The Rechargeable Revolution

Large scale deployment of energy storage coupled with renewable resources will help kick-start the ‘rechargeable’ revolution, but near-term risks and supply chain constraints must be addressed.

Advances in Lithium-ion Batteries

In the next 5-6 years, sourcing the raw materials for the cathode that includes the following critical ingredients and potentially, the anode is expected to drive the upcoming demand for Li-ion batteries.

  • LCO or Lithium-Cobalt dioxide (100% cobalt): used in smartphones and laptops,
  • LMO or Lithium-Manganese dioxide (100% manganese): used in electric vehicles such as Nissan Leaf,
  • NCA or Lithium-Nickel-Cobalt-Aluminum dioxide: used in Tesla electric vehicles, and
  • NMC or Lithium-Nickel-Manganese-Cobalt dioxide (e.g. Tesla Powerwall).

Recent projections related to costs and volumes in the battery storage and electric vehicles industries are increasingly garnering attention from major energy market players in the United States. A landmark announcement by the Federal Energy Regulatory Commission (FERC) in early 2018 has further ignited the debate about the future role of rechargeable batteries in the U.S. electricity grid.

FERC’s Order 841 allows participation of batteries and other electric storage systems in the energy, capacity and ancillary services markets operated by Regional Transmission Organizations (RTOs) and Independent System Operators (ISOs) and is expected to remove all barriers for storage’s participation in wholesale markets. Under the FERC’s new rule, a participating storage resource, not larger than 100 kW, must be eligible to provide all energy, capacity, and ancillary services that it is technically capable of providing. Additionally, the agency has directed that the participation model must ensure that storage systems in it can be dispatched, and can set the wholesale market clearing price as both a seller and buyer consistent with existing market rules.

The FERC rules are expected to account for the physical and operating characteristics of electric storage resources through bidding parameters or other means. The federal agency has also clarified that the sale of electric energy from the wholesale electricity market to an electric storage resource that the resource then resells back to those markets must be at the wholesale locational marginal price. The RTOs and ISOs will need to revise their tariffs, establish a participation model for energy storage and implement energy storage market participation rules by early next year.

litium battery
Lithium Battery

While these developments including the possibility of coupling batteries with renewable resources are encouraging and there are distinct advantages of electric storage systems via the ‘stack’ benefits[1] approach, the supply-demand fundamentals underpinning the expected battery boom need to be explored further. Let’s look at the widely available lithium-ion (Li-ion) battery technology that has recently taken over the battery market.

A typical Li-ion battery contains an anode – the negative electrode that gets oxidized and releases electrons, a cathode – the positive electrode that gets reduced by acquiring electrons, and an electrolyte (typically, lithium salts) or a liquid/solid medium that enables the ion transport mechanism between the anode and the cathode. A charge cycle in a battery forces the positive cathode to give up some of its lithium ions, which move through the electrolyte medium to the negative anode (contains graphite) while the discharge cycle forces the lithium ions to move back across the electrolyte to the positive cathode, producing the energy that powers the battery.

The recent decade has seen a dramatic lowering of cost of the high energy density Li-ion batteries thus making it the battery of choice[2] for consumer electronics. The year 2015 saw an introduction of almost half a million battery electric vehicles (BEVs) in the United States thus ushering in the rise of Li-ion batteries. Refer to Figure 1 from Energy Innovation for some recent projections of U.S. market share of electric vehicles (EVs) from the Energy Policy Simulator (EPS, 1.3.1 BAU case), the Energy Information Administration (EIA, Annual Energy Outlook 2017 ‘No Clean Power Plan’ case), and Bloomberg New Energy Finance (BNEF) electric vehicle outlook 2017.

Figure 1: Projection of U.S. market share of EVs from EPS, EIA, and BNEF

Analysts[3] are predicting an explosive growth of annual electricity demand from EVs in the United States by 2040 (ranging from ~250 to 300 TWh), further fueling the surging demand for Li-ion batteries. Refer to Figure 2 and Figure 3 for some of the Analysts’ projections related to penetration of electric vehicles globally.

Figure 2: OPEC’s Electric Vehicle Forecast – 2015 and 2016

Both upstream and downstream players in the battery industry are finding out that acquiring lithium, graphite, and cobalt from smaller and less established markets along with mitigating other supply concerns (see examples below) will be critical for shaping the future energy mix in the United States.

