larry fisher writes about business for The New York Times and other publications.
Illustrations by Iker Ayestaran
Published January 22, 2018
Not so long ago, stories about batteries were invariably depressing. Low-cost, high-density electricity storage is critical to progress across a host of technologies, we were told. Yet, in spite of decades of research, batteries remained heavy, expensive, and short-lived. And did I mention they sometimes spontaneously went up in flames?
Adding to the gloom, the failings of batteries were a handy foil for climate-change deniers eager to have another reason to get on with the business of burning fossil fuels. Renewable energy sources could never replace oil, gas and coal, they claimed, because batteries would never be a practical means of guaranteeing a steady supply of power when the sun didn’t shine or the wind didn’t blow.
But lately, the tone of the discussion has changed radically. Now, reports about batteries are as apt to lead with words like “better,” “safer” and “cheaper.”
Is this media hype — no self-respecting reporter, after all, can resist an underdog-beats-the-odds story — or are we truly at a technological tipping point? The experts still disagree. But there’s enough light at the end of this tunnel to make it worth examining whether cost-effective storage of power will soon revolutionize how electricity is produced and consumed.
Thank you, Steve
What’s behind the new optimism? Credit the smartphone, whose ubiquity created a vast market for energy-dense batteries and equally large incentives to improve their price-performance ratio.
It is a technological truism that batteries can never enjoy a Moore’s Law progression of exponential advancement — the cost of storage can’t halve every few years — because batteries are prisoners of the laws of chemistry as well as physics. But sometimes the incremental tortoise is a worthy competitor to the exponential hare: the cost of a lithium-ion battery pack capable of storing a kilowatt-hour of juice fell from about $1,000 in 2010 to just $230 in 2016.
This price plunge has allowed lithium-ion batteries to vault the barrier from digital devices to the potentially far larger market for transportation. Once the domain of early adapters eager to win green points, battery electric vehicles (BEVs) have truly arrived — lest you doubt, check out the orders for the Tesla Model 3 and sales of the Chevy Bolt. Moreover, it’s a fairly safe bet that success will beget success: rising acceptance of BEVs will drive still-greater economies of scale in manufacturing that keep the battery cost curve on a downward path.
Which brings me back to the subject. Lithium-ion technology is already cheap enough (though just barely) to approach the final frontier: the mass storage of electricity to power homes and, in a pinch, even whole communities. Indeed, some homeowners with solar installations are already choosing to add battery capacity rather than pay utility rates on cloudy days or accept measly payments for excess power they return to the grid.
By the same token, electric utilities are beginning to add storage as a cost-effective supplement to burning natural gas. In July, Tesla won an Australian contract to install the world’s biggest grid-scale battery, in what experts say will be a litmus test for the reliability of large-scale renewable energy.
It will also test the vision of regulators and policymakers. An upside of cheaper storage and distributed power generation is that communities that have long gone without electricity — still 16 percent of the global population, according to the World Energy Outlook — may finally get it. A potential downside is that wealthier homeowners who can afford large solar installations and battery storage will come to rely on the grid solely for backup — or rapid charging for their Teslas. Unless regulators adjust tariffs accordingly, this will likely cause electricity rates to rise for everyone else — at least in the short term — because fewer users will have to cover the large fixed costs of the electricity distribution system.
Are We Being Disrupted Yet?
A recent report from McKinsey called battery storage “the next disruptive technology.” Moreover, McKinsey was referring to lithium-ion storage, not bleeding-edge chemistries like molten metal batteries.
But if lithium-ion is a disruptive technology, it is notably outside the box described by business guru Clayton Christensen in 1995 and popularized in his mega-selling book, The Innovator’s Dilemma. The first commercial lithium-ion batteries were offered in 1991 by Sony — hardly the garage-based startup of disruptive lore. Nor were lithium-ion batteries dismissed as inadequate and irrelevant by incumbent manufacturers, the way first-generation personal computers were.
Rather, their energy “density” — think watt-hours stored per cubic inch — and light weight relative to other rechargeable batteries such as nickel-metal hydride cells led to their rapid application in myriad portable electronic devices. And it was the runaway success of the iPhone, from an Apple far removed from its garage days, that drove scale up and costs down.
“A perfect storm of factors has created this massive push for low cost energy storage,” explains Michael Oster, chief executive of Eos Energy Storage, which is developing grid-scale batteries. Keep in mind that an iPhone battery stores just 5.45 watt-hours of energy. So, despite the cumulative billion (!) iPhones sold, the total energy storage they represent is modest. By contrast, the Tesla Model 3 will come with 50,000 or 75,000 watt-hours of battery storage, based on exactly the same lithium-ion battery technology, and the company expects to build a half-million of them. Add the projected sales of the Chevy Bolt — plus forthcoming BEVs from Jaguar, Volvo, Volkswagen and others — and do the math. The scale of production will be orders of magnitude greater.
