Wind Power Blowing More Reliably Than Ever

New wind turbines produce power more steadily – with less up and down intermittency – than ever before.

As I wrote in August of last year, NREL believes that next-generation wind turbines can reach a capacity factor of 60%. That is up from a capacity factor of 30% just a few years ago. And it means, roughly, that these turbines would be producing wind power around 60% of the time – making them more and more viable as a substitute for ‘baseload’ power from coal or natural gas plants. That’s even more true when combined with the plunging price of energy storage.

New data from NREL shows that wind power has been continuously rising in its capacity factor (and thus, its stability) for the last 15 years. In 1998, capacity factors for new wind turbines were around 25%. In 2014, capacity factor for new turbines averages over 40%, or two thirds better.

In an absolute sense, wind turbine capacity factor in the US is rising around 1% per year. That implies that we’ll reach 60% capacity factor for average wind turbines by around 2035.

And the best wind turbine deployments in 2014 are already at 50% capacity factor. The best sites, such as those in the great plains, will reach 60% capacity factors for wind as soon as 2025.

Wind Capacity Factor Rising

High capacity factor wind power + transmission to get it the right sites + increasingly cheap solar (which complements wind) + increasingly cheap storage. That’s a formula for reaching a non-carbon grid in the coming decades.

More in this series:

Part 1 looked at how cheap solar can get (very cheap indeed).
Part 2 looked at the declining cost and rising reliability of wind power.
Part 3 looked at how cheap energy storage can get (pretty darn cheap).
Part 4 looked at how far renewables can go.
Part 5 looked at how cheap electric vehicles can get. 

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 Steady Can Wind Power Blow?

This is part 2 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 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.

NREL recently released data showing that next-generation wind turbines could reach an incredible capacity factor of 60% over 2 million square kilometers of the US, or enough to provide roughly 10x as much electricity as the US uses. Trends suggest this will occur by roughly 2025. If true, this would be a game-changer in wind power, as I explain below.

And, historically, the capacity factor of new wind power is rising roughly 1% per year. The average capacity factor of new turbines installed in 2014 was 40%. The best were at 50%.  If this trend continues, the best sites will be reaching 60% capacity factors by 2024.

Wind Capacity Factor Rising

Wind power is the cheapest new electricity available in the United States. But, until recently, it has neither been reliable nor available close to the areas it’s needed. Both of those factors may be changing.

Below I’ll go over:

Wind is the Cheapest Electricity in the US, and Getting Cheaper

In 2014, the average cost of Power Purchase Agreements for new wind power in the US was around 2.35 cents per kwh, the lowest it has ever been. In the windiest parts of the great plains, prices are as low as 2 cents per kwh.

The above graph from the NREL 2014 Wind Technologies Market Report uses subsidized numbers. Even after removing the effects of the major federal subsidy, the Wind Production Tax Credit, new wind power in the US costs an average of 4 cents per kwh or less.

That 4 cents per kwh is substantially below the 7 cents per kwh or more that new natural gas electricity costs.

Wind power is likely to continue getting cheaper, though that is not as certain as it is for solar. Most of the increase in 2009 and 2010 of wind power was due to the rising prices of steel, copper, and other materials that go into wind turbines. But over a long timeframe, the price of new wind power has declined (according to IEA analysis) at an average rate of somewhere between 9 and 19% per doubling of scale of the wind industry. (pdf link)

Bloomberg New Energy Finance finds a learning rate of roughly 14% over a 28 year span, right in the middle of IEA’s estimates. (While BNEF’s data in this graph ends in 2012, costs have dropped more rapidly than usual since then.)

If we extend this trend of a 14% cost reduction per doubling forward, we get the following price projections for the US.

All the usual caveats apply: This is a forward projection based on a historical rate of progress. Price trends can and do end. And wind will face significant obstacles as penetration rises above ~30% or so.

That said, the trendlines suggest that, by the time wind supplies 20% of US electricity, the unsubsidized cost of wind power at the best sites could be around 3 cents per kwh, and at more typical sites they could be around 4.5 cents per kwh.

Wind is cheap, and will (probably) keep getting cheaper.

So why isn’t there even more of it deployed today?

Getting Wind Power Where It’s Needed

There are two substantial barriers to wind power penetration in the US. The first is transmission.

Most wind projects that have been built to date are located near the area where the energy will be used, not more than few hundred miles away. Over the last decade, new regional transmission lines have been built in Texas, California, and the Midwest to transport wind energy over those short ranges.

However, the windiest parts of the United States (and of other nations) tend to be far away from population centers where electricity is needed. For instance, compare the two maps below. The first shows wind speeds in the US. The second shows the US from space, illustrating (roughly) where electricity is being used.

