so cheap is because China is dumping cells.”

I hear this a lot. So let me correct it. Here is the price, as of February 2015, of solar modules, per watt sold in Europe. SE Asia (Malaysia, mostly) is cheapest. China is next. Japan, Korea, and Germany are slightly above that.

First, note that SE Asian cells are cheaper than Chinese.  Second, note that the price difference between Chinese cells and cells from Japan, Korea, or Germany is about 5-7 euro cents per watt.

That difference, in the grand scheme of things, is trivial. It’s trivial for two reasons.

First: The installed cost of utility scale solar is currently in the range of $1.50 – $2 / Watt. That makes the difference in module prices from China to Japan / Korea / Germany about a 3-4% difference in total price

Second, the plunge in solar module prices worldwide has been from $77 per watt, to this current price point of ~50 cents per watt. So the difference in price between Chinese modules and Japanese / Korean / Germany modules is, at most, 1% of that.

Now, the Chinese manufacturers actually have driven much more price change than that. They’ve done so by injecting competition into the market, and forcing everyone to keep driving down the amount of energy, labor, and materials going into each watt of solar. But China didn’t even enter the market in a large way until the last several years. Solar was on a long-term exponential price decline for decades before that.

Solar + Wind, More Than the Sum of Their Parts

David Roberts has an amazing first post in his new job at Vox, on why a solar future is inevitable.

Clearly I’m bullish on solar. My own reasons are that:

1. Solar is plunging in price far faster than any other energy source.

2. Solar takes very little land: Less than 1% of US land would be required to provide US electricity needs via solar.

3. Energy storage is plunging in price at least as fast as solar, complementing it and providing backstop for it.

That said, there’s very likely a role for multiple source of electricity in the future (let alone multiple sources of energy overall, when one adds in things like transportation and manufacturing.)

Consider wind. Wind power, while not plunging in price nearly as rapidly as solar, is cheaper in many places today. And wind and solar have a dynamic that makes them greater than the sum of their parts: The wind tends to blow most when the sun isn’t shining, and vice versa. That’s true on an hour-by-hour basis, and even true on a season-by-season basis.

Consider this chart of capacity factors by hour of day for solar and coastal and inland wind from the ERCOT grid (Texas).

The top line is electricity load – demand being placed on the grid by people drawing electricity. Load peaks in daylight hours, but stays at that peak in the early evening. The sun sets before load drops, but the wind tends to kick in.  And overnight, when no sun is shining, the wind blows, on average harder than it does during the day.

Every gigawatt of solar deployed, for this reason, actually makes wind power slightly more economically valuable.

And while I’ve written extensively about the cost plunge of storage, the reality is that combining solar + wind, at the grid level, often removed the need, at least in the short term, for storage, and reduces the total amount of storage needed on the grid.

The same pattern is generally true across seasons. The sun is most available in summer months, wind most available in winter months. Here’s a view of 11 months in Germany:

The point here isn’t to knock solar. Solar’s ferocious price decline, combined with the fact that it is the most abundant renewable on the planet, give it a clear advantage. Yet there are parts of the world with less sun (Northern Europe, for instance), parts of the day with less sun, and parts of the year with less sun. Combining wind and solar is a bit like adding 1 + 1 and getting three. And for that reason, as solar penetration increases and likely passes wind power in the next 2-3 years, I expect the economic case for wind to actually grow stronger.

That also, by the way, makes the case for the grid. Renewables become far more reliable when integrated over a larger area. Integrating solar power over a wider area cuts the intermittency of clouds, for example:

And for any continent-sized area, using the grid to connect solar + wind allows the best of both worlds, drawing sunlight from the sunny areas, and wind from the windy areas to create a best of both worlds. Indeed, this is what I hope to see happen in Europe, where the northern nations have fairly little sunlight but lots of wind, and the south has abundant sunlight that it could provide to the north.

A European grid to knit these together could provide the best of both worlds to Europe’s electricity system. Energy interdependence over energy independence.

Why Energy Storage is About to Get Big – and Cheap

tl;dr: Storage of electricity in large quantities is reaching an inflection point, poised to give a big boost to renewables, to disrupt business models across the electrical industry, and to tap into a market that will eventually top many of tens of billions of dollars per year, and trillions of dollars cumulatively over the coming decades.

Update: As a follow-on to this post, I run the numbers on how cheap can energy storage get? And the answer is: Quite cheap, indeed.

The Energy Storage Virtuous Cycle

I’ve been writing about exponential decline in the price of energy storage since I was researching The Infinite Resource. Recently, though, I delivered a talk to the executives of a large energy company, the preparation of which forced me to crystallize my thinking on recent developments in the energy storage market.

Energy storage is hitting an inflection point sooner than I expected, going from being a novelty, to being suddenly economically extremely sensible. That, in turn, is kicking off a virtuous cycle of new markets opening, new scale, further declining costs, and additional markets opening.

To elaborate: Three things are happening which feed off of each other.

  1. The Price of Energy Storage Technology is Plummeting. Indeed, while high compared to grid electricity, the price of energy storage has been plummeting for twenty years. And it looks likely to continue.
  2. Cheaper Storage is on the Verge of Massively Expanding the Market.  Battery storage and next-generation compressed air are right on the edge of the prices where it becomes profitable to arbitrage shifting electricity prices – filling up batteries with cheap power (from night time sources, abundant wind or solar, or other), and using that stored energy rather than peak priced electricity from natural gas peakers.This arbitrage can happen at either the grid edge (the home or business) or as part of the grid itself. Either way, it taps into a market of potentially 100s of thousands of MWh in the US alone.
  3. A Larger Market Drives Down the Cost of Energy Storage. Batteries and other storage technologies have learning curves. Increased production leads to lower prices. Expanding the scale of the storage industry pushes forward on these curves, dropping the price. Which in turn taps into yet larger markets.

