For several years, the energy world has been waiting for the point at which solar power becomes as cheap as coal power. From this moment of ‘grid parity‘, it makes little sense to keep building fossil fuel generation. Solar power becomes the default option. It’s been predicted for a while, and most of the world has now reached it. We can see the point of transition in headlines like this one: India cancels plans for huge coal power stations as solar energy prices hit record low.
Increases in efficiency and new economies of scale have driven down the price of solar power. A parallel process is underway in battery technology, and we can expect a similar moment of parity in vehicles. At the moment half the cost of an electric car is the battery, but huge advances are being made. As battery costs fall, electric cars will eventually be equivalent in price to petrol cars.
Bloomberg New Energy Finance calculated recently that electric vehicles would be more expensive to manufacture until around 2025. By that time the cost of a battery would have fallen from half to around a quarter of the production cost, making it competitive with the internal combustion engine.
Analysts at UBS took a slightly different approach. They looked at the cost of ownership rather than the cost of manufacturing. That factors in the cost of fuel, insurance and tax, and shows that it will be cheaper for drivers to buy and operate an electric car “from 2018.”
That’s the cost of ownership. Manufacturers will need to wait until 2023 to hit parity – and that’s when EVs become profitable. It looks likely that the first generation of mass market electric cars will be sold at a loss, a necessary step that allows companies to establish themselves in the market.
Of course, electric cars aren’t a direct swap. We need charging infrastructure to support them, and that is advancing faster in some countries than others. We’re currently experiencing a chicken-and-egg situation on this – do we wait until demand for electric cars rises, and then try to provide charging points? Or do we invest in the infrastructure in order to stimulate demand for EVs? From a climate change point of view, the latter is the smarter option, and studies of price parity give us something to work towards. Get the infrastructure in now, and we can accelerate the transition towards cleaner vehicles over the next decade.