Wind speeds (NREL):

US cities (NASA Earth Observatory):

The fastest on-land wind speeds (and thus the cheapest and most reliable wind power) run largely in a north-south corridor through the Great Plains and western Texas. Electricity consumption, though, clusters in a broad swath of the eastern third of the United States and a narrow strip along the US west coast.

The highest density of grid transmission lines is similarly in the eastern third of the US and the US west coast and southwest, as pictured below in this map of the grid from 2009. (You can see more at NPR’s excellent, if slightly outdated, interactive power grid map.)

Thus, one key step to unlocking wind as a low-cost resource is continuing to build new transmission, particularly from the less-populated but high-wind interior to population centers east and west.

Transmission costs money, but less than many believe. The cost of high voltage DC (HVDC) transmission lines is roughly 1 cents per kwh for 500 miles, or 1.5 cents per kwh for 1,000 miles transmitted. Over 1,000 miles, an HVDC line may lose 5% or so of the electricity it transmits.

The continental US is roughly 2,600 miles from east to west. Almost every population center is within 1,000 miles (or far less) of an area with top-notch wind resources. And most are within a few hundred miles of an area with good, if not best-in-class, winds.

HVDC lines are not common in the US, however. Compare the map of HVDC lines in China to that of HVDC lines in the US.

HVDC appears to be going through a resurgence in the US. Transmission-line builder Clean Line, for instance, has plans for ~20GW of long distance HVDC transmission lines to bring great plains wind power to areas where it’s needed. The first of these is targeted for completion in 2020. (More at UBS.)

Realistically, the US may need 10x this much in new long-range transmission to unlock the highest value winds in the country. The challenge is not so much cost (which, we can see above, still places wind prices lower than fossil fuel electricity prices), but rather regulatory approval, right-of-way, and overcoming NIMBY.

Short story: If we want the cheapest possible wind power, we need to continue to build out grid transmission.

Making Wind Reliable

The second limitation on wind power has been when the wind blows, and when it doesn’t.

Wind power is intermittent. The wind doesn’t always blow fast enough for wind turbines to produce power. In the US, the capacity factor of the current fleet of wind turbines is around 33%. That is to say, on average across the year, a wind turbine that is capable of generating a MW of power will actually produce an average of around 0.33 MW. At some hours it will operate at peak output. At other hours it will operate at a fraction of its maximum output. And at yet other hours, it won’t be generating any electricity at all.

That intermittence creates additional cost for utilities, who have to find some way to back up wind power for those times when the wind isn’t blowing.

What’s just as important is the times and months that wind provides energy.

Today, peak electricity demand in the US happens during the afternoons and early evenings. Electricity demand in the US is higher in summer months than in winter months. (Note that this pattern differs in Europe, where energy-intensive air-conditioning is less common than the US.)

Wind power patterns are nearly the opposite of US electricity demand patterns. Winds tend to max out overnight and in winter months.

The combination of low capacity factor and winds that blow primarily during lower-demand hours means that wind is often slightly less valuable than its price would indicate.

What’s more, wind’s intermittence in the US may place limits on what fraction of US electricity could come from wind. A (very rough) rule of thumb is that, without storage or integration over a large area, the maximum percentage of electricity that could come from a variable source like wind power is equal to its capacity factor. Indeed, as a resource like wind starts to provide an amount of electricity even close to its capacity factor, it tends to flip the supply/demand of the market, increasing supply, and thus lowering the prices the market is willing to pay for new electricity. It eats its own lunch, as described in a well-worth-reading piece on the limitations of renewables, by Jesse Jenkins and Alex Trembath.

There are a variety of caveats to this rule of thumb, in both encouraging and discouraging directions, which I’ll return to in a later post. And there are a number of reasons to believe the limits are substantially beyond what Jesse and Alex describe in their piece. I’ll look specifically at energy storage in my next post, and come back to the larger issue of how far renewables can penetrate sometime after that.

For now: if wind capacity factors were closer to 100%, the problems above would largely disappear, and wind with its current prices would be nearly unbeatable. We’ll likely never have wind at 100% or even 90%, but the closer wind can get to 100% capacity factor, up from its current level of 33% in the US, the more powerful it becomes.

That’s what makes this NREL report so encouraging. The average new wind turbine in the US is 80 meters tall at its hub. NREL looks at what capacity factors could be reached with 110 meter tall and 140 meter tall wind turbines.

That’s consistent with other data showing that every year, the capacity factor of new wind turbines deployed in the US goes up by about 1%. Wind turbines deployed in 2014, for instance, averaged 40% capacity factor (with the best reaching 50%), which is up 15 points from 2000.

Wind Capacity Factor Rising

NREL’s future-looking chart, below, looks at how high this could go. It shows cumulative area of the contiguous US (along the Y axis) that could reach ever-higher capacity factors (X axis). For context, the contiguous US has a land area of roughly 7.6 million square kilometers.

