The Battery Will Kill Fossil Fuels—It's Only a Matter of Time

• Regulators are opening doors for energy storage to compete
• Oil companies are already forecasting impact of electric cars

Three weeks ago, a U.S. agency sent the clearest signal yet that fossil fuels’ days are numbered.

True enough, the carbon-burning economy has been declared to be on its death bed umpteenth times before.  But this came with a time frame related to the ultimate killer:  the battery.  The Federal Energy Regulatory Commission ruled that so-called energy-storage companies such as Tesla Inc. and AES Corp. can compete against traditional power plants in U.S. wholesale markets by the end of 2020.

“The question is no longer if batteries will disrupt the power sector,” IHS wrote in a description of one of the discussions, “but rather how much and how fast?”  (If it’s any indication of how the industry itself feels about this, the first of these sessions was held across the street from the actual conference, at a restaurant, and it was still packed.)

Here are the three driving forces behind batteries that executives should know about.

Electric Cars
It’s long been discussed that the ascent of lithium-ion batteries -- which are durable, energy-dense and easy to recharge -- would mark the beginning of the end of the fossil-fuel age.  As it is, electric cars being made by the likes of Tesla, General Motors Co., and Warren Buffett-backed BYD Co. have replaced gasoline tanks in more than 3 million cars on the road globally.

Predictions are that battery-fueled electric cars will outsell those that run on gasoline by 2040.  Based on one estimate from Bloomberg New Energy Finance, that’ll wipe out 8.5 million barrels of transportation fuel demand a day.

No Killing the Electric Car
Electric vehicles forecast to make up half of annual global car sales by 2040.

Squeezing Gas
Now the batteries’ advance into power markets threatens the reign of natural gas, which at the moment generates about a third of U.S. electricity. In California and Arizona, utilities including PG&E Corp. and Pinnacle West Capital Corp. are abandoning gas plants in favor of renewable energy projects. These solar and wind farms can now use energy storage systems to stash their power and unleash it as needed.

Grid Energizer
More batteries are coming online to backstop wind and solar energy worldwide.

The Brattle Group has estimated that the energy commission’s recent ruling could help unleash as much as 50 gigawatts of battery-stored power into U.S. markets, enough to light up 6 million homes.  Over the next five years, growth in energy storage will be “more exponential, than linear,” said Alexandra Goodson, who works for the battery maker Saft.

Tipping Point
Battery costs are expected to drop below $100 per kilowatt-hour, making electric cars competitive on price by 2025.
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Oil and gas companies and utilities alike are already forecasting exactly when energy storage will take hold in cars and on the grid.  BP Plc sees oil demand peaking in the 2030s as hundreds of millions of electric cars hit the road.  The chief executive officer of oil and natural gas giant Total SA said at CERAWeek that he’s already driving an electric car.

“‘We’re reaching an inflection point,” said Steve Westly, founder of sustainability venture-capital firm Westly Group and former controller and chief fiscal officer for the state of California.  “In the future, people will talk about energy in terms of kilowatts per hour instead of oil per barrels.”

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