Pricing and tech trends shaping the booming global storage market

As manufacturing capacity ramps up, is a shakeout on the horizon?

The storage market is full of surprises. Last year, global storage installations were a third higher than expected, driven mostly by Chinese policy to attach batteries to renewables. 

Meanwhile, a ramp-up in manufacturing is causing oversupply – and a potential shakeout for smaller battery makers.

By 2030, the world could see 1.8 terawatt-hours of storage capacity installed, according to Bloomberg New Energy Finance

Rapid manufacturing expansion, a shift in chemistries and designs, and increases in duration for grid-connected systems are making battery storage one of the most dynamic sectors of the clean energy economy.

“We do have to constantly be reconsidering our assumptions,” said Yayoi Sekine, head of energy storage at Bloomberg New Energy Finance. “I think now we're currently in an environment where the industry is actually able to sustain itself in terms of its own battery manufacturing and supply chains. That's a pretty big shift and that's happened very recently.”

This week on The Carbon Copy, we feature a conversation with Yayoi Sekine pricing, tech, manufacturing, and deployment trends that are shaping battery storage.

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Transcript

Stephen Lacey: If you look at any chart showing global battery storage installs, they are up into the right. I'm looking at a chart right now from Bloomberg New Energy Finance showing yearly storage capacity, and in 2016 there is a little blip that represents hundreds of megawatts of installations. It seemed big at the time. Then there's this huge spike in 2023 when 110 gigawatts representing 372 gigawatt hours of capacity were installed. If you go all the way to 2030, we see 650 gigawatts and more than 1.8 terawatt hours of capacity. It illustrates the battery storage era has firmly arrived.

Yayoi Sekine: Gosh, there's so much that has actually changed. It's always an exercise of learning new things about the market dynamics and adjusting our view as a result of that.

Stephen Lacey: Yayoi Sekine is the head of energy storage at Bloomberg New Energy Finance. She's been covering the market since 2016. Among the trends that caused adjustments last year, the surge in gigawatt hour scale projects and a record drop in system costs, which both helped battery installs surge way beyond what was expected.

Yayoi Sekine: I feel like every time we sit down to do a forecast, it's a little bit like there's something that's surprising and I think over the course of the last two years in particular, that was China.

Stephen Lacey: China has long-dominated battery manufacturing and critical minerals processing, and now China is becoming the dominant market in installing those batteries on the grid.

Yayoi Sekine: The policy over the course of post-pandemic, during pandemic years really shifted towards building big batteries in China, and that's to the scale of increasing our forecast by 40% from one half to the next.

Stephen Lacey: Is it part of the ritual every year to just keep adjusting the numbers upward?

Yayoi Sekine: We do have to constantly be reconsidering our assumptions, and that's kind of part of what is fun about the job is because the market is changing so rapidly, but the scale at which it's been happening, it's really informing the way we're thinking about the pricing and battery environment today.

Stephen Lacey: The battery storage market is changing quickly, from manufacturing expansions to accommodate EVs, to new chemistries and designs, to shifts in duration for grid connected systems. It's one of the most dynamic sectors of the clean energy economy.

Yayoi Sekine: I think now we're currently at an environment where the industry is actually able to sustain itself in terms of its own battery manufacturing and supply chains, and I think that's a pretty big shift and that's happened very recently and a very exciting time to be following the market.

Stephen Lacey: This is the Carbon Copy. I'm Stephen Lacey. This week a conversation with Yayoi Sekine of BNEF on the pricing tech and deployment trends that are shaping battery storage.

Last month, Yayoi's team put out a report on 10 things to watch in storage covering both stationary grid-connected systems and EV batteries. I sat down with her to walk through many of those trends. The first one, we tackled, pricing. In 2022, we saw battery prices rise for the first time in history, a reflection of the price spikes in commodities and lithium. Then a couple of things happened. Materials prices eased and Chinese producers ramped up fast and an oversupply in the market pushed battery packs and turnkey system costs downward once again.

Yayoi Sekine: That ramp up was quite significant over the course of 2022 and 2023. In the end of 2023, we have about 2.6 terawatt hours of commission capacity confirmed globally. We haven't tallied up all the capacity just yet, but it's likely to be more than three terawatt hours in terms of total lithium ion battery cell manufacturing capacity. That's more or less a 40% growth just in terms of capacity to produce battery cells in 20 twenty-three. It's pretty impressive in terms of growth and we've seen a significant growth across other components as well. Cathode, anode and electrolyte and other components in the value chain as well.