Francis O’Sullivan, director of research for the MIT Energy Initiative, notes that the International Energy Agency estimates the 2020 global electric fleet at between 10 and 20 million vehicles. “We will see a doubling or tripling of demand for these vehicles in the next decade,” he prophesizes. “This is not like building an iPhone factory, where you can satiate global appetites with one or two facilities. To get to even the lower end would require us being able to deliver three or four million 50 kilowatt-hour battery packs annually. That’s an eye-watering number.”
A Prius Strategy
The Economist magazine (among others) predicts that city-scale power storage will follow quickly on the heels of BEVs. With lower prices and greater efficiency, storage will fundamentally alter the economics of the power grid, almost regardless of public policy: “No need for subsidies,” the magazine proposes. “Higher volumes and better chemistry are causing costs to plummet.”
Yes, but … at $230 per kWh, lithium-ion battery storage is still expensive, particularly in markets where wholesale prices for electricity are low. In California, which accounts for about half the nation’s solar generation, power production has so outpaced demand that the state must sometimes pay neighboring Arizona and Nevada to take excess electricity off its hands. Even in less extreme situations, the wholesale cost of a kilowatt-hour hovers around 10 cents — far less than is needed to justify $230 kWh storage in terms of good business practice.
Not surprisingly, then, the amount of battery storage deployed on the grid is still quite small. But that doesn’t mean nothing is happening. Recall that, when battery storage was too bulky and too expensive to power cars, Toyota and Honda developed hybrids in which the electric motor augmented rather than replaced the internal combustion engine. The Prius and its ilk offer better mileage and lower emissions without the real or perceived risks of full dependence on battery power.
Utilities are taking a similar approach with storage for the grid. Last April, Southern California Edison, in partnership with GE, unveiled the world’s first low-emission hybrid battery storage at power plants in Norwalk and Rancho Cucamonga.
A plant run solely on natural gas has to be kept running all the time — “spinning,” in industry parlance — so that it is ready to generate a lot of power on a few seconds’ notice. So-called peaker plants respond differently to bursts of demand, like when everyone in Los Angeles gets home from work and switches on the air conditioning. By adding batteries, the plant can respond to peaks immediately, while giving gas turbines precious minutes to come up to speed.
Although the price of storage has dropped by half in five years, it doesn’t make the grade “in a real apples-to-apples competition between all different technologies,” concludes Vibhu Kaushik, an asset manager for generation at SCE. “But even though standalone storage does not pencil out on its own, hybrid applications with our existing power plants are economical even at current prices, without any kind of government subsidy.”
SCE will probably add more hybrid peaker plants. Along with saving money, Kaushik says, “they change the operating profile of our gas turbines such that we are going to be running them less, not more, and that reduces greenhouse emissions and particulates by about 60 percent for the life cycle of the plant.” There’s another bonus in drought-prone California: since the turbines will run less, they will need less cooling capacity, saving two million gallons of water annually per site.
Kaushik notes that SCE is achieving these gains with off-the-shelf technology — a big plus in a cost-sensitive, risk-averse industry. “All the hardware is standard,” he says. “That’s the beauty of this thing.”
Grid Defectors and Others
While most utilities are still waiting for storage prices to drop before committing to large-scale storage, many consumers are not. That alone will disrupt the economics of grid management sooner rather than later. Solar panels cost about half what they did five years ago. And many homeowners find they generate more power than they need, at least some of the time. Unhappy with the terms offered by utilities for the power they push into the grid, some consumers are adding big storage batteries to their home systems and saving the electricity for their own consumption when the sky is dark.
The McKinsey report predicts that this “partial grid defection” will create a challenge for utilities with flat or declining sales. But that’s only the beginning: within a few years (not decades), the report says that full grid defection, made possible by combining solar with storage and a small electric generator, will be economically viable for consumers in high-cost markets.
“It’s very customer-type specific and micro-market specific because rate structure matters; so do load shape and location,” explains David Frankel, a McKinsey partner and co-author of the report. But, he says, “given the cost-curve trajectory, we’ve already hit the tipping point on solar; sooner or later we’re going to hit the tipping point on storage. Over time, the rate structures have to evolve.”
Although homeowners with large solar installations often complain that they don’t get full value for the power they sell to the grid, such net energy metering has already put pressure on utilities. “It reduces demand because consumers make their own energy; that increases rates for the rest, as there are fewer bill payers to cover the fixed investment in the grid, which still provides backup reliability for the solar customers,” Frankel and Amy Wagner wrote in the report. “The solar customers are paying for their own energy, but not paying for the full reliability of being connected to the grid.”
Adding storage to the mix would allow such customers to generate 80 to 90 percent of their own power while still reaping the benefit of 24/7 reliability from the grid connection. This is already happening in places with high electricity costs and lots of sun and solar, such as Australia and Hawaii, and could happen next in strong mainland solar markets like Arizona and California, Frankel and Wagner write. “Many utility executives and industry experts thought the risk of load loss was overblown in the context of solar; the combination of solar plus storage, however, makes it much more difficult to defend against.”
The World’s most Underutilized Supply Chain
One defense for utility companies is to add more storage to the grid and make better use of existing generating and distribution assets. Because the power grid has to be able to respond instantaneously, it must have far more capacity than it uses on average. While a battery is not a substitute for a generator, adding storage to the system would allow utilities to arbitrage power generated during the night, when demand is low, by selling it during the afternoon, when demand (and prices) is high.
