China Energy Storage News: Research institutions pointed out that the mismatch between the supply and demand of lithium ion batteries poses challenges to the transition of countries to renewable energy and the role of energy storage systems in the energy transition.

However, the weak global economy, political turmoil and significant growth in demand for lithium-ion batteries (mainly led by electric vehicles) have led to supply constraints, thus delaying the investment and deployment decisions of battery energy storage projects.

One question that the industry needs to answer is what strategies and measures can be taken to overcome this challenge, from start-ups committed to deploying energy storage systems to government departments seeking to support clean energy based economic growth.

Overall pattern of lithium ion battery supply

Cormac O'Laire, senior manager of market intelligence of American Clean Energy Association, said that in the second half of this year, the pricing of lithium carbonate was still a major concern. Even if there are more lithium mines to be mined in the fourth quarter of 2022, it is expected that the global supply of lithium materials will still be very tight.

O'Laire said, "In order to solve the lithium shortage problem, the world's major lithium battery and cathode manufacturers are signing long-term agreements with lithium mine developers. After the conflict between Russia and Ukraine caused the global supply tension of nickel and copper, the prices of nickel, cobalt and other bulk commodity metals fluctuated significantly, and have started to fall back."

He said that although the price trend of these metals is expected to remain stable by the end of this year, the investment in battery raw material mining is generally seriously insufficient. According to the prediction of the American Clean Energy Association, the global investment in this field will be 5 billion dollars in 2022.

However, according to the forecast data of Matt Fernley, an industry analyst, by 2030, if the battery demand of electric vehicles is met, an annual investment of $15 billion will be required.

O'Laire said, "Both the government and the private sector need to increase investment in raw materials, especially lithium, to address the imminent supply and demand constraints."

In the downstream of the battery supply chain, China is building more battery production plants dedicated to battery storage systems, which will be sufficient to meet global demand by 2025.

However, Fernley said that Europe and the United States are also building battery production plants, but they are much smaller and cannot meet their own needs.

At the same time, China plans to expand the capacity of cathode active materials (CAM) to 2TWh. Therefore, O'Laire said that the lithium iron phosphate battery market may face surplus in 2024.

Startups vs large manufacturers

Some industry insiders believe that the situation of the battery supply chain is beginning to ease, especially in the impact of the COVID-19 on logistics and transportation.

The American Clean Energy Association pointed out that some easing of price fluctuations may enable battery energy storage project developers to consider the final investment decision in the third quarter of 2022.

After the biggest price increase in many years, the prices of key battery metals such as cobalt, lithium and nickel have turned around. As the price of lithium products has the greatest impact on the cost of these commodities, the American Clean Energy Association expects that the price of lithium will remain relatively stable in the next few months of this year, and lower than the high point earlier this year.

O'Laire and his research team said that from the fourth quarter of 2022 to the first quarter of 2023, the balance of battery supply and demand is still unstable, and its price may continue to rise at the beginning of next year.

Short term supply interruption means that the battery energy storage industry has to bear the rise in battery costs, or pass the costs on to consumers. The good news is that although some enterprises have introduced pricing based on raw material index (RMI) following the example of electric vehicle industry, the demand has not decreased.

These may have different impacts on startups and large enterprises. For example, Fluence, Powin Energy, Honeywell and other large energy storage system integrators and battery storage system manufacturers have signed dozens of GWh battery supply transactions. For smaller start-ups, they have to continue to compete for battery products in the market.

Nicolo Campagnol, battery solution manager of McKinsey, said, "For battery consumers, regardless of their size, they will be in a dilemma in terms of battery supply. We need to jump out of the inherent mode of thinking. Interestingly, companies that use power battery cascades for energy storage systems are booming."

He said that it was wrong to underestimate the role of secondary batteries in the field of battery energy storage. In the next few years, its installation ratio may reach double digits.

Select the battery suitable for the battery energy storage system

Lithium iron phosphate battery has increasingly become the main choice of battery energy storage system. This kind of battery is also becoming more and more popular in the electric vehicle industry, especially for vehicles with short distance and low price, which also affects the availability of the battery used in the battery energy storage system.

Campagnol said that nickel manganese cobalt (NMC) ternary lithium battery has always been the leading product of battery energy storage system in history, but now people realize that lithium iron phosphate battery with low energy density but lower cost will be a substitute for nickel manganese cobalt (NMC) ternary lithium battery.

However, the proportion of lithium required by lithium iron phosphate batteries is higher than that of nickel manganese cobalt (NMC) ternary lithium batteries, and the rise in lithium carbonate prices has a greater impact on them than other batteries. The growth in demand for electric vehicles means that the supply of lithium iron phosphate batteries cannot meet the demand, at least before more battery production plants are put into production.

The battery energy storage industry and other consumers are dissatisfied with paying such high fees or being unable to obtain batteries. They regard the innovation and diversification of battery technology as the solution.

For example, some manufacturers are developing sodium ion batteries and commercializing them. This battery is cheaper and decoupled from the demand of the electric vehicle industry. McKinsey believes that this technology has great development potential. However, like many other new products, with the development of R&D and the improvement of production capacity, only time can prove whether the claim of lower cost is true.

Rendering of combination of geothermal power generation and lithium extraction facilities

The raw material supply is seriously disconnected from the production plan

Industry analysts pointed out that there is a serious disconnect between raw material supply and production plans. It is not easy to solve this problem. In fact, it is profitable to invest in the development and supply of lithium and other raw materials.

Germany and California are working hard to develop the technology of extracting lithium directly from brine. Campagnol of McKinsey said that lithium can be extracted in many ways.

He said, "It is actually very feasible to extract lithium using different technologies. On the other hand, not all elements, such as cobalt, can be treated in this way. Therefore, not all raw materials can be solved in the same way. Obviously, the rise in the price of raw materials usually promotes development and production, but some are easier to find solutions."