The Overreach of the China Hawks
Aggression Is the Wrong Response to Beijing
The plunge in oil prices that began in mid-2014 has been relentless. It has pushed a clutch of oil-exporting nations into deficit spending, hobbled Russia’s ambitions, and altered the calculus behind Iran’s nuclear program. It has also given an opportune boost to the U.S. economy and other petroleum-consuming countries. No other force on earth packs such latent capacity to move events. Apart from one, that is: batteries.
When it comes to energy, new technologies can upend the status quo almost overnight, surprising everyone. And just as the shale revolution, unleashed by fracking, has largely triggered the current oil upheaval, batteries could roil geopolitics and business. Renewable power has long been held back by the problem of electricity storage, because the hours when the sun is shining or the wind is blowing do not necessarily match the hours when people use electricity most. The key to unlocking renewables’ potential is thus stationary energy storage, batteries that would allow consumers to draw on electricity generated at an earlier time. If today’s off-the-shelf lithium-ion batteries were scaled up and used to store electricity for the grid, they could rival shale oil in terms of their capacity to reshape the energy landscape.
For starters, they could eradicate some four million barrels of global oil demand a day, as countries that rely heavily on oil for electricity generation, such as Japan and Saudi Arabia, slashed their consumption and turned instead to solar or wind power stored in batteries. That volume equals a whopping 4.5 percent of current global oil consumption—about the same amount, counting new supply and lost demand, as what triggered the oil-price plunge. On top of that, batteries would represent an environmental boon, since solar and wind power could finally begin to substitute for coal and natural gas as go-to sources of power. And as with shale oil and gas, grid-scale batteries would make a gargantuan commercial splash. According to research by Citi, they will account for more than $400 billion a year in revenue by 2030.
Such rosy projections would have been unthinkable absent the massive cost improvements in the batteries used in electronic devices and electric vehicles. Batteries account for one-third of an electric vehicle’s price tag, and steady technological progress is bringing that cost down. As a result, over the next decade, the price of an electric car may well match that of gasoline-powered cars—and could even fall below it, given the expense involved in making conventional cars comply with stringent emission standards. The technology research firm IDTechEx has predicted that by 2024, sales of electric cars (including hybrids) could reach ten million a year, tripling the size of the nascent industry, to $179 billion. It is numbers like those that have convinced China and the United States to compete with Japan and South Korea, which control a combined 92 percent of the electric-vehicle battery market.
With all their ifs and coulds, the forecasts for electric cars have left many policy analysts and industry observers rightly wary. After all, less than five years ago, the governments of China and the United States placed billions of dollars behind an ambitious bet on the future of electric cars, with each vowing to put one million electric cars on the road by 2015. The goal proved too ambitious: as of the end of 2014, fewer than 350,000 electric cars had been sold in the two countries combined. For all the hoopla surrounding Elon Musk’s Tesla Motors, the company had sold just 47,000 cars total as of September 2014. As for stationary batteries, the cost of solar and wind power has plunged, yet energy storage remains inefficient and expensive. Low oil prices, which erode the competitiveness of renewables, have taken the enthusiasm down another notch.
Yet the scenario painted by battery optimists—solar power companies, environmentalists, Tesla employees and buyers, a small number of utility executives, and a phalanx of Wall Street analysts—is not so far-fetched. It requires no momentous scientific advances. All that is needed, at least for stationary storage, is a commitment to implementing existing government policy, continued engineering work-arounds, and economies of scale.
Lithium-ion batteries all work the same way. They have three basic parts: two electrodes (known as the cathode and the anode) and, between them, a chemical compound called an electrolyte. A battery discharges power when lithium ions stored in the anode travel through the electrolyte to the cathode. When the battery is connected to the grid for recharging, the electricity forces the lithium ions to make the return journey back to the anode, where they are stored for their next use.
Compared with other important technologies, such as computer processors or medical-imaging devices, batteries have progressed remarkably slowly. The first battery was invented in 1800 by Alessandro Volta, and in 1859, Gaston Planté invented the lead-acid battery, which is now ubiquitous in gasoline-powered cars. It took until 1991 for Sony to produce the first commercial lithium-ion battery. Even today, the search for a superbattery goes on.
The problem is one of physics—figuring out how to shuttle more lithium ions in a battery safely, quickly, and at a reasonable cost. Consider the difficulties inherent in the proposed improvement of making anodes out of silicon, instead of graphite (as they are currently usually made). Doing that would triple the amount of energy contained in a standard lithium-ion battery. But silicon expands considerably during the charge-discharge cycle, eventually cracking and destroying the battery. Similar problems have plagued all the other big proposed solutions to date.
