Surging energy storage demand provides 'second leg' for zero-emission vehicle technology

Once siloed and separate, the automotive and energy sectors now have a lot in common.

The two industries are converging, giving technology created for zero-emission vehicles new purpose in home energy storage, industrial projects and battery farms that backstop rickety electric grids.

Fledgling efforts with both batteries and hydrogen fuel cells are gaining traction as growth in sales of electric vehicles slackens, presenting a fresh opportunity for traditional auto companies.

"You can see this as a second leg for them to stand on," said Alexandre van de Rijt, who leads McKinsey & Co.'s battery and energy storage insights division.

McKinsey estimates the global battery energy storage market will reach between $120 billion and $150 billion by 2030, more than double its current size.

Renewable energy is driving the boom. Sources such as solar, wind and hydropower generate about 21 percent of U.S. electricity production, according to the Department of Energy. But renewable energy is often intermittent. When darkness falls or winds taper, there's not enough energy to satisfy demand, especially as energy-thirsty EVs and data centers arrive in greater numbers.

Flexibility is needed. Enter storage devices, which collect solar and wind energy and discharge it to the grid during periods of peak demand.

Tesla sees that as an opportunity. Its energy storage and generation business collected more than $3 billion in second-quarter revenue. It deployed more than 9.4 gigawatt-hours of energy storage, including Tesla Powerwalls and Megapacks, double the first-quarter tally.

"I think people don't understand just how much demand there will be for storage," CEO Elon Musk said on Tesla's July 23 earnings call.

In July, the automaker reached an agreement to sell 15.3 gigawatt-hours of its Megapack larger-scale energy storage systems to Intersect Power for four large-scale projects in California and Texas. The companies said the agreement will result in "some of the largest battery installations in the country."

These projects don't always need new batteries.
In California's Mojave Desert, a field of solar panels larger than a football field sits alongside clusters of white cabinets housing more than 1,300 repurposed EV batteries.

Together, they make up a 28-megawatt-hour hybrid energy storage system built by B2U Storage Solutions Inc. that has sold power on California's energy market since 2020.

The company manages 580 batteries at a similar project in Santa Barbara County, and more projects are underway.

"This is the very first out in the very first inning of a massive transition where a lot of EVs are going to reach the end of their lives," said B2U President Freeman Hall.

The company sources batteries from Nissan Motor Co., Ford Motor Co., American Honda Motor Co. and two other automakers not yet publicly identified. Rather than recycle the batteries, the automakers are giving them a second life.

B2U both buys and leases the batteries. The latter helps automakers ensure batteries are utilized in a way that meets sustainability targets and, in some cases, new regulations for battery life cycles. Meanwhile, B2U makes a profit, Hall said.

Hall had an "epiphany" on the potential of used EV batteries in 2016, when he met a Nissan executive. The first Nissan Leaf electric vehicles, which launched in 2010, were having batteries replaced under warranty because of degraded performance. The batteries remained functional but lacked the energy storage needed for vehicles.

B2U scooped up 300 batteries in its initial efforts and found them suitable for storage. Hall foresees both increasing the supply of used batteries and pressing the need to use them for stabilizing electric grids.

"There's only more of this volatility to come," he said, "and these batteries are a resource that fills in the gaps."

Batteries are not the only emerging option for providing energy in stationary systems, nor are utilities and grid operators the only potential customers.

Toyota Motor Corp. is exploring the potential of hydrogen fuel cells in a new commercial-focused collaboration with Kohler Power Systems, a longtime supplier of home and industrial power systems.

Using the same fuel cells that underpin the automaker's Mirai sedan, the companies are outfitting a hospital in rural Washington state with a backup power generation system expected to be operational this year.

The first-of-its-kind, 100-kilowatt system at the Klickitat Valley Health hospital in Goldendale, Wash., can power hospital operations for 10 to 12 hours.

Comparable battery storage systems offer only four to six hours of power, said Ben Rapp, who leads Kohler's business development efforts.

"Fuel cells can last beyond that mark that batteries are constrained to," he said. "Fuel cells are the closest replacement of conventional solutions in backup power, and that's because of that performance."

One drawback is that fuel cells are new in that space. Lithium ion batteries dominate storage now "because the technology is proven," van de Rijt said.

While this marks Toyota and Kohler's first foray into the market, the companies expect further interest and contracts.

Toyota has ramped up its hydrogen-related efforts around the globe. In May, the automaker opened a North American Hydrogen Headquarters in Gardena, Calif., a hub for vetting new hydrogen technology. Toyota and its Woven Planet subsidiary are testing cylindrical cartridges — about the size of a large thermos — that hold hydrogen used to power homes and household appliances.

Residential energy storage represents a growing market, van de Rijt said.

General Motors launched its GM Energy business in October 2022 to capitalize on that trend. The division has developed bidirectional charging equipment so vehicles themselves can function as storage devices. The automaker's 2024 Silverado EV pickup can provide enough power in some circumstances to run a home for up to 21 days.

Utility companies plan to harness the potential of EVs and other energy storage systems.

"We see EVs, car charging and vehicle-to-home as a really important part of how the future is going to happen, and already happening," said Kristin Kelly, spokesperson for Green Mountain Power.

The Vermont utility company offers programs that incentivize storage devices. In one such program, customers can rent two Tesla Powerwall chargers for $55 per month with no upfront costs.

Promoting energy storage adoption at the edges of a system helps grid operators and utilities as well, van de Rijt said. It represents a far cheaper upgrade than overhauling core infrastructure.

"The grid is either not equipped or ready for this whole transition," he said. "Think of batteries as almost like a virtual transmission line."

A novel solution to an expensive infrastructure problem, one the auto industry appears positioned to provide.