« Playing the 'Global Grid Game' - Japan's NGK, GE Majority-Owned Indo Tech Look Strong | Main | Why Petersen is Such a Buzzkill »


       

Plug-in Vehicles Are A Luxury No Nation Can Afford

John Petersen

I'm going to apologize up front for revisiting a topic that inevitably draws furious comment from readers who just don't get it, or who refuse to get it. I understand that it's painful to learn that politicians, environmental advocates and the mainstream media have been lying about critical issues, but that doesn't make exposing the lies less important. So I'm going to endure the slings and arrows of the eco-religious one more time and use a new example to show that plug-in vehicles are a luxury no nation can afford.

Ener1 (HEV) is a pure-play manufacturer of lithium-ion batteries. While I am frequently critical of Ener1's penchant for vague disclosures and EV happy-talk, today I'm going to take a different tack and accept their disclosures as gospel. In the Company section of its website, Ener1 describes its domestic production capacity as follows:

"Current production capacity is 10,000 electric vehicle (EV) packs per year, equivalent to 100,000 hybrid electric vehicle (HEV) packs. Capacity will peak at 30,000 EV packs per year in the current Indiana-based facilities at full utilization.

On receipt of the conditional $118.5 million in federal grants from the U.S. Department of Energy (DOE), EnerDel will double this number by 2012, to give a production capacity of 60,000 EV (600,000 HEV) packs per year, creating an estimated 1,700 new jobs in the State of Indiana. ..."

In a press release dated January 21, 2009, Ener1 disclosed that it planned to spend $237.5 million to expand its domestic battery production capacity to approximately 600,000 HEV or 60,000 EV packs per year. Roughly half of the planned expansion funding will come from a $118.5 million ARRA battery manufacturing grant that Ener1 was awarded in August 2009. Ener1 will have to raise the balance from open market equity sales and other non-government sources to fulfill the requirements of its grant.

HEVs and EVs both use advanced batteries and sophisticated electric drive technologies to capture energy that would have been lost in braking, use the captured energy in subsequent acceleration cycles and minimize the waste of gasoline. While HEVs draw the line at maximizing vehicle efficiency, EVs go a step further and use additional battery capacity to replace the fuel tank, which means an outlet in your garage becomes your fuel source instead of your neighborhood filling station.

The typical American drives about 12,000 miles per year and if he buys a new fuel-efficient car he can expect to pay roughly $18,000 for the vehicle and buy about 400 gallons of gasoline per year. In comparison, a consumer who buys a new HEV for roughly $22,000 can expect to buy 240 gallons of gasoline per year and a consumer who buys a new EV for roughly $40,000 won't buy any gasoline at all.

According to www.fueleconomy.gov burning one gallon of gasoline produces 20 pounds of CO2. While EVs don't burn any gasoline and are widely touted as super-green, the power plants that generate electricity in the U.S. release an average of 9.7 pounds of CO2 for each gallon of gasoline equivalent.

With those numbers firmly in hand, let's do some simple comparisons of what happens when the batteries from the Ener1 expansion leave the plant and are used to manufacture 300,000 additional HEVs or 30,000 additional EVs.

Incremental manufacturing revenue
HEV
EV
    Per vehicle
$4,000
$22,000
    Plant total
$1.20 billion
$0.66 billion



Annual gasoline savings


    Per vehicle (gallons)
160
400
    Plant total (gallons)
48 million
12 million



Annual CO2 emission reduction


    Per vehicle (tons)
1.60
2.06
    Plant total (tons)
480,000 61,800

It's important to note that the table presents the two extremes on the range of possibilities and the likely impact on manufacturing revenue, gasoline consumption and CO2 emissions is somewhere in the middle. Nevertheless, I think it's important for everyone to understand that using the additional battery production from the Ener1 plant to produce 300,000 HEVs instead of 30,000 EVs would be twice as effective at creating jobs, four times as effective at reducing national gasoline consumption and eight times as effective at reducing national CO2 emissions, especially when I consider that the taxpayers are going to pick up half the tab for the plant expansion.