 

Let’s look at all three of these in turn.

1. The Price of Energy Storage is Plummeting

Lithium Ion

Lithium-ion batteries have been seeing rapidly declining prices for more than 20 years, dropping in price for laptop and consumer electronic uses by 90% between 1990 and 2005, and continuing to drop since then.

A widely reported study at Nature Climate Change finds that, since 2005, electric vehicle battery costs have plunged faster than almost anyone projected, and are now below most forecasts for the year 2020.

The authors estimate that EV batteries in 2014 cost between $310 and $400 per kwh. It’s now in the realm of possibility that we’ll see $100 / kwh lithium-ion batteries in electric vehicles by 2020, with some speculating that Tesla’s ‘gigafactory’ will push into sufficient scale to achieve that.

And the electric car market, in turn, is making large-format lithium-ion batteries cheaper for grid use.

What Really Matters is LCOE – the Cost of Electricity

Now let’s digress and talk about price. The prices we’ve just been talking about are capital costs. Those are the costs of the equipment. But how does that translate into the cost of electricity? What really matters when we talk about energy storage for electricity that can be used in homes and buildings is the impact on Levelized Cost of Electricity (LCOE) that the battery imposes. In other words, if I put a kwh of electricity into the battery, and then pull a kwh of electricity out, over the lifetime of the battery (and including maintenance costs, installation costs, and all the rest), what did that cost me?

Traditional lithium ion-batteries begin to degrade after a few hundred cycles of fully charging and fully discharging, or 1,000 cycles at most. So naively we’d take the capital cost of the battery and divide it by 1,000 to find the cost per kwh round-tripped through it (the LCOE). However, we also have to factor in that some electricity is lost due to less than 100% efficiency (Li-ion is perhaps 90% efficient in round trip). This multiplies our effective cost by 11%.

So we’d estimate that at the following battery prices we’d get the following effective LCOEs:

– $300 / kwh battery  :  33 cent / kwh electricity storage
– $200 / kwh battery  :  22 cent / kwh electricity storage
– $150 / kwh battery  :  17 cent / kwh electricity storage
– $100 / kwh battery  :  11 cent / kwh electricity storage

All of those battery costs, by the way, are functions of what the ultimate buyer pays, including installation and maintenance.

For comparison, wholesale grid electricity in the US at ‘baseload’ hours in the middle of the night averages 6-7 cents / kwh. And retail electricity rates around the US average around 12 cents per kwh. You can see why, at the several hundred dollars / kwh prices of several years ago, battery storage was a non-starter.

On the Horizon: Flow Batteries, Compressed Air

Right now, most of the talk about energy storage is about lithium-ion, and specifically about Tesla, who appear close to announcing a new home battery product at what appears to be a price of around $300 / kwh.

But there are other technologies that may be ultimately more suitable for grid energy storage than lithium-ion.

Lithium-ion is compact and light. It’s great for mobile applications. But heavier, bulkier storage technologies that last for more cycles will be long-term cheaper.

Two come to mind:

1. Flow Batteries, just starting to come to market, can theoretically operate for 5,000 charge cycles or more. In some cases they can operate for 10,000 cycles or more. In addition, the electrolyte in a flow battery is a liquid that can be replaced, refurbishing the battery at a fraction of the cost of installing a new one.

2. Compressed Air Energy Storage, like LightSail Energy’s, uses physical components that are likewise rated for 10,000+ cycles of compression and decompression.

Capital costs for these technologies are likely to be broadly similar to lithium-ion costs over the long term and at similar scale. Most flow battery companies have $100 / kwh capital cost as a target in their minds or one that they’ve publicly talked about. (ARPA-E has used $100 / kwh as a target.) And because a flow battery or compressed air system lasts for so many more cycles, the overall cost of electricity is likely to be many times lower.

How low? At this point, other variables begin to dominate the equation: The cost of capital (borrowing or opportunity cost); management and maintenance costs; siting costs.

DOE’s 2013 energy storage roadmap lists 20 cents / kwh LCOE as the ‘short term’ goal. It articulates 10 cents / kwh LCOE as the ‘long term’ goal.

At least one flow battery company, EnerVault, claims that it is ‘well below’ the DOE targets (presumably the short term target of 20 cents / kwh of electricity).

[Update: I’m informed that EnerVault has run into financial difficulties, a reminder that the storage market, like the solar market before it, will likely be fiercely Darwinian. In solar, the large majority of manufacturers went out of business, even as prices plunged by nearly 90% in the last decade. We should expect the same in batteries. The large majority of energy storage technology companies will go out of business, even as prices drop – or perhaps because of plunging prices – in the decade ahead.]

Getting back to fundamentals: In the long run, given the advantage of long life, if flow batteries or compressed air see the kind of growth that lithium-ion has seen, and thus the cost benefits of scale and learning curve, it’s conceivable that a $100 / kwh flow battery or compressed air system could reach an LCOE of 2-4 cents / kwh of electricity stored.

Of course, neither flow batteries nor compressed air are as commercially proven as lithium-ion. I’m sure many will be skeptical of them, though 2015 and 2016 look likely to be quite big years.

Come back in a year, and let’s see.

2. Storage is on the Verge of Opening Vast New Markets

Now let’s turn away from the technology and towards the economics that make it appealing. Let’s start with the simplest to understand: in the home.

A. Fill When Cheap, Drain When Pricey (Time of Use Arbitrage)

The US is increasingly going to time-of-use charges for electricity. Right now that means charging consumers a low rate in the middle of the night (when demand is low) and a high rate in the afternoon and early evening (when demand is at its peak, often twice as high as the middle of the night).

