Battery Prices Falling

Batteries Are Cheaper

Batteries are the key to transitioning from fossil fuel powered vehicles to electric vehicles, and to making renewable energy sources a viable way to meet baseline power demands. So, dramatically falling prices for battery storage units (a drop of more than 75% in six years) is a very big deal.

Storage prices are dropping much faster than anyone expected, due to the growing market for consumer electronics and demand for electric vehicles (EVs). Major players in Asia, Europe, and the United States are all scaling up lithium-ion manufacturing to serve EV and other power applications. No surprise, then, that battery-pack costs are down to less than $230 per kilowatt-hour in 2016, compared with almost $1,000 per kilowatt-hour in 2010.

McKinsey research has found that storage is already economical for many commercial customers to reduce their peak consumption levels. At today’s lower prices, storage is starting to play a broader role in energy markets, moving from niche uses such as grid balancing to broader ones such as replacing conventional power generators for reliability,1providing power-quality services, and supporting renewables integration.

From here.

As noted previously, solar power has also gotten dramatically cheaper in the last few years. This is the case for other renewable energy sources as well.

Economic Implications

In general, better batteries, by facilitating the replacement of gasoline or diesel fuels derived from oil are not just substituting the coal that has historically been the primary source of electricity. Wind, solar, hydroelectric sources, nuclear, and natural gas based energy sources, as well as coal, are used to generate electricity and the market share of coal in electricity generation has fallen by about 20 percentage points (40% of its previous market share) in the last few years.

We can expect an extended period of very low EV market share until better batteries make electric vehicles superior in total price and performance to gasoline and diesel powered vehicles, at which point there should be a dramatic transition that should take about ten to twelve years (the useful life of a motor vehicle starting on the date when the the threshold is crossed), followed by a vehicle market in which EVs have a dominant market share and gasoline and diesel remain only in niche markets (e.g. vehicles with little regular access to a power grid).

As demand falls, so will oil prices, and oil extraction will cease in places where it is more costly to extract oil (including a lot of the Colorado oil and gas industry).

Political Implications

Once this transition is well underway, it will also have dramatic geopolitical implications, weakening the economies and political power of oil exporting countries and regions, and strengthening the economies and political power in relative terms of oil importing countries and regions.

Since oil exporting countries and regions very frequently have authoritarian, repressive or otherwise ill functioning political systems relative to those that do not export oil, this is generally speaking a good thing.