Navigant Research Blog

Criticism of EV Battery Environmental Impacts Misses the Point

— April 2, 2014

The environmental impact of electric vehicles (EVs) remains the subject of debate, with Tesla Motors becoming the latest scapegoat for allegedly contributing to acid rain in China.  Bloomberg News points out that EV batteries require the use of graphite, which is mostly mined and processed in China.  Graphite mining pollutes the air and water and harms agricultural crops.  The average electric car contains about 110 lbs of graphite, and Tesla’s proposed Gigafactory is expected to single-handedly double the demand for graphite in batteries.

While these are valid concerns, they ignore a few larger facts: the oil industry has far greater overall environmental impact; the production of electricity is much cleaner than refining and burning gasoline; and recycling and reuse techniques are revolutionizing the battery industry.  Tesla, meanwhile, has responded to the graphite concerns. The recent 25th anniversary of the Exxon Valdez Oil Spill reminds us of one of the worst environmental disasters in U.S. history, in which 10.8 million gallons of crude oil was spilled into Prince William Sound, off the coast of Alaska.  Ironically, the congested Houston Ship Channel (one of the world’s busiest waterways) was partially closed over the Valdez anniversary because of a weekend oil spill of nearly 170,000 gallons of tar-like crude.

Compared to Gas

Overall, the equivalent lifecycle environmental impact of electricity is much less harmful than gasoline – assuming it isn’t entirely generated by coal.  According to the U.S. Environmental Protection Agency (EPA), a gallon of gasoline produces 8,887 grams (g) of carbon dioxide (CO2) when burned in a vehicle.  An equivalent 10 kilowatt-hours (kWh) of electricity emits about 9,750g of CO2 when generated in a coal-fired power plant, 6,000g when generated in a natural gas plant, 900g from a hydroelectric plant, 550g from solar, and 150g each from wind and nuclear.  These figures include the entire lifecycle analysis, including mining, construction, transportation, and the burning of fuel.  Since 63% of the 2012 electricity mix in the United States was derived from non-coal energy sources, it has been estimated that EVs emit about half the amount of carbon pollution per mile as the average conventional vehicle.

At the same time, innovative recycling and reuse techniques are significantly increasing the sustainability of EV batteries.  In the United States and Europe, all automotive batteries are required by law to be recycled.  This has made the lead-acid battery industry one of the most sustainable industries in the world, with nearly 99% recycling rates of all the batteries’ components.  Additionally, the world’s first large-scale power storage system made from reused EV batteries was recently completed in Japan.

Second Lives for Batteries

While these approaches do not fully solve the problems associated with graphite mining, the environmental impact created by the manufacturing, transportation, and disposal of batteries is significantly lowered for each additional cycle a battery supplies.  If battery lifetimes can be doubled, the negative environmental impact is cut in half.  Navigant Research’s report, Second-Life Batteries: From PEVs to Stationary Applications, also points out that a global second-life battery market will create new businesses and jobs in addition to improving sustainability.  The global second-life battery business is expected to be worth near $100 million by 2020.

Even with the negative externalities associated with graphite production, EVs still offer an improved overall environmental picture than traditional internal combustion engine (ICE) vehicles.  And Tesla, perhaps in response to pollution criticisms, has announced that it will source the raw materials for the proposed Gigafactory exclusively from North American supply chains. Producing graphite in North America is a much cleaner process than in China.


Why It’s Still Too Early to Bet on Residential Energy Storage in the United States

— April 1, 2014

SolarCity announced recently that it is discontinuing the residential energy storage product that it rolled out in California 2 years ago.  The company put the blame on the shoulders of utilities, which SolarCity said were stalling permitting of its new units.  But, in fact, SolarCity has only itself to blame for the failure of its product.

That’s because the company never stopped to ask why a residential customer would want a battery storage system.  In some cases, such as with off-grid homeowners and homeowners (such as indoor horticulture enthusiasts) with very expensive equipment that needs reserve power, batteries are a requirement.  But the typical homeowner gets no financial advantage from shifting power from one point in the day to another.  Rates that would allow such an advantage, known as time-of-use rates, are rarely offered by utilities to residential ratepayers.  Because residential photovoltaic (PV) power is usually net-metered, meaning that homeowners can receive credit for putting energy back onto the grid, there’s no reason why a solar homeowner would receive a financial advantage from storing energy.

