In 1991, rechargeable lithium-ion batteries were first commercially available for handheld video cameras. Soon after, they were used in laptop computers. A decade later, batteries were used to power smartphones and wearables, fueling the rise of technology giants like Apple Inc. (AAPL), and later in electric vehicles. In the process, the basic battery technology has remained virtually unchanged: lithium ions in a liquid move back and forth between the cathode and anode.
But that was just the beginning. After a decade of rapid cost reductions, batteries have reached a tipping point. Batteries will no longer be used just for consumer products, but will also change the way the world uses electricity.
In the energy industry, companies can store electricity and access renewable power with affordable batteries. In the automotive industry, batteries will challenge the century-long dominance of the gasoline engine. Because of the magnitude and speed of the cost decline, most automakers expect electric cars, which are currently more expensive than gasoline vehicles, to be produced at flush cost within the next five years.
The great momentum is expected to continue. Electric vehicles are the main source of battery demand today. As demand grows and costs fall further, batteries will have a more disruptive impact on various industries. General Motors Co. (General Motors Co., GM) recently came up with good news on the battery front. GM said it hopes to phase out gasoline and diesel vehicles from the company’s worldwide auto showroom by 2035.
The battery boom could weaken demand for Crude Oil and byproducts such as gasoline, as well as erode market demand for natural gas, which is used primarily in power plants. While mining raw materials and manufacturing batteries produces some greenhouse gas emissions, analysts believe that a shift to batteries in the auto and energy industries will reduce overall emissions and thus contribute to efforts to combat climate change.
Power plants alone account for about a quarter of the nation’s emissions in the United States, and light vehicles such as cars and trucks account for 17 percent of national emissions.
The rise of rechargeable batteries is now a matter of national security and industrial policy. Controlling the minerals and manufacturing processes needed to produce lithium-ion batteries is seen as the “21st century version of oil security”.
The global battery market is currently dominated by Asian countries and companies. Nearly 65% of the world’s lithium-ion batteries come from China. By contrast, no country produces more than 20 percent of the world’s crude oil.
Many companies are working on new batteries, such as solid-state batteries that do not transport ions through liquids, which could greatly increase the power of batteries and further reduce their price. The value of such breakthroughs could reach billions, if not trillions, of dollars.
“There is still a lot of innovation ahead,” says Christina Lampe-Onnerud, CEO of Connecticut battery startup Cadenza Innovation Inc. Her company envisions a day when buildings could have their own batteries to provide a reserve of power that can be used during peak hours, thereby reducing costs.
The first commercial electric car to use lithium-ion batteries was tesla Inc.’s (TSLA) Roadster, a sports car introduced in 2008. one of Tesla’s early strengths was the discovery that it could use off-the-shelf laptop batteries to power the car. The company initially purchased off-the-shelf batteries originally made in Asia for laptop computers, which at the Time used six to 12 batteries. The two-seat Roadster requires nearly 7,000 batteries.
According to data from London-based Benchmark Mineral Intelligence, an organization that tracks battery prices and industry dynamics, more than two-thirds of the world’s lithium-ion batteries are currently used in cars, and that share is expected to reach three-quarters by 2030.
The same batteries are increasingly being deployed in the grid. A battery project in Florida that began in January this year will use 2.5 million lithium-ion batteries with a similar chemical composition to Tesla batteries, only larger. Florida Power& Light, a unit of NextEra Energy Inc. says the batteries will be able to power Disneyland for seven hours.
After years of charging and discharging, the performance of used car batteries usually degrades slightly, but such batteries now have a new use: power storage. Amsterdam’s Johan Cruijff Stadium has a three-megawatt “super battery” made from 148 Nissan Leaf battery packs, many of which are recycled, that can store electricity generated by rooftop solar panels to help balance the stadium’s energy The supercell stores the power generated by the rooftop solar panels and helps balance the stadium’s energy use.
According to Benchmark, global lithium production has nearly tripled in the past 10 years to meet the anticipated demand. Lithium is a silver-colored metal that is also used to make nuclear bombs and treat bipolar disorder. The major producers of lithium are Australia and Chile (where it is found in underground brine deposits), although efforts to increase production at mines in Nevada and North Carolina in the United States are gaining attention from investors.
Lithium-ion battery prices have fallen faster than expected in recent years, driven by demand from automakers. Currently, electric car battery packs and engines cost about $4,000 more to manufacture than midsize car engines that use fossil fuels. According to investment bank UBS (UBS Group AG), this difference will be $1,900 by 2022, and the gap will disappear by about 2025.
Ken Morris, head of GM’s electric vehicle division, said last September that he expects the manufacturing costs of electric and fuel vehicles to be equal within five years. Automakers such as Volkswagen AG (VOW.XE), Tesla and GM are driving down battery prices even further, racing to lock in the huge capacity needed to power millions of electric vehicles. The rise of electric transportation has also attracted some of the biggest technology companies, including Apple Inc. and Amazon.com Inc.
Globally, battery-powered electric vehicle sales accounted for about 4 percent of all new vehicle sales last year in the U.S., Europe and China, the world’s largest markets, up from about 1 percent in 2017, according to Deutsche Bank. The bank expects that market share to reach 22 percent by 2025.