Most of the progress that has occurred has come from manufacturers of commodity batteries, such as Duracell, and from the electric-vehicle sector, in particular, Tesla. Successful batteries for vehicles must clear a high bar: they need to take a car far, accelerate quickly, last a long time, never catch fire, and be reasonably priced. No current technology meets all those criteria, despite frequent claims by start-up battery companies (most of which do not release peer-reviewed data). Tesla has met all of them except for cost—and so has been able to capture much of the luxury market. Even on that front, however, Tesla has done well, thanks to a strategy of using off-the-shelf batteries manufactured by Panasonic. Whereas its competitors pay about $500 a kilowatt-hour for their custom-made lithium-ion battery packs, Tesla says that it pays around $225—and has promised that it can get the price down to $150 by the end of the decade. Tesla and Panasonic are understandably protective about their precise cost-saving methods. But they include cutting out expensive safety features usually contained in each and every battery; instead, Tesla installs safety components that simultaneously service many or all of the thousands of batteries contained in its battery packs. Although many battery scientists still do not consider Tesla’s cost goals realistic, given Musk’s record of success, Tesla’s rivals cannot ignore the possibility that the company will meet it.
Such progress would not have occurred without massive government investment. In 2009, U.S. President Barack Obama pledged that the United States would carve out a 40 percent share of the global advanced-battery market by 2015, up from near zero when he took office. He pushed through $2.4 billion in spending for battery and electric-car development as part of the stimulus package, up from about $50 million a year that the Department of Energy had been allocating previously. And he introduced a $7,500 tax credit on electric-car purchases.
Other governments have done the same. France, Norway, Spain, and the United Kingdom have offered even bigger tax credits for electric cars, and South Korea leads the pack with a $13,500 subsidy per car. China has offered $5,000 to $10,000, depending on the car’s range, and the Japanese government, which wants hybrids or fully electric cars to account for half of all domestically produced cars by 2020, exempts electric vehicles from all taxes. For now, such incentives are necessary to offset the cars’ considerable cost in comparison with that of traditional vehicles: gasoline contains 50 times as much energy per kilogram as a lithium-ion battery.
The numbers are brutal for grid-storage batteries, too. This year, Japan’s Tohoku Electric Power is scheduled to bring on line the largest battery in the world, a 40-megawatt facility in the city of Sendai that is intended to store solar and wind energy. Toshiba sold the battery to Tohoku for about $5,000 per kilowatt-hour, 20 times the price most analysts consider necessary to make solar and wind power competitive with traditional forms of power generation. The high cost owes to its size. At that scale, batteries experience diminishing returns, whereas fossil fuels and nuclear power enjoy a decided economic advantage. Tohoku’s experience suggests that even if lithium-ion batteries become competitive for small-scale use, it will be far harder to lower costs enough to compete with large electric plants.
But it’s worth noting that like big lithium-ion batteries today, the miniature lithium-ion batteries used for electronics were also extremely expensive at first. In 1995, a battery with a capacity of one kilowatt-hour cost $3,000, compared with about $200 today. To put that in perspective, a 6.9-watt-hour lithium-ion battery for the iPhone 6 costs $1.40; in 1995, it would have cost $20. As for electric-car batteries, they stood at $1,000 per kilowatt-hour in 2009 but now cost less than half as much. When it comes to batteries for large-scale storage, widely accepted forecasts see the cost of some lithium-ion battery systems for the grid dropping by more than half by around 2020—from about $500 per kilowatt-hour to $230. At that price, batteries will reach a tipping point and begin to compete with coal, oil, and natural gas on the grid, including as a way to store power for times of peak electricity demand.
Regardless of the progress anyone expects in energy storage, a substantial part of the global population will not abandon fossil fuels for electricity generation anytime soon, if ever. On the other hand, there are already parts of the world that could come close to relying entirely on renewables, provided the right energy storage became available. Solar power is already competitive without subsidies in Australia, Germany, Italy, Portugal, Spain, and the southwestern United States. If solar installations in these places were equipped with batteries, consumers would face higher up-front costs to pay for the storage but would save money over time, since they would buy less power from the grid.
It does not take a leap of faith to envision giant batteries becoming a standard feature of renewable energy systems within a decade. Navigant, an industry research firm, has forecast that Asia will experience a boom in grid-storage batteries, in part because large swaths of the continent are only just beginning to build out their electrical infrastructure. The United States is also primed for a boom in battery-backed renewable energy, thanks in large part to action by state governments. California has mandated that its largest utilities install 1.3 gigawatts of battery capacity by 2022. Southern California Edison has responded with a pilot project in the city of Tehachapi that will store 32 megawatt-hours of power from the area’s 5,000 wind turbines.