This matches real underlying economics of grid operators and electricity producers. The additional electricity to meet the surge in afternoon and early evening is generally supplied by natural-gas powered “peaker” plants. And these plants are expensive. They only operate for a few hours each day, so their construction costs are amortized over a smaller amount of electricity. And they have other problems we’ll come back to shortly. The grid itself pays other costs for the peak of demand. Everything – wires, transformers, staff – must be built out to handle the peak of capacity, not the minimum or the average.

The net result is that electricity in the afternoon and early evening is more expensive, and this is (increasingly) being passed on to consumers. How much more expensive? See below:

In California, one can choose the standard tiered rate of 18.7 cents per kwh. Or one can choose the the time-of-use rate. In the latter, there’s a 19.2 cent per kwh difference in electricity rates between the minimum (9pm to 10am) and the peak (1pm – 7pm).

Batteries cheaper than 19 cents / kwh LCOE (including financing, installation, etc.) can be used to arbitrage this price difference. Software fills the battery up with cheap power at night. Software preferentially uses that cheap power from the battery during the peak of demand, instead of drawing it from the grid.

This leads to what seems to be a paradoxical situation. A battery that is more expensive than the average price of grid electricity can nonetheless arbitrage the grid and save one money. That’s math.

That’s also presumably one of the scenarios behind Tesla’s entry into the home battery market, though it’s unlikely to be explicitly stated.

One last point on this before moving on. The arbitrage happening here is also actually good for the grid. From a grid operator’s standpoint, this is ‘peak shaving’ or ‘peak shifting’. Some of the peak load is being diverted to another time when there’s excess capacity in the system. The total amount of electricity being drawn doesn’t change. (In fact, it goes up a bit because battery efficiency is less than 100%). But it’s actually a cost savings for the grid as a whole. In any situation where electricity demand is growing, for instance, widespread use of this scenario can postpone the data at which new distribution lines need to be installed.

B. Store the Sun (Solar + Batteries, as Net Metering Gets Pressured)

Rooftop solar customers love net metering, the rules that allow solar-equipped homes to sell excess electricity back to the grid. Yet around the world and the US, net metering is under pressure. It’s likely, in the US, that the rate at which consumers are paid for their excess electricity will drop, that caps will be imposed, or both.

The more that happens, the more attractive batteries in the home look.

Indeed, it’s happening in Germany already, and the economics there are revealing.

First, let’s be clear on the scenarios, with some help from some graphics from a useful Germany Trade and Invest presentation (pdf link) that dives into “battery parity” (with some tweaks to the images from me.)

Current scenario: Excess power (the bright orange bit – electricity solar panels generate that is beyond what the home their own needs) is sold to the grid. Then, in the evening, the home need power. It buys that electricity from the grid.

Potential new situation. Excess power is available during the day. At least some of it gets stored in a battery for evening use.

Under what circumstances would the second scenario be economically advantageous over the first? In short: The difference in price between grid electricity and the net metering rate / feed-in-tariff is the price that batteries have to meet. In Germany, where electricity is expensive, and feed-in-tariffs have been plunging, this gap is opening wide.

There’s now roughly a 20 euro cent gap between the price of grid electricity and the feed-in-tariff for supplying excess solar back to the grid (the gold bands) in Germany, roughly the same gap as exists between cheapest and most expensive time of use electricity in California.

GTAI and Deutsche Bank’s conclusion – based on the price trends of solar, batteries, electricity in Germany, and German feed-in-tariffs – is that ‘battery parity’, the moment when home solar + a lithium-ion battery makes economic sense, will arrive in Germany by next summer, 2016.

Almost any sunny state in the US that did away with net metering would be at or near solar + battery parity in the next 5 years.

Tesla’s battery is almost cheap enough for this. In fact, it makes more economic sense in Germany than in the US.

Note: Solar + a battery is not the same as ‘grid defection’. It’s not going off-grid. We’re used to 99.9% availability of our electricity. Flick a switch and it’s on. Solar + a small battery may get someone in Germany to 70%, and someone in Southern California to 85%, but the amount of storage you need to deploy to increase that reliability goes up steeply as you approach 99.99%.

For most of us, the grid will always be there. But it may be relegated to slightly more of a backup role.

C. Storage as a Grid Component (Caching for Electrons)

Both of the previous scenarios have looked at this from the standpoint of installation in homes (or businesses – the same logic applies).

But the dropping price of storage isn’t inherently biased towards consumers. Utility operators can deploy storage as well, Two recent studies have assessed the economics of just that. And both find it compelling. Today. At the price of batteries that Tesla has announced.

First, Texas utility Oncor commissioned a study (pdf link – The Value of Distributed Electricity Storage in Texas) of whether it would be cost-effective to deploy storage throughout the Texas grid (called ERCOT), placing the energy storage at the ‘edge’ of the grid, close to consumers.

The conclusion was an overwhelming yes. The study authors concluded that, at a capital cost of $350 / kwh for lithium-ion batteries (which they expected by 2020, but which Tesla has already beaten), it made sense across the ERCOT region to deploy at least 15,000 MWh of battery storage. (That would be 15 million KWh, or the equivalent battery capacity of nearly 160,000 Tesla model 85Ds.)

The study authors concluded that this additional battery storage would slightly lower consumer electrical bills, reduce outages, reduce the need to build added capacity (by shifting the peak, much as a home battery would), and similarly reduce the need to build additional transmission and distribution lines.

The values shown above are in megawatts of power, by the way. The assumption is that there are 3 MWh of storage per MW of power output in the storage system.

You can also see that at a slightly lower price of storage than the $350 / kwh assumed here, the economic case for 8,000 MW (or 24,000 MWh) of storage becomes clear. And we are very likely about to see such prices.

8,000 MW or 8 GW is a very substantial amount of energy storage. For context, average US electrical draw (over day/night, 365 days a year) is roughly 400 GW. So this study is claiming that in Texas alone, the economic case for energy storage is strong enough to motivate storage capacity equivalent to 2% of the US’s average power draw.

