Utilities are faced with high volatility both on the supply and on the demand side. The ability to store power effectively is critical to enable volatile generation types like wind or like solar to become a fully flexible part of the energy mix and to provide base load. But power storage is also required to counter volatility in demand, thus decreasing peak capacity requirements.
Berthold Hannes: With me today is Jan Traenckner to talk about battery technology in particular. Jan, your expertise in battery technology is based on your technology background and your 20 years’ consulting experience. As Bain’s senior technology adviser, you have been working on the topic of electro-mobility over the last three years. When do you expect battery technology to be used efficiently for utilities?
Jan Traenckner: Using batteries for large-scale power storage could be potentially a disruptive technology. But nowadays it is too expensive for grid applications.
Hannes: That means that the battery technology will be a topic for utilities in the next decade rather than in this one?
Traenckner: Yes. A large driver for battery development today is the increasing demand for electric vehicles that rely on cost-effective and efficient batteries. Lithium-ion batteries are the hope for the upcoming electrification of the automotive power train and the option to drive with energy from the grid, independent from burning oil and totally tailpipe-emission free.
Hannes: In your opinion, Jan, why will electric cars prevail in future?
Traenckner: Four forces are under way. First, there is the legislative push. Developed economies in the TRIAD markets face the short-term challenge to bring down CO2 targets. For example, Europe is committed to CO2 levels of 130 gallons per kilometer by 2015. And that’s not so far away!
Second, oil will become more expensive and rare. TRIAD economies are already strongly dependent on foreign oil imports. For example, 70 percent of the oil imports are burned in the gas-guzzling US passenger car fleet.
Third, increasingly, consumers demand change. Green is trendy, but not just among high-end consumers. There’s a structural change in demand under way: increased questioning of cars with high fuel consumption and CO2 emissions. Fourth, new technologies are paving the way for electric vehicle adoption. The game-changer will be the lithium-ion battery technology: the key enabler for everyday usability of electric vehicles.
Hannes: But aren’t lithium-ion batteries still in their infancy?
Traenckner: Yes, even though lithium-ion batteries for vehicles are still at the beginning of their technological development, they are ready for market launch now. However, high costs of $500 kilowatt-hour (on the pack level) due to small-scale production still limit mass-market penetration.
Nevertheless, Berthold, traction batteries will significantly gain share and will reach massive scale by 2015. Hence, significant cost reduction through mass production is possible and will lead to costs of less than $250 kilowatt-hour in 2020.
At the moment the automotive industry is on its way to invest in large-scale battery production sides. For example, around Detroit we will see about $4 billion in investment within the next two to three years.
Driven by these investments, we believe that by 2020, automotive batteries will be a “commodity.”
Hannes: But that has huge implications as we move from combustion-powered cars to electric vehicles. Does that mean that all vehicles will be electric in future?
Traenckner: This changeover will take a lot of time. We believe that 10 years from now almost 90 percent of the cars will still have a combustion engine on board. The question is not “how fast we get rid of the combustion engine.” In fact, the industry is looking for solutions so that most of the daily miles driven by a customer could be done with electricity from the grid.
The electrification of the automotive power train will come from a lot of applications like hybrids, range extenders and pure electric cars.
By principle, electric cars are very, very efficient with energy. Almost 80 percent is transformed into propulsion. Gasoline cars use only 20 percent to 30 percent of the energy in the tank.
You know, Berthold, with the electric energy, which can be stored in a modern lithium-ion battery, a customer can drive between 100 and 150 kilometers per charge and per day. This is by far enough for 80 percent of typical usage of an average American household, for example. Seventy percent of the Europeans drive less than 40 kilometers per day. For those cars, electricity is also a perfect power to propel. Use it during the day and charge it overnight.
But on the other hand, customers want also total flexibility. For those customers you will see solutions like range extenders or plug-in hybrids. The customers will have the choice about the size of the battery on the board. Because this will determine the daily range and the overall usage of gasoline during the life cycle of the car.
This is our opinion, that this decade will be more a decade for the automotive industry, and the next decade will see the application of the battery in the grid.
Hannes: Thank you very much, Jan.
Dr. Jan Traenckner is a senior technology adviser to Bain & Company and CEO of VentureCheck Company. He has 20 years of consulting experience and has spent the past three years working on the topic of electro-mobility.
Dr. Berthold Hannes is a partner and a member of Bain & Company’s European Utilities practice. He has 19 years of consulting experience in the utility sector.