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ESG Focus: Grid Battery Innovation Barrelling Down

ESG Focus | Sep 07 2023

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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: Grid Battery Innovation Barrelling Down

A new generation of grid batteries that have the potential to solve the problem of intermittency at a tenth of the cost of existing batteries is about to hit the market, and the implications for the energy industry, energy security, and businesses globally are profound.

-Grid renewables to surpass coal by 2025
-New generation of grid batteries to solve intermittency
-Downstream market opportunities to support the new tech
-Battery market estimates
-Lithium to be directed to EVs
-Coal, gas, nuclear in the firing line

By Sarah Mills

The tipping point for grid renewables over coal is fast approaching and the tipping point for other fossil fuels may not be far behind as an onslaught of battery innovation hits the market.

The transition to renewable energy is sharply outpacing forecasts, and the International Energy Agency advised last December that renewable energy would overtake coal as the primary global electricity fuel source by 2025. 

And that’s without considering the disruptive battery innovation due to land this year, that promises grid batteries at 10% of their current cost, which likely spell the demise of lithium batteries for the grid (but not for electric vehicles).

This is the first of a two part series on grid batteries and examines market forecasts. 

The second article examines the new generation of grid batteries due to hit the market this December half; Australian battery policy; and ASX-listed grid battery plays.

The estimates used in this article generally do not include the impact of new technologies landing by year-end.

But even based on the existing playing field of lithium-ion batteries, which in some places are already cost-competitive with gas peakers, the argument is compelling.

Trillions Being Funnelled Into Renewables

Renewables are now receiving the lion’s share of all new investment and a solid proportion of this will be funnelled into a new generation of batteries to provide base-load power to electricity grids.

The IEA estimated that US$1.7trn would be invested in renewables and batteries in 2023 compared with US$1trn in fossil fuels. All up, renewables are set to account for more than 90% of global electricity expansion over the next five years.

Global renewable power capacity is now expected to grow by 2400 gigawatts over 2022 to 2027, an amount equal to the entire power capacity of China today,” says the IEA’s Renewables 2022 annual report – a 30% upward adjustment on the year’s previous forecast due to upward revisions for China, the US and India.

As if existing growth were not enough, renewables adoption is expected to be super-charged by an onslaught of grid battery innovation this year.

According to a very recent IEA report, in 2022, global investment in total battery energy storage exceeded US$20bn (a sign of how quickly estimates can be blown out of the water given Fortune Business Insights had estimated US$4bn). 

Of that, grid-scale deployment, based on existing lithium technology, represented more than 65%. 

Total investment in battery storage in 2023 is forecast to exceed US$35bn, based on the existing pipeline of projects and new government targets.

IEA forecasts that installed grid-scale batter storage capacity will need to expand 35-fold between 2022 and 2030 to nearly 970 GW to meet Net Zero Scenarios.

And Deloitte points out that grid batteries do not totally rely on renewables for growth – that they can be used to help balance the grid and improve power quality regardless of the energy source.

Adopted at scale, they could store energy from solar, gas or nuclear energy, offering greater energy security and national security (due to the distributed concentration of risk).

The IEA is not the only forecaster around, and we include a range of estimates from other analysts below.

And there is a long investment path ahead.

The amount of infrastructure (including ageing grids) that still needs to be replaced and re-engineered is mind boggling but analysts say they are now observing the development of an exponential curve.

Deloitte finds that battery storage growth goes hand-in-hand with grid modernisation and smart grids.

When regulation kicks in on top of incentives (which will depend very much on the pace of renewables growth) renewables are likely to prove the only viable energy investment.

The only possible contender, which is a long way out if at all, is nuclear fusion. While more expensive, it could find the favour of big capital in an ESG world because of its vastly lower environmental and social footprint.

World’s Major Energy Consumers On Board

China’s 14th Five Year Plan suggests that China will account for half of new capacity additions over the 2022 to 2027 period. 

