The intelligent energy storage revolution

A few days ago, Tesla announced with great fanfare that it is building a “Giga Factory” for battery production in the southwestern United States. There are even rumours that Apple might be involved. What does this mean? Well, for one thing, the availability of good batteries at an affordable price is the main bottle neck to serious penetration of the electric car in the marketplace. Range anxiety, the idea that once in a while your electric car might not be able to get you where your heart so desires, is the single most important factor that holds consumers back from acquiring an electric car.

Historically, battery prices have been dropping by 6 to 8% per year. The “Giga Factory” promises a price drop of around 30% in the next 3 years and 50% in the next 5 years. This in itself is significant but Tesla also claims that the factory will have a total output (in terms of total battery storage produced per year) equal to the total output of all the other battery factories in the world thus allowing the car maker to produce electric cars for the mass market. The goal is to build around 500,000 vehicles per year which will allow Tesla to expand its activities outside of the luxury niche market that has been the company’s bread and butter to date.

Sure Tesla came out last year with ultrafast battery swaps to calm fears of range anxiety but battery swaps are expensive (around 60 $ per swap) if you compare it to nearly free electric energy: up to now, Tesla has been paying for the recharge at its super stations, electricity being so cheap compared to gas. But there is much more than that to the story. Lots of battery capacity at an affordable price will disrupt other markets, making the electric car much more interesting than a simple vehicle. A fully charged battery from a TeslaS represents 86 KWH of energy, enough to power the average American home for more than 3 days.This means that electric utilities can use the domestic car as a way to modulate demand on the grid, thereby reducing the high cost of managing peak demand. Peak demand management is already a multi-billion dollar industry in the U.S. alone.

If that weren’t enough, efficient car batteries will also allow for the introduction of photovoltaic panels as an affordable alternative to the grid. Photovoltaic panel prices are dropping fast, so fast that they are already competitive with grid energy prices in many places in the U.S. and around the world, according to a recent Deutsche Bank report. The big problem is that you need a storage system if you want to make efficient use of all that solar power. The “Giga Factory” will allow people to purchase enough storage capacity to depend less and less on grid energy. All this demand for energy storage will drive battery prices down even faster.

Why is Tesla, a small car company, such a disruptive force? First, everything it does blazes a new trail in the industry, from the car itself to its distribution network (not that the dealership network model wasn’t doomed already). Second, because it is “sexy”. It brings a level of excitement enjoyed by the high-tech industry to the automotive sector, something most traditional carmakers have been failing to do for a long time. But mostly, because it has no assets to protect in the old fashioned automotive industry.

Other car companies face tremendous challenges when considering the introduction of electric cars that are cannibalizing the sales of their conventional gas guzzling models. Kodak faced similar challenges with digital cameras. It was Kodak that invented the digital camera thus introducing the disruptive technology that would eventually lead to its eventual demise. IBM also faced the same predicament when it invented the PC. That invention almost destroyed IBM while enabling Microsoft to rise and flourish.

Most people are surprised when they learn that GM is really a finance company that uses cars as an excuse for their “real” business. In the same way, Tesla could become a battery company that uses cars as an excuse for its “real” business: energy storage to manage peak grid energy and eventually to allow for the massive introduction of photovoltaic panels to produce domestic energy. Just as a reminder, power utilities sold $360 billion worth of electricity in 2012 in the U.S. and owning a car is the single most important expense (not an investment like paying one’s mortgage) for most households.

Efficient energy management is essential to the introduction of electric cars. Electric cars, being able to manage peak grid demand and to store renewable energy, will themselves accelerate the introduction of the intelligent driverless cars. Will purchasing a car/energy storage plant make sense in the future? We will soon find out!

Dr. Jean-Pierre Arcoragi PH.D
President TEIET

Click here to read the full Newsletter : Futur Mobility

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