Through advances in battery storage technology, we are on the cusp of major changes for electric vehicles and alternative energy. These are likely to be disruptive to utilities — with the ability for homes to go ‘off grid’ — and car manufacturers. Less reliance on fossil fuel consumption could have significant geopolitical implications.
Sanjiv Tumkur, Head of equity research
Risk of disruption = high
A revolution in battery technology could reshape the way we live, radically alter the economics of some markets and potentially shift the balance of world power. This is not speculation for the distant future. The start of your day 15 years from now may be very different from this morning:
As you head to your bathroom, you note that you are making money again from your solar panels, even as they instantaneously power your piping hot shower. And you see from the indicator that the store of energy in your small solar-powered home battery has only dipped to 80% of capacity despite weeks of poor weather.
After breakfast, your electric car slides silently to a halt outside the front door. Usually you catch up on emails during your 30-minute commute. But yesterday was a particularly successful day at work and this morning you feel like a treat. So, as you have grown confident enough in your self-driving car over the last year not even to keep half an eye on the road, you switch on the immersive virtual reality player and play the latest episode of ‘Robot Wars’.
The minutes pass only too quickly before you stride into the office full of optimism — helped by checking the price of your investment in BBC stock — the British Battery Corporation, of course, not the recently privatised broadcaster…
What seemed like science fiction just a few years ago is now a reality and will likely be a part of daily life for many of us within the next decade or two. But haven’t we heard all of this before?
Indeed, alternative or renewable energy, in the form of windmills, hydroelectric dams and solar cells being used to produce electric power, was first developed in the 1880s. Windmills and dams had been a source of non-electric power for grinding flour and irrigation for millennia before this.
Electric vehicles were first devised in the 1830s and used to be far more prevalent. At the beginning of the 20th century they represented around a third of all automobiles. Henry Ford’s introduction of the Model T led to the dominance of the petrol-powered internal combustion engine that persists to this day, as it offered higher speeds and reaped the benefits of lower cost through mass production.
Why are these technologies not mainstream today?
In most cases, renewable energy sources have simply not been cost-effective compared with the fossil fuels of oil, gas and coal. These have been readily available, albeit that their supply is ultimately finite. And where alternative energies have been cost competitive, such as hydroelectric, geothermal and biomass power (using wood, crops or manure), they have faced significant limitations. Hydroelectric power works best in areas with steep mountains and building new dams creates huge social and environmental upheaval, as in the Three Gorges in China. Geothermal power works best in areas around tectonic plate boundaries. Biomass tends to produce air pollution, while using scarce agricultural land and water resources.
Wind and solar energy have suffered from their unpredictability — what happens if the wind doesn’t blow or the sun doesn’t shine? This ‘intermittency’ has made it difficult to rely on them as sources of energy, whether for an individual home or for a country, and has limited their ability to contribute to energy generation.
Even if alternative energy had been more cost effective and reliable, for a long time battery technology was too rudimentary to enable it to be effectively harnessed. Electric vehicles lost out to the internal combustion engine a hundred years ago in large part because battery technology at that stage was too basic to allow higher speeds.
Figure 6: Battery costs are falling
This chart shows the average prices of battery electric vehicle and plug-in hybrid electric vehicle batteries, including both cell and battery pack costs.
So what is changing now?
Essentially two things: the significant advances in battery technology that ameliorate the problems of intermittency and improve cost efficiency; and government commitments to tackle climate change, which are encouraging a change in taxation, subsidy and pricing to account for the negative ‘external costs’ of fossil fuels, such as pollution and global warming.
Battery technology has advanced significantly over the last decade, making solar and wind power and electric vehicles far more attractive than ever before. The rechargeable lithium-ion battery, commercialised by Sony in 1991, has made possible the revolution in portable mobile devices. Since 1991, the battery’s energy density (the amount of energy it holds) has more than doubled, helping reduce the weight of the battery within an electric car, while its cost has fallen by more than 90%. And, since 2010, average electric vehicle battery prices have fallen from $1,000 per kWh to $273 (see figure 6), and are predicted to fall to $109 by 2025. Cheaper, lighter and more powerful batteries are crucial for electric vehicles to be cost effective and fast, and in giving alternative energy a greater role in the economy.
Electric cars offer energy efficiency, converting around 60% of electrical energy from the grid to power at the wheels, compared to internal combustion engine vehicles which only convert 20% of the energy stored in gasoline to power at the wheels.
Alternative energy and electric vehicles have long been seen as necessary for the world to meet climate change and carbon emission targets without sacrificing economic development and standards of living. Climate change has become an increasingly important concern, exemplified most recently by the ratification of the Paris Agreement in 2016, which seeks to hold the increase in global average temperatures to well below 2 degrees centigrade higher than pre-industrial levels, and to try to limit the increase to 1.5 degrees. In addition geopolitical instability in key oil and gas producing areas, such as the Middle East and Russia, has made greater energy independence a growing priority.
