Millions of used electric car batteries will help store energy for the grid. Maybe.

Once or twice a year, Bloomberg New Energy Finance (BNEF) founder Michael Liebreich posts a magisterial summation of some trend or set of trends in the energy world. His latest report (co-authored with BNEF editor Angus McCrone) is about electric vehicles. It’s worth reading the whole thing, but it was an aside about discarded EV batteries that caught my eye.

In four or five years, the batteries in the roughly one and a quarter million EVs currently on the road are going to start to wane. EV owners will either replace them, or replace the cars entirely.

That means we’ll have a lot of used batteries on our hands — batteries with plenty of life left in them, but which are no longer suitable for EVs. What to do?

One possibility is repurposing them to serve as grid-connected energy storage. Storage is valuable to the grid for many reasons, including its ability to smooth out fluctuations in supply, allowing for more integration of variable renewable energy.

Liebreich and McCrone say this is a promising path:

Once a battery’s performance has degraded by around 30 percent, it could become available for stationary storage. Upcoming research by BNEF’s advanced transportation team will suggest that by 2018 these second-life batteries could cost as little as $49 per usable kilowatt-hour to repurpose, compared to the current new stationary battery price today of around $300 per kilowatt-hour. If so, they will further support the economics of both renewable energy and electric vehicles, accelerating the uptake of both.

That BNEF research is available now, and it is bullish. We’ll get into its conclusions in a second.

Shutterstock

Just after reading BNEF’s optimistic appraisal, however, I came across this account of a talk by JB Straubel, battery expert and CTO of Tesla, dumping cold water all over the idea. He says Tesla has looked at it closely, but "every time we’ve studied this we’ve come to the conclusion that it’s not a very economical or very good use of those assets."

So what’s going on? Can we repurpose EV batteries as grid storage or not? And if not, what should we do with them? I dug into this a little, so bear with me.

Reusing old EV batteries to help the grid would be cool

Helpfully, the International Energy Agency just put out its "Global EV Outlook" for 2016. It notes that the number of EVs (a category in which it includes battery electric, plug-in hybrid electric, and fuel-cell electric vehicles) on the road worldwide crossed the symbolic threshold of one million in 2015. Currently it’s at about 1.26 million.

(IEA)

The first generation of EV batteries is about five years old, and performing great so far. However, warns BNEF, when they get to around eight to 10 years old, they are expected to start losing enough capacity to substantially affect driving range. Some time around then, or shortly thereafter, they will drop below an acceptable level of performance.

EV owners will face a choice: Replace the battery and ditch the old one, or just upgrade to a new car. That will put a lot of EVs on the secondary market, and at least so far, they aren’t performing very well there. Consumers are worried about their declining range.

So in all likelihood, there’s going to be a wave of discarded second-hand EV batteries to deal with, starting in four or five years.

Car companies don’t want customers running around hacking those (car-company-branded) batteries, or using them for unsafe homebrew applications, so they would very much like for there to be some kind of established second-life battery market.

Landfilling lithium ion batteries is illegal most places and not economic anywhere. Recycling them, at least given today’s recycling capabilities, is effectively downcycling, and it’s pretty expensive. (BNEF has upcoming research devoted to lithium ion battery recycling.)

Also, these batteries will still have around 70 percent of their energy capacity left. It would be wasteful to scrap that, especially when new batteries are so expensive.

Putting them to work as stationary storage, draining as much of their capacity as possible before recycling them, would increase the lifetime value of batteries, potentially by quite a lot, reducing their overall cost and spurring further expansion of the EV market.

Plus grid storage is good to have on its own merits — every little bit of storage adds to the grid’s stability and its ability to integrate renewables. (More on the value of storage here.)

So having a bazillion batteries that could serve as additional grid storage would be great. Here’s the potential:

(BNEF)

By 2025, BNEF expects a cumulative 95 GWh of total second-life battery capacity to be available, of which about a third — 26 GWh or so — will be suitable for stationary energy storage.

By way of comparison, market analysts at IHS Markit expect global energy storage capacity to reach 21 GWh by 2025. If you could add 26 GWh of cheap storage onto that … it would be a BFD.

The many challenges of repurposing EV batteries

Nice as it might be, there’s definitely no guarantee the economics will work out.

To begin with, no one knows yet what used EV batteries are worth, because there’s no established market and barely any used EV batteries to speak of. It’s mostly speculative at this point.

Used batteries have lower energy density than new stationary-storage batteries and won’t last as long, since they are nearer the end of their lifecycle. Car companies so far have refused to warranty used EV batteries, which could also dent their market appeal.

Most vexingly, EV batteries vary wildly. Not only do they have different sizes, shapes, and performance characteristics when new, but they have been used differently, in different climates, under different stressors, in different cars. Batteries "that have experienced different environments and use cycles are going to have different degradation trajectories," Jeremy Michalek, director of Carnegie Mellon’s Vehicle Electrification Group, told me.

