The market
The global market for all electric vehicles will grow from just under 10,000 units in 2008 to approximately 350,000 cars, trucks, vans, and buses by 2013, representing $15 billion in revenue. This is small compared to the 2.6 million hybrid cars currently on the road. Demand for batteries is growing at an increasingly rapid pace, driving sales from around $900 million today to between $10 and $15 billion by 2015 for large lithium-ion batteries alone. By 2020, this market alone could reach between $30 and $40 billion. Electric car manufacturers and their suppliers are forging strategic alliances with battery manufacturers to lock down battery technologies, as evidenced by the agreements signed between VW (Germany) and Sanyo (Japan), Continental (Germany) and ENAX (Japan), Bosch (Germany) and Samsung (Korea), and VARTA (France) and Johnson Controls (USA). Toyota has spent approximately $5 billion on its hybrid program, selling over 60% of all such vehicles, while smaller players like BYD (China), Tesla (USA), and THINK (Norway) have each carved out a niche in the emerging electric vehicle market, ahead of all the major players about to enter mass production, including Renault-Nissan, which will open a factory in Spain in 2011. Mass production at the Valladolid plant reached only 25,000 units in its first year. However, Renault anticipates that by 2020, up to 10% of its production will consist of electric vehicles. China has decided to tackle automotive technologies and aims to increase its production capacity from almost nothing in 2008 to 500,000 by the end of 2011, including hybrid/electric and all-electric cars. By that time, North America would only be producing 267,000 units, while South Korea and Japan combined would already have surpassed 1.1 million. Although it is still lagging behind, China should soon take the lead. BYD has 10,000 automotive and battery engineers at its Shenzhen headquarters, capable of competing directly with the best. China has an additional advantage: 80% of customers are first-time car buyers and are unfamiliar with the power and diversity present in the foreign automotive market.
Innovation
Electric cars are more expensive. The market won't buy a vehicle that isn't competitive, unless governments offer significant tax credits, up to $10,000 per car, or the wealthy decide to ease their conscience. The challenge remains the battery. It's heavy, its range is limited, and supply contracts are locked in, making overall efficiency gains rather difficult to achieve. The most innovative battery produced by ELIIY, controlled by Daiwa House (Japan), has proven itself over the past 10 years, with a retention loss of only 20% over a decade. The manufacturer offers a 100% recycling guarantee. However, this high-performance system isn't even available on the automotive market. For now, the ELIIY battery will only be deployed in homes. When Javier Morales studied the options available to him for converting the entire fleet of 6,000 vehicles from internal combustion engines to electric power, he realized that the necessary breakthrough was the creative use of financing. He drew inspiration from the city of Chattanooga, which had already opted for electric bus transportation in 1994. As vice president of the local government of El Hierro, a small island of just 10,500 inhabitants off the coast of Africa, part of the Canary Islands, he devised an innovative approach that not only makes electric cars cheaper to buy, but the conversion of petroleum-based transportation to renewable energy provides an additional boost to the local economy. The island decided to replace its annual expenditure of approximately $10 million on fossil fuels with a capital investment in wind power, strategically supported by batteries. The four former gas stations will be converted into energy storage power plants to ensure the stability of the wind-powered grid (10.5 MW operational by May 2011). All excess energy from the generators first converts seawater into potable (operational) water, which is then pumped to an old crater, transformed into a giant reservoir (May 2011), which will produce additional hydroelectricity during peak consumption hours. The system provides inexpensive electricity during off-peak hours to charge the batteries.
The first cash flow
The local electricity company, majority-owned by the island, controls the business. The batteries are not sold with the cars but are part of the grid's backup system. This reduces the purchase cost for each car owner. The selling price can be kept below $12,000 per four-seater vehicle. The key is that each car owner will pay a weekly fee of $12 to swap the battery at one of four charging stations, which are former gas stations converted into backup power sources. This weekly fee generates over €70 million in revenue over seven years, enough to finance the operation. Since the maximum round trip distance on the island is only 50 kilometers, the batteries are smaller, lighter, and easier to swap. There is no need to install public or home charging stations, which require extensive and secure wiring systems totaling up to $1,800 per car. This money is better invested in backup charging stations that make electric cars more competitive in these island conditions. Javier quickly realized that his quest to buy 6,000 cars made him the world's largest purchaser of an electric car fleet—coming from a remote island of just over 10,000 inhabitants, which was quite a surprise. The funding for this scheme is guaranteed. Backed by the weekly cost of the battery, the island will secure the capital in the form of a loan and the cash flow to repay the debt, simply replacing what used to flow from the mainland to oil suppliers. This inflow of money, instead of draining it, stimulates the local economy, creating a wide range of additional opportunities that make this island an attractive place to live.
The opportunity
Starting with a quest to make the island self-sufficient in renewable energy, it evolved into a combustion-free island strategy with guaranteed funding. Now, the island is embarking on a third quest: an abundant supply of drinking water. The strategy of continuing this backup system for the power grid and paying weekly fees ensures a steady income for the electricity company. Furthermore, the introduction of vortex technologies (see Case 1) makes water cheaper and more plentiful than ever before. Now that farmers are driving electric vehicles and have enough water for irrigation at competitive prices, they have committed to converting the island to 100 percent organic production over the next eight years. The response has been overwhelming: for the first time, people are returning to the island; for the first time, people are returning to farm. Change doesn't start at the center; change starts at the periphery. This successful implementation of a renewable energy strategy, launched a decade ago, should inspire the hundreds of island economies that struggle to imagine how to offer a challenge and a lifestyle to the next generation to avoid total depopulation. El Hierro has led the way, and the Blue Economy team has had the privilege of being involved for over ten years.
