ESG Focus: Grid Set To Enter An Iron Age

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ESG Focus: Grid Set To Enter An Iron Age

Pundits say innovation in iron-based batteries is a game-changer – welcome to the new iron age.

-Welcome to the battery iron age
-Musk backs lithium-iron-sulphate batteries 
-Gates and Bezos back new iron-air batteries
-Morgan Stanley backs iron-air batteries
-Iron flow batteries also in the mix
-Implications for Australian miners

By Sarah Mills

Quick Recap

In part 1 of FNArena’s examination of grid batteries, we observed the transition to renewable energy is sharply outpacing forecasts, and the International Agency has advised that renewable energy will overtake coal as the primary global electricity fuel source by 2025.

While there is still half the world’s energy to transition, the addition of efficient, functional grid batteries from 2025 onward is likely to accelerate this momentum, as will innovation and aggregation, the latter being likely to kick in after renewables investment reaches a tipping point, and after the widespread adoption of emissions management technology.

All this has implications for resources markets.

On one hand, it suggests less resources and fossil fuels will be needed (comparatively) to fund the final 50%, with the lion’s share likely to fall in this decade, depending on the health of the global economy. 

In reality, demand for grid-sourced energy is likely to rise above and beyond its former profile, as electric fleets, and other areas of electrification, turn to the grid over petrol, diesel and aviation fuel, and as emerging economies industrialise. 

This means both resources and fossil fuels are likely to remain well bid for most of this decade with the possible exception of coal.

Still, innovation does suggest industries will be forced to rely less on fossil fuels during the transition than previously thought.

Fortune observes batteries are now reaching a size (about 200 megawatts) that allows renewables to replace mid-size natural gas generators, and innovation has only just begun.

It is rapidly becoming one of the hottest markets in the world.

Tesla executives, for example, have advised they now consider their energy storage business arm to be as important as vehicle sales and are billing its Megapack as a sustainable alternative to gas peaker plants.

We also mentioned in the previous article battery storage investment would be accompanied by investment in transmission technology.

So it was with some interest we observed Atlassian founder and CEO Mike Cannon-Brookes has recommitted to the ambitious, speculative $30bn Sun Cable project after Fortescue Metals Group’s ((FMG)) Andrew Forrest backed out of the venture, proclaiming it commercially unviable.

If successful, the cable will be able to provide energy to transition laggards such as Indonesia. It is also targeting Singapore, which has already committed to importing power from other countries in the region given it has limited renewable energy options.

Sun Cable is just one of several submarine cable projects proposed globally, which, if successful, will transform energy markets and seriously boost solar’s profile as the pre-eminent source of renewable energy. Sun Cable plans to deliver energy to Singapore by the early 2030s.

Main Grid Battery Types

There are many articles on the web outlining the different types of batteries and how they work, but this article summarises the technologies most relevant to the grid.

There are three main types of batteries used for the grid market: lithium batteries that use solid or liquid electrolytes; metal-air batteries; and flow batteries, which use a variety of materials ranging from vanadium to salt.

Lithium batteries tend to be divided between solid-state batteries, which use a solid electrolyser material, and liquid electrolyte batteries (which use a liquid or gel) as used in standard EV batteries. 

Solid electrolytes sharply raise a battery’s energy density and safety, and avoid the use of flammable solvents, a potential risk area for batteries that needs to be solved sooner rather than later.

Flow batteries are considered to be well suited to the grid market given their slow charging and release times, which allow them to store energy for longer, thereby solving the intermittency problem of renewables. 

This article focuses on innovation in lithium and metal-air batteries, and we examine flow-battery innovation in a separate article, with the exception of iron flow batteries, which fits neatly into the iron theme.

We start with the market leader – lithium-based batteries.

Lithium-based batteries king-pins for now

Lithium-based batteries constitute 90% of the grid battery market so we decided to make it our first innovation stop.

While tradition lithium nickel manganese cobalt (NMC) batteries are fundamentally unsuited for grid storage, recent innovation has sharply improved storage capacity and efficiency, albeit not to the point of lithium’s incoming competitors.

These innovations primarily relate to the introduction of lithium-iron-phosphate batteries, which have already been widely adopted in China.

Wood Mackenzie forecasts lithium iron phosphate batteries could overtake NMC batteries for grid storage by 2030, which will have implications for cobalt and nickel markets.

Tesla’s chief executive Elon Musk has championed lithium iron phosphate batteries globally for both EV and grid storage and says iron will play a massive role in the battery market going forward.

Tesla is already switching to lithium iron phosphate battery cells for its utility-scale Megapack energy storage product.

Lithium-iron-phosphate batteries have several advantages over their predecessors, NMC batteries, given they do not use cobalt, which has a poor environmental reputation, is responsible for many of the safety/fire concerns surrounding lithium batteries, and is expensive. 

But they are yet to prove cost efficient and their energy density is even lower than NCMs, but Musk says they have a long runway of innovation ahead of them.

While the price of lithium-ion cells has fallen -95% since 1991, they remain expensive.

