By - Jim Vess

Transition costs to a zero-emissions transport system drop with falling battery prices

Energize Weekly, July 22, 2020

The cost of a transitioning to zero-carbon transportation is plummeting – thanks to a drop in battery prices – and may not need much in the way of direct government investment to speed the adoption of zero-emission vehicles, according to an analysis by University of California, Davis researchers.

In 2016, the UC Davis Institute of Transportation Studies estimated that the cost of a high penetration of zero-emission vehicles – cars, light trucks and buses – into the California market would be $25 billion.

In 2019, the UC Davis researchers said that was revised downward to $14 billion and this year was dropped to $7 billion in transition costs between 2020 and 2028.

After 2032, the study projects that the cost of owning and operating an electric vehicle (EV) would be no different than the cost of a gasoline-powered vehicle.

“These downward revised estimates are mostly due to steady reductions in the estimated cost of battery and fuel cell vehicles,” the study said. “These cost reductions are likely to be even greater, since we did not include the lower vehicle maintenance costs for ZEVs [Zero Emission Vehicles].”

Battery prices, which were more than $1,100 per kilowatt-hour (kWh) in 2010, were down to $156/kWh in 2019 – an 87 percent reduction. The cost is projected to reach $100/kWh by 2023, according to Bloomberg New Energy Finance (BNEF).

Contributing to the sharp drop in prices are falling manufacturing costs, increased energy density in cathodes and new pack designs. Growing orders with the growth in EV sales are also helping to trim costs, BNEF said.

“According to our forecasts, by 2030 the battery market will be worth $116 billion annually, and this doesn’t include investment in the supply chain,” James Frith, BNEF’s senior energy storage analyst, said in a statement. “As cell and pack prices are falling, purchasers will get more value for their money than they do today.”

As the funding gap is reduced, the need for direct taxpayer dollars to promote the market is also declining, the UC Davis researchers said.

At $7 billion in transition costs for California (and about $70 billion for the whole U.S. market), the analysis said, the added cost for ZEVs could be “shouldered by those buying legacy gasoline and diesel vehicles – with either a tax or a feebate style program where buyers of new gas guzzlers pay a fee, and buyers of ZEVs get a rebate (as already exists in several European countries).”

Some costs could also be borne by oil companies and auto manufacturers that lag in making investment in greenhouse gas reduction under government-set performance standards, similar to the federal CAFE (corporate average fuel economy) auto mileage standards.

While the $7 billion price tag may appear high, the researchers said that it amounts to less than 1 percent of the costs California residents will pay for gasoline and diesel vehicles and fuels over the 2020 to 2030 period.

“These cost estimates and forecasts of electric vehicles might seem optimistic,” the researchers said. “But they apparently are not for Wall Street investors. Tesla is now more highly valued than Toyota, GM, Ford, and Fiat Chrysler combined, despite losing money and selling only about 1/50th as many vehicles.”

Nikola, a new company hoping to sell fuel cell and battery electric trucks, the analysis noted, is now valued greater than General Motors and Ford. “It looks like an electric future is in our future – at little cost to society and perhaps none to taxpayers,” the researchers said.

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