ERCOT consumes roughly 1/11th of the US’s electricity. (ERCOT uses roughly 331,000 GWh / year. The US as a whole roughly 3.7 million GWh / year.) If similar findings hold true in other grids (unknown as of yet), that would imply an economic case fairly soon for energy storage capacity of 22% of US electric draw for 3 hours, meaning roughly 88,000 MW or 264,000 MWh.

This is, of course, speculative. We don’t know if the study findings scale to the whole of the United States. It’s back of the envelope math. Atop that, the study itself is an analysis, which is not the same value as experience. Undoubtedly in deployment we’ll discover new things which will inform future views. Even so, it appears that there is very real value at unexpectedly high prices.

Energy storage, because of its flexibility, and because it can sit in so many different places in the grid, doesn’t have to compete with wholesale grid power prices. It competes with the price of peak demand power, the price of outages, and the price of building new distribution and transmission lines. 

Which brings us to scenario 2D:

D. Replacing Natural Gas Peakers

The grid has to be built out to support the peak of use, not the average of use. Part of that peak is sheer load. Earlier I mentioned natural gas ‘peaker’ plants. Peaker plants are reserve natural gas plants. On average they’re active far less than 10% of the time. They sit idle, fueled, ready to come online to respond to peaking electricity demand. Even in this state, bringing a peaker online takes  a few minutes.

Peaker plants are expensive. They operate very little of the time, so their construction costs are amortized over few kwh; They require constant maintenance to be sure they’re ready to go; and they’re less efficient than combined cycle natural gas plants, burning roughly 1.5x as much fuel per kwh of electricity delivered, since the economics of investing in their efficiency hardly make sense when they run for so little of the time.

The net result is that energy storage appears on the verge of undercutting peaker plants. You can find multiple articles online on this topic. Let me point you to one in-depth report, by the Electric Power Research Institute (EPRI): Cost-Effectiveness of Energy Storage in California (pdf).

This report specifically looked at the viability of replacing some of California’s natural gas peaker plans.

While the EPRI California study was asking a different question than the ERCOT study that looked at storage at the edge, it came to a similar conclusion. Storage would cost money, but the economic benefit to the grid of replacing natural gas peaker plants with battery storage was greater than the cost. Shockingly, this was true even when they used fairly high prices. The default assumption here was a 2020 lithium-ion battery price of $528 / kwh. The breakeven price their analysis found was $842 / kwh, three times as high as Tesla’s announced utility scale price of $250/kwh.

Flow batteries, compressed air, and pumped hydro (where geography supports it) also were economically viable.

California alone has 71 natural gas peaker plants, with a combined capacity of 7,418 MW (pdf link). The addressable market is large.

3. Scale Reduces Costs. Which Increases Scale.

In every scenario above there are large parts of the market where batteries aren’t close to competitive yet; where they won’t be in the next 5 years; where they might not be in the next 10 years.

But what we know is this: Batteries (and other storage technologies) will keep dropping in cost. Market growth accelerates that. And thus helps energy storage reach the parts of the market it isn’t priced yet for.

I take a deeper look at how fast battery prices will drop in this post: How Cheap Can Energy Storage Get? Pretty Darn Cheap.

How Cheap Can Energy Storage Get

Who Benefits?

Storage has plenty of benefits – higher reliability, lower costs, fewer outages, more resilience.

But I wouldn’t have written these three thousand words without a deep interest in carbon-free energy. And the increasing economic viability of energy storage is profoundly to the benefit of both solar and wind.

Let me be clear: A great deal can be done with solar and wind with minimal storage, by integrating over a wider region and intelligently balancing wind and solar against one another.

Even so, cheap storage is a big help. It removes a long term concern. And in the short term, storage helps whichever energy source is cheapest overcome intermittence and achieve flexibility.

Batteries are flexible. Storage added to add reliability the grid can soak up extra solar power for the hours just after sunset. It can soak up extra wind power from a breezy morning to use in the afternoon peak. Or it can dispatch saved up power to cover for an unexpected degree of cloudiness or a shortfall of wind.

Once the storage is there – whatever else it was intended for – it will get used for renewables. Particularly as those renewables become the cheapest sources of electricity on the grid.

Today, in many parts of the US, wind power is the cheapest source of new electricity, when the wind is blowing. The same is true in northern Europe. On the horizon, an increasing chorus of voices, even the normally pessimistic-on-renewables IEA, see solar as the cheapest source of electricity on the planet, heading towards 4 cents per kwh. Or, if you believe more optimistic voices, a horizon of solar at 2 cents per kwh.

Cheap energy storage adds flexibility to our energy system overall. It can help nuclear power follow the curve of electrical demand (something I didn’t explore here). It helps the grid stay stable and available. It adds caching at the edge, reducing congestion and the need for new transmission.

But for renewables, especially, cheap storage is a force multiplier.

And that’s a disruption I’m excited to see.

—-

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

How Much Land Would it Take to Power the US via Solar?

I’ve seen some pieces in the media lately questioning this, so allow me to point to some facts based on real-world data.

tl;dr: We’ll probably never power the world entirely on solar, but if we did, it would take a rather small fraction of the world’s land area: Less than 1 percent of the Earth’s land area to provide for current electricity needs.

First, let me be clear: I doubt the future is 100% solar or anything like it. We are in the midst of a multi-decade transition. And while solar is the most abundant renewable on the planet, and plunging in price faster than any other, there’s a role for solar, wind, hydro, nuclear, and geothermal in the distant future based on ideal geographies and scenarios. I very much hope to see highly advanced, high-yield biofuels come into the mix in the next decade. And for a number of decades to come we’re going to have fossil fuels in play. This article is a ‘what if?’ and not a prediction of or call for 100% solar.

Second, to move to a high-renewables world, we need low-cost energy storage. We’re making progress on that. But there’s still quite a distance to go.