But stationary storage is cheapest when its constituent battery cells are most uniform. The more they vary, the more expensive software is required to regulate them. It’s going to take a lot of time, experience, and money to figure out how to mix and match old EV batteries into consistently performing storage.

There is some good news on that front: Underwriters Laboratories (UL) has been developing a common set of standards for testing and evaluating second-life EV batteries. That should help reduce the time and cost of certifying and repurposing them. And UC San Diego is running a test program, using second-life EV batteries to help power its microgrid — that should yield interesting results as well.

(UC San Diego)

[UPDATE: A reader points out that GM is also running a test program, using old Chevy Volt batteries to help power the General Motors Enterprise Data Center.]

As Michalek also reminded me, however, perhaps the biggest challenge second-life EV batteries will face is competing, after 10 or more years in an EV, with new stationary batteries that were designed for the purpose.

Some of the only research done on the energy and environmental effects of second-life EV batteries on grid storage is this study in the Journal of Power Sources, which looked at battery repurposing in California and concluded that "second-life use of retired PEV batteries may play a modest, though not insignificant, role in California's future energy system."

But even the lead author of that study, LBNL’s Roger Sathre, sounded skeptical when I asked him. "Notwithstanding the potential ‘greenness’ of second-life batteries," he told me over email, "I imagine there are strong business reasons to invest in new purpose-built batteries for grid storage, to eliminate any uncertainty about the performance of used batteries."

Which brings us back to Straubel.

Why Tesla thinks about EV batteries differently

Straubel of Tesla, as I noted, is skeptical of repurposing. He said:

We expect 10, maybe 15-year life at a minimum from these batteries. And, you know, the degradation is not entirely linear. By the end of their life, the efficiency has degraded on every cycle, you see lower efficiency, the capacity will have somewhat degraded, and for a lot of reasons, it makes it very difficult to deploy those efficiently back into a grid setting, where you want high reliability and you do want predictability.

Tesla does not grant interviews with its executives, so I wrote Claire Curry, the author of BNEF’s research note, and asked for her take on Tesla.

She offered two reasons for its reservations.

First, Teslas are different. They are better cars, so their owners will drive them longer, perhaps 15 years, at which point their batteries "will only be worth recycling, as it will be an old chemistry that nobody will want to use for stationary storage," Curry said.

And even if their original owners don’t drive them that long, because their batteries are so big, she added, "even if they lose 20 percent of their kWhs, their driving range is still over 200 miles," which means they will sell just fine on the secondary market. (This is in contrast to current Nissan Leafs, for instance, which fall below a 70-mile range when their battery loses a third of its capacity — too low to resell.)

(Tesla)

Second, Tesla’s recycling is different. As Elon Musk recently tweeted, Tesla’s gigafactory in Nevada will develop its own recycling capabilities. Curry speculates that there are two reasons for this move:

Firstly, a second-life market for EV batteries as stationary storage would damage the profitability of the gigafactory (where up to half its capacity is earmarked for stationary storage). Recycling all of Tesla’s used EV batteries would significantly reduce the potential size of the second-life storage market, given that a quarter of the GWhs of batteries in EVs on the road today are Tesla’s.

Secondly, the huge volumes of EVs that Tesla plans to sell promise to strain the availability of certain metals like lithium, cobalt, and nickel, if mining capacity does not scale-up significantly. Tesla does not want its venture to be thwarted by a supply chain bottleneck, so recycling the batteries in-house could mean an additional supply of some key materials that can go straight into new batteries.

By all accounts, Tesla’s recycling will be much greener and more efficient than the current industry standard.

To me, both these rationales point to the same conclusion: Repurposing EV batteries for grid storage is going to face serious headwinds. It might be suitable for old Leaf batteries, but it probably won’t be suitable for old Tesla batteries, and in coming years, batteries are going to get less like Leaf’s and more like Tesla’s. The market is chasing Tesla.

By 2030 or so, 15-year-old batteries coming out of EVs will be competing with new custom-built stationary storage batteries that benefit from the intervening years of research, reduced costs, and increased performance.

(IEA)

It won’t be easy.

But who knows. Venkat Viswanathan, a professor of mechanical engineering and materials science at Carnegie Mellon University, is more optimistic. He told me that the two battery camps — EV and stationary — are beginning to converge as EV batteries improve.

He thinks that second-hand EV batteries might get so good and cheap at some point that people can "oversize the battery pack," compensating for reduced performance with more capacity, especially for home uses, where there are lower power requirements.

And to some extent, it’s already happening. Nissan just introduced a stationary storage product composed of a stack of 12 old Leaf battery modules.

(Nissan)

Perhaps second-life EV batteries will squeeze into the storage market that way, as cheap home batteries, growing from there as they prove themselves. We’ll see.

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