Is there a battery glut on the way?

Lithium-Ion batteries are one of the key building blocks in most countries’ plans for a lower emissions future. They can do double duty replacing internal combustion engines in our cars and providing grid stability services to the electricity system. Unsurprisingly a battery arms race is under way between the world’s major economic blocs: China, the EU and the US. Predictably, China is in the lead, with two of the largest manufacturers, CATL and BYD, and the largest single plant: BYD’s Qinghai plant which can produce 24GWh’s worth of battery packs per year (as always in batteries it’s hard to know whether to count in watts or watt-hours…). Europe is looking to take this crown with plans to build a 70GWh plant in Poland, as well as two other plants in the “Top 10” of battery factories. Europe suffers from a lack of homegrown manufacturers – the plant is owned by South Korea’s LG Chem, while Panasonic (Japan) and Tesla (US) round out the top 5. But all the big manufacturers are looking to have a foothold in each of the three blocs, partly to insulate themselves from the fallout from trade wars. With the economic fallout from COVID-19 sure to crimp the demand side for months if not years, this jockeying for position could well lead to a glut of batteries over the short to medium term.

Europe has set its eye on catching up to China in the longer term with a massive government R&D funding push worth A$5 billion that will both look to improve Li-ion technology and develop more novel technology  – though even if that element of the plan succeeds it could be two decades before it hits the market at scale.

The largest 10 planned “megafactories” as they are sometimes dubbed, will collectively double the global output of Li-ion batteries. But they are only one part of a longer-term global pipeline which has up to 115 new megafactories projected by 2029. If all these get built, their collective annual output would power 40 million plug-in electric vehicles (EVs). Last year, global sales of EVs were a little over 2 million. Of course, a press release does not a factory make. The demand – which will also come from the stationary energy sector will need to be there.

In the near term, that demand has likely stalled as the COVID-19 response has decimated the global economy. This is particularly the case for EVs, which as a discretionary purchase will be hard hit. The statelier pace of electric utility procurement may see demand from this source hold up as committed projects follow through to completion. In the US alone, 6 projects of 100MW or more (the benchmark set by Hornsdale Power Reserve) are scheduled to come online by the end of next year, with Florida Power and Light’s Manatee Energy Storage Center (409 MW/900 MWh) the daddy of them all. While some of these projects could be derailed by economic conditions, to the extent they are filling a longer term need in their local power system, they are likely to go ahead in any case.

What does this mean for Australia? Mostly it means lower cost batteries as economies of scale work their magic. Learning curves of around 10-25 per cent cost reduction for a doubling of production are common across a range of industries. This implies a 35-70 per cent cost reduction by the end of the decade if the planned megafactories materialise, which is predicated on a swift global economic recovery. But Australia isn’t left out of the supply side – one of the megafactories is slated for Townsville.

Photo: Tesla Gigafactory, Nevada, sourced from smnt via Wikipedia under creative commons.