In June, the country announced it expected to double capacity by 2025 – five years ahead of schedule – so more upward revisions may be in the wings. Half of the nation’s electricity is now sourced from renewables.

The US, buoyed by generous Inflation Reduction Act incentives and the $1trn bipartisan infrastructure law, is expected to be the second major contributor this decade.

India is forecast to be the third major contributor.

Renewables Intermittency Consigned to Ancient History

In FNArena’s article on ESG trends earlier this year, we advised impact investment would be the defining ESG trend of 2023, and it hasn’t disappointed with game-changing grid battery innovations set for commercialisation this year.

If the hype is to be believed, the long-standing Achille’s heel of renewables – intermittency – is about to be solved without resort to fossil fuels.

The solution: grid batteries that are cheaper, stronger and more durable than lithium-ion batteries. 

Their applications: renewable integration, peak shift, ancillary services and back up power. They can be used for long duration storage, mechanical energy storage and thermal energy storage.

As we speak, battery factories are being constructed around the world solely for these purposes and pundits suspect that within a few years the scale of production will start to impact grid-supporting fossil-fuel markets and grid-targeted lithium-ion battery markets.

Lithium-ion batteries currently hold about 90% of the grid-battery market, which was valued at US$4.4bn in 2023, according to Fortune Business Insights –  a much lower estimate than the IEA’s (being issued beforehand) and pretty small in the greater scheme of things.

Fortune analysts are forecasting a compound annual market growth rate of 24.2% out to 2030.

Zooming Out To The Total Battery Market

For context, we zoom out to the broader global battery market.

According to Grandview Research, the global battery market was valued at US$104.3bn in 2022 and is expected to expand at a compound annual growth rate of 15.8% from 2023 to 2030. 

The main grid scale battery types include:

-Flow Batteries
-Sodium based
-Molten salt

Lead-acid batteries, while durable are considered unsuitable for grid batteries given their toxicity.

According to Fortune, grid batteries constitute only about 10% of the total global battery market (other estimates suggest 20%).

The IEA says this reflects largely on the fact that lithium-ion batteries are not suited to grid storage – they are expensive, require many cycles, and the charge is short-lived. Supply chain constraints are also a problem for lithium, with big capital preferring to divert the resource to the EV prospect.

But the agency observes grid-scale batteries are projected to account for the majority of storage growth worldwide.  

Already, with existing (read old) technology, grid battery deployment has been rising. In 2022, installations rose 75% on the previous year, says the IEA.

As innovation barrels down, Fortune’s estimates may end up being conservative.

Grid Battery Market Estimates Vary Widely

As usual with transition forecasts, estimates vary hugely. As McKinsey says:

“Just as analysts tend to underestimate the amount of energy generated from renewable sources, battery demand forecasts typically underestimate the market size and are regularly corrected upwards.”

But for now we offer the following forecasts:

According to consultancy Research Nester the global grid-scale battery market is forecast to generate revenue of US$106bn by the end of 2035 – posting a 32% compound annual growth rate from 2023 to 2035.

Nester says this reflects the falling cost of batteries combined with increased investment in the sector.

The company expects the Asia Pacific market will drive the bulk of growth, but the North American market will grow the fastest.

Analysts at Markets and Markets forecast a CAGR of 33.52%.

Global Market Insights says grid-scale stationary battery storage market exceeded $US42bn in 2022 and is projected to expand, posting a 28% CAGR from 2023 to 2032.

Transparency Market Research forecasts a CAGR of 26.1% and believes the market will hit $55.3bn in 2031, driven by a modernisation and expansion of power grids. The analyst expects growth in China, Australia, India, Japan and Australia. 

These forecasts appear to be based on existing lithium-battery technology and could change with the advent of new technologies, which are vastly cheaper and better suited to grid storage.

For example, new-generation batteries, at a tenth of the costs of lithium-ion batteries, could result in lower or higher dollar forecasts or higher depending on the pace of adoption and the amount of upfront capital investment required. Volumes, however, should be sharply massively higher.