  • Two-thirds of global cobalt production is from the Democratic Republic of Congo[4], a country marred with deep-rooted corruption and political instability.
  • Over 60 percent of flake graphite is mined from China, a country that is increasingly shutting down mines due to concerns related to environment and labor practices.
  • Chile, Bolivia and Argentina account for ~ 75 percent of the world’s supply of lithium.

Further, unexpected government and/or regulatory interventions, and higher demand for rechargeable batteries has led to price spikes[5] in the commodity markets in recent years. A few downstream market players such as Tesla and Apple have indicated a desire to source 100 percent of raw materials for batteries sustainably and ethically from North America, even though the continent hasn’t extensively mined lithium, cobalt or graphite in the past four decades or so.

Despite these persistent short-to-medium term supply chain constraints, a combination of the following will need to be unleashed to support the upcoming boom.

Figure 3: Sales of Electric Vehicles to 2035 – Wood Mackenzie

Material change in the chemistry of batteries by sourcing substitute metals and lowering dependence on supply-constrained and expensive metals such as cobalt.

  • Researchers at Northwestern University’s McCormick School of Engineering[6] and backed by the U.S. Department of Energy, have recently developed a lithium battery which replaces cobalt with iron. They created a rechargeable lithium-iron-oxide battery that can cycle more lithium ions than its common lithium-cobalt-oxide counterpart and is relatively cheaper.
  • Researchers at the University of Illinois at Chicago and at Argonne National Laboratory recently designed a new lithium-air battery that can hold up to five times more energy than the lithium-ion batteries. The technology will allow for higher capacity batteries in smaller packages, optimize both weight and cost of a product, and reduce overall material requirements.

Sustainable and economic metal recycling to supplement existing mining processes;

Development of long-term, fixed price transactions between mining giants and downstream players;

Potential acquisition of mining firms by downstream players;

Accelerated pace of funding in the mining and the battery factory capacity sectors; and

Higher sales and adoption of electric vehicles.

Large scale deployment of energy storage systems in combination with increasing penetration of renewable resources will help usher in the ‘rechargeable’ revolution, but the short-to-medium term risks and persistent supply chain constraints will need to be addressed sooner rather than later.

Footnotes

[1] Facilitates multiple streams of revenues such as payments for energy arbitrage, provide ancillary services to the grid etc. Energy storage systems can act as both load and supply and this dual role allows flexibility to provide multiple uses, sometimes simultaneously.

[2] Costs of Li-ion batteries have come down from $1,200/kWh in 2008 to $190/kWh by 2016. The first rechargeable battery was the lead-acid battery that can provide high surge currents and is extensively used in the automobile industry today. Other energy storage technologies include the less used Nickel Cadmium (NiCd) batteries, Nickel-metal hydride (NiMH) batteries used in digital cameras, power tools etc., Alkaline batteries used in household devices, Vanadium Flow batteries, Pumped Hydro, Chemical Storage that uses excess electricity to create hydrogen fuel, compressed air stored in deep caverns and can be used to generate power etc.

[3] Bloomberg New Energy Finance, Wood Mackenzie, Morgan Stanley.

[4] The country announced higher taxes on mining firms and higher government royalties from the industry in March 2018 amidst fierce opposition from international mining companies.

[5] The 2014 spike in nickel prices was driven by a ban on exports by the Indonesian government. Prices spiked for graphite (from $3,500/tonne to $10,000/tonne), lithium (from $10,000/tonne to $20,000/tonne) and cobalt ($27,000/tonne) in 2016. Cobalt prices (LME) ranged between $15,000/tonne and $32,500/tonne in 2017, and are expected to rise higher in 2018 due to tight supply and increasing demand, primarily from the EV industry. In early 2018, Morgan Stanley forecasted the price of lithium carbonate to fall from $13,375/tonne to $7,332/tonne by 2021, and then towards its marginal cost of production at $7,030/tonne thereafter. Supply-side pressures continued in the graphite market in 2017 and are expected to remain tight for the next few years.

[6] Led by Christopher Wolverton (Professor of Materials Science and Engineering) at Northwestern University’s McCormick School of Engineering.

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