The mismatch between supply and demand for lithium-ion batteries poses a challenge to the world’s transition to renewable energy and the role that energy storage systems can play in the energy transition, the research firm noted.
And the weak global economy and political turmoil as well as the significant growth in demand for lithium-ion batteries (dominated by electric vehicles) have led to supply constraints, which in turn have delayed investment and deployment decisions for battery storage projects.
And one question that industry players need to answer is what strategies and measures can be taken to overcome this challenge, from startups working to deploy energy storage systems to government departments seeking to support clean energy-based economic growth.
The general pattern of lithium-ion battery supply
Cormac O’Laire, senior manager of market intelligence at the American Clean Energy Association, said for this reason that pricing of lithium carbonate will remain a major concern for the rest of the year. Even if more lithium is mined in the fourth quarter of 2022, the global supply of lithium material is expected to remain very tight.
O’Laire said, “To address the lithium shortage, major global lithium battery and cathode manufacturers are entering into long-term agreements with lithium mine developers. Prices of commodity metals such as nickel and cobalt have fluctuated sharply and have now started to fall back after the Russian-Ukrainian conflict triggered a global supply crunch for nickel and copper.”
He said that while price trends for these metals are expected to remain flat through the end of the year, there is a significant overall underinvestment in battery raw material mining. According to the American Clean Energy Association, global investment in this area is projected to be $5 billion in 2022.
However, according to industry analyst Matt Fernley’s forecast data, by 2030, if to meet the battery demand for electric vehicles will require an annual investment of $ 15 billion.
O’Laire said, “Both the government sector and the private sector need to invest more in raw materials, especially lithium, to address the looming supply and demand constraints.”
And downstream in the battery supply chain, China is building more battery production plants dedicated to battery storage systems, enough to meet global demand by 2025.
Fernley said, however, that Europe and the United States are also building battery production plants, but on a much smaller scale to meet their own needs.
At the same time, China plans to expand its cathode active material (CAM) capacity to 2 TWh, so O’Laire said the lithium iron phosphate market is likely to face a surplus in 2024.
Startups vs. large manufacturers
Some industry participants believe that the situation in the battery supply chain is starting to ease, especially in terms of the impact of the new crown outbreak on logistics and transportation.
The American Clean Energy Association notes that some easing of price volatility may allow battery storage project developers to consider final investment decisions in the third quarter of 2022.
After the steepest price increases in years, prices for key battery metals such as cobalt, lithium and nickel have turned the corner. Because lithium product prices have the greatest impact on the cost of these commodities, the American Clean Energy Association expects lithium prices to remain relatively flat and below the highs seen earlier this year in the coming months.
O’Laire and his research team say that the balance of supply and demand for batteries will remain unstable from the fourth quarter of 2022 to the first quarter of 2023, and that their prices are likely to continue to rise early next year.
Short-term supply disruptions mean that the battery storage industry will have to absorb rising battery costs or pass them on to consumers. The good news is that despite some companies following the lead of the electric vehicle industry by introducing pricing based on the Raw Materials Index (RMI), demand has not fallen.
These may have a different impact on startups and large companies. For example, large energy storage system integrators and battery storage system manufacturers such as Fluence, Powin Energy and Honeywell have signed deals to supply tens of gigawatt hours of batteries. For smaller startups, the competition for battery products in the market has to continue.
Nicolo Campagnol, Battery Solutions Manager at McKinsey & Company, said, “For consumers of batteries, regardless of their size, to struggle with battery supply, we need to think outside the box. It’s interesting to see that companies that are power battery laddering for energy storage systems are booming.”
He said it would be a mistake to underestimate the role played by secondary-use batteries in battery storage, whose installation rate could reach double digits in the coming years.
Selecting the right battery for your battery storage system
Lithium iron phosphate batteries are increasingly becoming the primary choice for battery storage systems. And this battery is becoming increasingly popular in the electric vehicle industry, especially for short-range, low-priced vehicles, which also affects the availability of batteries for use in battery storage systems.
Campagnol said that nickel-manganese-cobalt (NMC) ternary lithium batteries have historically been the dominant product for battery storage systems, but today it is recognized that lower energy density but lower cost lithium iron phosphate batteries will be an alternative to nickel-manganese-cobalt (NMC) ternary lithium batteries.
However, lithium iron phosphate batteries require a higher proportion of lithium than nickel-manganese-cobalt (NMC) ternary lithium batteries, which are more affected by rising lithium carbonate prices than other batteries, and the growth in demand for electric vehicles means that lithium iron phosphate batteries are in short supply, at least until more battery production plants come on line.
The battery storage industry and other consumers are upset about paying such high fees or not having access to batteries, and they see innovation and diversification in battery technology as the solution.
For example, a number of manufacturers are developing and commercializing sodium-ion batteries. These batteries are cheaper and decoupled from the needs of the electric vehicle industry, and McKinsey & Company believes the technology has tremendous potential for growth. However, like many other new products, only time will tell if the claim of lower cost will hold true as development progresses and production capacity increases.
Serious disconnection between raw material supply and production plan
Industry analysts point out that there is a serious disconnect between raw material supply and production schedules today. Solving this problem is not easy, and in fact, it is profitable to invest in the development and supply of lithium and other raw materials.
And while Germany and the U.S. state of California are working to develop technologies to extract lithium directly from brines, McKinsey & Company’s Campagnol says lithium can be extracted in a variety of ways.
He said, “It is actually very feasible to extract lithium using different techniques. On the other hand, not all elements can be treated in this way, such as cobalt. So not all raw materials can be solved in the same way. Obviously, higher prices for raw materials usually facilitate development and production, but some are easier to find solutions for.”