With lithium-ion batteries raising ESG-related concerns, investors are increasingly seeing value in long-duration storage
Are battery manufacturers about to implode?
The cost of lithium (which is used in approximately 90% of the world’s grid-scale battery storage) has plummeted in recent years and projections showing the rapid expansion of the storage market are based on what some consider to be the false premise that the cost of lithium will continue to decrease.
- Claims storage market forecasts based on ‘false premise’ of falling lithium prices
- With lithium prices currently rising, some battery manufacturers ‘could go out of business’
- Analysts fear ESG-related ‘investor backlash’ against lithium-ion batteries
Barely a week goes by without the publication of new research predicting the inexorable rise of the energy storage sector.
If we take a couple of the most recent high-profile examples, Wood Mackenzie said in April this year that it expected that Europe's grid-scale energy storage capacity will expand 20-fold by 2031. Meanwhile, recent figures from S&P Global Market Intelligence showed that US developers plan to install 25GW of utility non-hydroelectric energy storage capacity between now and 2023, almost five times the 5.4GW in commercial operation in the US at the end of 2021.
The numbers may vary slightly depending on which organisation is issuing the projections, but the overwhelming consensus is that the storage sector is set to boom in the coming years.
Is market bullishness misplaced?
However, there are some dissenting voices who argue that this widespread bullishness is misplaced.
The thrust of the dissenters’ argument is this – the cost of lithium (which is used in approximately 90% of the world’s grid-scale battery storage) has plummeted in recent years and projections showing the rapid expansion of the storage market are based on what some consider to be the false premise that the cost of lithium will continue to decrease.
It’s true that the cost of lithium-ion batteries has fallen dramatically – research by the Massachusetts Institute of Technology found that the cost of lithium-ion batteries has dropped by 97 percent since they were first commercially introduced in 1991.
But times are changing. Credit Suisse warned last year that the lithium supply glut has ended, and since then lithium prices have soared. Take the example of China – the third biggest lithium producer in the world behind Australia and Chile – where the price of lithium has multiplied five times over the last year reaching Rmb477,500 (£58,000) a tonne.
Will China continue to export lithium at the same levels?
Additionally, there are other factors that could result in further increases in the price of lithium. Demand for the metal in China is likely to increase significantly as the country’s electric vehicle manufacturing industry undergoes a period of significant expansion. This has given rise to speculation that China may become more selective about who it exports lithium to in future.
It's also important to consider environmental, social and governance (ESG) issues. Lithium mining companies are facing increasing scrutiny from investors regarding their environmental credentials. Fears have been expressed that an ESG-related “investor backlash” could derail the lithium mining industry – there have been allegations of toxic chemicals from lithium mines polluting water supplies. It’s even argued in some quarters that no lithium metal at all reaches battery manufacturers as ‘ESG-compliant’ today.
‘Battery manufacturer implosion imminent’
What will be the repercussions of this for the battery storage industry? “An implosion among the battery manufacturers seems imminent and highly likely,” claims Hugh Sharman of Danish energy consultancy Incoteco.
He adds: “There is no foreseeable end in public view to the lithium supply shortage and some major battery manufacturers look certain to be forced out of business altogether.
“Unless the lithium supply industry can rapidly and economically resolve widely foreseen lithium supply shortages, there will be profound consequences for plans to electrify road transport in Europe as foreseen, agreed and planned for at COP26”.
Lithium-ion’s ‘go-to’ status in jeopardy
It could be that the future expansion of the storage sector will be driven by non-lithium batteries. Perhaps there will be a surge in the use of flow batteries, or maybe pumped heat energy storage or zinc batteries will grow in popularity. Meanwhile, the use of compressed air storage applications is becoming more common and investors are also seeing considerable potential in ‘gravity energy storage’.
However, what is certain is that there are serious doubts as to the future viability of lithium-ion storage. With lithium prices soaring, demand growing and questions being asked about the green credentials of the lithium-mining industry, lithium-ion’s status as the battery technology of choice could be in jeopardy.