“The electricity supply chain is the largest supply chain on the planet — a $4 trillion industry — and we have been utilizing its underlying assets at about 40 percent on average,” says Michael Oster of Eos. “This is for one reason only: it has been less expensive to create more generation and delivery capacity than it has been to store electricity. But as of 2015, we crossed the threshold.”
Eos’ business is based on its propriety zinc hybrid cathode technology, which it calls “the first low-cost, long-life, inherently safe, energy-dense, and highly efficient energy storage system.” Oster points out that the Eos product is specifically built for the needs of the electricity grid, but concedes that much of the economic benefit of adding storage to the grid is also available with lithium-ion. He further notes that people don’t like to live near power plants, but storage can be placed close to where it is consumed. This offsets the need for new distribution as well as generation, adding to storage’s economic efficiency.
“There are no subsidies, no tax advantages, nobody is putting a hand on the scale to make this happen,” Oster says. “It’s not just about displacing all these dirty power plants; it’s also about taking the trillions of dollars invested in the grid infrastructure and turning dead-weight loss into value, the same way Priceline turns empty rooms into revenue for hotels.”
Better, Cheaper, Smaller: pick two.
Lithium-ion will probably not be the last word in battery technology, despite its current dominance. But that dominance does create a barrier to entry for alternatives. Scores of startup companies and university laboratories are working on new materials, alternative chemistries and entirely different storage paradigms like molten metals, which promise a step change in capacity, life span and pricing that could transform entire industries. But many find it difficult to attract venture capital or to build a market outside a few niches that are less price-sensitive.
“In the medium term, where we might see greater deployment of renewables, we may struggle to bring the right sort of technology to the table,” says O’Sullivan of MIT. “We might be able to make lithium-ion batteries cheap enough, but we might not; it’s good to have a range of technologies. We also have to think about where are we going to get all this lithium from, and all the other minerals, to support the expansion of that manufacturing space by 100 times. Those dynamics motivate having a broader portfolio.”
One obstacle to developing new battery technologies is that so-called risk capital has become risk-averse. Unlike the swashbucklers who financed the early semiconductor and biotech companies, today’s venture capitalists aim for steady returns that maximize their ability to raise the next fund. They fear the negative optics that come from high-profile failures of unproven inventions. Sure things don’t generate the outsize returns that big long shots sometimes do, but they make it easier to sleep at night. That means it’s much easier to raise money for an improved lithium-ion battery than for some entirely different chemistry.
“Wall Street will invest in lithium-ion, but not in a less mature technology,” Sullivan concludes. “There are a suite of technologies in earlier stages of development that do really have the potential for a step change. But getting them out there and proving they are reliable and bankable is certainly a challenge.”
Of course, some entrepreneurs will find ways to push the envelope. Last summer, Ionic Materials, a Woburn, Mass., startup, unveiled a rechargeable solid-state alkaline battery that could provide storage at one-fifth current costs. Bonus No. 1: the battery lacks lithium-ion’s propensity for self-immolation. Ionic, aware that marketing requires a good show, has demonstrated its batteries’ resistance to catching fire or exploding by driving nails through them and even shooting them with bullets. Bonus No. 2: unlike lithium-ion, alkaline batteries do not require the use of cobalt, which is sometimes mined in Africa with child labor.
But Ionic is not depending on traditional venture funding. It has been financed by Bill Joy, an Internet pioneer and co-founder of Sun Microsystems. It has also received a $3 million award for supporting research in next-generation energy technology from the U.S. Department of Energy. There’s a nice precedent here: Andy Bechtolsheim, another Sun co-founder, provided Sergey Brin and Larry Page with their first round of funding, a $100,000 investment in 1998 before the two had even incorporated their company, Google.
Hot Rocks and Hotter Metals
Benjamin Franklin was the first to apply the term “battery” to describe a chemical device for storing electricity. But there are many ways to store energy besides the electrochemical. Some are centuries old, like heating stones in a fire to provide warmth through the night. Some are cutting edge: the aforementioned molten metal battery, under development at MIT with an eye on industrial-scale storage, transforms the heat stored in molten metals directly into electricity.
Adding to the portfolio of ways to store energy would certainly give designers greater flexibility in creating energy systems that rely primarily on renewables. When electricity is abundant, you can use it to separate the hydrogen from water or natural gas and store it as an easily transportable clean fuel source for vehicles.
But if the will is there, tinkering at the margins may be all that’s really necessary to make the leap. “We’ve looked at whether you can power the whole world with renewables, and we’ve found we can do it multiple ways — even with current technology,” says Mark Jacobson, a professor of civil and environmental engineering at Stanford University.
Jacobson, for his part, is not waiting for battery technology to get cheaper. His family has an all-electric house and three electric cars — all powered solely by rooftop solar. Batteries, he brags, “allow me to run on my solar 24 hours a day, and I’m sending two times as much back to the grid as I’m using.”