How about you?

This really isn't a rhetorical question. I want to know what my readers think. Please take a few seconds and respond to the following single question poll.



Disclosure: None.



was posted on AltEnergyStocks.com.


       

advertise here


Oil and Gas





Comments

As is clear from Nissan Leaf, leasing battery is likely to be a practical solution to the cost anxiety that every other builder is worth noting.

Although analyses like this are always interesting, what the batteries get used for will be driven by the market, not by any determination of what would be "best" by government or anyone else. We don't have a command economy in the U.S. yet.

HSR, I think the current Toyota debacle is a great example of why Nissan's battery leasing plan makes it the smartest kid on the short-bus. Since nobody has but a fleet of plug-ins in the hands of normal people and studied what happens in real life, the upcoming product launches are the equivalent of Phase 1 FDA testing for a new drug. Even if the idea ultimately proves sound, there are almost certain to be spectacular failures along the way. The most likely source of those failures will be the battery. It is far easier to live with consumer backlash from "they leased me a problem product and fixed it" than it is to live with "they sold me a problem product and claim they fixed it."

Doc, you'll never hear me suggest that anything other than a free market is desirable. The purpose of this analysis is to demonstrate the inescapable truth that while plug-ins are superior in a one car to one car analysis, they're foolish from a societal perspective.

Right now the advocates are out in force arguing that plug ins are the best way to spur the economy, reduce oil imports and reduce CO2 emissions. The press, politicians and mainstream media have bitten the lie hook, line and sinker. The fundamental argument is an enormous lie at the societal level and somebody need to say so clearly and loudly.

John,

As a big PHEV and EV advocate, I'm torn when I read your analyses. Your post here makes sense to me, as some of your past posts.

To challenge you further, what I'd like to see from you is this. Can you run the same analyses for a PHEV-40?

The reason I ask is because, 1) there are more PHEV's coming than EV's in the near future, 2) PHEV's to me appear to be a better fit for most commuters given the multiple not single fueling options and flexibility on traveling long distances.

That being said, I think your research showing that HEV's make more efficient use of the battery seems sound. However, I believe this finding of fact (or political lie as you put it) is what's driving the DOE, FERC, the battery industry, and the utility companies to further their research vehicle-to-grid technology and the ability for utilities or other conglomerates to buy back Li-Ion packs to use later for grid storage. This plays into the efficiencies of large battery packs and payback/discounting of the battery costs.

Here I'll provide two examples that may put PHEV's or even EV's on top.

1) What is FERC allows PHEV or EV owners to be paid for V2G activities? Remember John Wellinghoff's "Cash-Back Plug-In Car concept"? He said utilities could pay consumers to tap their batteries when not in use yielding $425 to $2790 a year for the car owner. At best, getting $2790 a year from the utilities for spinning and frequency regulation services would yield $27,900 after 10 years, which more than offsets the premium cost for an HEV and a standard ICE car.

2) What if utilities or other conglomerates engage the battery makers (as they are right now with companies like Nissan/Sumitomo and Enerdel/Itochu) to buy back those PHEV or EV Li-Ion battery packs at a discount after they can no longer withstand automotive requirements but could continue functioning as a grid-storage energy device?

What happens if both concepts #1 and #2 above come to fruition?

What I'm getting at is that your analysis is perfectly Black and White with static assumptions, so I'm going to throw some Gray in there and introduce some other real and possible variables like V2G and a discount battery buy-back policy, which together would maximize the usage of those big battery packs, thus, yielding maximum efficiency.

-Thanks for listening...would love to hear your thoughts on this.

BJD, I actually did the analysis in connection with an earlier article. The assumptions were slightly different because this was the article where I started with the Deutsche Bank estimate of 36 million kWh globally and then did the calculations for the global impact of HEV at a 40% gas savings, PHEVs assuming 75% electric only miles and 50 mpg on range extender, and HEVs assuming 100% electric only. You can download a copy of my Excel spreadsheet here and play with the numbers yourself:

http://files.me.com/john.petersen/abaze0

The hardest part of this analysis is the answer seems counterintuitive because one vehicle to one vehicle comparisons point in the opposite direction.

