article 3 months old

ESG Focus: Will Lithium Meet Its Waterloo?

ESG Focus | Aug 10 2023

FNArena's dedicated ESG Focus news section zooms in on matters Environmental, Social & Governance (ESG) that are increasingly guiding investors preferences and decisions globally. For more news updates, past and future:

ESG Focus: When Will Lithium Meet Its Waterloo?

Battery innovation is going gangbusters, driven by environmental and social imprimaturs, leading experts to conclude that it is not a matter of if but when lithium will be dethroned – prepare for the great reshuffle.

-It’s an impact play 
-Environmental and social imprimaturs in focus
-Grid storage barrelling along
-EV battery innovation not far behind
-Commodities markets may face a reshuffle later this decade

By Sarah Mills

In FNArena’s recent article on ESG trends, we advised that impact investment would be the defining ESG trend of 2023, and the year hasn’t disappointed with mass production of new battery technologies preparing to hit the market this December half.

This introductory article is the first in a series on battery innovation, which includes articles on: grid storage; EV battery innovation; batteries for small devices; and mining and processing.

The Problem

Lithium-ion batteries, the current industry standard, are currently not fit for purpose. The world will not reach its 2050 decarbonisation targets using the current technology.

The batteries are too expensive and short-cycled to provide base load to energy grids; when it comes to EVs they are heavy, take a long time to charge; offer limited range; and processing their inputs is dirty and toxic, raising environmental and social imprimaturs.

Lithium and cobalt (and other minerals) are key ingredients of lithium-ion batteries and both have poor environmental and health and safety reputations. Unless these are solved, and they appear fairly intractable, technology using them is likely to be deprioritised.

Another problem with lithium-ion batteries is their tendency to occasionally catch fire. This is likely to be a huge Achille’s heel going forward as the battery marketing wars heat up.

It’s An Impact Play

When it comes to decarbonisation, battery innovation is the holy grail of impact – the new global gold rush – and as such has attracted massive R&D investment.

This investment has paid off, with many of the world’s industry experts now spying lithium’s demise, short of drastic innovation, as inevitable (although by no means immediate – and certainly not this decade).

Investors will need to have their ears tuned, because the tipping point is likely to occur before prices and functionality of new technologies hit parity.

This is partly because many investors will be positioning themselves ahead of the curve, but also because environmental and social imprimaturs are likely to attract a premium for cleaner, safer technologies.

The next three to five years will be pivotal for the battery market in several ways.

Firstly, investors will be placing their bets on the multitude of incoming technologies; secondly they will be reviewing related upstream and downstream investments; thirdly, they will be eyeing off new technologies enabled by battery innovation. 

The upshot? The great reshuffle!

Grid Storage Innovation To Change The Playing Field

Grid storage innovation will precede EV innovation.

A range of batteries to provide grid stability will be rolled out within the next two years, many hitting the market this year (and some are already being implemented). 

This will have a major impact on non-renewable energy alternatives that may have been mooted as solutions to renewables intermittency.

These batteries (assuming continued improvements in efficiency and price) are likely to reduce the prospects of alternative energy sources for providing base load such as nuclear energy, not to mention fossil fuels, hastening the latter’s demise.

Batteries, which are likely to plummet in costs, will cement renewable energy’s position in the electricity grid market and hasten its deployment.

As regulation and carbon markets kick in, the economics of renewables (already the cheapest form of energy) will only become cheaper still.

Grid storage batteries are unlikely to affect lithium demand, given lithium batteries were never considered a contender for this market in the first place, despite their installation in some grids. But divisions that were providing lithium grid batteries will be among the first to go.

Nuclear Energy On The Back Foot

Nuclear fission has been considered a contender for grid base load, along with hydrogen.

Fission is still likely to retain its loyalists and its small modular reactors may get to have a day in the sun in the early stage of the transition as big capital presses climate change initiatives. 

Nuclear energy may also initially play a role in countries with poor solar options (especially given the growing cost blowouts associated with wind energy). 

But neither US, China, India or Australia, would be among these countries given all have plentiful solar, and battery storage enhances both nation’s abilities to ship energy from solar rich areas to solar poor areas. Europe is also likely to negotiate a similar transfer of energy within its member nations. 

