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In this segment of our new blog series, "We Speak Energy," we are exploring the significant commercial impact of the transformation for the electric grid and transportation. The energy transition will create new business opportunities for companies involved in renewable energy, battery storage, smart grid technology, and electric vehicle manufacturing.

In terms of revenue, the U.S. Energy Information Administration (EIA) estimates that the U.S. electric power industry generated about $422 billion in total revenue in 2021. This includes revenue from electricity sales to residential, commercial, and industrial customers, and revenue from other sources such as transmission and distribution services, and power plant operations.

The transportation energy retail market in the United States is also significant. According to the EIA, transportation accounted for about 28% of total U.S. energy consumption in 2021, with the majority of this energy consumption coming from gasoline and diesel fuel. The EIA estimates that U.S. retail sales of energy to the transportation sector in the US, primarily gasoline and diesel, at over $800 billion in 2022.

There are several factors driving the adoption of electric vehicles. These include environmental concerns, the convenience and performance of EV, government incentives, state regulations and of course, upfront and operating costs.

Boston Consulting Group (BCG) has published several reports on the cost structure of EV manufacturing, which estimates that the battery pack can account for up to 50% of the total manufacturing cost of an EV.

The cost of lithium-ion batteries has fallen significantly since 2010. According to the 2020 BloombergNEF Battery Price Survey, the average price of a lithium-ion battery pack fell from $1,100 per kWh in 2010 to $137 per kWh in 2019, representing a decline of around 87% over the course of the decade. This decline in battery prices has been driven by improvements in technology, economies of scale, and competition among manufacturers. According to the same survey, the forecasted average cost of lithium-ion batteries per kilowatt-hour (kWh) is expected to further decline to around $62/kWh by 2030. 

The manufactured cost reduction of an EV resulting for the 55% reduction in battery costs over the next decade will reduce the cost of an EV by 25% even without considering the cost reductions due to scale and manufacturing efficiencies. BloombergNEF estimates that electric vehicles will reach cost parity with internal combustion engine vehicles by 2025-2029 without government incentives, depending on the vehicle segment and region.

Historical forecasts of EV adoption have underestimated the pace of adoption.  Technology and manufacturing advances that are driving the upfront cost and TCO downward will very likely drive EV adoption faster than many current projections.  However, charging infrastructure must keep pace to not dampen the adoption of EVs.

Governments and private companies are investing in expanding the charging infrastructure to make it easier for people to own and use EVs. In the United States, for example, the Biden administration has proposed a $15 billion investment to build 500,000 new charging stations by 2030. Similarly, several automakers and private companies are investing in building charging networks to support their customers.  

As more EVs are adopted, there will be an increase in electricity demand, which can strain the grid and cause reliability issues. However, with new technology, proper planning, and investment in grid infrastructure, this increase in demand can be managed.

It's evident that the transformation for the electric grid and transportation industries holds immense commercial potential. With the continued growth of solar PV, battery storage, EV charging infrastructure, and smart grid technologies, new business strategies are emerging. Stay tuned for our upcoming segment of the "We Speak Energy" blog series where we will explore the characteristics of a harmonized, grid-native intelligent coordination systems, and the benefits of Kitu's approach to this intelligent coordination.

Author: Rick Kornfeld, President and Chief Executive Officer of Kitu Systems

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