Then further, even further back to that, a lot of mining supply also come in online. I mentioned lithium. A big function of that is the fact that a lot of lithium mines and refining capacity came online in 2023. The other piece that I think gets a little bit underappreciated, but it obviously has an all kind effect around prices, is the fact that EV demand electric vehicle demand. It didn't actually slow, it was a record year, but according to a lot of the industries and companies expectations to the market, it was a bit slower than the growth that was expected. That has an all kind effect around the demand for lithium and obviously, price for lithium, which ended up actually pushing prices down.

Stephen Lacey: Yeah. Well, let's just talk about where we think pricing will head this year and beyond. Are we on a continued downward trajectory?

Yayoi Sekine: Yeah. Our expectation at BNEF is that prices will drop this year, so drop about 6%. We averaged last year just as a pricing points, we averaged at about $139 per kilowatt hour on a volume average basis. That includes all segments that we track, and our expectation is that it'll drop about 6% this year to about $133 per kilowatt hour. The way we actually do the forecasts or the expectation for battery prices for this year and the next three years, is based on firstly industry expectation on metal prices. This is taken into consideration the expectation that lithium, nickel, yeah, I think those are the two main ones, but cobalt as well, the prices for those major battery metals will come down and then essentially, using those metal prices to inform and calculate what our near-term expectations for prices will be over the next three years. Generally, prices will come down not as much as we saw between 2022 and 2023 where it was a 14% drop, but still progressing downwards over the course of this year.

Stephen Lacey: Could you provide, for those who are not in the battery industry, could you provide a little context on what that kind of pricing actually means in terms of electric vehicle costs, in terms of cost of projects out in the field, stationary storage projects out in the field? What does this enable you to do?

Yayoi Sekine: Yeah, so those prices are what we call battery pack prices for EVs and battery rack prices for stationary storage. In the EV space, the actual cost of the battery relative to the total car really depends on the vehicle size and the battery capacity. We kind of ballpark it at 30%, but it could be much higher than that if it's a very big battery pack in a smaller, depending on the vehicle frame, but say it's about a third, it could be more than that. In the stationary storage space, the battery racks are the biggest portion of the storage system costs. Can range between 50 to 60% of a total turnkey energy storage system. If you can't get the battery prices down, then it's very hard for you to actually compress the prices. The fact that lithium-ion battery prices have dropped 90% over the last decade, that's been a huge way in which EVs have become cheaper and stationary storage has become more affordable.

Stephen Lacey: Let's talk a little bit about this ramp-up in manufacturing capacity. It's starting to put some pressure on smaller producers. I can remember at the turn of the last decade when we saw the great solar shakeout and the dominance of Chinese solar producers caused a lot of European, North American companies to go out of business or consolidate, and even many smaller Chinese manufacturers went out of business pretty quickly. Is that something that you see happening in the battery space? What kind of market shake out do you see coming here?

Yayoi Sekine: I think there's a lot of parallels to what has happened and is happening in the solar market with what we're seeing with the battery industry today. In particular, last year and this year are where we see these dynamics pretty similar in terms of the way we expect the industry to shake out. We can't yet make a call as to which companies might lose out, but we can generally say when you have three x battery manufacturing capacity relative to total demand in the global market, which is where we are, where we were in 2023, you kind of expect there to be some shakeup because not every company is able to ramp up a gigawatt hour factory and then run it at a production rate that will make sense for them. If the whole industry is doing that, that means there's a massive oversupply of batteries, but you can't also not run the facility and then actually expect to make some money out of it.

A lot of companies are in this really awkward position of, okay, we need to produce and we don't want to run at a loss, but what is the alternative? We'd rather produce and run and actually cost these batteries at cost or even lower. We've seen very, very low lithium-ion battery prices in China towards the end of last year, beginning of this year. That's really a function of these market tensions that we're seeing. I do think it actually looks different if you compare companies that are big and already have large standing contracts with large OEMs or large automakers because in a way, they already have an anchor customer. They might have a bit less of a demand if that customer didn't have as much EV sales as they were hoping for. In a way, you kind of shielded from just being in a market where you're just producing batteries and hoping to find a customer, which is the case of a lot of these newer battery manufacturers, battery cell manufacturers who are scaling up gigawatt hour factories and trying to find a master supply agreement with a storage integrator, but actually be in a market where there's tens or tens or maybe hundreds of companies trying to do something similar.

