Good news for storage as lithium-ion prices fall

There is industry-wide anticipation of a surge in energy storage expansion thanks to the falling cost of lithium-ion batteries. Lower lithium prices will mean better deals and more opportunities for certain sectors of the storage market.

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This is welcome news as growth in demand for lithium-ion battery packs, which are key to the electrification of vehicles and many electrical grid storage projects, looked as if it was going to fail to reach the more optimistic industry predictions of the early s.

According to a report from research provider BloombergNEF, the cost of battery packs fell by 14% towards the end of last year, following an unprecedented escalation in prices. This significant decrease has enabled the industry to relax the "pause" policies put in place due to rising costs.

Manufacturers had previously reported declining utilization rates in their plants, with demand and revenue falling short of expectations. Several electric vehicle and battery manufacturers were consequently required to revise their production targets.

However, concerns surrounding persistently high lithium prices have mainly dissipated. This recent reduction in price can be attributed to various factors, as notably, COVID-related supply chain issues are now being resolved.

In addition, a decrease in component and raw material costs has occurred due to increased production capacities throughout the battery supply chain. Innovations in cathode and anode materials, new pack designs and enhanced cell manufacturing processes are also crucial to future price decreases.

With prices hitting a historic low of $139 per kilowatt-hour, BloombergNEF data strongly indicates that the demand for lithium-ion battery packs is poised for substantial growth, with a projected year-on-year uptick of 53%. Last year, global lithium-ion battery demand surpassed 950 gigawatt-hours.

Lower costs mean that projects previously sidelined may now find renewed interest. BloombergNEF energy storage analyst Evelina Stoikou noted that while initial expectations for lithium-ion technology were overly ambitious, the previous year demonstrated a considerable shift.

She stated: "It is another year where battery prices closely followed raw material prices. Over the years we've conducted this survey, declining prices have typically been driven by scale economies and technological advances; however, that dynamic has altered."

The fall in prices this year is attributed to substantial growth in production capacity across the value chain, coupled with weaker-than-anticipated demand.

BloombergNEF's research indicates that the $139 per kilowatt-hour figure is an aggregate of various battery types across sectors such as electric vehicles, stationary grid storage and buses. Battery electric vehicle packs, benefiting from economies of scale, now average $128 per kilowatt-hour.

On the cell level, average prices for electric vehicle batteries stood at just $89 per kilowatt-hour. Regionally, findings show that average battery pack prices were lowest in China at $126 per kilowatt-hour. Prices in the US were 11% higher, while those in Europe were 20% higher.

Tradiottionally, the West has preferred nickel-manganese-cobalt batteries, although this trend is shifting, with China leading in lithium-iron-phosphate (LFP) battery production. Notably, BloombergNEF's analysis revealed that last year marked the first time average LFP cell prices dipped below $100 per kilowatt-hour.

Yayoi Sekine, head of energy storage at BloombergNEF, commented: "Battery prices have experienced extreme fluctuations over the past two years."

"Significant markets like the US and Europe are ramping up local cell manufacturing, and we're closely monitoring how production incentives and tightening regulations on critical minerals will influence battery prices."

But how low can lithium-ion battery storage prices get? For electric vehicles, industry analysts view the $100-per-kilowatt-hour benchmark as a vital threshold, beyond which cost-competitiveness will be ensured.

The US Department of Energy has established a more ambitious target through its Energy Storage Grand Challenge, aiming for a manufacturing cost of $80 per kilowatt-hour by 2027 (for a 300-mile range electric vehicle).

Should prices continue to decline at the same rate as last year, the industry will quickly breach the $100-per-kilowatt-hour mark within a few years, making the Department of Energy's goal appear highly achievable. Additionally, supporting policies in the US are paralleled by regulatory changes favoring sustainability globally.

Such changes include new net-zero targets and initiatives like Europe’s Fit for 55 program, a ban on new internal combustion engine vehicle sales in the EU and India’s Faster Adoption and Manufacture of Hybrid and Electric Vehicles scheme.

The increasing consumer demand for green technologies, along with rising electric vehicle adoption rates, paints an optimistic picture. The International Energy Agency reports that electric vehicles constituted 10% of global vehicle sales in 2021 and are projected to reach 30% by the decade's end.

Moreover, commodity data agency Fastmarkets states that over 20 lithium mines commenced operations last year. The expansion of lithium production, now extending into Africa, is promising, especially considering that mines typically require 10 to 15 years to become operational.

The decline in lithium prices followed the discovery of a substantial lithium reservoir last year, located within an extinct super-volcano on the border of Nevada and Oregon in the US. Geologists estimate that the McDermitt Caldera could harbor up to 120 million tonnes of lithium.

The Canada-based Lithium Americas Corporation plans to commence extraction operations as early as 2023, with intentions to sustain extraction for the next 40 years before backfilling the pit.

As new lithium reserves are uncovered, the battery sector is also focused on enhancing material efficiency and improving recycling rates, further ensuring future reductions in lithium-ion battery costs. Additionally, for stationary storage applications, there exist even more economical technologies than lithium-ion.

