There is an old joke that has Bill Gates allegedly comparing the computer industry with the auto industry.
Gates says: “If General Motors had kept up with technology in the same way the computer industry has, we would all be driving $25.00 cars that got 1,000 miles to the gallon.”
Although Gates probably never actually made that comparison, at least not on the record, there is definitely a very intriguing question underlying the witticism.
Why indeed has computer functionality improved exponentially, while, at the same time, the price of computers has dropped so dramatically? Why does there seem to be a correlation between lower prices and increased computing power? And, most relevant to the nascent energy storage industry, could the same forces be acting on the price and functionality of energy storage?
Before exploring the question of electricity storage, let’s take a quick look at another type of storage – data storage, and specifically the example of today’s high-end iPhone 6. Apple’s smart phone is capable of storing a whopping 128 Gigabytes of information.
Now, let us compare the modern iPhone with Intel’s 3101 memory chip, which was introduced way back in 1968. That piece of storage technology was cutting edge for its day. It contained a total of 64 bits of memory. By way of comparison, in each iPhone, there are over one trillion bits!
The original price of Intel’s 1968 technology was $40, which works out to be around 63 cents per bit of data storage.
A single iPhone, built at 1968 prices would therefore set you back $640 billion! And that’s just for the memory. That price tag doesn’t cover any of the other cool technology that goes into the unit.
And yet, today, you get all that memory storage (and everything else) for a mere $500. That represents more than a billion-fold decline in price over the past 40 years!
Let’s say that someone (I don’t know the pentagon perhaps?) in 1968 actually forked over the $640 billion for an iPhone. The unit wouldn’t be much use to anyone. With only one user, no one would write applications to sell on iTunes, no-one would be able to send a WhatsApp, or even play a multi-player game. It wouldn’t be worth a cent, let alone the GDP of a small country. But, sell over 500 million of them at (somewhat) more reasonable pricing, and suddenly you create a flood of demand. Now the world needs teams of factory workers, developers, marketers, and repair service personnel, which didn’t exist before this incredible community came to be. Oh, and you can send a Snapchat.
The reason that computer technology seems to have outpaced the progress made with other technologies and yet simultaneously so spectacularly dropped in price, is because of the virtuous spiral that sees lower prices leading to more adoption of the technology, which in turn leads to new ways of using the technology, which leads to greater adoption, increased efficiencies of scale and, you guessed it, even more lower prices.
When a product is used by a few people, or even by hundreds of people, it just cannot deliver the stomach churning cost declines that a product that is purchased by hundreds of millions of people is capable of delivering.
I think that the same principles could, should and will be applied to the energy storage space. The more that storage technology (solar, batteries and everything else required to support energy storage) comes down in price, the greater the take up rate, and the greater the take up rate, the more the technology will come down in price.
At the same time that this virtuous cycle is getting started, traditional power generators will find that their markets for expensive, dirty power, will diminish. Every household and business that uses renewables and storage to defect from the grid is one less customer willing to pay for traditional electricity supply. To recoup the huge investments made in their expensive infrastructure, electricity suppliers will need to charge their remaining customers more for their power, which will make the ever falling cost of generating, storing and using your own power, just that much more attractive.
The businessmen and women who will profit the most from this game-changing trend are those that figure out how to lower their prices the quickest. This may sound counterintuitive. Surely you make more profit if you increase prices, and squeezing margins means you make less money, not more? Sure, goes the conventional wisdom, discounting prices is sometimes necessary to retain market share, but it is not exactly a catalyst for hyper wealth generation.
Well, economic textbooks are filled with examples that defy this conventional thinking.
Let’s take oil for example. During the first half of the 1800s lighting was expensive. And I’m not talking about the cost difference between incandescent lighting and LED lighting. In the early 1800s, if you wanted to light up the night, you would use candles and whale oil (Moby-Dick was published in 1851). These were luxury items. The super-rich could read at night – and the rest of us sat in the dark. But by 1865, the price of forty-two gallons of petrochemical oil, barrel included, cost around $25. Seven years later due to increased supply and improved distribution, the price of a filled barrel was under $10. Less than two decades after that, the cost had dropped to $3.36.
Whales around the world rejoiced.
The cost to read at night with kerosene lights dropped to a cent an hour, opening up the market for lighting (and books) to the world’s middle class. This increased the standard of living for countless people. It brought the benefits of ever cheaper heat and lighting to millions. One can have all sorts of gripes about the environmental impact of petroleum, but one cannot deny that viewed from a purely economic perspective, cheaper prices transformed the way we live in many positive ways.
I would like to suggest that the same economic forces could be harnessed to heal the planet, and have the added advantage of improving the status of all our wallets at the same time.
I am the founder and CEO of an energy storage company called Ampetus Energy. My experience in selling energy storage to our customers has shown that the economics of energy storage are still the largest impediment to mainstream adoption.
I created Ampetus Energy in order to slash energy prices and convert electricity users from consumers to prosumers.
My engineers are constantly looking for improved ways of storing energy. We search the globe looking for the most cost effective, clean and reliable energy storage tools.
We will not rest until we have achieved our goal of making energy storage products less expensive than the most economical alternative currently in use. But, we don’t want to stop there. The cheaper energy storage becomes, the more the market will adopt it, and the more uses will be ingeniously developed for the abundance of clean power that will now be available, and Ampetus Energy will tirelessly work to bring these new and innovative products to our growing customer base.
I recently saw an example of what this future could look like. A couple has taken their ranch totally off the grid. They store energy that is generated from solar panels. If you want to feel sorry for this couple because you think they live an ascetic lifestyle – don’t.
Their ranch is fitted out with hot tubs (yes that’s in the plural), powerful central air-conditioning, plasma TVs in almost every room, and on the holidays, they invite music bands and arranges concerts attended by hundreds of lucky guests.
Now, here is the clincher. Not only is this couple able to maintain their energy intensive lifestyle, they still have excess energy left over to sell to their neighbours!
For the last two decades the focus has been on producing energy efficient appliances, reducing our reliance on fossil fuels, and generally thinking of energy conservation as a zero sum game. We have been conditioned to believe that you can’t have your energy cake and eat it too. Well, cheap energy storage will surely change that way of thinking.
When energy storage hits a price threshold that will catapult it into the mainstream, it will deliver a higher standard of living, it will reduce our monthly expenditures, it will heal our planet and it will create wealth and jobs that cannot even be imagined today.
If you don’t believe me, just google it (on your iPhone).