Even then, other battery technologies such as gravity technology, that do not require solar energy, are in the works.

Given nuclear energy is so expensive and is likely to become increasingly so relative to falling renewables and battery costs, the only rationale to deploy it as the transition progresses will be the satisfaction of political obligations, which will come at the expense of a taxpayer who will be subsidising their own and industry’s energy consumption. The toxic waste issue is another major hurdle.

But any investment made this decade in nuclear energy is likely to exist alongside renewables and batteries, given its longevity. By 2030, battery and solar innovation is likely to win the day.

Hydrogen Scrambling For Relevance

Hydrogen energy is likely to be another casualty of grid battery innovation. Its environmental credentials are better than fission’s but transportation remains the major stumbling block. 

Some had been touting hydrogen as a solution to renewables intermittency (by replacing gas), and it may yet have a role given as it is cleaner than batteries, but batteries will most likely gain the support of big capital in the near term based on current investment trajectories.

Hydrogen has also been proposed as a form of lossless power transmission – a superconductor. This concept refers to a supergrid with hydrogen as a means of combining very long distance electric power transition with liquid hydrogen distribution to achieve superconductivity in the cables.

In this sense, hydrogen could work in conjunction with battery storage to transport electricity from solar areas to non-solar areas.

Hydrogen can be used as both a distributed fuel and a cryogenic coolant for power lines rendering them superconducting (this is really only in concept stage but the science is sound).

Hydrogen is still the favoured option for heavy industry in the near to medium term, and there will be room for it to operate side by side with batteries as big capital accelerates decarbonisation.

Fusion may be an option, but again it is expensive and will be arriving very late in the game if at all. And fusion uses hydrogen, not radioactive metals.

Another innovation that could favour renewables and batteries over other forms of energy is in superconducting cables generally, given a tenth of all electricity is lost through grid transmission.

A single 17cm cable can carry the entire output of several nuclear plants. These cables already exist and have been implemented.

It has been suggested that Australia has an opportunity to deploy them as it modernises its grid, which currently uses high voltage transmission lines. (Labor has pledged $20bn to modernise the grid but Australia is something of a Captain Plod on the global innovation stage, so I wouldn’t hold your breath.)

Innovation in superconductors (which require deep cooling to work) is now making this a reality. The current industry standard uses nitrogen as a coolant, which could dovetail neatly with the hydrogen/ammonia play.

First Cabs Off The Grid-Storage Rank

Solid state batteries, ion-air batteries, and flow batteries, are all likely to play a role in grid storage to provide base load to electricity grids from here onward. 

The main contenders in the grid storage market (and the first off the rank at scale) appear to be iron-air batteries and vanadium flow batteries but there are several other technologies such as molten salt batteries and gravity batteries in the wings.

Iron-air batteries are already available and plant construction in Australia is beginning at the end of this year as well as mass-production facilities in the US.

Vanadium flow batteries are already being produced in China and the world’s largest vanadium flow battery plant should be in place by the end of this year.

EV and Aviation Batteries

EV battery innovation is busier than a palm tree in a hurricane at the moment, with some technologies due to scale up this year.

But this doesn’t spell the end of lithium-ion batteries just yet.

By and large, most pundits do not expect the tables to start to turn until roughly 2028 (although you never know), given the growing demand for electric vehicles is likely to provide enough room for several technologies to exist side by side.

Sodium batteries and solid-state batteries are considered to be two of the most prospective technologies.

Others include: metal hydrogen batteries, zinc manganese oxide batteries organosilicon electrolyte batteries, sodium-ion batteries, hot-water based batteries, and solar-state batteries.

Solid state batteries use a solid electrolyte material instead of the liquid or gel used in conventional EV batteries. 

Solid electrolytes sharply raise a battery’s energy density and safety, avoiding the use of flammable solvents, but they do tend to make batteries heavier, which is where the innovation will come in.

But lithium isn’t giving up without a fight.

A new generation of lithium batteries are hitting the market which offer increased performance, charge times and lifespans.