For the data, let’s use two examples.

Example #1 comes from a Breakthrough Institute article complaining about the vast amount of land that solar needs. Guest writer Ben Heard complains that solar’s land footprint (specifically at the Ivanpah plant) is 92 times that of a small modular nuclear reactor. (If you’ve read The Infinite Resource you may know that I wrote a whole chapter in praise of nuclear power and of small modular reactors in particular. I’m a fan.)

What Heard’s Breakthrough Institute article doesn’t tell you is how tiny that land footprint, in the grand scheme of things, actually is. Do the math on the numbers he presents: 1087 Gwh / yr, or 0.31 Gwh / acre / year.

At that output, to meet the US electricity demand of 3.7 million Gwh per year, you’d need about 48,000 square kilometers of solar sites. (That’s total area, not just area of panels.) That may sound like a stunningly large area, and in some sense, it is. But it’s less than half the size of the Mojave desert. And more importantly, the continental United States has a land area of 7.6 million square kilometers. That implies to that meet US electrical demand via this real world example of Ivanpah, would require just 0.6 percent of the land area of the continental US.

This fact – which puts the land area requirements in context – is completely missing from Heard’s piece at the Breakthrough Institute site.

Asked about this on twitter, Heard replied that larger size nevertheless is a disadvantage. It threatens ecosystems and endangered species, for instance. And this is a legitimate point, in some specific areas. (Though certainly far less so than coal and natural gas.)

But, for context, agriculture uses roughly 30% of all land in the United States, or 50 times as much land as would be needed to meet US electricity needs via solar.

Ivanpah, of course, may be an atypical site. So let’s look more generally.

Example #2 is a convenient reference from NREL:  Land Use Requirements for Solar Plants in the United States (2013) It’s excellent reading. I recommend pulling it up the next time Bjorn Lomborg writes an op-ed.

The second to last column tells us that, weighted by how much electricity they actually produce, large solar PV facilities need 3.4 acres of total space (panels + buildings + roads + everything else) for each Gwh of electricity they produce.

That leads to an output estimate of 0.294 Gwh / year / acre, and virtually the same total area, around 50,000 square kilometers in the US, or 0.6% of the continental US’s land area.

Update: In my original post I didn’t take the time to compare this area to other suitable areas in the US, such as rooftops, parking lots, and built land. Various people pointed me to pieces of data. So, consider that:

1. The built environment in the US (buildings, roads, parking lots, etc..) covered an estimated 83,337 square kilometers in 2009, or roughly 166% of the area estimated above. (Likely this area would not be as efficiently used, of course. But it could make a significant dent.)

2. Idled cropland in the US, not currently being used, totaled 37.2 million acres in 2007, or roughly 150,000 square kilometers, roughly three times the area needed.

3. “National Defense and Industrial” lands in the US (which includes military bases, department of energy facilities, and related, but NOT civilian factories, powerplants, coal mines, etc..) totaled 23 million acres in 2007, or roughly 93,000 square kilometers, nearly twice the area needed to meet US electricity demand via solar. Presumably much of that land is actively in use, but it gives a sense of the scale.

4. Coal mines have disturbed an estimated 8.4 million acres of land in the US. That works out to around 34,000 square kilometers, not too far off for the estimate from solar, and doesn’t include the space for coal power plants. And coal currently produces around only 40% of US electricity and hasn’t been above 60% in decades. To scale coal to 100% of US electricity would have required far more land than is required to meet that same demand via solar. Other analysis says the same: Counting the size of coal mines and their output, solar has a smaller land footprint per unit of energy than coal.

And the solar estimate of ~50,000 square kilometers, of course, is with solar systems already deployed. It doesn’t take into account the possibility of future systems with higher efficiencies that could reduce the land footprint needed.

Again, the point here is not that we’ll see a 100% solar world. The more solar we deploy, the more sense it makes to deploy wind to complement it. And frankly, I want to see the nuclear industry succeed. Nuclear is safe baseload power that we should be rooting for. I hope the nuclear industry can get costs and construction times down and under control.

But, when it comes to solar, land is not a blocking issue. Be skeptical when it’s brought up as one.

2014 Was a Good Year: Better Than You Remember

Eric Garner. Michael Brown. The Sony hack and surrender to fear. 2014 seems to be ending on a crappy note. My twitter feed is full of people expressing good riddance to the year.

2014 was better than that. I want to take a moment to remind us, and to offer some perspective on the dark stories.

So, good things about 2014:

1. 2014 Was the Year Same-Sex Marriage Reached More Than Half of America

2. 2014 is the Year That American Support for Legalizing Marijuana Tipped

3. And the Year that the First Legal Marijuana Stores Opened in Two States

Colorado and Washington legalized recreational use of marijuana in the 2012 election, and opened their first stores in 2014. Oregon, Alaska, and Washington DC joined them in fully legalizing Marijuana in the 2014 election, while 20-odd other states have allowed medical use or softened penalties for recreational use.

And so far, the evidence is, legalization is working pretty well.

4. In 2014, the Internet Reached 3 Billion People for the First Time

That data is courtesy of the ITU.

Not only is that a staggering number, it’s more than half the adults on the planet. For the first time, this year, more adults have access to the internet than don’t, a trend that’s only going to continue, as seen below in this chart from a presentation by Benedict Evans.

5. 2014 Saw a Historic Climate Agreement Between the US and China

Remember when we would never act on climate change because we’d never be able to agree with China? Yeah, me neither.

While the US-China deal isn’t enough on its own to meet the world’s goal of limiting warming to 2 degrees Celsius, it represents a sea change. It’s a turn of the steering wheel, starting the process of steering us away from the cliff we’ve been headed towards. There’s much more work to do, but every course correction starts somewhere. And, as Slate shows, quantitatively, this one is a big deal.

