The Opinions of Energy Storage Value Chain Thought Leaders

This week I had the pleasure of representing my employer DNV on a panel at the 16^th edition of the Lithium Supply and Battery Raw Materials conference hosted by Fastmarkets.

The conference featured great conversations on the role of the upstream segment of the lithium value chain in the energy transition. Given the projected long-term supply deficit of lithium, the significance of alternative energy storage technologies to the renewables landscape was discussed. I emphasized the value proposition and necessity of a diversified energy storage portfolio.

In this article, I summarize some of the top questions in the energy storage industry and how thought leaders are thinking about them.

When is long duration energy storage (LDES) coming?

• Context

  LDES technologies including redox flow batteries (RFBs), compressed air energy storage (CAES) and thermal energy storage (TES) have been touted as prime contenders to augment and/or replace lithium-ion batteries (LIBs) for utility-scale stationary energy storage applications. However, the penetration of LDES technologies into the market has faced a stiff challenge from LIBs given the continually falling prices of LIBs.

• Outlook

  Various LDES technologies are at different stages of commercialization. On the more mature end, there are technologies such as RFBs, CAES and sodium-sulfur batteries with sufficient deployment history and deployed capacity. Newer technologies such as metal-air batteries are currently pursuing pilot demonstration projects to prove field performance. As such, the end of the demonstration period (the next 3 to 5 years) might see increased uptake of technologies that would have demonstrated their mettle.

What is the impact of the US-China battery tariff increase?

• Context

  The US recently increased tariffs for LIBs imported from China from 7% to 25%. The overall aim of this protectionist move is to make LIBs manufactured in the US more cost-competitive with cheaper LIBs manufactured in China.

• Outlook

  The tariff is effective immediately for EV batteries but takes effect in 2026 for stationary energy storage systems (ESS). Some players in the industry expect the higher tariffs to drive massive deployment of storage projects in the next two years as companies aim to take full advantage of currently cheaper LIBs from China.

What would be the impact of an administration change in the US presidential elections?

• Context

  The US will be heading to its presidential election this November. President Biden and his Democrat administration has been a strong advocate of climate change mitigation through historic laws such as the bipartisan infrastructure law (BIL) and inflation reduction act (IRA). There is widespread concern that a Republican administration will try to roll back these climate finance gains given Former President Trump’s poor track record in this area.

• Outlook

  Little might actually change as federal spending in climate finance has been highly motivated by geopolitics. Both administrations have used tariffs to bolster the US economy by limiting importation of Chinese goods. Since the prevailing geopolitics are likely going to remain intact even after November, it is highly unlikely that we shall see significant changes in federal funding of climate initiatives. Second, laws such as BIL and IRA would take time to repeal even if a Republican administration was to go that route. Third, there has been massive investment in EV infrastructure and battery manufacturing in the Republican states so far. As such, a Republican administration would not want to cut jobs in these states. If it were to happen, the likely casualties of an administration change would be tax credits such as those for electric vehicles (EVs).

Will the world switch from NMC to LFP?

• Context

  For many years, LIB chemistries that contain cobalt were the undisputed leader in the market for all applications. Most prominent among them was the lithium - nickel manganese cobalt (L-NMC / NMC) chemistry. However, NMC leverages nickel and cobalt whose extraction is plagued with social and environmental risks. The lithium iron phosphate (LFP) chemistry was developed to address the mentioned issues and to decrease cost. Recently, the shares of the two chemistries in the battery market have been neck and neck. The EV market plays a big role in the adoption of chemistries.

• Outlook

  LFP is most dominant in Chinese EVs while NMC is still favored by vehicle original equipment manufacturers (OEMs) in Europe and North America. It is predicted that given its lower cost, LFP will dominate the mass EV market while NMC will remain in control of premium EV market. Additionally, LFP will continue its dominance of the stationary ESS market too.

Is the volatility of lithium market affecting the economic viability of its extraction?

• Context

  The two years following the COVID-19 pandemic saw price spikes for lithium as short-term demand exceeded supply. This led to overproduction which has in the past 1.5 years caused depressed prices as supply has overshot demand. The short-term supply and demand fluctuations have caused high volatility of lithium carbonate prices. The high volatility has in turn discouraged investment in new lithium mining projects by the West. However, China’s investment in the sector has not been dampened by the low prices.

• Outlook

  There is need to adopt a longer-term approach to investing in battery critical minerals. Demand for the metals is certain to rise in the coming years. Given the long lead times of mine development, the traditional approach of investing during boom cycles only will not suffice if we are to meet our climate targets. Investing for the long run even when the proposition looks unattractive is the way to go. Failure to do so, the West shall continue to lose control of the supply chain to China as China’s investment plan is not reliant on the boom and burst cycles of lithium.

Given the high level of uncertainty involved, there are multiple ways of looking at the questions above. Please feel free to reach out to me to discuss in greater detail or just to say hello.