Can Battery Storage Become Competitive?

I have been a battery storage skeptic. While proponents of wind and solar energy talk about going 100% renewable, my estimates top out at about 20% wind, 12% solar, 8% hydropower and 5% other. To get more than that, you need electrical energy storage, and right now that is very expensive. I have estimated that the cost of battery storage is about 25 times the cost of building back-up natural gas generation, and it didn’t look like that was going to change soon.

Historic Lithium Ion Battery Prices

Estimates of lithium-ion battery cost vary widely, but have been decreasing by only 8% to 14% annually. That rate halves the cost every 5 to 9 years. Bringing the cost down 25 times would take 25 to 42 years if current rates held, and they are unlikely to hold over that period of time.

Meanwhile, despite lithium-ion batteries showing up in all sorts of mobile devices including cell phones and automobiles, the mining of lithium has been growing at only about 7% per year. I have seen various reports of breakthroughs in batteries including alternate chemistries including aluminum-air, more stable mixtures including lithium-phosphate, different geometries and various anode-cathode designs, but none of them has fundamentally changed the basic lithium-ion battery.

Then Elon Musk, CEO of the electric car company Tesla, proposed to build his battery gigafactory. He wasn’t counting on any battery breakthroughs, but aimed to bring down the cost of lithium-ion batteries 30% or more by sheer mass production. Eleven months ago he announced a location in Nevada. The factory isn’t even built yet and now I am hearing unconfirmed reports of a 70% drop in lithium-ion prices. His competitors have stepped up in anticipation of a surge in sales of electric vehicles, and prices have fallen.

Meanwhile, installations of customer-side energy storage were up 3X from 2013 to 2014  and utility-side battery storage installations in the second quarter of 2015 were up 9X from the same quarter in 2014.  Battery storage is still very expensive, but my assumptions in the first 2 paragraphs of this letter are being reconsidered.

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