The gas tank of the future.

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Clean Energy Revolution Is Ahead of Schedule

Noah Smith is a Bloomberg View columnist. He was an assistant professor of finance at Stony Brook University, and he blogs at Noahpinion.
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The most important piece of news on the energy front isn't the plunge in oil prices, but the progress that is being made in battery technology. A new study in Nature Climate Change, by Bjorn Nykvist and Mans Nilsson of the Stockholm Environment Institute, shows that electric vehicle batteries have been getting cheaper much faster than expected. From 2007 to 2011, average battery costs for battery-powered electric vehicles fell by about 14 percent a year. For the leading electric vehicle makers, Tesla and Nissan, costs fell by 8 percent a year. This astounding decline puts battery costs right around the level that the International Energy Agency predicted they would reach in 2020. We are six years ahead of the curve. It's a bit hard to read, but here is the graph from the paper:

This puts the electric vehicle industry at a very interesting inflection point. Back in 2011, McKinsey & Co. made a chart showing which kind of vehicle would be the most economical at various prices for gasoline and batteries:


Looking at this graph, we can see the incredible progress made just since 2011. Battery prices per kilowatt-hour have fallen from about $550 when the graph was made to about $450 now. For Tesla and Nissan, the gray rectangle (which represents current prices) is even farther to the left, to about the $300 range, where the economics really starts to change and battery-powered vehicles become feasible. 

QuickTake Batteries

But in the past year, the price of gasoline has fallen as well, and is now in the $2.50 range even in expensive markets. A glut of oil, and a possible thaw in U.S.-Iran relations, have moved the gray rectangle down into the dark blue area where internal combustion engines reign supreme. 

Still, if battery prices keep falling, the gray rectangle will keep moving to the left. The Swedish researchers believe that Tesla’s new factories will be able to achieve the 30 percent cost reduction the company promises, simply from economies of scale and incremental improvements in the manufacturing process. That, combined with a rebound in gas prices to the $3 range, would be enough to make battery-powered vehicles an economic alternative to internal combustion vehicles in most regions. 

But this isn't the only piece of good energy news. Investment in renewable energy is powering ahead. 

The United Nations Environment Programme recently released a report showing that global investment in renewable energy, which had dipped a bit between 2011 and 2013, rebounded in 2014 to a near all-time high of $270 billion. But the report also notes that since renewable costs -- especially solar costs -- are falling so fast, the amount of renewable energy capacity added in 2014 was easily an all-time high. China, the U.S. and Japan are leading the way in renewable investment. Renewables went from 8.5 percent to 9.1 percent of global electricity generation just in 2014. 

That’s still fairly slow in an absolute sense. Adding 0.6 percentage point a year to the renewable share would mean the point where renewables take half of the electricity market wouldn’t come until after 2080. But as solar costs fall, we can expect that shift to accelerate. In particular, forecasts are for solar to become the cheapest source of energy -- at least when the sun is shining -- in many parts of the world in the 2020s. 

Each of these trends -- cheaper batteries and cheaper solar electricity -- is good on its own, and on the margin will help to reduce our dependence on fossil fuels, with all the geopolitical drawbacks and climate harm they entail. But together, the two cost trends will add up to nothing less than a revolution in the way humankind interacts with the planet and powers civilization. 

You see, the two trends reinforce each other. Cheaper batteries mean that cars can switch from gasoline to the electrical grid. But currently, much of the grid is powered by coal. With cheap solar replacing coal at a rapid clip, that will be less and less of an issue. As for solar, its main drawback is intermittency. But with battery costs dropping, innovative manufacturers such as Tesla will be able to make cheap batteries for home electricity use, allowing solar power to run your house 24 hours a day, 365 days a year. 

So instead of thinking of solar and batteries as two independent things, we should think of them as one single unified technology package. Solar-plus-batteries is set to begin a dramatic transformation of human civilization. The transformation has already begun, but will really pick up steam during the next decade. That is great news, because cheap energy powers our economy, and because clean energy will help stop climate change. 

Of course, skeptics and opponents of the renewable revolution continue to downplay these remarkable developments. The takeoff of solar-plus-batteries has only begun to ramp up the exponential curve, and market shares are still small. But it has begun, and it doesn’t look like we’re going back.

This column does not necessarily reflect the opinion of Bloomberg View's editorial board or Bloomberg LP, its owners and investors.

To contact the author on this story:
Noah Smith at nsmith150@bloomberg.net

To contact the editor on this story:
James Greiff at jgreiff@bloomberg.net