He joined Tesla Motors as Vice President of Supply Chain and built up a global supply chain for electric vehicles. He helped see through the industrialisation and launch of the Model S with over 300 suppliers and turned a negative gross margin into a 28% surplus within the first year of production. Carlsson came to Tesla from the world of semiconductors (NXP; formerly Philips Semiconductors) and telecoms (Sony Ericsson); he left it last year to get involved in a series of cleantech and automotive start-ups in Palo Alto, California.

For the EU to reach it climate goals, “requires a transformation of how we use energy as well as how we produce it”, the Swede says. Storage and smart grids are critical. But “in many markets today, the end-user doesn’t have an incentive to optimise his energy consumption. And he certainly doesn’t have an incentive to store”. Regulatory change is essential, but a central challenge for Carlsson is also bringing down the cost of batteries. For him, a turning point would be batteries at $100 a KWh that would drive significantly cheaper ESS (energy storage system) applications. Many battery storage solutions cost $500-1000 per KWh today. It could happen within 5 years, be says. Home batteries will come first; electric cars will probably not store energy for the grid for another decade.

“What is clear is that every energy market in Europe would be much more efficient with the ability to store energy”

Yes, Europe is behind the US and Asia in battery development, but it can catch up, Carlsson believes by “setting tough standards and aggressive goals”. If Europe wants to go carbon neutral, it will have to develop storage. There is an opportunity here for traditional energy companies – just as there is for traditional car companies – but Carlsson warns that it is “not an easy transformation even if management sets strong goals and commits to change”. For him, those that master smart grid support and control software are the real future winners.

Q: What kind of work do you do in the energy sector and why?

A: My real interest in and focus on energy started with my role at Tesla. It was seeing the change coming in both the automotive industry with e-mobility as well as the major transition in energy distribution. So when I stepped out of Tesla at the end of last year, I decided to engage in a number of start-ups centred on an energy or cleantech business idea. I think it’s a super interesting area because both those industries – automotive and distribution – are going to be fundamentally different 15 years from now.

Q: What fundamental changes do you see in the energy distribution system?

A: Energy distribution does not necessarily need to be through major power plants and large grids. It can be more decentralised. That’s a major change that might have an even bigger impact on the developing than developed world because it makes investments much lower to build up a functioning energy system. But I do also think that in light of the Paris Agreement, there needs to be not only a focus to transform energy generation but also to better use the energy that we produce. And that’s where I think energy storage and smart grid optimisation are a major theme and will impact us a lot.

“I see that there is a strong evolution in energy density and chemistry improvements that support a more efficient cost per KWh”

Take a micro-market like Sweden. Sweden wants to be carbon neutral 25 years from now, which means first and foremost that you need to take oil out of transport. You need to replace it with other things, such as electricity. There were approximately 150 TWh produced 2015. To support that transformation in transport, Sweden needs around 20 TWh more. It could build additional generation. But it could also turn to smarter balancing, grid management and storage to manage peaks in demand. An increasing challenge in the electricity system is to balance the power demand and not only energy demand. With batteries, you can address both these challenges. Batteries are the key to the entire transformation.

Q: What are the most exciting innovations you see at the moment? Is it in batteries and storage? Or demand response, or new business models, for example?

A: I think it’s different in different markets. Clearly software and storage are key enablers. But we’re also seeing that the drive for a new approach to the grid is not that obvious because in many markets today, the end-user doesn’t have an incentive to optimise his energy and power consumption. And he certainly doesn’t have an incentive to store. Regulatory changes, as well as new players with new business models, may be needed to facilitate this change.

“Cars like Tesla have a battery chemistry that is optimised for energy density while a storage solution is more optimised for higher charge/discharge and more cycling”

The electrification of transport is more straightforward in the sense that when an electric car is equal or better than an internal combustion engine car, ten out of ten consumers will buy it. It is easier to understand how that market will be shaped. But the common denominator for both markets is the cost of storage and therefore the cost of batteries. This needs to go down pretty significantly from what it is today to really drive a major uptake.

Q: What kind of paths to a major cost reduction in batteries do you see?

A: I don’t think there has ever been more money put into research on battery technology. So first, I see both new technology and new research that is really interesting. Second, I see that there is a strong evolution in energy density and chemistry improvements that support a more efficient cost per KWh. Finally, I see moves like what Tesla is doing in Nevada where they’re building scale and vertical integration. All these together are driving significantly better cost structures. If key markets could agree on using the same battery form factors, I think that could further drive cost reduction.

Q: How far are we from a tipping point where batteries have a real impact on the energy system? Some people talk about years; others, decades.

A: I’m very positive. We’re definitely talking years and not decades. There are different metrics for this change but I think one interesting point is when we will have battery cells available at around US$100 per KWh. That would be significant.

Many energy stationary storage applications today cost US$500-1000 per KWh. The day when we can get batteries at around US$100 – and we could build applications on top of that for maybe US$200 – this will have major impacts on the business case and market opportunities. I think that might be five to eight years away.

Q: You talk about stationary storage, but often people seem to assume that electric vehicles will actually be doing much of the storing. How do you see at-home vs. vehicle storage?