I hope this helps.

BJD, to follow up on your questions:

1. The V2G values you've spoken of are way out of line with what it looks like the market may bear. A few months ago I did an article on the USPS plans to earn V2G revenue on postal vehicles and the number they used was more like $1,200 per year, which is close to the value for frequency regulation. Most of the commenters on V2G that I've heard in conferences have grave reservations about how happy EV owners might be if their local utility drained the EV batteries at 4 p.m. to satisfy peak load. The USPS article is available here:

http://www.altenergystocks.com/archives/2009/09/usps_study_ev_economics_depend_on_smartgrid_revenue.html

2. I've been at a couple conferences where Ali Nourai spoke about the cost constraints utilities face when it comes to battery storage. He explained that he's basically technology agnostic but the work that's been done so far assumes that mass production will drive battery costs way down and the utilities will be able to buy used batteries ultra-cheap. Otherwise they run into big issues on the value of the electricity savings. I can't predict what companies or utilities might be willing to offer as early incentives, but over the long term my guess is that resale values will be an insignificant payback on the original investment.

I still prefer the PHEV-3 option: basically an HEV with possibly slightly larger battery pack that you can top up from a wall socket. No significant extra battery costs over an HEV, but you have the opportunity to top it up with a little juice from the wall socket each night.

John,

Sorry for this long response but I hope to generate a stimulating debate here.

To approach your position about how much a used battery could fetch in the aftermarket, here’s a scenario that I think seems realistic.

Let’s say, five years from now, I buy two used 28kwh Nissan Leaf battery packs (now only capable of 80% state of charge) and use them as part of an energy storage system for my home.

My home uses 33 kwh of electricity each day and my utility company charges me 4 cents/kwh for nighttime use, 7 cents/kwh for midday use, and 12 cents/kwh for peak use. All together, I pay an average of about $2.74 per day for my electricity at an average cost of 8.3 cents/kwh.

Now let’s say I charge up those two used Nissan Leaf batteries at night during the off-peak time and run my entire home during the day on those batteries. Under this scenario I would now be paying only $1.32 per day to the utility and saving $1.42 per day, or saving $518 per year.

I figure that if the Nissan Leaf battery can last for a minimum of 5 years in an EV (to an 80% state of charge capacity), it should fulfill all my home energy storage needs for a much longer time as my home wouldn’t place nearly as much strain on the batteries. Over a 10 year period, this scenario would essentially save me about $5180.

Now, again, I have to go back to the utility frequency regulation thing. I firmly believe the utilities are going to get into V2G, and if they do it for electric cars, they’ll have to allow it for home energy storage as well.

With two 28kwh packs, I’d have double the ability to provide frequency regulation services to my utility. I’ve researched the numbers and you are correct that frequency regulation services could yield at least $1000 per year per battery pack, if the utility would engage into such a program. This is where the payback really gets generous.

If you can save $518 per year in time shifting your home energy use, plus collect $2000 per year from the utility for frequency regulation, the true aftermarket value lies in how many years the battery has left in it.

If the batteries last 5 more years??...That’s $12,500 in combined savings and cash, or $223/kwh in battery value. 10 more years??....That’s $25,000, or $446/kwh in value.

Do you see now the importance of the aftermarket battery value? The battery companies already understand there is potential value here. That's why they are trying to figure out how to turn this into a separate consumer-type program. Sumitomo already said it wants the Nissan Leaf batteries when they’re done with them. Itochu wants Enerdels batteries when they’re done. Those used batteries will be put to use at some utility, business, apartment building, or home, generating savings or even a cash payback.

-bjd

Tom, Carnegie Mellon was criticized for a study that said PHEV-7 was close to being an optimal configuration. While anything beyond HEV is theoretically suboptimal in an ultra simple world, I tend to think a little extra battery power would probably be a good thing for drivers who spend a lot of time in slow-and-go traffic in big cities. It is entirely possible that PHEV-short will prove to be a better option than straight HEV. I'm pretty sure, however, that nobody will be able to make an effective micro- and macro-economic case for PHEV-long.

