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The Tesla and SolarCity Merger Is Rooted in Battery Derangement Syndrome

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The Tesla and SolarCity Merger Is Rooted in Battery Derangement Syndrome

Forbes June 25, 2016
Energy & EnvironmentTechnology / Infrastructure

Elon Musk, CEO of Tesla, plans to buy his cousin’s company, SolarCity. That has generated a lot of head-scratching in financial circles about how it will work out. Some facts commonly cited: Tesla is the most successful and biggest electric car company the world has ever seen. SolarCity is America’s biggest residential solar company. Both companies lose money. Both are deeply dependent on billions of dollars in taxpayer subsidies, and both are at the epicenter of dreams to ‘green’ the highways and the grid.

Given the physics of the universe we live in and the scale of the global challenge, there is simply no chance that the New York Times' green vision will come to pass any time in the foreseeable future… period.

Strip away debate about operational synergies and the sustainability of subsidies and you find a single technological article-of-faith animating believers in the companies’ conjoined vision: the idea that fantastically better batteries are in the imminent future. The battery pack is by far the most expensive component in a Tesla. In a conventional car, there is no equivalent component so expensive and dominant. Fantastically better batteries are key to a future in which electric vehicles (EVs) can make a serious dent in displacing oil in transportation systems.

Similarly, the utopian vision of distributed rooftop solar is fundamentally dependent on the belief that fantastically better and cheaper batteries will soon be available to do the obvious: keep the lights, TVs and PCs lit when the sun goes down in order to dispense with the ‘old’ utility grid wherein 70 percent of the electrons derive from burning shale gas and coal. Batteries — far better than anything that exists today — are vital if rooftop solar is to make a serious dent in displacing hydrocarbons and grids used in today’s electrical systems.

Credit the New York Times with getting precisely right why Tesla and solar enthusiasts find Musk’s bold merger so exciting: “Imagine a world in which every home and building is a miniature power plant, with solar panels on the roofs and electric vehicles and stationary battery banks in the garages.” [emphasis added] The director of the Renewable and Appropriate Energy Laboratory at the University of California, Berkeley, waxed enthusiastically that Musk is on track “to build the Apple of clean energy.”

Whether successful or not, the Tesla SolarCity merger offers a teaching opportunity about batteries and the scale problem tethering green dreams to earth: Given the physics of the universe we live in and the scale of the global challenge, there is simply no chance that the New York Times green vision will come to pass any time in the foreseeable future… period.

Bill Gates articulated the scale of the challenges in changing planetary-scale energy systems with the reminder that that these issues require bringing “math skills to the problem.” The underlying energy facts, and math, bear directly on how much money investors are willing to lose, and how long policymakers will be able to force taxpayers to pay for battery subsidies.

Before doing the math though, the issue of social justice and fairness deserves a brief mention. According to a study from the business school at U.C. Berkeley, of the nearly $20 billion in alternative energy subsidies deployed over the past eight years for electric cars, rooftop solar and the like, the top income quintile received 60 percent of that money overall, and got 90 percent of EV subsidies. Such asymmetric wealth transfers (common in Europe as well) is, ethics aside, not politically sustainable. And for all of that stimulus—along with another $100 billion or so in green-energy federal grants, projects and the like over the past 8 years—what have we thus far achieved? Solar now supplies 0.4 percent of America’s energy and car batteries displace 0.5 percent of fuel-burned to propel vehicles.

Now let’s follow Gates’ advice and do some math in order to illuminate the scale of the technological hurdles facing a battery-centric future.

Global lithium battery factories collectively manufacture enough capacity to store 100 billion watt-hours (Wh) of electricity annually... the world uses over 50,000 billion Wh every day.

Start with the grid and set aside economics. As Bill Gates accurately said we’re “more than a factor of 10 away from the economics to get [economic grid-scale storage].” Consider instead the quantity of batteries needed to achieve the Times vision of every home becoming a “miniature power plant” based on solar-battery systems that duplicate the reliable 24×7 power delivery of the ‘old’ grid. For this exercise we count all of the world’s lithium battery factories, not just the enormous $5 billion Tesla battery factory under construction in Nevada, the so-called “gigafactory” with its giga-subsidies of $1 billion.

Global lithium battery factories collectively manufacture enough capacity to store 100 billion watt-hours (Wh) of electricity annually. Sounds like a big number, but here’s the rub: the world uses over 50,000 billion Wh every day, with America alone using about 10,000 billion Wh daily. To achieve the ‘pure’ green solar-battery vision, quite obviously each home needs on average at least 12 hours of storage any given day. (We’re being generous here ignoring issues like cloudy days.) Thus, do the math on what’s required to manufacture a total of 25,000 billion watt-hours of storage systems to hold that half-day’s worth of electricity: it would take 250 years of production from all of today’s global battery factories. Yes, we could build more factories, but these are very big systems with enormous capital costs that already use astronomical quantities of materials. It is an understatement to say a 100-fold kind of manufacturing expansion for an already huge industry would be a very heavy lift.