In the energy sector, the grid has been built around just-in-time power generation for more than a century. Every now and then, electricity supply needs to match demand to avoid blackouts, as there is no way to store energy for later use.
To solve this problem, in recent decades the demand for electricity during the hottest and coldest days has been met by standby peaker gas-fired power plants that operate for a specified number of hours when needed.
In parts of the United States, large lithium-ion battery installations have begun to replace peaker plants. These batteries tend to store power during the day – often drawing energy from solar farms – though they can also be set up to draw low-cost power from the grid. They release power for a few hours after sunset, as needed, when electricity demand and prices rise in the evening.
Developers and utilities are looking at another evolutionary step for the industry: building batteries to collect and deliver low-cost, clean power from wind and solar farms, not just for a few hours after sunset.
This threatens not only peaker plants, but also many conventional power plants, which are funded on the assumption that they can competitively sell power 24/7 for decades.
Chris McKissack, CEO of Illinois-based renewable power company GlidePath Power Solutions LLC, says batteries are “just a hair’s breadth away from making a dramatic difference. He estimates that more than 100 of the total 800 gigawatt gas- and coal-fired power plants could soon become uneconomical and unnecessary. “This provides a tremendous opportunity for battery storage,” he said.
In Texas, where the electricity market is highly competitive, economic forces are driving batteries to thrive on the grid. By the end of 2020, there were 215 megawatts of installed battery power capacity. Grid operators expect batteries to supply nearly 2,000 megawatts of capacity by the end of 2023, or about 4 percent or 5 percent of the state’s average electricity use on the main grid this time of year.
California and New York have introduced orders requiring utilities to install more batteries to improve grid reliability and smooth out price volatility, as well as to bring in more renewable energy.
Last year, Silicon Valley Clean Energy and Central Coast Community Energy, two California companies that provide electricity to nearly 700,000 customers, expanded an existing deal to buy power from a large solar and battery storage project north of Bakersfield. The companies said the batteries will allow them to provide renewable energy without significant price increases.
“I’m thinking about the grid in a completely different way,” said Girish Balachandran, CEO of Silicon Valley Clean Energy. He expects the share of natural gas in the company’s California portfolio to shrink as more wind and solar power is stored in batteries.
As prices continue to fall, he said, he is envisioning new ways to deploy batteries that will ensure reliable grid operation.
In January 2010, Boston Consulting Group estimated battery costs at about $1,000-$1,200 per kilowatt-hour. Since then, battery prices have come down a significant amount. The consulting firm has said that to get down to $250, the target level that car companies want to achieve, is an unlikely task unless there is a major breakthrough in battery chemistry.
Today, battery prices are about $125 per kilowatt-hour, as costs have fallen under a major expansion in capacity, and improvements in chemistry and design tweaks have allowed costs to be further compressed.
Venkat Viswanathan, an associate professor of mechanical engineering at Carnegie Mellon University, said battery costs are widely expected to fall further. He predicted that battery prices will reach as low as $80 per kilowatt hour in two to three years and bottom out at that price point.
Gene Berdichevsky, a former battery system architect for Tesla’s Roadster and now founder and CEO of Sila Nanotechnologies Inc. said the technology is worth $500 billion if the cost of power storage can be brought down to $50 per kilowatt hour. He said, “There will be a tremendous amount of technological innovation applied to this.” Sila Nanotechnologies, a company based in Alameda, Calif. and dedicated to improving battery technology.
Last year several U.S. agencies formed a coalition to promote the domestic battery industry, which they believe will play an important role in consumer electronics and defense. The coalition also used the Defense Production Act (DPA) to accelerate the development of rare earth mines.
Last month, during the U.S. Senate confirmation hearings for the nomination of Energy Secretary Jennifer Granholm, Granholm expressed interest in domestic production. She said, “We can buy electric vehicle batteries from Asia or we can produce them in the United States.”
The EU is using industrial policy to promote the development of a regional battery industry. Germany‘s Federal Minister for Economic Affairs and Energy Altmaier (Peter Altmaier) said not long ago that the EU wants to create a closed battery value chain in Europe, from raw material processing to recycling of used batteries.
Growing demand for batteries may put pressure on the supply of important minerals. And powering all those car batteries would increase the demand for electricity, leading to supply constraints.
Another challenge is that while battery safety has improved, lithium-ion batteries have also been known to catch fire, which has led to product recalls by several companies, including General Motors, Hyundai Motor Co. and BMW AG.
A shortage of charging stations could discourage electric vehicle customers. San Francisco estimates that the city could need more than 5,100 electric vehicle charging units by 2030, compared with just 834 in 2019. Topping up those batteries could require the city to consume 7 percent more electricity, according to an analysis co-authored by two city officials.
But automotive experts believe that battery-powered models will eventually prevail. After all, such models are much simpler to build than gasoline cars and have fewer moving parts.
Sandy Munro, an automotive industry consultant, disassembles more than 20 cars each year, breaking them down into parts and studying materials, technology and assembly. For more than a century, he said, the design of the internal combustion engine has been nearly perfect. By contrast, innovation in battery-powered electric vehicles is just beginning.
“Right now, we’ve basically only scratched the surface.” He added, “The era of the internal combustion engine is coming to an end.”
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