While charge life may be being addressed, lithium-ion batteries are still far more expensive than their coming rivals, and big capital will likely try and direct existing supply to the burgeoning electric vehicle market.

Lithium is in short supply, with demand forecast to grow more than 40 times from current levels by 2040, according to the IEA. Prices at their peak were roughly 10 times the cost of production, according to Musk, who described them as “software margins”.

Lithium-iron-phosphate batteries appear to be the current battery of choice in China, so they enjoy strong infrastructure support.

Lithium also has environmental issues, which suggests any equally effective more environmentally friendly technology will find the favour of big capital. 

So without a drastic improvement in supply and pricing and clean processing, lithium is unlikely to be able to compete in the grid market, suggesting a reckoning is likely to come for the lithium market one way or another (price, margins or demand), albeit later rather than sooner.

Iron, however, has none of these disadvantages, and Musk has quipped that iron is everywhere, so it appears we may be entering into a battery iron age.

The New Battery Iron Age

There was much global media fanfare in January and February about the advent of a new contender for the title of grid-battery king: iron-air batteries. 

Iron flow batteries are also on the cards.

Form Energy, a privately-owned Boston-based Massachusetts Institute of Technology spin-off boasting heavyweight shareholders such as Arcelor Mittal, Bill Gates’ Breakthrough Energy Ventures, Capricorn Investment Group and Jeff Bezos, will start mass-producing iron-air batteries in 2024.

Construction has already started on the West Virginia-based factory after the company received a US$290m carrot to manufacture in the state, and is expected to be fully operational by mid to late 2024. 

The technology is being billed as a game changer.

At a tenth of the cost of lithium batteries, iron-air batteries leap to the front of the battery pack as a cost-efficient, modular, scaleable solution for multi-day energy storage. 

Unlike short-lived lithium charges, iron-air batteries can store energy for up to 100 hours, solving renewable energy’s most pressing problem – intermittency – and one of lithium’s most pressing concerns – flammability.

Iron-air batteries should boost transmission capacity without the need to build new renewables infrastructure, bypassing thermal generation for grid stability, and provide resilience in the event of grid outages, as well as distributed risk.

Tens to hundreds of the modular scaleable blocks (about the size of a washing machine) can be connected to the grid – and can be sited anywhere, including urban areas to meet utility-scale energy need. Iron-air batteries can work in tandem with existing and new lithium batteries, allowing for an optimal balance between technologies. 

The new batteries can store electricity for 100 hours at system costs competitive with legacy power plants, using a reverse-rusting process. 

While discharging stored energy, the battery “breathes in oxygen and converts iron metal to rust but when charging, an electrical current converts the rust back to iron and the battery releases oxygen. 

The battery basically uses iron, a water-based electrolyte and a membrane that feeds a controlled stream of air into the battery. 

Iron and water are abundant and cheap, so on nearly every measure it beats lithium on the grid.

Science Direct observes metal-air batteries have a high potential energy density 3-30 times the density of existing commercial Li-ion batteries.

In January, Xcel Energy signed with Form Energy to deploy iron-air battery systems at two of the utility’s retiring coal plants, suggesting commercialisation is under way and will likely be up to two years in the proving. 

Form Energy has developed commercial agreements with large US utilities such as Xcel and the United States’ largest power station Georgia Power (whose parent is also an investor in Form Energy) to test the technology.

SB Energy has committed to buy enough of these batteries over five years to power 50,000 US homes for a day, according to Innovation Origins. 

The company is building a 1GWh demonstration system in Minnesota. Near the Sherburne country Generating Station, near one of the largest solar generating sites in the US – Sherco Solar.

With commercial production scheduled to roll in 2025, this means lithium grid batteries have only a few short years to play innovation catch-up.

Much depends on the price, and as we pointed out above, Bill Gates has a history of sacrificing price for market share. Form Energy’s batteries come off the assembly line considerably cheaper than Tesla’s, raising echoes of Apple and Microsoft.

The Prospect: Morgan Stanley Says Iron-Air A Winner

Morgan Stanley, for one, thinks the technology has legs, and recently issued research on a discussion on a Massachusetts Institute of Technology report titled “The Future of Energy Storage”.

The report says cost reduction and commercialisation of storage technologies are moving faster than most realise, which will have strong implications for global commodities markets.

Of all the technologies discussed in the report (aimed mainly at grid storage), Morgan Stanley favours rechargeable iron-air batteries.

The analyst also suggests iron-air batteries could have implications for the transportation industry, including electric vehicles. This seems a bit of a stretch at this stage but with a long runway of innovation ahead, it’s conceivable. 

The main barrier for iron-air batteries in the transport market is their size. The batteries may be the size of an internal combustion engine but they can weigh 10, 20, or even 30 times the weight of a lithium battery (which is about 600lb to provide the equivalent energy of 100lbs of petrol). 

There was no mention in the media of whether or not Form Energy’s batteries had cracked the weight issue.