Government policy has focused particularly on wind and solar energy, which are the ‘cleanest’ alternative energies with the widest global applications. They are seen as helpful to fill the gap left by the phasing out of nuclear power, following Japan’s Fukushima disaster, in countries such as Germany and Spain. Government tax credits, subsidies and power purchase agreements have enabled wind and solar energy to grow to a scale whereby they are now nearing commercial parity with conventional energy, even without subsidies. The average cost of utility-scale solar systems fell 68% from the end of 2009 to the start of 2016.
If one takes into account construction costs as well as ongoing input and operating costs, on a unit cost basis solar power is already cheaper than conventional gas-fired power plants in sunnier areas, such as South Africa and the Middle East, while onshore wind turbines are more cost effective in countries with stronger winds like Denmark and parts of North America. As manufacturing volumes increase and further push down unit costs, solar and wind will ultimately become cost effective in most geographies.
Where are the early transitions to mass markets already evident?
Taking the car industry first, rapid advances are imminent. The renaissance in electric vehicles, such as the Nissan Leaf and the Chevrolet Volt, was championed by environmentally conscious early adopters who were happy to put up with limitations such as a maximum range of 100 miles on a single charge, which in most drivers would produce ‘range anxiety’ or the fear of the battery running out during a long journey.
Manufacturers are now, however, already offering a more aspirational range of cars which do not require any sacrifice in terms of performance. For example, Tesla’s Roadster launched in 2008 and Model S in 2012 boasted a range of more than 200 miles and 0—60 miles per hour acceleration in 3.7 seconds. A recent software update enabled the newer Model S P100D in its ‘Ludicrous+’ mode to accelerate from 0—60 in 2.28 seconds, making it the fastest accelerating production vehicle ever (as measured by ‘Motor Trend’), benefiting from the electric motor’s instant ‘torque’ or turning force at zero speed. However these cars were aimed at the luxury end of the market with launch prices of $109,000 for the Roadster and $95,000 for the Model S, owing to the high cost of the battery.
Tesla’s long-awaited Model 3, due for release in 2017, is targeted at the mainstream market with a starting price of $35,000 (£28,000), the average cost of a new American car. With forthcoming electric models announced by Chevrolet (the Bolt) and BMW (the new i3) for 2017 and Volkswagen announcing its ambition to produce 2—3 million electric cars a year by 2025, there will be a wide range of aspirational electric cars offering high performance and long range (200 miles+) at an affordable price point — this should increase penetration of the total car market. Developments in battery charging — making it faster and expanding charging infrastructure, perhaps at petrol stations — would further help the adoption of electric cars.
The rise of the electric car is likely to be accompanied by autonomous or driverless technology, spearheaded by the likes of Google with its ‘Waymo’ technology and also its artificial intelligence work. The drive-by-wire and brake-by-wire systems in electric vehicles are better structured for autonomous driving than the mechanical control systems found in conventional cars. Once fully matured, autonomous driving will enable passengers to spend their time focusing on other things than the road — reading, relaxing, working or sleeping. In time, this is likely to have wider economic and social impacts than on just the car market, including where people choose to live in relation to work.
The battery is currently by far the most expensive component in electric cars, so the shift to electric cars will depend on how quickly the cost of batteries can be reduced. For example, the key to Tesla’s ambitions is its battery strategy, centred on its $5 billion ‘Gigafactory’ in the Nevada desert. In partnership with Panasonic, it aims to substantially reduce the unit costs of lithium-ion batteries through scale manufacture and improvements in chemistry, enabling them to offer more power at lower cost. There is some scepticism, however, about how much further battery costs can be reduced.
The reduction in the unit cost of batteries is also key to a potential transformation of energy production — not least the development of a mass market in home energy production. Batteries can store electricity generated in favourable conditions to be used at other times of the day or week; lower battery costs make this more financially viable. This offers the tantalising prospect of home owners becoming self-sufficient and going ‘off-grid’, or even being able to generate extra money by selling surplus electricity back to utility companies. As with the car market, the early signs of this emerging mass market are already evident. Examples include the wall-mounted Powerwall domestic battery from Tesla, which stores energy from solar panels for subsequent use.
Future developments in battery technology and chemistry will drive the penetration of electric vehicles and alternative energy. Much research is going into battery materials, with nickel content increasing on lithium oxide cathodes (the positive electrode) and silicon content increasing on the graphite anodes (the negative electrode) in order to improve battery performance and capacity. Longer-term opportunities could lie in ‘solid state’ batteries, where the liquid electrolyte is replaced with a solid polymer for improved energy density and safety, and in ‘lithium air’ which uses oxygen and could potentially increase battery capacity fourfold.
Figure 7: China is driving the transition to electric vehicles
New registrations of electric vehicles in China and the rest of the world (2010-15).
What are the implications for industries and countries?
Improvements in cost-effective battery storage will allow national grids to manage inflows of solar or wind power and continue to provide electricity on demand even as more reliable fossil fuel generation is phased out. This will enable renewable energy to become a much more important part of the energy mix.
This potential could be enhanced through ‘flow batteries’, where energy is stored in the liquid electrolyte and which could be recharged many more times than lithium-ion batteries. Grid-level storage could also utilise second-hand batteries from electric vehicles for a much cheaper storage solution.