Stephen Lacey: What's the end result? I mean, are there a lot of companies that go out of business and then what will that do to capacity?

Yayoi Sekine: I think there's two things, probably some consolidation and some companies losing out. Like the market can't sustain itself. If we are to simply look at the overall capacity that's expected to come online based on company announcements between now and 2025, that factor that I mentioned, three x, of battery capacity relative to demand today or in 2023, that actually becomes worse over the next couple of years. Really, if you're building or having plans to build a gigafactory, you're probably make an assessment now, "Okay, do I want to move forward with this plan if that dynamic is just going to become worse over the next couple of years?" I guess what we're seeing say in the US context, and perhaps, again, tied to that slowing EV demand or slowing the growth of EV demand is that companies are slowing their capacity expansion plans. I think that's the first thing that happens.

They might still go forward if they're ready with a facility under construction, but they might slow the rate at which they're adding new, say production lines within that. Then on the supply side, I think there are companies that are probably going to fail. If they can't produce to a market that wants to buy their cells, they run at a loss, but you can't really sustain that long-term. I think there's a lot of potential for consolidation. Companies might buy out each other's equipment or manufacturing lines and then expand their own, if that makes sense.

Stephen Lacey: Yeah, and what about companies that are setting up shop in the US after in the wake of the Inflation Reduction Act? I mean, will we see a shake out here even though a lot of the incentives are promoting a ramp up in production in the US?

Yayoi Sekine: Yeah, in the case of the US, it's very different because it's a very nascent battery manufacturing market. There will be some impact of what's happening in China with how it shakes up in the US, but in a lot of ways, as you say, the Inflation Reduction Act is quite an important, I guess, piece of legislation supporting the battery manufacturing industry and providing incentives for the production of batteries and modules in the US so that $35 per kilowatt hour for the cells and plus the $10 per kilowatt hour for the modules, that helps to provide that cushioning in terms of the cost competitiveness with China. Then there are other things like in the UV credit, you are required to manufacture battery components in North America, which essentially means if you want to qualify for half that credit, then you have to have the manufacturing facilities within North America.

There's a lot of structures that help support the industry in the US. That said, there has been a few examples already. Even though last year we saw a record number of commitments towards clean energy supply chains in general in the US, most of which were for EVs and batteries, so about more than $100 billion committed towards EV and battery supply chains. We have seen a couple of examples like [inaudible 00:14:25] Energy Solution, or NextEnergy actually slowing down the ramp up of their manufacturing plants over the next couple of years. Yeah, of course there are other examples of automakers actually slowing their EV plans or just pushing out their EV targets. I think that these are going to obviously, have a knock on effect on the battery manufacturing space, but I don't think the whole industry is at risk. We probably see just delays around some of the plans.

Stephen Lacey: I want to look at stationary storage and electric vehicles. Let's go to stationary storage first and talk about some of the trends driving that application. First of all, the stationary battery deployments hit a new record in 2023 at 100 gigawatt hours according to your analysis. The dominant markets are China, the US, and Europe, with China being the dominant market. What are the similarities and differences in each of these markets?

Yayoi Sekine: I think the main similarity is the fact that a lot of these markets are suddenly getting a huge scale up in terms of new projects and capacities [inaudible 00:15:45], but the business models and the use cases for batteries are actually very, very different across the markets. In the case of the US, which is about 30% of the total market in terms of deployments in 2023 on a gigawatt hour terms, it's a fairly diversified market. We see a lot of different states doing different things, a lot of the utilities contracting different types of projects. Then on the utility scale fronts, in terms of which markets were the biggest markets in the US, it was California, not surprisingly, still building a lot of big, big batteries. There was the Moss Landing battery project, which by itself was more than one gigawatt hour.

The second biggest regional market was actually the Southwest last year, so that's Arizona, Nevada, New Mexico, bringing in a lot of big projects online. A lot of these are tied to solar and storage PPAs or capacity-driven contracts with a utility. Then Texas, which is in itself quite distinct to those two other regions, right, where a lot of the battery projects that are being built there are primarily for merchant purposes, initially targeting ancillary services, doing a bit more on energy, especially in the summer where there's a lot of volatility in the energy prices and a lot of peak prices in specific days. That's the US, a very diversified market accelerated obviously with the Inflation Reduction Act and the relevant ITC, the investment tax credit supporting the industry there. If you look at China, which actually in gigawatt hour terms was bigger than the US by just a little bit. So it represents about 45% of the total global market in gigawatt hour terms.

