With lithium-ion batteries raising ESG-related concerns, investors are increasingly seeing value in long-duration storage
US storage manufacturing booming
US energy storage manufacturing has been boosted by the Inflation Reduction Act as the White House looks to close the gap on China
- Inflation Reduction Act caused storage manufacturing growth to outstrip that of wind sector in US
- Arizona and South Carolina key beneficiaries of new job creation
- US battery manufacturing set to close gap on China by end of decade
The enactment of the Inflation Reduction Act (IRA) last year has provided a significant boost to the US energy storage industry. New data from the American Clean Power Association shows that, since the IRA came into force on 16 August 2022, plans for a total of 4,415 energy storage-related manufacturing jobs have been announced in the ensuing seven-and-a-half months. To put this in context, this compares to a total of 3,370 wind industry manufacturing jobs (including 870 in offshore wind). In total, 46 new, or expanded, clean energy manufacturing facilities have been announced since the enactment of the IRA – of those, ten have been utility-scale battery storage manufacturing facilities, with another 10 in wind (including 2 focusing on offshore wind). But it is the solar industry that has been the big winner in the period, with 26 solar manufacturing facilities – and 9,895 jobs – announced.
Kickstarting US storage growth?
It is unsurprising that the energy storage manufacturing sector has flourished since the arrival of the IRA. While the act extended existing investment tax credits (ITCs) and production tax credits that have driven growth in US wind and solar in recent years, it introduced a new 30 per cent investment tax credit for standalone energy storage projects with a capacity of at least 5KWh.
Upon the announcement of the standalone storage ITC, it was expected that it would drive significant growth in the sector in the same way the solar ITC kickstarted the US solar industry. So much so in fact, that there have been serious concerns in Europe that the attractiveness of the ITC will result in potential storage investors diverting their interest away from Europe towards North America.
Arizona: ‘Epicentre of batteries’
It appears that the ITC has indeed given the US storage sector a shot in the arm. Arizona in particular has been a key beneficiary, with the state being seen by some – including Sandra Watson, president & CEO of the Arizona Commerce Authority, the state’s leading economic development organisation – as an “epicentre for battery manufacturing”. Notably, in December last year, American Battery Factory (ABF) announced that Tucson, Arizona had been selected as the site for the first in a planned series of battery cell gigafactories based in the US. The site will act as ABF's official headquarters and, measuring 2 million square feet, will be the country's largest gigafactory for the production of lithium iron phosphate battery cells, providing an estimated $1.2 billion in capital investment and $3.1 billion in “economic impact” to the state. Approximately 300 “high-paying” jobs will be provided in the first phase of the factory's opening, with a view to scaling up to 1,000 jobs.
Meanwhile, last month LG Energy Solution announced it will invest approximately $5.5 billion to construct a battery manufacturing complex in Queen Creek, Arizona. The complex will consist of two manufacturing facilities – one for cylindrical batteries for electric vehicles and another for lithium iron phosphate pouch-type batteries for energy storage systems. It represents the largest single investment ever for a stand-alone battery manufacturing facility in North America. The reason for LG’s investment was that there is a rising demand from EV makers in the US for locally manufactured batteries. This is due to the need to satisfy the criteria for the IRA’s EV tax credits, which include requirements related to final assembly in North America – the objective being to promote the development of local supply chains.
South Carolina: Leading state for manufacturing
South Carolina has been another major winner in the US’ recent energy storage manufacturing boom. This is unsurprising given the state is seen in some quarters as the number one US state for manufacturing. Location advisory services provider Site Selection Group says among the benefits of South Carolina are its infrastructure – for example, five interstate highways run through the state, including I-95 which runs North to South, all the way from Maine down to Florida. I-95 is considered the busiest highway in the US for truckers and spans 15 states (therefore crossing through more states than any other highway). In addition, South Carolina now boasts the deepest port on the US east coast – the Port of Charleston is now 52 feet deep and can be utilised at any time and at any tide. Completed in 2022, the port spans 40 miles from the ocean through the inner harbour to connect three container terminals. Its turning basins have been widened so ships can pass each other or turn around more easily.
The appeal of South Carolina was not lost on energy storage sector manufacturers. Last month, Albemarle Corporation announced plans to locate its lithium hydroxide Mega-Flex facility in Chester County, South Carolina with the creation of 300 jobs. Plans for the facility include an initial investment of at least $1.3 billion to “help meet the surging demand for domestic and international electric vehicles and lithium-ion batteries”. Albemarle expects the facility to annually produce approximately 50,000 metric tonnes of battery-grade lithium hydroxide, with the potential to expand up to 100,000 metric tonnes. Albemarle said the site would support the objectives of the Inflation Reduction Act, specifically incentivising the “localisation of critical minerals in North America”. Meanwhile, in December last year, Pomega Energy Storage Technologies announced plans to build a 3GWh-capacity lithium-ion battery factory in Colleton County. The $279 million facility will exclusively target the grid-scale energy storage market and create approximately 575 new jobs. Located in the Colleton Industrial Campus, near Walterboro, Pomega Energy Storage Technologies’ new facility will not only manufacture lithium-ion battery cells, but will also produce the modules and other elements of the company’s containerised energy storage solutions.
US battery manufacturing will close gap on China
There can be no doubt that the US is serious about scaling up its battery manufacturing capacity. As the White House has highlighted, the IRA, combined with the Bipartisan Infrastructure Law (which seeks to invest in the US’ infrastructure and economy), and the CHIPS & Science Act (which aims to catalyse investments in domestic semiconductor manufacturing capacity) will invest more than $135 billion to “build America’s electric vehicle future, including critical minerals sourcing and processing and battery manufacturing”.
By the end of the current decade, the US will have made a significant step towards closing the gap on China when it comes to lithium-ion battery manufacturing. This a key concern of the US government – the White House has lamented the fact that China currently controls much of the critical mineral supply chain, while the lack of mining, processing, and recycling capacity in the US “could hinder electric vehicle development and adoption, leaving the US dependent on unreliable foreign supply chains.” Projections from S&P Global show that in 2030 the US’ lithium-ion battery capacity will have grown to 620GWh – by way of comparison, in 2021, it stood at 38GWh. This means that, by 2030, the US’ lithium-ion battery capacity will be around one fifth that of China, which is expected to hit 3,448GWh by the end of the decade.
In 2030, China will certainly still be the dominant force, but considering that, in 2021, China’s lithium-ion battery capacity (685GWh) was around 18 times bigger than that of the US (38GWh), the signs are that, by the end of the decade, the US will have increased its share of the market considerably.