The Economics of Iron-Air Batteries

Many estimates peg the capital cost of iron-air batteries (once in full swing) at less than US$20kWH – less than a tenth of the cost of lithium-ion batteries.

Bloomberg NEF says US$20kWh is the point at which new technology can reduce the total carbon-free electricity system costs by at least -10%. Capacity costs would have to drop even lower to displace existing nuclear and gas plants.

At this price, iron-air batteries would also be cheaper than new gas-fired power stations, with implications for the gas market.

But wait, there’s more.

Under the US Inflation Reduction Act – the US government promises to pay a 10% tax credit for electrode active materials, plus a tax credit of up to US$45/kWh.

Morgan Stanley bases its optimism on the facts that iron-air batteries are relatively inexpensive for storage; and that the technology is fairly well progressed.

The analyst draws a comparison with a natural gas-fired turbine, which has a US$1300/kW “overnight cost”, according to the US Energy Information Administration. 

Based on a similar “heat rate”, the analyst estimates the capital cost of a comparable iron air storage system would be US$1000/kW.

The materials are considered to be highly recyclable, which place strongly to the upcoming circularity theme. They also have a longer lifespan than lithium technology, lasting roughly 25 years, compared with the former’s four to seven years.

Iron and electrolyte solutions can potentially be re-used indefinitely.

One downside to the batteries, apart from weight, is that unlike lithium-ion batteries, they lose a lot of efficiency in temperatures above 25 degrees Celsius, which makes them a less attractive prospect for warm areas.

But it would be fair to stay that battery storage is particularly relevant for colder states with low solar resources, which can ship energy in through transmission cables from sunnier regions and store it for later use. 

For the iron prospect itself, it’s less of a problem given iron flow batteries are able to operate between -6 and 40 degrees Celsius.

The optimal temperature range for lithium-ion batteries is between 15C and 35C, although these batteries can operate in wider temperatures with efficiency loss but are less sensitive in this respect to iron-air batteries.

Iron Flow Batteries

Most iron flow batteries use solutions of redox-active materials, which are pumped through an electrochemical cell. Other flow batteries use an iron powder slurry as the anode chemistry. 

The energy capacity is limited by the size of the chemical storage tank but, depending on the economics, in grid applications, large stationary tanks are often preferable.

In this sense they are flexible – offering an opportunity to tailor units to the size of the job – and have been considered highly suitable for off-grid applications.

As noted above, iron flow batteries can operate in a wider range of temperatures (avoiding temperature regulation costs), making them preferable for external installations.

In terms of other iron battery developments, a non-reversible battery has been developed, along with a non-flow scrap metal cell (the Vanderbilt Battery), which can use iron and brass commonly found in scrapyards.

Pricing

As competition kicks in, lithium-ion battery prices have been declining, and it is likely the battery market may have already hit a price tipping point, heading into steely competition.

Science Direct observes the total cost of materials in all-iron chemistry is US$0.1 per watt-hour of capacity at wholesale price. It also observes the battery can be built safely in a DIY setting.

Implications For Resources Market

The introduction of iron-based batteries (and other batteries) has significant implications for the resources markets and Australia’s long-term critical minerals ambitions.

The one characteristic shared by all of the new age of iron batteries is they contain no cobalt or nickel, which is likely to have ramifications for these two industries once a tipping point between old and new technologies is reached.

The Environmental Energy and Study Institute says that in lithium-ion battery cells, lithium constitutes 6kg, iron 5kg, cobalt 8kg, manganese 10kg, steel 20kg, copper 20kg, nickel 29kg, aluminium 35kg, and graphite 52kg. 

Lithium iron phosphate battery cells contain 41kg iron, 26kg steel, 26kg copper, 44kg aluminium, 6kg of lithium, and zero nickel, cobalt and manganese.

A typical lithium-ion battery weighs between 90.9kg to 133.3kg. Finding data on the weight of the Form Energy battery was not so easy. No specs at the fingertips on the website or within easy googling reach.

But iron currently constitutes 5kg or 2.7% of a typical NCM EV battery cell (not including electrolyte, bind, separator and battery pack casing), according to Visual Capitalist.

Science Direct observes a 3 volt iron battery contains about 46 grams of iron-based metals and salts. An EV battery is about 400 to 800 volts. 

After multiply 0.46 by 400 I get 184kg, double that (368kg) for 800 volts. I have no idea how close such off the cuff calculations bring us to the mark for total iron content per battery, but it’s a start.

Similarly, the affect of an uptake of iron-air batteries on Australian iron demand is difficult to ascertain. At first glance, it appears limited.

The Environmental Energy and Study Institute observes the iron used in the batteries could potentially be sourced and processed in the US – which is not so easy with lithium.

This would likely be spurred by higher tax benefits for manufacturers meeting domestic sourcing criteria.

The institute observes more than 80% of Form Energy’s materials are domestically sourced and 100% of its production is domestic.

Minnesota, where the company is based, has an abundance of iron, which plays to the vertical integration and reduced kilometres themes.

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: 
https://www.fnarena.com/index.php/financial-news/daily-financial-news/category/esg-focus/

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