April Cleantech Roundup: Battery Investments, Energy Policy Arguments, and Electric Vehicle Economics
Clean Energy Trust’s cleantech roundup highlights interesting cleantech news and perspective, from policy changes to technology updates and investment news.
While investment in cleantech, in general, is not robust (accounting for just a few percents of overall venture investment), energy storage is one area that is starting to pick up, with huge growth expected. Investors see demand growth driven by the declining price of lithium-ion batteries, the growth of electric vehicles, and opportunities to incorporate storage into the grid to help balance renewables, eliminate the need for peaker plants, and make the grid more robust. As The Energy Gang co-host Katherine Hamilton likes to say, ‘energy storage is the bacon of the grid — it makes everything better.’ In the US, battery storage systems are growing at nearly 30% a year and Bloomberg New Energy Finance reported that lithium-ion battery pack prices have dropped by between eighteen and thirty-five percent per year in each of the last 4 years — from $577 a kWh in 2014 to $177 last year.
Not surprisingly, there’s been a lot of recent activity. Chicago-based Volta was founded by former Argonne National Lab staff to accelerate the commercialization of energy storage technologies. They recently received a major shot in the arm, receiving $180 million from Equinor (formerly Norway’s Statoil) and Hanon Systems — more than 10X previous committed funds. Volta identifies and invests in promising businesses like Ionic Materials (solid-state batteries) and Conamix (cobalt-free lithium-ion batteries), and works with its strategic investors to test out the new technologies.
Elsewhere, Total’s battery subsidiary, SAFT, entered into a new joint venture to expand battery production capacity in China; Ambri, an MIT-spinout developing a liquid metal battery raised $17 million, and Sila Nanotechnologies received a $170 investment from Daimler and others.
The New York Times Magazine recently had an issue entirely devoted to climate change, with plentiful interesting articles. One I recommend by David Leonhardt focused on the trials and tribulations for carbon pricing policies and what it means from a practical perspective.
His take was definitely interesting, although I don’t actually agree with some of the conclusions he came to. Leonhardt highlighted the important points that how you pitch a policy idea really matters, and that leading with benefits rather than with the policy specifics tends to be a more successful approach (I agree on that front).
However, he went on to conduct a review of the policy debate to-date and determined that the best way to achieve action is to hide the costs of climate policies:
“Either a carbon tax or a Green New Deal would impose manageable costs, but those incurred by the Green New Deal are likely to be less visible.”
Along the way, he also concluded that renewable portfolio standards are the most practical small-ball approach to addressing climate given our current political realities.
I disagree with Leonhardt’s conclusion here. Of course, you need to lead with benefits when discussing a new policy approach, but I think a carbon tax in which revenues are mostly returned to consumers, for example, will be popular because of its mechanism, not in spite of it.
While renewable portfolio standards have certainly been extremely valuable in jump-starting the renewable energy sector in the US (and will continue to be), they are far too narrow to be a meaningful climate policy on their own — a point Leonhardt appears open to.
Leonhardt focuses on the divisiveness of addressing climate; in the process, I think he discounts how much those who oppose climate action also tend to dislike government mandates. While certainly some of this dislike may be motivated reasoning, I think we need to acknowledge that acting on climate will require broad political support; as such, I think we need to pay special attention to policies that could potentially garner that broad support (such as a tax with a rebate).
The Problem With Putting a Price on the End of the World: Link
In addition to Leonhardt’s piece, the Climate issue had plenty of other good reading in it, including this story examining how certain businesses are strategizing to profit from climate change and examining the seeming contradiction of oil and gas drilling companies investing in solar arrays at their drilling operations.
I’ve seen a couple of headlines around how research from Deloitte expects there to be a significant oversupply of electric vehicles (based on new planned production capacity), totaling 14 million vehicles over the next decade. Some of this coverage suggests car manufacturers have overestimated the demand for electric vehicles.
I don’t intend to quibble with the fundamental analysis Deloitte has done, as I’m sure it was conducted by smart and knowledgeable people, but I think the headline conclusion is likely very far off the mark.
It conflates an oversupply of total vehicles with an oversupply of electric vehicles. While there may very well be excess vehicle production capacity in the coming decade, I don’t think it follows that there will be an electric vehicle oversupply.
“Deloitte predicts that by 2024, the cost to own a BEV will be on par with that of a gasoline or diesel vehicle, which could boost demand further.”
The analysis predicts that cost-parity will be reached by 2024 (sooner with government policy). Taken together, the theoretical implication is that electric vehicles will be of an equal or lower price than internal combustion vehicles for most of the next decade and that people will choose not to buy them for unknown reasons. This reminds me of the occasional situation when a company’s publicly listed stock is trading below the liquidation value of the business. In this case, I don’t think the issue will be the oversupply of EVs, but rather a failure of imagination. Currently, EVs are a niche product and nearly all the models are sedans, and many of the people buying them are doing so for sustainability reasons, not cost or value. However, there’s no reason to think that state will continue into the future, especially as the types of models you can affordably buy rapidly expands. The light truck segment, which includes SUVs, minivans, and pickups, now makes up two-thirds of the U.S. vehicle market; electric options are currently very limited but many models are planned for the next several years).
Of course, with all the growth in EVs, there will undoubtedly be manufacturers who miscalculate and make business decisions that don’t work out well, but I would be surprised to see an EV surplus at an industry-wide level. This doesn’t mean there won’t be an oversupply of vehicles over the next decade, I just think that if oversupply occurs that it will be on the internal combustion side.
EVs are not the preferred option today, but as they approach price parity (and more importantly, as the types of EVs models on offer start to better align with the vehicles being purchased today) I expect the transition in consumers’ buying patterns to shift quickly. In fact, attitudes are already changing: while EVs make up less than 2% of vehicles sales today, a recent study conducted in the Northeast U.S. showed 63% of millennials are considering an electric car when shopping for a new vehicle, up significantly from older buyers. The real question to ask is: if in ten years from now, EVs are cheaper to buy, cheaper to operate, can be purchased in any vehicle type, and have superior performance characteristics from internal combustion vehicles, why would a mainstream consumer not buy an EV?
Speaking of price parity, Proterra is starting a bus battery leasing program, utilizing a $200 million credit facility from Mitsui to enable buyers to purchase the company’s electric buses for the same initial price as diesel buses. Electric vehicles buses already have a lower total cost of ownership, but their up-front costs are typically much higher because of the high cost of the battery in the bus. This is a great example of a financial innovation helping to unlock and expand a cleantech market segment where the technology is already matured but still in the process of being adopted (at least in the United States — Shenzen, a city of 12 million in China, now has a completely-electric bus fleet).
For Further Reading:
These publications and newsletters are what I typically pay attention to and are great sources for cleantech and investing news.
- GreenTech Media — Good source for news and analysis on all kinds of clean energy.
- Axios’ Generate — Daily energy news roundup, with coverage that includes (but is not limited to) federal goings-on
- The Energy Gang Podcast — weekly cleantech news digest podcast produced by Greentech Media
Investing and Technology:
- Axios’ Pro Rata — Weekday morning newsletter by Dan Primack
- Money Stuff — Weekday opinion piece from Matt Levine at Bloomberg on finance
- Benedict’s Newsletter — Ben Evans’ weekly summary of interesting tech and investing news, along with his own interesting takes
- A VC — Blog by Fred Wilson of Union Square Ventures — lots of interesting commentary on venture investing in general, and blockchain in particular