Most of the excitement related to BYD has centered on the remarkable advances the company has made in applying its proprietary battery technology to electric vehicles such as the e6 model which I wrote about earlier this month. BYD’s innovations in battery technology have made widespread adoption of electric vehicles likely for the first time. According to a recent blog post by Marc Gunther, Berkshire Hathaway subsidiary MidAmerican Energy now plans to utilize the same battery technology to store power generated from renewable resources such as solar and wind power. Mr. Gunther has covered BYD in the past for Fortune Magazine and was the main source for an article I wrote in April regarding BYD.
Positioning MidAmerican for Cap & Trade
MidAmerican Energy’s Chairman David Sokol is on record in a Washington Post editorial opposing the Obama Administration’s “cap and trade” approach to dealing with climate change. Sokol’s arguments center on the reality that cap and trade will amount to a tax on consumers regardless of mitigation efforts the government might take to issue tax rebates to low income consumers to offset higher energy prices. Sokol also expressed his views on the subject in a CNN interview:
Here is a link to the video for RSS Feed subscribers.
Regardless of his opposition, Sokol appears to understand that some form of cap and trade will be implemented based on political realities and he has taken steps to prepare MidAmerican for this reality. As Warren Buffett noted in his recent letter to shareholders, MidAmerican is the largest producer in the nation of energy generated through wind power. Over $1.8 billion was spent in 2008 alone on investments in wind generation capability. However, as Sokol noted in the video, one of the main problems with wind and solar energy is that power can only be generated when the wind is blowing or the sun is shining. Technology is needed to store the energy that is produced for later use.
Leveraging BYD Battery Technology
Based on Marc Gunther’s blog post, MidAmerican will soon harness BYD’s battery technology to tackle the storage problem:
“We’ve never really had storage capability on utility systems,” Sokol told me recently, by phone. “Given the progress BYD has made on the technology of batteries for electric vehicles, the question is, how do we ramp that technology up so that we can use it for multiple purposes in the utility world?
“Probably the most obvious is the ability to store intermittent renewable resources, such as wind or solar,” Sokol said.
Gunther reports that MidAmerican will soon implement the battery technology in Portland on a limited scale while BYD will do the same on a larger scale in China:
This fall, MidAmerican will build a 2 megawatt storage facility using BYD batteries at an existing substation in Portland, Oregon, where it operates the local utility, Pacific Power. BYD, meanwhile, is building a bigger storage facility in China, and plans to build a third one in a still-undisclosed location on in southern California. That’s about all I can tell you because BYD is reluctant to talk about its research.
The 2 megawatts of battery storage in Portland will allow MidAmerican to test BYD batteries to see how well they charge, what control systems are needed to discharge the electricity and to analyze their reliability and cost. “It will let us do a fair amount of testing to understand the economics of a 100 or 200 megawatt storage facility to back up wind,” Sokol says.
Based on BYD’s success applying their technology to electric vehicles and dramatically extending driving range, it is reasonable to expect that the same technology could be used in the manner that MidAmerican and other utilities require in order to economically harness wind and solar power. The utilities that are best positioned for the new cap and trade regime will be those that generate power from sources that do not result in carbon emissions.
Regardless of Sokol’s doubts about the viability of cap and trade as a public policy, he is positioning MidAmerican well for the new reality. That’s what Berkshire Hathaway shareholders would expect from a man reported to be at the top of the “short list” to eventually succeed Warren Buffett as CEO of Berkshire Hathaway.