6. 2014 Saw a Record Installation of Renewable Energy and Energy Storage

Final numbers will show that 2014 had the largest ever deployments of wind power and solar power. This was also the year that saw the largest purchase of energy storage in US history. Both of these are vital steps in bootstrapping the industries that will allow us to power our civilization while cutting the emissions that cause climate change.

And they’re just the latest in the ongoing surge in renewable energy in the market:

Renewable energy remains a tiny fraction of worldwide energy use. It’s starting from an extremely low base. Even growing at its phenomenal rate, it will likely take decades to turn the corner in climate change, but it is possible.

7. 2014 Saw Mainstream Realization of Solar and Wind’s Incredible Price Decline

That possibility is made even more clear here: 2014 saw two incredible graphs from mainstream financial analysts on the price plunge of renewables.

Lazard Capital Management put out a report showing how, in the last 5 years, wind and solar in the US have dropped 58% and 78% in price, respectively, now putting them below the price of grid electricity in many regions. (The red lines below are my own additions.)

And AllianceBernstein published their even more provocative solar “TerrorDome” chart (with slight yellow arrow annotation from me) showing how, in the long term, solar is plunging even more phenomenally in price relative to traditional fossil fuel energy sources.

Both are as important for who published them as for what they say. These are not reports from environmental groups or even greentech investment funds. These are financial analysts advising their clients on trends in the costs of energy – trends they see as upending the market.

8. In 2014, Hunger and Malnourishment Reached a New Low

In 1969, more than 30% of the developing world lived in hunger. Now that’s down to 13.5%. The rate of hunger reduction has accelerated in recent years, according to the FAO. As a percent of humanity, it’s likely that hunger has never been this rare, in the couple hundred thousand years our species existed. And even absolute numbers have dropped over the last 25 years. There is a huge amount of work left to do – but 2014 is the best yet in this measure.

9. And So Did Global Poverty, Child Mortality, and a Host of Other Ills

We don’t have the final data yet, but it’s almost certain that when we do, we’ll find out that in 2014, global life expectancy was at an all-time high, global poverty was at an all-time low, and worldwide child mortality had reached another new low, as part of the long trends of progress on each of these metrics.

For instance, see the trend on poverty, via Max Roser

Or the trend on under-five mortality, which has dropped by half since just 1990:

10. In 2014, the US Became Healthier and Safer as Well

Here again, we lack final numbers, but when we have them, it’s extremely likely that we’ll find that in the US, 2014 continued the long trend of:

– Declining infant mortality

– Declining crime rates.

11. Finally, 2014 Will Be Seen as a Transparency Tipping Point

The stories that drew the most outrage in my corner of the internet – outrage that I shared – were stories of police violence, intentional or unintentional, without proper accountability. And so I’ve saved this for last.

I’m a pragmatist who believes that police are a vital part of society, but who also believes that those who have the most power should be held to the greatest accountability. That isn’t the case today.

On the flip side, many, primarily conservatives, viewed the Mike Brown case through an entirely different lens, instinctively seeing it as a police officer confronting a criminal, and defaulting to trusting the officer’s view of the world. The debate has been loud, acrimonious, and sometimes downright nasty.

What almost everyone agrees on, though, is that more transparency is good. Support for police body cameras has been voiced across the political spectrum. That technology isn’t a panacea, by any means. As we saw in the Eric Garner case, a video doesn’t lead to even an indictment, let alone a conviction.

But the best data we have is that wearing body cameras does reduce police use of force and complaints against them. In other words, if Daniel Pantaleo, the officer who used a prohibited choke hold on Eric Garner, had been wearing a body camera, he might have reconsidered his behavior. Garner might still be alive.

What’s just as important is the increasing ubiquity of cameras in all of our hands. The video of Pantaleo choking Garner didn’t lead to an indictment, but that very fact led to voices on the right and left expressing dismay. One case won’t lead to change. But enough clear-cut cases will. And with cameras becoming cheap and ubiquitous, police officers now need to assume that their every action will be recorded.

Transparency is the key to change. You can’t fix what you don’t know is broken. The problems of police over-use of force have existed for years, if not decades. The problem of police near-immunity from prosecution is even older. These aren’t new issues. They’re simply coming further into view. Social media allows us to take issues that might once have been obscure, carried on the back page of one newspaper, and shine a glaring light onto them. And the presence of cameras everywhere – in our pockets, most of all – means a flood of imagery that we lacked even a few years ago. That visibility is essential. It informs our opinions, our conversations, our votes.

Sunlight is the best disenfectant. In the first few rays, though, the world can look grimy indeed. Just remember, the grime was there all along. What you’re seeing isn’t new. What’s new is that we have the power, for the first time, to wipe it away.

2014 will be remembered as a transparency tipping point. A sunlight tipping point. It’ll go down as a year that authority – in at least one form – had to start becoming more responsive and more accountable to the public.

–Far From a Perfect World–

I could go on about a dozen other ways the world is getting better, but I won’t. This list isn’t meant to convey that the world has no problems, or that it’s getting better in every way. Plenty of things are getting worse. But I trust you can find lists of those pretty much everywhere you turn. They’re over-represented in our discourse, and especially in the news. The good news is radically under-represented.

Good news doesn’t happen magically. The above trends didn’t pop out of thin air. They represent the hard work of millions of people – maybe billions. Some of them are improving the world out of simple self-interest. Others are doing it out of some passion, out of altruism, or out of deep conviction. Either way, optimism isn’t the same as complacency. Optimism is about action.

So here’s to those who act.

I think 2015, while it will have its share of problems too, will be even better.

Solar and Wind Plunging Below Fossil Fuel Prices

Asset management firm Lazard has a fascinating new analysis of renewable and other energy prices out.

There are a huge number of insights in this, from an outside analyst whose primary interest is financial. (Those are, in my mind, the most objective analysts in this space.)

