Believe it or not, the electric storage battery -- a technology that has been around since the eighteenth century -- could change the economic course of the twenty-first century. Thanks to breakthroughs on the horizon, batteries qualify as one of 12 disruptive technologies that the McKinsey Global Institute has identified as part of a recent report on innovations that will change the way the world works. Each game-changing technology could affect hundreds of millions of people, create hundreds of billions of dollars a year in economic value, and reconfigure large sectors of the global economy. Advanced batteries, for their part, have the potential to shape global demand for fossil fuels, increase the use of renewables in the electric grid, bring reliable electric power to businesses in developing economies, and extend electricity -- and therefore access to the modern world -- to millions of the world’s poorest.

All told, energy storage could have as much as $635 billion a year in economic impact, which is a measurement of the value created by the use of a technology as well as the revenue that it generates for the companies that produce it. Value to users includes improved performance, better costs, greater convenience, time savings, and other benefits. The total value that we estimate could be created annually in 2025 by energy storage -- mostly achieved through fuel savings -- is almost equivalent to the GDP of Saudi Arabia and more than the potential estimated impact for such high-profile developments as 3-D printing, hydraulic fracturing, and renewable energy. Not bad for a technology that has been evolving for more than 200 years and can be found anywhere in both developing and advanced economies.

By definition, energy storage is any system or technology that allows you to generate energy at one time and use it at another. One of the most common forms of energy storage is pumped hydroelectric storage (PHES), which involves pumping water uphill into a reservoir and releasing it later to flow through a turbine and generate more electricity. Hydro companies use electricity to pump the water uphill when the cost of electricity is low and generate more power from the water when rates are high. Another common form of energy storage, of course, is your average battery.

In our work, we focused on the battery because that technology, unlike PHES, is undergoing a rapid evolution that could shake up the entire industry. In the next ten to 15 years, advances in the components that go into batteries could double storage capacity, reduce costs, and extend the lives of rechargeable batteries, making it more practical for consumers to use stored energy in more places. The advances that enable these performance gains include new types of cathodes (the positive terminal in a battery cell) that eliminate dead zones and boost performance. They also include new kinds of anodes (negative terminals) made of silicon that could increase cell capacity by 30 percent over today’s graphite components. Further out, there may be additional advances through the introduction of nanomaterials that have exceptional powers of conductivity.

Most of the economic gains from better batteries would come through their use in electric-powered motor vehicles. With advances in storage capacity, falling costs for components, and more efficient battery manufacturing, fully electric and partially electric (hybrid and plug-in hybrid) cars could become more attractive to consumers. Today, the total cost of ownership over five years for a compact hybrid is estimated by automotive sites such as Edmunds.com to be around 39 percent higher than for a comparable internal-combustion model. By 2025, the total cost of owning a hybrid or a conventional car could be about equal, assuming gasoline prices of $2.85 a gallon or higher. With equal cost of ownership, the share of hybrids in annual global auto sales could rise from about three percent today to anywhere from 20 to 40 percent in 2025. The total value of using less (or no) fossil fuels in these partially or fully electric vehicles could be as much as $415 billion a year in 2025.

In developing economies, battery storage could have a huge impact on economic growth. Developing economies suffer from two problems that better batteries can help address. The first is the unreliability of electrical supplies. In these countries, outages average from two to 70 hours per month. That is bad enough for private citizens, but it really throws sand in the works of industry, which accounts for 43 percent of power in developing economies. In a recent World Bank survey, 55 percent of firms in the Middle East and North Africa, 54 percent in South Asia, and 49 percent in sub-Saharan Africa said that the lack of access to reliable electric power hurt their ability to do business.

Almost all large companies in developing economies invest in backup power, but the millions of small firms that cannot afford to do so are at the mercy of erratic electric supplies. Batteries in the electric system that would supply power when generators fail, allowing businesses to continue operating, could have an annual economic impact of $25 billion to $100 billion by 2025.

The second challenge in less developed economies is bringing electricity to remote locations and other areas beyond the reach of the electrical grid. Only 63 percent of rural populations in developing economies have access to electricity, which severely limits their chances at development and their access to critical services. Based on current population projections, more than one billion people worldwide could be without electricity in 2025. The value of providing access to electricity through batteries in remote areas alone could amount to anywhere from $2 billion to $50 billion annually by 2025. That estimate assumes only 60 kilowatt hours of electricity per month per household, which would be enough for lighting, some television, cell-phone charging, a radio, and a fan. Nevertheless, with improved batteries and solar chargers -- a kit that can be leased at very low prices -- millions of the world’s poorest people can get at least a toehold in the global economy.

Even more intriguing than automobiles and energy use in developing countries is what is known as grid storage -- using batteries on the electrical grid to store energy. Grid storage can be used in several ways to improve the reliability, quality, and affordability of electricity. An even bigger benefit could come from integrating power from renewable energy sources into the power supply. Today, even if a local electric company is fully committed to using green energy, it would have a hard time doing so because wind and solar power are intermittent: When the wind does not blow and the sun does not shine, windmills and solar panels do not produce. With battery storage, electricity from those sources can be stored and used whenever it is needed. Battery storage not only can accommodate electricity generated on wind and solar farms but also from rooftop solar panels used on thousands of homes and office buildings.

Battery storage would allow utilities to accept excess electricity from these sources whenever it arrives and expend it whenever needed. Battery storage could also allow consumers --wealthy ones, at least -- to store their own excess energy and live off the grid. Given concerns over the security of the electric supply, the military and large industrial users might adopt renewables and battery storage to go off the grid as well.

Even now, battery storage can improve the economics of electricity production and distribution around the world. Today, electric companies are forced to build excess capacity so that they can meet peak demand, which only may occur a few days a year when temperatures soar and air-conditioning goes full blast for days on end. With battery storage, electricity generated at times of low demand and low cost can be tapped during periods of highest demand and prices. How quickly utilities adopt battery storage as a way to deal with peak loads is an open question. Based on the current price of natural gas, especially in North America, utilities might find it cheaper to build and run extra gas-fired plants for peak hours. Even so, we estimate that the economic impact of using energy storage for peak load shifting would be between $10 billion and $25 billion annually in 2025.

Finally, battery storage can help utilities improve the quality of electricity. When there are sudden spikes or drops in demand on the electric grid, the load on the system can go out of balance, causing the voltage to drop. To head off these fluctuations, which can wreak havoc with industrial equipment and electronics, utilities set aside one to four percent of additional generating capacity that can be ramped up as needed to regulate the volatility. If battery storage replaced the entire four percent reserve capacity, the potential economic impact could be $25 billion to $35 billion annually in 2025, net of storage costs.

Capturing the potential economic value of advanced batteries will depend on clearing technical, economic, and regulatory obstacles. For example, before the full benefits of the new silicon anodes can be realized, scientists will need to eliminate the tendency of these components to crack. To capture a larger percent of global auto sales, hybrid vehicles might have to hit an even lower cost of ownership than we predict, since most of the growth in global auto sales between now and 2025 will occur in developing economies. Finally, to realize the benefits available from grid storage and peak load shifting, utility regulations would have to evolve. If regulators continue to insist, as they do today, that utilities must have an extra four percent of capacity in reserve to meet peak demand, utilities have no incentive to invest in storage for peak load shifting. Assuming these challenges can be met, the good old battery will earn its place among the great technologies of our time.