Diesel over Batteries

Meanwhile, SolarCity was trying to sell its residential storage units at an outrageous markup.  I have SolarCity panels on my house in Boulder, Colorado, and when I inquired about the cost of the battery backup system, I was quoted $25,000 for a 20 kilowatt-hour (kWh) system.  That’s despite the fact that Tesla Motors (which makes the battery packs for SolarCity) has told the world that it is able to build its battery packs for less than $300 per kWh.  It’s hard to understand why I should give SolarCity more than 3 times the money it cost the company to buy the battery pack for a system that doesn’t earn me one penny.  The only benefit that such a system could provide me is reserve power when the grid shuts down.  However, a far more reasonable solution to that problem would be an emergency diesel generator.  Yes, it’s dirty, but the carbon and pollutants produced by running a diesel genset during the few hours of a year that I would need it would be far less than that produced from the manufacture of 20 kWh of batteries.

Mind the Wiring

So, is there any merit to SolarCity’s claim that the California utilities are responsible for freezing out the battery system product?  It’s not very likely.  That’s because a battery pack that is situated behind the meter does not require any utility permitting, just as a diesel generator doesn’t.  What does require approval is the capability of an individual building to island itself from the grid (which means that it continues to operate as a nanogrid by itself and shuts itself off entirely from the distribution grid when it does so).  If that’s the case, then the electric utility has every right to deny permitting if it doesn’t feel comfortable with the system.  Improperly set up, islanding can cause a life-threatening situation for an electricity linesman.  The practice of islanding is governed by the IEEE 1547 protocol, which is an extremely complex, difficult to engineer, and expensive set of rules governing an islanded system.

There are ways to do residential energy storage well.  In our upcoming report on the topic, Navigant Research expects that almost 20,000 residential energy storage systems will be installed in Germany, Japan, and South Korea combined in 2014.  All three countries have made concerted efforts to standardize the specifications and permitting process for PV-integrated residential solar systems.  They have also introduced generous subsidies for such systems.  It’s an expensive and politically difficult process, but it’s getting results in those countries.


With A123 Buy, NEC Reveals Its Storage Strategy

— March 27, 2014

NEC has made a major play for a global energy storage system (ESS) business, specifically targeting the Chinese market and information technology (IT) and telecom sectors by acquiring A123 Energy Solutions to create a new company, NEC Energy Solutions.

NEC is no stranger to the grid storage market.  The company is using batteries from Automotive Energy Supply Corp. (AESC), similar to those installed in the Nissan LEAF, for both utility-scale storage (2 MW will be commissioned in Italy by Enel Distribuzione shortly) and the residential storage market.  It has also developed a residential system targeting the Japanese market with a 5.5 kWh home ESS.

There are three pieces to this transaction that will change the storage market going forward.  First, NEC is slated to establish a partnership with A123 Systems’ parent company Wanxiang to target the Chinese storage market.  Having a local partner will set NEC apart from other lithium ion (Li-ion) cell and system vendors targeting China.  Second, the acquisition includes A123 Energy Solutions’ ALM product line, a 12V Li-ion uninterruptible power supply (UPS) product housed in the same form factor as a traditional lead-acid battery.  This, coupled with NEC’s success and relationships in telecom and IT, will put the new company in a strong position to target the UPS market.

Finally, although A123 Energy Solutions has focused on the utility side of the meter using A123 Systems cells, NEC has experience on the customer side and also has its own Li-ion chemistry that’s manufactured in volume by AESC.

Storage Combinations

Navigant Research’s Advanced Batteries for Utility-Scale Energy Storage report forecasts that the market will reach $17 billion in 2023, with Li-ion taking a $7.8 billion share.  This estimate is strictly for the sale of ESSs to customers on the utility side of the meter, not on the customer side.  By definition, it excludes telcos, data centers, and other forms of commercial, industrial, and residential storage.  Navigant Research believes that the telecom market for Li-ion hit an inflection point last year, reaching $100 million in annual revenue, and is poised to grow quickly.  Regardless, NEC Energy Storage will have stiff competition in nearly all of these markets from major Li-ion cell manufacturers such as LG Chem and Samsung SDI.