Even were the new generation of batteries to fail (which would leave massive egg on the face of its hefty backers), lithium battery price and efficiency is rising sharply.

Downstream Markets Massive Opportunity

The grid battery market is spawning fast-growing downstream and related markets such as battery aggregators (which can sell to both wholesale and retail customers), battery management, smart grids, grid-share schemes, and many investors are taking exposure through these markets, many of which are tech plays.

The market for battery aggregators widens with the adoption of EVs, which is likely to be incorporated into large and small energy storage applications (using blockchain as a virtual ledger) as innovation grows.

As Deloitte points out:

“Advance in adjacent digital technologies, such as artificial intelligence, blockchain and predictive analytics, are giving rise to aggregated solutions and innovative business models that were nearly inconceivable a few years ago.

“Start-ups around the world are rapidly commercialising intelligent networks of “behind-the-metre” batteries to benefit electricity customers, utilities and grid operators”.

Already big investments have been directed to simulation and computation tools and automated manufacturing processes to build systems in less time.

These include grid digitisation, predictive maintenance, self-healing and intelligent system configuration.

(As an aside, several Australia brokers in their research are quietly wondering when the tipping point will come for listed ASX energy-management  tech companies – a story for another day perhaps.)

Renewables and battery infrastructure services companies are also expected to benefit, no doubt some emerging as the Worley ((WOR)) equivalent of the mining sector.

The new generation of batteries could also spawn a big investment in transmission technology, enabling the transfer of energy from high solar areas to low solar areas in the event of shortfalls.

One assumes that with scaled, efficient battery storage, even low-solar countries would be able to store energy for down periods and seasons and need only resort to imported electricity during particularly difficult periods.

It’s a bit of a big call, but it appears possible that batteries combined with investment in transmission lines, could replace more expensive and less environmentally friendly wind power in the long term.

Cost blow-outs in wind projects globally, plus turbine end-of-life environmental impacts, are likely to prove a drag over the medium term, suggesting transmission technology could have the jump – depending on electricity pricing and reliability.

Solar energy is indisputably the cheapest source of electricity for most countries and boasts the lowest carbon footprint and, aided by efficient batteries, it is likely to attract a growing percentage of energy investment. 

Cheaper batteries also support the growth of a residential battery storage market, particularly in sunny countries. Depending on innovation, this market could even challenge grid utilities, although this is unlikely.

Much depends on how big capital chooses to balance these markets, which again, can feed into aggregators. 

Aggregation is interesting in that it has the potential to sharply raise the efficiency of electricity systems, and therefore reduce the level of resources required to transition – we could be further ahead than we think.

Lithium Market Still A Goer

Lithium-ion batteries are the undisputed battery market leader, and of all technologies, Nester expects the lithium-ion segment will garner the highest growth in the near to medium term.

Those who agree point out that a new generation of lithium batteries boast much higher energy densities – up to four times their predecessors – using solid rather than electric electrolytes. 

While lithium-ion batteries do have a considerable head-start, Yale for one, believes grid-oriented lithium-ion batteries will soon experience stiff competition from alternative technologies.

Even should lithium lose its role in the grid market, the commodity should remain well bid well into the 2030s.

Grid storage is only about one tenth size of the electric vehicle (EV) storage market, according to Bloomberg NEF, which will continue to drive lithium demand.

EV battery growth is expected to experience its own massive growth this decade, which is likely to further drive the adoption of alternative technologies for the grid, given big capital will prefer to funnel its lithium resources to accelerate EV adoption.

The lithium-ion battery industry will still dominate for several years given it currently holds a roughly 90% share of the battery grid market. But within two years, competitors are likely to start eating into that majority and by the end of the decade, one would expect (absenting astounding advancements in lithium-ion technology), that other technologies will move to the lead.

Major Players In The Grid Battery Market

In the lithium-ion market, there are the obvious players: Tesla, Panasonic, General Electric, Toshiba Corporation, Samsung SDI, LG Chem, General Electric, NGK Insulators, and Contemporary Amerex Technology.