First, the plunge in renewable prices continues, and over the last 5 years, wind has resumed its plunge as well. Their numbers show an average price decline over the last 5 years of 78% for utility scale solar and 58% for wind.

Those numbers above are unsubsidized, without investment tax credit. The range shown reflects the range of geographies – from windy areas to less windy, from sunny areas to less sunny.

This dovetails with the longer term plunge in wind and solar prices I’ve documented elsewhere:

Second, unsubsidized prices are cost competitive with grid wholesale prices.  Solar, which delivers power during the daytime and afternoon, heavily overlapping with the late afternoon and early evening peak, is well below the wholesale price of peak power (provided by ‘peaker’ natural gas plants that only operate during those few hours of the day). Solar is even closing in on the wholesale cost of 24/7 operated coal and natural gas plants that provide ‘baseload’ power overnight (and as the underlying power throughout the day.)

Wind is well below the cost of peaker plants, and the best wind sites are already well below the cost of ‘baseload’ power.

Here’s the same chart from Lazard above, but with my annotations of the wholesale peak and baseload prices in the US. Click to embiggen.

Note: Just to be clear, the baseload price (the bottom red line) is for 24/7 power, available at night and when the wind isn’t blowing, which means that solar and wind can’t always compete with that price.

Which brings us to the next point:

Third, It’s all about storage now. (Or soon, at any rate.)  Inside of a decade, in most of the US and most of the world, solar or wind will be cheaper than coal or natural gas on an instantaneous, non-stored basis. This trend appears inexorable. And so long as there is demand for more energy at the hours at which solar and wind are delivering (which is the case right now), then the situation is great.

The long-term obstacle, beyond perhaps 20% of grid penetration, is ‘dispatchability’ – the ability to issue the precise amount of energy needed, when it’s needed – perhaps hours after the energy is generated (for example, at night, when the sun isn’t shining, or during still hours of the day), or perhaps just minutes later. That means storage.

And storage is currently the long pole in prices.

Fortunately, as I’ve written before, energy storage prices are dropping exponentially.

By the time we reach 20% grid penetration of renewables, we seem on path to have storage costs down to roughly 1/10th of their current level. That’s a price at which a mix of solar, wind, and storage could outprice even current ‘baseload’ power in large fractions of the country and the world.

In the longterm, of course, the price decline of solar in particular is even more impressive, as documented by AllianceBernstein in their solar “Terrordome” graph.

In the long term, solar appears on path to be the cheapest source of energy in most parts of the world while the sun is shining, and storage may well become cheap enough to facilitate its use even at non-sunny times.

I talk much more about renewables, energy storage, and how to accelerate progress in them in my book on innovating to beat climate change and other resource and environmental challenges: The Infinite Resouce: The Power of Ideas on a Finite Planet 

The Renewable Energy Revolution

Transforming the world’s energy supply will take decades. It is a very tall order. But it’s starting. The price of renewables – and energy storage – continues to plunge, putting them on a path to being cheaper than any other form of energy within the coming decade. And they continue to grow exponentially – albeit it from a low baseline – spreading out into the market.

WIND

Wind, more established than solar, has seen it’s price decline by a factor of more than 20 over the last 30 years. The average wind power purchase agreement signed in 2013 was priced at 2.5 cents per kwh.

In many parts of the US and the world, wind power is now the cheapest source of new power.

In scale, the amount of wind power around the world has grown by an astounding 10x (1000%) over the last 11 years. Incredible.

SOLAR

Solar makes wind look slow and sedate. Solar PV module prices have dropped an astounding 150x since 1977.

Of course, module costs are not the whole cost.  Even so, fully system cost continues on an impressive decline of its own, having fallen by a factor of three in just the last 10 years – a more rapid decline than any other energy source.

And the solar market, in response to plunging prices and market and regulatory incentives, has exploded, surging by an incredible 100 times (10,000%) in just 13 years.  A few years ago the total solar installed base was just 1/10th that of the wind power installed base. Now it is almost half the size of the wind installed base, and poised to overtake it in the next 4-5 years.

OUTPACING IEA PREDICTIONS

The growth of solar and wind has been staggering. It has also consistently outpaced the projections of the International Energy Agency, the US Department of Energy, and virtually all other traditional energy forecasters. The graph below shows how the IEA, in particular, has had to raise their forecasts of future solar and wind growth every year to keep up with actual growth rates.

And in fact, the IEA predicts that new installations of solar and wind will stay flat or decline over time, despite all evidence to the contrary.

Here’s a fuller analysis of IEA’s continual under-estimation of renewables.  Bear this trend in under-estimating new technologies in mind when reading forecasts from traditional energy forecasters.

BATTERY STORAGE

Finally, while the battery storage technology for the grid is, IMHO, unlikely to be lithium-ion, and is more likely to be flow batteries, it’s instructive to look at the price history of lithium-ion batteries to see what’s possible.

Between 1990 and 2005, the price per unit of energy stored in lithium-ion batteries dropped by a factor of 10, and the amount of energy that could be stored per unit weight nearly tripled.

That’s instructive, as flow batteries appear to be nearly at the price to make them viable for grid storage. If they have similar price trajectories as they scale, renewables will see one of their most formidable obstacles to adoption removed.

We shouldn’t trivialize the challenges ahead. It took decades, if not a century, to build the modern energy system. We still lack solutions for the nearly 1 billion internal combustion vehicles on the road, for the manufacture of steel and concrete, for growing meat without methane release, and for numerous other issues. This transition will be long. But the trends in the core technologies for electricity are extremely promising.

There’s more about the exponential pace of renewables in my book on innovating to beat climate change and resource scarcity and continue economic growth: The Infinite Resource: The Power of Ideas on a Finite Planet.