BJD, I see three potential issues with the scenario you've suggested.

1. Frequency regulation applications are relatively small markets. I've seen draft graphics from an upcoming study by Jim Eyer that peg national demand for area and wind regulation at less than 5,000 MW. If global battery production is going to be 36,000 MW per year by 2015, I have to assume the regulation markets will be quickly swamped and the current values will fall rapidly.

2. When an accountant looks at a stream of future payments the first thing he does is fire up a spreadsheet and calculate the discounted present value of the payment stream. DPV calculations are not terribly painful over short periods of time but really hurt if the first payment is deferred for 10 or more years.

3. (This is just me being snarky) We keep hearing that economies of scale are going to drive battery prices down and battery performance up. If we buy the happy-talk brand new batteries in 2020 will be far more powerful than today's versions and cost 50% to 75% less. In a world where a utility can buy brand new batteries for $250 kWh I think they'll be reluctant to pay much for batteries that have already had 10 years of use and are based on 10-year old technology.

John,
I am a graduate business school student (finishing this fall) and interested in working in the energy storage space.

Would love to hear about your suggestions on companies that would be good career picks.

Thanks

New B-school graduates are a lot like new law school graduates in that have a great foundation but it takes a couple years of training before they're able to add much value. In general, the training opportunities are far better with larger enterprises than they are with smaller ones. Since your needs are so far away from my area of expertise, I'd be reluctant to make any suggestions beyond the large consulting houses like McKinsey, Frost & Sullivan and others who do a lot of work in the sector.

I want electric vehical development to continue because a pure-electric car is very efficient - it uses it's stored energy very efficiently (90% ish) compared to a petrol car (30% ish). So let's assume we go all electric. Well then we've put greater demand on the electrical grid, and since many electrical plants are still coal-powered, then we're still creating plenty of CO2, but at remote facilities instead of from tailpipes. This isn't ideal, but it allows us then to focus on on problem (make electrical plants more efficient)instead of two problems (make electrical plants more efficient AND make petrol engines more efficient).

Short answer to "Should we focus on plug-in vehicles or hybrids?" is "Yes".

Long answer -
I think that is inarguable that producing hybrids is currently more cost effective and leads to greater reductions in petroleum use than electric vehicles, and likely will continue to be. However, it is even MORE cost effective and leads to greater near-term reductions to produce high efficiency conventional vehicles than it is to produce hybrids. For that matter, it is much cheaper to reduce carbon emissions and petroleum use by focusing on the electric sector than the transportation sector, and by switching power generation from coal & oil to combined cycle natural gas. Yet we still have renewable energy tax credits for wind and solar.

The fact is, we need to get cleaner technologies deployed now, but we need to work towards deploying really clean technologies in the future. To get where we need to be (say stabilizing at 550 ppm CO2 by 2050 & switching away from imported fuels) we need to reductions that go far beyond the incremental near-term gains offered by any of the existing solutions, and building the capability to achieve these deep reductions in CO2 emissions is a decades-long process.

By focusing only on the most cost-effective present-day solution, you get locked into an incrementalist approach that can't meet the long term targets.

Another important point that goes unmentioned is that a primary reason for government funding of these types of projects is to spur technology innovation. This typically means funding technologies that are not yet cost effective enough to draw invest dollars on their own merits, but hopefully serve a long-term national goal.

Post a comment

(If you haven't left a comment here before, you may need to be approved by the site owner before your comment will appear. Until then, it won't appear on the entry. Thanks for waiting.)

Featured Companies











Oil and Gas


Search This Site


Subscribe to this Blog

Enter your email address:

Delivered by FeedBurner


Subscribe by RSS Feed



Twitter Headlines

Certifications and Site Mentions


New York Times

Wall Street Journal





USA Today

Forbes

The Scientist

USA Today

Seeking Alpha Certified

Twitter Updates