Elon Fuels the Debate: Storage + Solar = Disruption

As previously mentioned (in this post) storage has the potential to turn solar into a truly disruptive force for utility business models and also the investment plans of oil companies.

On Thursday 30th April, the World witnessed the spectacle of a glossy, Apple-esque launch of a new product, a new product that is set to change the world: save mankind from climate change, end the geopolitics of oil, dry up the funding for extremist Jihadi terrorists etc….yes Elon Musk unveiled a battery! (see video). Mr Musk didn’t announce anything especially revolutionary to industry followers, however he does have a huge profile and a global audience and thus the impact of his presentation cannot be understated.

A quick look at some facts: storage, specifically lithium ion batteries, are moving up the experience curve and costs are reducing dramatically, gained by better battery chemistry and energy density, better degradation profiles and the economies of scale gained from an ever larger industry.

According to McKinsey and Bloomberg New Energy Finance (BNEF), lithium ion batteries for Electric Vehicles (EV) have reduced 40% in the past 5 years dropping from around $690 kwh in 2012 to $270 kwh in 2014. Most analysts see them reaching $150 kwh by 2020 (lithium ion is tracking solar pv’s trend line which has seen 24% cost reduction, each time the installed base doubles). Tesla, the EV car company, owned by Elon Musk is building the much publicised $5bn Gigafactory near a lithium mine in Nevada. This plant alone will double global lithium ion production and should result in a further 30% fall in battery prices especially when coupled with the whole industry e.g. BYD and LG Chem’s battery plant plans in Asia.

The battery can represent 25% of an electric vehicle’s cost. As these become more popular they will become cheaper, as they become cheaper they will become ever more popular and so on. Few analysts have any doubt that battery driven cars will become cheaper to own than oil based drivetrains. To my mind the big questions that remain are: when will this happen? how to charge them? how quickly will the energy density improve to 300 mile to offset range anxiety? (indeed predictions of a 500 mile EV range could mean range anxiety flips to petrol based cars!).

The efficiency of electric power conversion means the oil companies are running scared and hoping that replacement of the world’s 2 billion car/truck fleet will take at least 20 years and not speed up, as we have seen in other consumer technologies. I, for one, see few barriers to rapid adoption, electricity is almost ubiquitous, even in rural areas and certainly if we see adoption spreading what will be the costs of maintaining the downstream liquid fuel infrastructure of an ever decreasing consumption base? will we see a “petrol car death spiral”? the automotive industry are rapidly responding to the EV threat/opportunity and diversifying their power train mix. No longer will they be persuaded to kill the EV by more powerful forces (e.g. oil companies) see Who Killed the Electric Car for a classic tale of innovation suppression and an incumbent’s lack of vision.

Back to Elon Musk’s announcement, which was Tesla are entering the stationary storage market. His cousins, the Rive brothers, run the largest solar installer company in the US, the $6bn SolarCity. Both Tesla and SolarCity have in fact been offering storage solutions for commercial and residential customers for some time.

For solar, the prospect of being able to stretch the generation of peak solar power  into longer periods of consumption, even creating a 24 hour energy source (baseload solar!) for houses and buildings has utilities getting very concerned. Integrated solar + storage solutions can gain scale (beyond rich homeowners) by immediately hitting the diesel genset market: islands, off grid rural communities, Africa and India’s disconnected millions, all offer highly economically viable short term targets that will help scale storage and potentially creating solar + storage as a defacto mass produced integrated product.

Sure there are barriers to widespread adoption, having the right scale battery+solar system and careful management of a battery’s degradation cycle, that could see storage better placed at grid nodes in the distribution network. However cheap storage will take the limits off solar, will we see a growth to 2 billion solar systems over the next decade? they could provide a lot of energy! Already Elon Musk is calling the Nevada plant “Gigafactory 1“, declaring that is has been designed to be replicated and “the plant is a product”. This in the face of sceptics who only months ago were calling the plant as too ambitious.

For the utilities the prospect of losing a larger chunk of electron sales is potentially fatal to their business models, as the costs of the grid have to be carried by ever smaller amount of electron traffic resulting in high connection charges and increasing possible grid disconnections (the so called utility death spiral). Utilities will need to face this challenge head on and adapt or die. Retain ownership of the customer and provide a suite of energy management services for starters.

Either way the humble battery could become a highly disruptive force to both the oil and utility industries. Only time will tell but I intend to watch this space closely.

Contributor: Nad