 

Carbon Prices Drive Clean Energy Innovation

I want to point out something I see commonly missed.  Carbon prices accelerate innovation that brings down the price of green energy. So do renewable energy portfolio standards, green energy subsidies, and a whole swath of other climate policies. They do this by increasing the scale of the industry, which drives more scale (a price reducer) and also brings more players, more investment (much of which goes to direct R&D) and more price competition between players (the single best driver of reduced prices there has ever been).

The context: I noticed today a brief symposium on climate change with Larry Summers, Bjorn Lomborg, Alex Tabarrok, Tyler Cowen, and others.

There are some smart responses there.

Several of the panelists put forward, quite correctly, that green energy must ultimately be cheaper than fossil energy for us to succeed at climate change.  I agree.

And various panelists put forward cases for increased government R&D in green energy or X-Prize style prizes for major innovations in green energy.  Great ideas.

But let’s look at what’s happened in the industry recently.

Here’s the price of solar power modules, on a Log Scale, over the last 30ish years.

 

This is a rapid exponential decline of more than 95%. Some of that incredible progress has been driven by government sponsored R&D. But the single largest driver has been the scaling of the industry, and the innovation (both scientific and highly practical) that has come with it. That industry scaling has been made possible by a host of climate initiatives.

That’s just module cost. Here’s what’s happened with overall installed cost.

More recent data suggests the price has fallen even faster, to around $2.50 / Watt installed price in the US (weighted over all installations, which means largely utility scale).

That’s a ~75% reduction in total system price over the last 12 years. That’s staggering in almost any industry.

It’s not just solar, either. The price of wind power has plunged by 90% over the last 30ish years. And while it temporarily hit a plateau (as wind power became a major consumer of carbon fiber and demand temporarily exceeded supply) prices have once again resumed their decline.

And, though few people know, the price of energy storage is also plunging. Here, on a log scale, is how much energy storage you can buy for a dollar. Over a 15 year period, driven primarily by competition by laptop and cell phone manufacturers and their providers, the cost of lithium ion batteries dropped by a factor of 10 per unit of energy stored.

As electric cars and grid-scale storage drive up demand and heat up investment, private sector R&D, and competition in the space, the price of energy storage will continue to drop.

Again, there is some basic R&D in all of these areas funded by government. But the #1 driver of the incredible price reductions in each of these areas has been intense competition between private sector companies going after a growing market.

Why is the market growing? We’re reaching the point where it’s growing on basic price dynamics. But for the past three decades, the markets for wind and solar have been bootstrapped by governmental actions. 

Bjorn Lomborg, at the symposium, said:

the best long-term strategy to tackle global warming [is] to increase dramatically investment in green research and development. They suggested doing so 10-fold to $100bn a year globally. This would equal 0.2% of global GDP. Compare this to the EU’s climate policies, which cost $280 billion a year but reduce temperatures by a trivial 0.1 degrees Fahrenheit by the end of the century.

Lomborg’s number of $280 billion is roughly an order of magnitude greater than the EU’s actual direct spending on green energy, but let’s ignore that for now. The bigger issue is that he’s missing the primary impact of their climate polices. The number one impact of Europe, and particularly Germany’s investment in clean energy has been to drop the price of clean energy for everyone, now and into the future. That means that every future dollar spent on fighting climate change via green energy is dramatically more effective, for Germany, for Europe, and for everyone else worldwide. It’s a positive externality.

The price of solar power is now roughly 1/10th of what it was when Germany started their push into it. Yet it only dropped so far because of Germany’s major push. They have, in effect, paid the early adopter tax.

More to the point, the tens of billions per year the world spends in green energy subsidies have mobilized hundreds of billions per year in industry and consumer spending (similar to the effect a prize has, I’d note!) That private spending, in turn, has translated into a massive and continuing price decline in the technology.

How is that different, in effect, than direct R&D? Indeed, do we have any indication that spending that money on direct R&D instead would have done anywhere as well?  (Note: I don’t oppose direct R&D spending. I think we should do more of it. But it’s not a replacement for creating a market explosion and tapping into price competition between market actors.)

Alex Tabbarok, of whom I’m a huge fan, is the one member of the panel to state the connection. He states that: “A carbon tax will induce innovation as people demand a way to avoid the tax.”

This is absolutely true. But I’d extend and amplify this statement.

Any policy that expands the market for green energy – and puts providers in direct price competition with one another – will induce innovation, as providers scramble to tap into that market, and compete directly with one another to bring prices down.

Indeed, this isn’t a hypothetical. One has only to look at the graphs above to see that it’s already happening.

I write much more about solar, wind, energy storage, and why the pace of innovation in them is critical – and hopeful – for both fighting climate change and for long term economic growth in the book I originally did this research for. The Infinite Resource: The Power of Ideas on a Finite Planet.

Solar Power Prices Dropping Faster Than Ever

In 2011, I wrote a piece for Scientific American on the exponential price decline in solar power.

I haven't had a chance to fully update that piece, but two quick notes.   First, the price decline in solar cost per watt has, if anything, accelerated since then.  

The above is on a log scale. The Y-axis is price per watt of solar modules.  And you can see that since 2010, prices have plunged.  Over the last 30 years, in total, solar module prices have dropped by a stunning 95%.  You can now buy literally 20x as much wattage of solar power for a dollar as you could when Ronald Reagan started his presidency.  And the trend shows every sign of continuing.

Second, since many have asked about storage costs, I'd note that there is a long term exponential decline in the cost of energy storage as well.  Energy storage is still far too expensive to be used to store substantial amounts of wind or solar energy, but the price decline, if anything, is steeper than the price decline in solar power itself.

Here's the original piece on the exponential decline in the price of solar power.

I write much more about solar, wind, energy storage, and why the pace of innovation in them is critical – and hopeful – for both fighting climate change and for long term economic growth in the book I originally did this research for, The Infinite Resouce: The Power of Ideas on a Finite Planet