They include: silicon anode lithium-ion batteries, solid-state batteries, nano-bolt lithium tungsten batteries, lithium sulphur batteries, cobalt-free lithium-ion batteries, and lithium-ion phosphate batteries (LFPs).

There are even EVs that don’t use batteries. The Swiss-made nanoFlowcell QUANTiNo twentyfive (pictured above) was the first such concept car to be invented a decade ago.

There is a lot going on out there but for the purposes of this series, our coming article on EV battery innovation will focus mostly on innovation that is close to commercialisation, or at least a contender for early commercialisation.

Smaller Device Battery Market Unknown Quantity

The smaller device battery market is another hotbed of innovation.

This is a fun and more speculative area given many small devices have yet to be invented, and given the potential to introduce more nifty battery technologies based on electrical fields.

And compared to renewables and EVs, the politics behind the substitution with existing batteries is virtually non-existent.

Industry appears to be largely content with lithium for existing devices for now, although greater efficiency will be sought, but wearable devices will likely be an area of innovation and once the cats out of the bag, it is difficult to predict the trajectory.

We will check out the various technologies in a separate article on the subject.

Battery recycling is another field of innovation that we discuss in the small devices article, even though it refers to all batteries.

Innovations in battery recycling are also attracting investment as part of the circularity theme, which is likely to kick in later this decade. This has the potential to seriously affect demand for inputs (which is the intention), although this will likely be a very gradual process, balanced in part by a forecast rise in population. 

Similarly, the longest lasting batteries are, in time, likely to dominate the market.

Commodities and Processing

Battery commodities and processing is the big-ticket item for Australia, one of the world’s major bulk commodities suppliers.

As Australia beefs up its critical minerals mining capability, investors will need to keep a keen eye tuned to shifts in the battery market.

Nothing too dramatic is expected given there is an implicit guarantee that approved investments will retain the support of big capital for the near to medium term. 

Nevertheless, impact and innovation are the driving forces of the green transition and when the time comes to transition to new technologies, it is best to be ahead of the curve.

Cobalt is the most fragile of the commodities, followed by graphite, due to toxic mining processes and their affects on miners and the environment.

Already lithium-ion battery innovation is seeking to remove cobalt from the process, and innovators are likely to continue to snub this pair where possible. But for now, they are on point.

Demand for radioactive metals in nuclear energy is also likely to be stymied, but is unlikely to decline in the short to medium term.

Lithium processing is another problematic area, which is already causing problems globally as national NIMBYism gains pace.

Innovation may be able to address some of these problems but it is more than likely that battery innovation will outpace processing innovation.

But in the short to medium term, lithium demand should remain strong and miners will be looking to pivot their mining production as demand for lithium salts, for example, rises as lithium-ion battery innovation itself gains pace.

Copper may also be a target. While copper is not as problematic as lithium and cobalt, it is used in other critical applications such as semi-conductors and is also a major contributor to the weight of EVs, and expense. 

Innovation is likely to seek ways to minimise copper use to free it up for other applications and to help prevent the copper price from becoming prohibitive to both the transition and general innovation, but this is unlikely to stymie overall demand, just alleviate some pressure. 

Then there are the range of other commodities that stand to benefit from battery innovation.

For example, iron ore, steel and copper are likely to benefit from an impending acceleration in the deployment of renewables, not to mention EVs and related infrastructure.

We examine all of these, lithium and other critical minerals options, and exposures of ASX-listed stocks in our final story in our battery innovation series.


FNArena's dedicated ESG Focus news section zooms in on matters Environmental, Social & Governance (ESG) that are increasingly guiding investors preferences and decisions globally. For more news updates, past and future:

Technical limitations

If you are reading this story through a third party distribution channel and you cannot see charts included, we apologise, but technical limitations are to blame.

Find out why FNArena subscribers like the service so much: "Your Feedback (Thank You)" – Warning this story contains unashamedly positive feedback on the service provided.

FNArena is proud about its track record and past achievements: Ten Years On

Share on FacebookTweet about this on TwitterShare on LinkedIn

Click to view our Glossary of Financial Terms