As with all energy revolutions, advances in battery storage would create winners and losers. Among the biggest victims would be coal power, which would not be required nearly as much once renewables came on line. Big Oil also has a great deal to lose, and it is betting that advances in the battery market are merely an artificial outgrowth of subsidies. In 2014, ExxonMobil released a dim forecast of batteries’ future, predicting that renewables in 2040 will face the same conundrum as today: batteries will be too expensive and inadequate to store what the sun and the wind generate. By then, the report contended, solar power, wind power, and biofuels together will supply less than four percent of the electricity generated globally, suggesting that batteries will make almost no progress on the grid. (The U.S. Energy Information Administration is more upbeat, forecasting that solar and wind power will supply around five percent of the electricity in the United States alone in 2015.)
Then there are the electric utilities. Last year, former U.S. Secretary of Energy Steven Chu warned publicly that utilities’ ownership of power lines and fossil fuel generation plants was not going to continue to guarantee these companies a profitable business. Such plants could soon be replaced, he said, by distributed generation: smaller, local sources of electricity, often at the home or building level, that rely on solar or wind power. Chu predicted that within a decade, the American homeowner would be able to pay $10,000 to $12,000 for a battery-backed solar power system and be off the grid 80 percent of the time. Such distributed-generation systems could save customers up to a quarter of the charges they would ordinarily face during peak hours. Within five years, such systems could become far more widespread and pose a live and growing threat to electric utilities. As a matter of survival, Chu warned, those utilities would have to conceive of a new business model that included installing grid-scale batteries. Otherwise, they risked becoming relics, in the same way that “the Post Office got FedExed.”
But some companies have embraced a future of battery-backed renewables. Given their expertise, electric-vehicle makers are the obvious early movers that will scale up batteries for grid storage, and all eyes are on Tesla. One Model S, the company’s bestseller, can store enough energy in its 85-kilowatt-hour battery to power the average U.S. household for three and a half days. A number of analysts think that’s precisely how the cars will be used: plugged into the walls of garages, discharging during the hours when the grid is experiencing high demand and charging when it isn’t. By 2028, Morgan Stanley predicts that there will be 3.9 million Tesla vehicles on U.S. roads, a fleet that could provide an hour of electricity per day for eight percent of U.S. households.
Tesla is also racing ahead to build manufacturing capacity in anticipation of demand for grid-storage batteries, beginning construction on a $5 billion plant near Reno, Nevada. Dubbed the Gigafactory, the plant is intended to double the world’s entire supply of lithium-ion batteries by 2020. Echoing much of Wall Street, a 2014 Morgan Stanley report took a favorable view of the ambitious plan: “We believe there is not sufficient appreciation of the magnitude of [the] energy storage cost reduction that Tesla has already achieved, nor of the further cost reduction magnitude that Tesla might be able to achieve once the company has constructed its ‘gigafactory.’”
In the late 1990s and first decade of this century, there seemed no hope for electric cars: General Motors gave up on its EV1, and the most promising product, the Toyota Prius, was only a hybrid. How quickly things change: by the end of 2014, Tesla had emerged as a decided success and the Nissan Leaf had broken through the 30,000-vehicle sales mark. The naysayers’ pessimism notwithstanding, batteries are on track to follow the same pattern of progress.
But it is as inane to predict a singular technological leap as to predict no advancement at all. The optimistic forecasts for the commercial success of battery-backed renewable power and electric cars are, in the end, just theories. They reflect the linear thinking of equity analysts, advising their clients to respond to what is in front of them; the fears of oil and utility executives, apprehensive of being rendered obsolete; and the thrill of technology fanatics and automobile maniacs, hoping that they are getting in on the next big thing.
At the same time, Chinese and U.S. scientists, working in the programs supported by their governments, could come up with a big breakthrough that overturns everything. Because of the enormous geopolitical, economic, and environmental gains to be had should that happen, governments should continue to devote serious amounts of funding for advanced battery research. Young, promising researchers should understand that if they go into the field, they can count on long-term financial support. Yet even if private and government-funded researchers in China and the United States merely continue down the steady path of progress they have been following, it will still lead to a fundamentally new era in energy. A big breakthrough would bring on this age far faster. But it will arrive regardless.
This essay is adapted from The Powerhouse: Inside the Invention of a Battery to Save the World, published February 5, 2015. Reprinted by arrangement with Viking, an imprint of Penguin Publishing Group, a division of Penguin Random House LLC. Copyright © 2015 by Steve LeVine.