What can we look forward to from NEC Energy Solutions?  A123 Energy Solutions will bring software, controls, and integration expertise, three facilities in the United States and China, a portfolio of existing installed storage assets, and any new orders to the table, whereas NEC’s strength lies with data, analytics, IT, and the cloud.  In fact, NEC’s original concept for the storage market revolved around the energy cloud.  It makes sense that NEC Energy Solutions would combine the two areas of expertise to deliver new product lines and cultivate new business models.

As a 114-year old company with 270 subsidiaries in its corporate umbrella and total annual sales in the last fiscal year of $30 billion, NEC has the resources and business relationships to use the A123 Energy Solutions acquisition as the platform for building a global business.


Six Questions Regarding Tesla’s Gigafactory

— February 27, 2014

This week, Tesla revealed the first details about its plan to build an enormous battery factory to provide cells for its future electric vehicles.  Among the revelations: the factory will be powered primarily by its own solar and wind power parks; it will produce more than 50 gigawatt-hours (GWh) of battery packs a year; and it will cost $6 billion to build.  To kick things off, Tesla also filed to sell $1.6 billion worth of convertible bonds today.

While these are intriguing details, there’s still a lot to determine about what this factory will actually look like.  Here are my questions about the Gigafactory:

Why isn’t California one of the states being considered for the plant?  The company named Nevada, New Mexico, Arizona, and Texas as potential host sites.  To build the batteries in a different state and then ship them to California, even by rail, will add considerable cost to the batteries.  Why not locate the factory at or near the company’s vehicle assembly plant in Fremont, California? My guess is that environmental regulations for such an enormous factory are one negative factor weighing against California.  That leads to a second question: Where will the cars be built?  The batteries coming from this factory will be going into Tesla’s next-gen passenger car, not the Model S or Model X.  That means that a car factory could also come along with the battery plant.

How much wind and solar will be needed to supply power to the plant? A battery factory making 50 GWh of batteries will require enormous amounts of electricity – some for the actual making of the batteries and some for the initial charging of the batteries that is the last step in the manufacturing process.  This could require as much as 1 GW of renewable energy projects.  Is the price of those installations factored into the stated $6 billion cost of the factory?

Where will the extra 15 GWh of batteries come from? In the slides that Tesla distributed, the manufacturing capacity of cells was stated as being 35 GWh.  But the manufacturing capacity of packs was stated as being 50 GWh.  So where will the extra 15 GWh of cells come from?  From other battery company factories throughout the world? From more Gigafactories?

Why is this factory so cheap? $6 billion doesn’t sound very cheap.  But it actually pencils out to a little more than two-thirds the cost, on a per GWh basis, of other large battery factories.  Clearly, the large scale of the factory will make equipment purchases cheaper.  Nevertheless, the estimated cost of the factory seems extremely low and brings into question whether Tesla and its battery partners have some new manufacturing innovations up their sleeves.

Why wasn’t Panasonic mentioned in the news release? Most observers assume that Tesla will build the factory with Panasonic, which makes all the cells for the Model S and the upcoming Model X.  However, the news release only stated that the car company’s “manufacturing partners” will help finance and build the factory.  Is it possible that another battery supplier is inserting itself in between Panasonic and Tesla?

How much will the cells cost once the factory is up to scale? Tesla CEO Elon Musk has stated in the past that Tesla buys its cells for between $200 and $300 per kilowatt-hour (kWh).  The slides distributed with the Gigafactory announcement claim that the facility will be able to cut the costs of the battery packs by 30%.  But how much of that comes out of cell costs versus price cuts in the other equipment in the pack?  Does this get Tesla down to $175 per kWh? To $100 per kWh?

There’s no denying that this is a bold venture.  If the company manages to follow through on these plans, it will construct the biggest factory in the world (not just for batteries, but for anything).  And it will yet again echo Henry Ford’s spirit with a 21st century version of the original megafactory, the River Rouge complex.


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