A: That’s a very good question. I think both are going to come, but I also know it’s not a walk in the park to use the battery in a vehicle also as stationary storage. Like I said, I’m sure it will come but I’m not sure we will see electrical vehicles also being the energy store for the grid in the next decade. There are several aspects to this, one being that cars like Tesla have a battery chemistry that is optimised for energy density while a storage solution is more optimised for higher charge/discharge and more cycling.

“I think that for peak support in a household, you probably need an additional stationary battery installed in your home”

Let’s take one scenario. If you’re a household and you want to save your morning and afternoon peaks, you need to have access to a battery of say 3-4 KWh that can even out your energy consumption over the course of the day. If you take your car to work, the car cannot be the absorber of extra energy during the day. On the other hand, if you had smarter software and extra energy available during the night, you could know where there are electric vehicles that are connected but not fully loaded and dump your extra energy there. In that scenario, the cars could contribute to a smart grid network. But I think that for peak support in a household, you probably need an additional stationary battery installed in your home.

Q: Doesn’t the role of electric cars and home storage also depend on to what extent households want to be autonomous units vs. part of a bigger energy system?

A: The trade-off could be that if you install your small home battery, the amperage you need for your switchboard could go down significantly and thereby at least in theory, you should be able to lower your fixed grid cost. But there is an ongoing discussion here. On a macro-level it totally makes sense but when it comes to the individual business case there is still a debate over how to shape a market that really drives smart usage. What is clear is that every energy market in Europe would be much more efficient with the ability to store energy. And don´t forget that home storage also can play an important role in the overall electricity system by providing services such as peak shaving, absorbing excessive production and even support in controlling the frequency.

Q: You said earlier that you believe we may need a combination of regulatory change and new entrants and business models to change the energy system. What kind of regulatory change do you have in mind?

A: I don’t pretend to be an expert on every market, but based on my experience of Scandinavian markets, you need a regulatory regime that makes it easier for individuals to store and potentially sell energy to the grid. Including in those countries that allow ESS [energy storage systems] only for household with a solar system installed. You also need a regulatory regime that supports and facilitates the optimal use of the energy being generated and managing the power balance rather than long term plans to build new power plants.

Q: Europe is doing a lot of thinking about how to update its regulatory regime, notably with new EU proposals on power market design due at the end of the year. But a lot of the companies leading on new energy applications – such as Tesla on storage – are not European. So where is the cutting edge of change?

A: I think that setting tough standards and aggressive goals will drive the development of new markets. If Europe dares to be bold in both the transformation of its energy grid and its drive for electro-mobility, I believe that will be followed by significant investments in new technologies and the emergence of both new business models and companies.

“I believe that interconnections and battery storage have complementary roles to play”

I do agree that when it comes to battery technology, Europe is behind both Asia and the US. But there is an opportunity to catch up.

Q: Does the interconnectedness of Europe dampen the business case for storage here?

A: I believe that interconnections and battery storage have complementary roles to play. Batteries are ideal for storing during relatively short time intervals up to hours and maybe days. Interconnections can cover long term demands. But if Europe truly wants to be carbon neutral, it will eventually have to replace all of its oil, coal and natural gas, and a lot of that replacement is going to be with energy sources that are more cyclical in their generation, so it will force a need to have storage. I think we will see a combination of different storage technologies plus demand response and so forth to meet different needs.

Q: Is there still space for the traditional energy companies alongside new entrants such as Tesla, Google, telecoms companies, etc in the transition to a new energy system?

A: In the automotive industry you’re seeing a whole bunch of start-ups focused on electro-mobility, autonomous driving and fully connected vehicles. They’re replacing individual car ownerships with a shared-economy model where they basically offer a super efficient service rather than selling a vehicle. I still believe that some of the traditional car companies will evolve into this, but not all of them. I think the map is going to change significantly over the next 10-15 years.

“Most [utility] management teams understand what is happening. But that doesn’t mean they can transform an entire organisation and strategy fast enough to adapt to this new scenario”

In the same way, I think some utilities will be able to transform and proactively support this transition but I also think that in many ways it will be new entrants like Solar City that don’t have a long legacy but can look to the future and move faster. Your ability to manage this disruption is going to determine whether you survive in future.

Most [utility] management teams understand what is happening. But that doesn’t mean they can transform an entire organisation and strategy fast enough to adapt to this new scenario. Look at the automotive industry: you have 50 years of mechanical expertise built around the internal combustion engine. Now you need to force that whole organisation into software and other new competences. That’s not an easy transformation even if management sets strong goals and commits to change.

Q: Who will succeed in this new world of smart grids and storage? What kind of competences does a future winner need?

A: The ability to build a truly smart grid software and control system that takes us to a much more adaptive network is, I believe, going to be one core change. It’s going to be interesting to see who will lead that development because I don’t think anybody at this point in time has the type of software support that is needed to bring these changes to life. But we will find the winners among people and companies that best can understand the development potential in new technologies and how these technologies can be applied in the energy system.

© Sonja van Renssen, Energy Post