Advances in battery technology are making it possible to move towards low carbon transportation and supply of energy. Morgan Stanley’s research team predicts that in 2040 the battery market for electric vehicles and grid infrastructure will be $535bn.[i] Higher performance and lower cost batteries have been driven mostly by demand from the transport sector.
Electric vehicle (“EV”) penetration globally surged from 2% pre-COVID to 7% of new car sales today, with many large automotive manufacturers laying out ambitious plans to phase out the manufacturing of gas-powered vehicles in the next couple decades. This is being driven by large venture capital investments lowering the cost of technology and new pro-climate government policies promoting adoption around the world (gas vehicle bans, EV subsidies, and carbon emissions targets). See intro to EVs in emerging markets from previous post.
Prevalent Energy Storage Technologies: Lead Acid, Lithium-ion, and Sodium ion
Lead acid was the leading energy storage medium for decades until the cost of lithium-ion (“li-ion”) dropped. As an example, the Levelized Cost of Storage of a 4hr li-ion energy storage system dropped ~82.9% per MWh from 2012 to 2021.[ii] Once costs dropped, li-ion gained dominance due to its greater energy capacity, depth of discharge (how low you could efficiently deplete the battery), charging and discharging efficiency, and lifespan. Even compared to other commercial batteries such as Sodium-ion (which is lower in cost, less reliant on lithium supply, and has a similar production processes), li-ion still provides the best all-around value today. See intro to Energy Storage from previous post.
The Li-ion Family
Li-ion is not a single technology, but a family of different combinations of anode-cathode material, the most prevalent are:
· Lithium Nickel Manganese Cobalt oxide cathode (“NMC”)
· Lithium Iron Phosphate cathode (“LFP”)
· Lithium Manganese Oxide (“LMO”)
· Lithium Nickel Cobalt Aluminum cathode (“NCA”)
According to BloombergNEF, the NMC variant was the most prevalent in terms of newly-commissioned energy grid infrastructure in 2020. However, by the end of 2021, half of stationary storage commissioned was LFP. This was due in large part to supply chain issues of NMC batteries. [iii]
The Climate Impact of Li-ion batteries
There have been several studies on the lifecycle emissions of the production of li-ion batteries. Taking research only from the past 5 years (which likely reflects the current state of technology), LMO appears to have the lowest embodied carbon on a kgCO2e per kWh basis. While LFP and NMC are pretty much tied.
Embodied CO2 in battery manufacturing is highly dependent on the electricity mix of the grid in the country of production, transportation and the emissions intensity of country of extraction. One interesting takeaway is that a battery manufactured in China has ~3x more embodied carbon than one produced in the US.
The Geopolitics of Li-ion
The trade war between China and the USA caused a shortage of NMC’s cobalt and graphite in many of the countries that were rolling out energy storage, particularly because the limited amounts of supply were channeled to higher-profit customers in the EV industry.
48.0% of the 32.2GWh of stationary storage capacity in the world is located within the USA. [iv] However, ~65% and ~60% of global cobalt and graphite, respectively, is processed in China. Furthermore, Chinese firms control the largest cobalt mines in the Democratic Republic of the Congo, which supplies 70% of the world’s raw cobalt.
Due to supply chain concerns, BloombergNEF predicts LFP to dominate the energy storage landscape this decade as American companies are building up capacity to mass-produce the phosphate for LFP batteries within the US.[v]
Parts of a Battery Energy Storage System and an EV
EV batteries and Battery Energy Storage Systems (“BESS”) are adjacent industries that are becoming economically viable in emerging markets in a similar timeframe because of cost decreases in the portion of their value chains shared by both.
The graph below is an illustrative breakdown of the installed cost of a $192/MWh battery energy storage system. The battery module makes up ~60% of the cost of a project.
The graph below is an illustrative breakdown of the cost components of a $20,000 electric vehicle. The battery module makes up ~40% of the cost of a vehicle.
Because BESS and EV share a large portion of their li-ion value chain, the two industries inevitably compete for raw materials, processing capacity and component manufacturing and assembly volumes.
Competition for supply is slowing the drop of installed cost of new BESS. By 2040, Morgan Stanley predicts the market size for li-ion EV battery modules will be ~US$525bn and li-ion BESS battery modules will be ~$10bn.[vi] This resource competition is opening up the potential for alternative technologies to enter Energy Storage that can provide lower-cost storage given certain circumstances.
Long Duration Energy Storage technologies for energy grids
Li-ion energy storage is economically limited to discharge times of up to 6–8 hours. This means that once the sun sets, li-ion BESS can only provide energy up to an hour or two after midnight at best. Seeking to extend this duration of time with the current state of li-ion technology exponentially increases the cost of energy per kWh.
Long Duration Energy Storage (“LDES”) are a group of technologies that are more economical than lithium-ion over longer durations. Some are powered by minerals that are significantly lower in cost and less volatile than lithium. Others store kinetic energy by raising large blocks. And yet others compress air into caverns or change solids to liquids or liquids to gases.
LDES increases in importance with higher penetration of variable wind & solar generation because it can reduce the overall cost of electricity to end-users by negating curtailment and providing stability to an electricity grid.
More on LDES in the next installment of Energy Storage for a Decarbonizing Grid.
[i] Morgan Stanley Global Battery Research (Nov 15, 2021)
[ii] BloombergNEF energy storage database
[iii] BloombergNEF, New Battery Systems set to challenge Dominance of Lithium (November 21, 2021)
[iv] BloombergNEF energy storage database
[v] BloombergNEF, New Battery Systems set to challenge Dominance of Lithium (November 21, 2021)
[vi] Morgan Stanley Global Battery Research (Nov 15, 2021)
Disclaimer: This post reflects my personal views and not those of the International Finance Corporation, World Bank, or any other member of the World Bank Group