The different colored lines are different technologies. The black line is 80-meter tall wind turbines that are common today. The red line is 110-meter tall wind turbines that are commercially available today, and which are slightly below the average height of new turbines in Europe, but which are not yet common in the US. And the blue line is 140-meter tall wind turbines. Turbines of that size are being installed in Europe, but not yet in the US.

With 2008 technology (the black line), the line hits zero right around 50% capacity factor. Virtually no part of the US can provide wind power with 50% capacity factor with 80-meter tall turbines.

With newer 110-meter tall turbines, however, nearly 2 million square kilometers of land, or or 26% of the contiguous US, can support wind turbines with capacity factors of 50% or higher.

With 140-meter tall turbines (similar to those already in use in Europe) NREL projects that perhaps 1.8 million square kilometers could host 60% capacity factor wind. That is a near doubling of capacity factor of wind turbines from today. Put another way, it’s wind power that is roughly twice as reliable as the average wind power in the US today.

That, in turn, would lower the cost of backups to the wind. It would raise the physical limits of how much wind power could be integrated into the grid, even without storage. It would spread out and dilute the ‘eat its own lunch’ phenomena whereby renewable resources lower the market price at the hours that they generate. Wind at 60% capacity factor would spread out its delivered electricity over roughly twice as many hours 33% capacity factor, thus reducing the rate at which the prices it could fetch declined. And, most likely, more of the electricity delivered by wind would come at times of high electricity demand, raising the prices wind could fetch via another mechanism.

In short, wind at 60% capacity factor, even at the same price per kwh of today, would be tremendously more valuable than it is now, with fewer limits to how much of it we could use. And we’re on trend for the best sites to achieve that by 2025.

How much wind-generated electricity could be provided on 1.8 million square kilometers? In the US, an average wind farm, as of 2009, produced around 3 W per square meter of all directly and indirectly affected area. (See Land Use Requirements of Modern Wind Power in the US (pdf)). So 1.8 million kilometers (even ignoring the potentially higher energy output of turbines higher in the air) would roughly 5.4 trillion watts, or 5.4 TW.

By contrast, the average US electricity consumption in 2014 was around 0.5 TW.

So, if NREL is correct, sufficient land area exists in the US to provide 60% capacity factor wind power to meet US electricity needs 10x over.

To be clear, for a variety of reasons, wind, like solar, will never be 100% of US electricity production. But the headroom appears to be there.

Would larger wind turbines be more expensive? Per wind turbine, they certainly would be. But each will also produce more electricity, more reliably. 140-meter wind turbines in use in Europe generate 5 to 7 MW of power, vs the 2 MW common for 80-meter wind turbines.

As a general rule of thumb, wind turbines produce electricity equal to the area their blades sweep through. And area is equal to the square of blade length. That means that doubling the tower height and blade length quadruples the area the blades spin through, and generates 4x as much energy. Partially as a result, wind prices per kwh have dropped, even as (or in part because) wind turbines have grown taller.

We should expect that taller wind turbines will continue this trend. More electricity per dollar, along with higher capacity factors.

Building 140-Meter Tall Wind Turbines

NREL’s projection of the capacity factors of future wind turbines is, of course, just a projection. NREL has an excellent track record, yet we won’t truly know the achievable capacity factors for 140 meter wind turbines until we have a number built in the US.

Actually building them is quite a challenge, however. Wind turbine components are built in factories and then transported to the site. But as wind turbines have grown larger, transportation has hit the limits of what can be moved by road.

Consider the following images from DOE’s Wind Visions report, showing the challenges of moving a segment of a wind turbine tower (first image) and of moving a single blade of a wind turbine (second image).

These images depict the challenges of transporting current wind turbine components. To move pieces of 140-meter turbines (more than 500 feet tall), new steps are needed.

The new frontier is to assemble more of the wind turbine at the site, using parts that fit in ordinary semi-trailer or flat-bed truck cargos. That’s the approach used by GE’s Space Frame wind towers, which use a scaffolding-like approach to wind turbine construction. And it’s also the approach used by a number of companies working on wind turbine blades that can be shipped in pieces and assembled into full-length blades on site.

None of this is impossible. Germany’s wind industry already averages 120 meters for new wind turbines, with some as tall as 140 meters. But deploying these in the US will require innovation.

Whole articles can and have been written on these frontiers in wind turbine assembly. For an excellent overview, read John Timmer’s piece on the future of wind power at Ars Technica. Or, for a more technical view, read DOE’s Wind Visions Report.

In Summary

Technical challenges remain. But if they can be surmounted, wind power appears to be headed for a new frontier in reliability. Wind is already the cheapest source of electricity in the United States, and could, with these advances, provide half or more of the US’s electricity consumption.

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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

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

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.