Now consider the scale needed for batteries to replace gasoline. At any given moment the fuel tanks in more than 1 billion vehicles on the world’s highways and in garages hold about 10,000 million gallons of gasoline (and diesel). That quantity of energy expressed in electrical terms totals 400,000 billion watt-hours. If we reduce this to take into account the efficiency advantage of electric motors, typically 4x better than an engine at converting stored energy into motion, then one needs only 100,000 billion Wh of batteries. That’s a quantity 5x greater than the already massive number needed for the solar vision. This. Won’t. Happen.

As dispiriting as such realities may be for green visionaries, for serious battery enthusiasts these calculations reveal why even modest penetration of EVs into world car markets portends fabulous growth potential for battery companies and investors. And it’s especially exciting if any company comes close to meeting the Gates’ metric of a 10-fold reduction in cost that would make unsubsidized EVs and grid batteries economically viable.

While making batteries 10x cheaper is the Holy Grail, there are simply no credible prospects for that on the horizon. In his recent interviews, Gates also noted that of the five battery companies where he has made venture investments, “five out of five are having a tough time … it’s proving to be quite daunting. When people think about energy solutions, you can’t assume there will be a storage miracle.”

Scale aside, in their hope for miraculous technologies, green enthusiasts like to invoke the technological prowess of Silicon Valley. Inventing a battery that’s a mere 10-times better seems trivially achievable in the context of Moore’s Law which describes the relentless and astonishing gains in computing power that have yielded technologies, companies (and Valley fortunes) that do seem miraculous. Today’s smartphone is more powerful and cheaper than a room-sized IBM mainframe from 30 years ago. But a Moore’s Law type of disruption in energy isn’t just unlikely, it can’t happen with the physics we know today. If energy technology actually could follow a Moore’s Law trajectory, a Pontiac engine, for example, would increase a thousand-fold in horsepower and shrink to the size of an ant. The inconvenient reality in the universe we live in is that when engineers do build ant-sized engines, they produce 100 million times lesspower than a Pontiac.

But physics isn’t static. There will be new physics some day. It takes a huge amount of hubris to believe we know everything. But the only way to accelerate a day when new physics emerges is to put more faith and money in basic, undirected research, not in projects using yesterday’s science – which, to return once more to Bill Gates, is precisely what he (and I) have advocated. Tomorrow’s miraculous energy storage systems are no more likely to emerge from today’s battery entrepreneurs than the computer was likely to come from pencil makers, or jet engines from horse breeders. If one were to guess today where a storage miracle might emerge, it could be with some breakthrough in understanding the quantum dynamics of superconductivity.

Technology that stores electricity as easily and cheaply as oil in a barrel would unquestionably revolutionize the world...

For the sake of imaginative speculation, consider the unintended consequences of a hypothetical 21st century Nobel in physics for a discovery that enables electricity to be stored with the same cost and density as storing oil in barrels. Right now, transporting electricity on wires, measured in barrel-of-energy-equivalent terms, costs about $10 per barrel. And carrying a barrel of oil today on a supertanker costs less than between $0.5 and $1. There’s your 10x difference.

Technology that stores electricity as easily and cheaply as oil in a barrel would unquestionably revolutionize the world: it would become trivial to build practical EVs and electric airplanes. There would also be far less need for grids to share power… or domestic power plants to make power. In fact, one might imagine an Organization of Power Exporting Countries in this fictional future that would be comprised of those nations where the cost to make electricity was cheapest, since the cost to store and transport it would plummet.

Where would we find the cheapest places to generate electricity to fill those ‘electric’ barrels? Coal mines in countries out of reach of Western regulators, or the great rivers and dams of northern Canada, Norway and Brazil, and at the well-head of natural gas fields where the gas is quite literally otherwise burned as garbage. Of the latter we can count on the vast fields in Russia, Qatar and America’s shale as the cheapest and most likely to expand to ship ‘barrels’ of electrons to a power hungry world.

All of that, and a Tesla SolarCity becoming the Apple of energy markets, is the stuff green dreams are made of. In the real world where consumers and policymakers have to live, we’ll need a lot of fuel-burning cars and grids for the foreseeable future.

This piece originally appeared on Forbes

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Mark P. Mills is a senior fellow at the Manhattan Institute. Follow him on Twitter here.

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