Innovative technologies are being developed that can store energy in materials as inexpensive as rust, concrete, and air. These concepts are often tailored to provide substantial energy over hours or even days—durations that current lithium-ion technology cannot maintain cost-effectively due to battery pricing.

If these emerging technologies become mainstream, they could make concerns about lithium pricing a relic of the past.

Publish date: 26 March, 2023

The primary expense of an electric vehicle (EV) is its battery. The steep cost of energy-dense batteries has historically rendered EVs more expensive than their fossil fuel counterparts.

This situation may change sooner than anticipated. CATL, China's largest battery manufacturer for electric cars, asserts it will reduce its battery prices by up to 50% this year as a price war begins with BYD subsidiary FinDreams, the second-largest player in the market.

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What drives this shift? After the electric vehicle sector experienced substantial growth in 2021, it faced challenges. The industry expanded quicker than demand, prompting efforts to lower prices.

However, the anticipated price reductions signify progress. Researchers have achieved significant advancements in discovering new battery chemistries. CATL and BYD now produce EV batteries devoid of cobalt, an expensive and scarce material often associated with child labor and perilous mining practices in the Democratic Republic of the Congo.

Economies of scale and fresh supplies of lithium render it feasible to offer batteries at lower prices. Meanwhile, the world's largest automaker, Toyota, is betting on solid-state batteries, aiming for these energy-dense, almost fireproof batteries to enable EVs with a range exceeding 1,200 km per charge.

How are battery makers cutting costs?

China represents the most significant market for electric and plug-in hybrid vehicles. However, demand for EVs there has slackened, decreasing from a 96% surge in demand in 2021 to a 36% increase in 2022.

Consequently, battery giant CATL has experienced its first profit drop in nearly two years.

One effective strategy to stimulate demand is to lower product prices. This is the rationale behind CATL and BYD's cost-cutting pledges.

You may be curious how this is achievable. A primary challenge in transitioning to battery-electric vehicles lies in sourcing raw materials. The future of electric vehicles hinges on establishing viable supply chains for essential minerals like lithium, nickel, copper, cobalt, and rare earth elements.

Until recently, the predominant EV battery chemistry relied on lithium, nickel, manganese, and cobalt, commonly referred to as NMC batteries.

If you can minimize the use of costly or controversial minerals, you can effectively lower your expenses. That’s why companies such as CATL have essentially monopolized the segment focused on another chemistry, lithium iron phosphate (LFP) batteries. These batteries are more affordable as they contain no cobalt, and they also offer advantages such as extended lifespan and a reduced fire risk compared to traditional lithium battery chemistries. Their primary drawbacks include lower capacity and voltage.

The recent price reductions are a result of a conscious move to utilize abundant Earth materials like iron and phosphorus wherever feasible.

Regarding lithium, prices for lithium carbonate—an ultra-light silvery-white metal—increased sixfold from 2020 to 2021 in China before decreasing last year. Despite this, battery prices have continued to decrease, albeit not as drastically as they otherwise could have.

The world's massive demand for lithium has prompted substantial supply growth as miners endeavor to discover new sources. For example, CATL is investing A$2.1 billion into lithium extraction plants in Bolivia.

Growth in lithium supply is expected to surpass demand by 34% in both this year and next, which should help stabilize battery prices.

Battery options are multiplying

While China's battery manufacturers have dominated the lithium iron phosphate battery market, they are by no means the only players. Tesla electric cars have traditionally been powered by batteries from Japan's Panasonic and South Korea's LG. These batteries are based on well-established NMC and lithium nickel cobalt aluminate oxide (NCA) chemistries. Nonetheless, Tesla is now integrating CATL's LFP batteries into its more budget-friendly vehicles.

The world's largest carmaker, Toyota, has historically been doubtful of lithium-ion batteries, focusing instead on hybrid and hydrogen fuel cell vehicles.

However, it is now shifting gears, placing significant emphasis on the development of solid-state batteries. These eliminate liquid electrolytes used for electricity transport in favor of a solid medium. Last September, the company announced a breakthrough that could enable faster charging times and ranges of 1,200 km before requiring a recharge. If these claims hold true, such batteries would effectively double the range of today’s high-performance EVs.

In response, China’s battery manufacturers and its government are working diligently to catch up to Toyota in the field of solid-state batteries.

Which battery chemistry will ultimately prevail? It is too early to ascertain for electric vehicles. However, as the green transition advances, it is expected that we will require not just one but multiple options.

After all, the energy requirements for a heavy-duty truck will differ markedly from those for a small city commuter EV. As electric aircraft transition from concept to reality, different batteries will be necessary. Achieving battery-electric aircraft viability demands batteries with exceptional power density.

The encouraging aspect? These are engineering challenges that can be addressed. Just last year, CATL revealed a pioneering condensed matter battery for electric aviation, boasting an energy density up to three times that of an average electric car battery.

Simultaneously, researchers are pushing the boundaries even further. An average electric car might utilize a battery with an energy density of 150–250 watt-hours per kilogram; however, laboratory records now exceed 700 watt-hours/kg.

This discourse overlooks the exploration into alternative battery chemistries, including sodium-ion, iron-air, and liquid metal batteries.

In summary, we are merely at the inception of the battery revolution.

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