Increased adoption of alternative energy will change how we define energy-rich countries and alter the dependence of countries with poor fossil fuel reserves on those rich in such resources. We should note and plan for the long-term implications of this – but these changes will be slower than the potential changes in markets such as the car industry or home energy production.
Fossil fuels will diminish in importance as solar and wind power become cheaper and a bigger proportion of power generation. This could lead to a virtuous or vicious circle (depending upon one’s point of view) whereby falling capacity utilisation for fossil fuel plants leads to rising unit costs for fossil fuel energy, making renewables seem even cheaper. This could incentivise greater investment in renewables, pushing down their costs even further.
The International Energy Agency only sees renewable energy rising from 23% of global electricity generation in 2015 to 28% by 2021. Energy demand will continue to grow, with emerging market demand more than offsetting fuel efficiency in the developed world, so even though there will be competing sources of energy supply, oil will continue to have an important role for the foreseeable future. Its price may be effectively capped, however, which will have implications for oil-producing economies such as Russia and the Middle East.
It is interesting to note that much of the investment in alternative energy comes from the Middle East, as it seeks to reduce its dependence on oil. China is also spearheading clean energy investment as it seeks to make its economy cleaner, more efficient and more energy independent, and is likely to be a technology leader in this area (see figure 7 on page 20). More generally, the growth of ‘distributed power’, where many consumers generate their own power and do not need a grid connection, could be a boon for the development of emerging markets as it would reduce the need for investment in expensive centralised grids.
The revolution in battery technology and an increasing role for alternative energy and electric vehicles could potentially be much quicker than the market currently expects. The private sector will need to respond. Firstly, companies which are wholly focused on old technology – whether car companies wedded to the internal combustion engine or fossil fuel-reliant power generation companies — will face significant challenges. Electric cars will require significantly less maintenance as an electric motor has around half a dozen moving parts, compared to the hundreds in an internal combustion engine.
Also, the role of centralised utility companies could be undermined by the growth of self-sufficient homes and businesses with solar power fulfilling most or all of their power needs. Utilities may need to retain their relevance by offering management and maintenance solutions, or investing in charging stations in order to profit from the adoption of electric cars.
Companies which make or supply materials for batteries, solar cells or wind turbines might in theory do well, but rapidly growing markets often see sharp unit price falls that cause a lot of players to go out of business, as was seen in the solar panel market.
The battery revolution is under way and we will be monitoring developments in order to identify the winners — and, perhaps more numerous, the losers.
An autonomous world
In the long term, once autonomous driving is conclusively shown to be safe, it could be adopted relatively quickly. Generations who have seen driving as the passport to adulthood, and a car as a key possession to aspire to, will probably be among the last to adopt autonomous driving. However, there is significant evidence that millennials, especially those who live in cities, are driving less and those who do drive often use car clubs rather than own their own car. While partly explained by economic factors, this indifference to driving has been boosted by the rise of instantly available and relatively affordable ride-sourcing services, such as Uber and Lyft.
At the extreme, one could envisage a future in some decades’ time in which society has moved to 100% autonomous driving, which theoretically should make roads much safer as human error causes an estimated 90% of car crashes — this will have implications for the insurance and healthcare sectors. In this scenario, private car ownership would probably be minimal, with most cars produced for large fleets owned by corporations to rent to consumers on a journey-by-journey basis. This would impact on car manufacturers, as they would no longer target consumers with aspirational brands, but adopt a similar business model to the aircraft manufacturers Boeing and Airbus — seeking to appeal to fleet owners by emphasising their efficiency and utilisation credentials. There would be little need for parking spaces in urban city centres and one could imagine a radical restructuring of the cityscape, with wider pavements and potentially more pedestrianised roads. Car passengers, in particular commuters, would have more time to work or to ‘consume’ entertainment.
Advances in battery technology also expand the range and opportunities for unmanned aerial vehicles or ‘drones’. Lighter, cheaper and more powerful batteries will enable drones to fly further and for longer, opening up the number of applications.
That drones have been used for military operations for several years is well known. They are now being trialled by the likes of Amazon, UPS and DHL for delivery of goods to customers’ homes, in particular for time-sensitive orders or to remote locations. Amazon is trialling a Prime Air drone delivery service, which at its fastest took just 13 minutes from online order click to delivery (admittedly for a customer who lived close to a delivery depot). Drones will be particularly useful in performing tasks that are difficult or dangerous for humans, such as scanning the underside of oil rigs.
One of the most significant applications for drones is in precision agriculture, whereby drones will be able to monitor large tracts of farmland, scanning and using infrared cameras to identify areas which need more intensive inputs and then delivering tailored crop treatments, fertilisers, seed packages or watering. This could have a dramatic impact on agricultural yields and help the world to feed itself better as populations grow. Drones could also expand the amount of land that can be cultivated, as they can treat hilly or remote areas which cannot currently be accessed by tractors. A US company, BioCarbon Engineering, has announced a bold plan to plant 1 billion trees a year using drones, which will drop pre-germinated seeds and high-quality soil and then water and monitor the growing saplings, in order to combat deforestation and desertification.
View the full disruptive technology report here.