Forty-Five is a number to remember
To succeed in our global efforts to decarbonize, it is imperative to succeed in electrification. Two figures will be meaningful indicators of our progress:
1) The cost of batteries as they become ubiquitous in our vehicles, transportation systems and in our electrical grid, and
2) The cost of electricity to end users as we transition from fossil fuels to renewable sources.
If I were to wave a magic wand and electrify in a brief moment all vehicles on the road in the United States, then the demand for electricity would skyrocket by nearly 1,700 billion kWh annually. So, this additional demand would represent an extra 40% of our current electricity generation capacity which stands today at approximately 4,178 billion kWh according to the U.S. Energy Information Administration.
Renewable sources are ideal candidates to generate part or all of this new electricity, in particular solar, wind and hydroelectric. Yet, batteries are essential to storing renewable electrical energy and releasing it at a different time in the day, not just when it is generated. Think of batteries storing the energy when the sun is shining, and releasing it after sunset.
Our first figure is the cost of putting batteries in cars, and batteries on the grid to store renewable energy. Current spot prices in China for prismatic lithium-ion batteries using LFP (lithium-iron-phosphate) cathode material hit an all-time low figure of $53 per kWh and a corresponding manufacturing cost of $45 per kWh – that’s half the values from one year ago! Prices in the United States remain substantially higher, nearly twice the figures in China, but are declining as the prices of raw materials and manufacturing costs drop, and the effects of the Inflation Reduction Act (IRA) trickle down into the supply chain.
At $45 per kWh, the battery in an electric vehicle (EV) with a nominal range of 300 miles (500 km) carries a manufacturing cost of under $3,500 thus making EVs widely affordable. That’s an important step towards decarbonization. Affordability is key to adoption of EVs.!
A second equally important step is building out the electrical infrastructure including charging stations, energy storage and the grid. We should never be asking the question of which comes first, the EV or the charging station. We need to invest in both.
The buildout of grid-scale energy storage and charging infrastructure requires a wide deployment of very large batteries. At $45 per kWh, the capital expenditures of these utility-scale projects can be one quarter of earlier estimates.
Yet average end users don’t necessarily relate to infrastructure costs. What matters to them is the upfront cost of their vehicles and their operating electrical costs. As battery prices decline and EVs become more affordable, the cost of electricity is the next big battle.
In my hometown region of the San Francisco Bay Area, electricity rates are among the highest in the nation and the world. A household pays $0.45 per kWh, or about $350 per month for an average household in our region. It also translates to an electricity cost of about $0.11 per mile for a sedan EV. It remains less expensive than the cost of gasoline at about $0.20 per mile, but the gap is shrinking.
We receive our electricity from Silicon Valley Clean Energy (SVCE), a non-profit collaborative public agency with a charter to advance reliable carbon-free energy. SVCE sources its energy from a variety of clean-energy generation sites but uses the transmission and distribution (T&D) grid owned and operated by the Pacific Gas & Electric (PG&E) company.
The large increase in electricity cost to consumers in California has been in large part due to the rising costs of delivering electricity, in other words, the costs to build and maintain the T&D grid. The emergence of PG&E from bankruptcy following the large fires caused by its electrical grid in 2017 and 2018 highlights the importance and costs of climate change on T&D.
A few readers may react and cynically say “move to Wyoming or Nebraska, it’s a lot cheaper there!” Well, I am not! Certainly, California has had its woes in managing our electricity. Its Public Utility Commission (PUC) has been accused of going easy on regulating the state’s utilities. We need to fix this.
Yet, I also believe that California is a vignette into the future for everyone else to pay attention to. Unless you happen to live right next to a nuclear powerplant or a hydro dam or choose to go off-grid, the cost of delivering electricity to your residence or business will reflect many of the realities that California has been battling, amplified by extreme weather patterns. The transition to electrification is bringing these challenges to the forefront. Climate change is exacerbating them.
Forty-five is a number to remember. One figure, representing the cost of batteries, is slated to continue its decline as battery adoption accelerates. The other, representing what consumers pay or will pay for electricity, will likely continue to increase.