But when it comes to innovation, Breakthrough Ventures, owned by a consortium that includes Bill Gates and Jeff Bezos, appears to be one of the world’s largest investors in the alternative battery sector (along with China).

For investors seeking an Australian play, Macquarie Group’s ((MQG)) unlisted subsidiary Macquarie Capital is also recognised as a major global player. Fortune also lists Australia’s Redflow ((RFX)).

FZONICK, Lockheed, KORE Power, Ambri, VRB Energy, 24M Technologies, BYD Company, Fluence (previously AES), Terna, Stem and Siemens are also considered to be strong players. 

Iron-air batteries, sulphur batteries and vanadium batteries are being pegged as the leading disruptors, and we discuss these in our next article.

Fossil Fuels And Nuclear Energy In Firing Line

Grid batteries are more flexible and can be deployed quickly with many applications and value streams, giving them a huge advantage over other energy sources.

The coming grid transformation is forecast to have only a modest impact on overall fossil-fuel demand this decade, given the global forecasts for sharp industry growth as urbanisation, electrification and industrialisation in emerging markets takes hold. 

But the fossil fuel window is closing sharply and the tipping point, when it comes, is likely to be savage with coal particularly vulnerable this decade.

Deloitte points out that California is one of a few markets where energy storage is already competitive with gas-fired peaker plants (which generally only run when there is a high demand for electricity in order to balance the grid).

GTM/Wood Mackenzier says the rollout of battery storage by 2025 suggests there will be little or no need to build gas peaker plants thereafter.

Fossil fuels aren’t the only energy source in the firing line. 

Battery storage is likely to scatter the hydrogen energy ambitions of many, consigning the element to heavy industry and traditional useages such as fertiliser, although hydrogen energy may still find a market in some climates, particularly if the emissions and environmental profile outpace batteries at any stage of the game. And it wouldn't hurt to have a few electrolysers in the energy mix.

Nuclear fission is also likely to be economically unviable (and most likely environmentally and socially unjustifiable) by the end of the decade. Hence the rush to role out large nuclear plants and small modular reactors this decade, given current investments will be allowed to operate for the rest of their natural life.

There is also a “back-up” element to the nuclear proposition, but once more flexible and distributable base-load alternatives are widely adopted and proven, this will disappear.

Lithium-ion batteries, combined with a massive ramp-up in renewables, new transmission links, flexible power stations such as pumped hydro and demand response, are already competitive with nuclear energy when accounting for upfront capital costs, advises Renew Economy.

Add in the impact of the new generation of batteries, at a tenth of the cost of lithium and that solve all the intermittency and supply chain issues attached to lithium, and the scales seriously tip in favour of battery-supported renewables. 

The new batteries are also portable (which also translates to distributed risk), will eventually be recyclable, are effective at providing baseload, and have decades of standardisation and innovation-driven efficiency gains ahead of them.

Batteries are also one of the areas where we see both environmental and social imprimaturs at play, which will bring regulation both for itself (think lithium and rare earths) and competing energy sources. 

The nuclear industry would like to have us believe Fukushima is behind us. But is it?

China and Japan are currently feuding over the latter’s plan to release its accumulating nuclear waste water into the Pacific Ocean – a source of food for a large percentage of the world’s population – despite the treated water supposedly complying with global waste standards.

The fact that both China and other neighbouring countries object most likely points to a lack of trust in Japan's water testing, again highlighting the extremely negative attitude towards nuclear waste globally.

The new generation of batteries trump nuclear on the social (food and power provision) and environmental ESG imprimaturs (and also trump lithium on the E front).

Their future is to be recyclable (which is forecast to be regulated some time in the 2030s): so based on every single future megatrend driving our world, nuclear loses. 

Nuclear fission has powerful backers so it will not go down without a fight – but its days, while long, are numbered – the business of short-term traders, producers, politicians and lobbyists.

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:

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