In gigawatt terms, it's actually higher, it's almost half the global market, and that's because the batteries in China are mainly two-hour projects compared to the US where a lot of the projects are going towards four hours. In the case of China, it is still a regionally different market, but generally the one story is renewable integration mandates actually drive the market. Essentially in China, about more than 20, I want to say 26 provinces in China have mandates for if you want to build a new solar project or a new wind project, you need to attach batteries to it. The ratio at which you attach batteries actually depends on which province and which technology you're connecting. It can be between 5% to over 20% in some cases. The reason why they're doing that is in part to push the storage market, but it's also because they're adding a lot of wind and solar capacity. The grids are becoming quite a constraint in terms of adding new builds and trying to help that connection and integration of new storage or new wind and solar projects there.

Stephen Lacey: Then let's go to Europe now, what's happening in Europe that makes it particularly unique?

Yayoi Sekine: With Europe, I would say the piece that really was interesting over the course of the pandemic in particular, was and is the residential market. The residential market is still an important part of the US, but it's a much smaller percentage of total build compared to Europe. Just for some context around the residential storage market in Europe, the biggest markets there are essentially Germany, which historically had been heavily supported through subsidies, but increasingly just transitioned to a market where anyone who's adding a PV system to their home just wants to add a battery. The attachment rates there are quite high, and most of that is actually not driven by subsidies. The other market that's really interesting is Italy, and that's definitely subsidy-driven. They've provided, they actually stepped that down, but essentially provided a super bonus. I kind of like the name of that scheme of anyway, a super bonus, which is essentially a awarding a 110% tax credit for any investment made to home energy efficiency improvements. Everyone who wanted to build a battery was just rushing to claim that bonus, and that's driven quite a few gigawatt hours of residential batteries in Italy.

Stephen Lacey: Then when we look at long duration storage deployments, you're seeing those increase. What durations are we talking about when we talk about long duration energy storage and what applications are you seeing LDES storage projects meet?

Yayoi Sekine: I feel like there's, if you go to different people in the industry, they'll say long duration is a very different bracket depending on where they sit in that technology map. The way we see it at BNEF, we typically categorize anything that's long duration as more than six hours. The DOE, for example, they categorize 10 hours plus. If you go to China, four hours plus. We've taken six hours. It gives us a good sense of, okay, you can divide the day in four, and that's more or less like a cycle. That's a longer duration compared to the typical four hours that we see today.

Stephen Lacey: For the much longer duration storage projects that are maybe over six hours, are there any particular unique applications there?

Yayoi Sekine: Yeah, so there's definitely a difference between that initial six hours to what we might call a diurnal pattern of charge and discharge versus having a weekly or seasonal type of storage where you're just holding the energy for different parts or different seasons of the year. Today, the LDES market is not a huge market. What we see is more like pockets of specific projects and companies developing different kinds of projects either supported by some form of policy mechanism or grant. We see a lot of grants in the case of the US or some kind of pilot program, which I guess is the case of some of the California projects supported by the idea that companies and utilities think that long duration energy storage will be important over the coming decades, but then they kind of want to start now to figure out how to structure those contracts, support the technologies that might be needed once we get down to the 2030s when there's more requirements or more need for long duration energy storage.

The very, very long, long duration energy storage, the stuff that we might call seasonal energy storage, I think the more the activity that we see, more investment around that is actually around hydrogen and that economy. We have a whole team that covers hydrogen. Yeah, I think the question is more between that seasonal use case versus the more diurnal and weekly use cases. What kind of technologies and what are the actual needs Are we going to see in the storage market or in the LDES market? Yeah, I don't have one answer just yet. It's research that is ongoing in terms of what we're doing, and it depends very much on the market. Different parts of the US that use case will look very different between California versus PGM, similar globally.

Stephen Lacey: Let's go to electric vehicles. Now ,I want to talk about some tech shifts that we're seeing in EV battery manufacturing. The first is that lithium-ion phosphate batteries are picking up market share. This is a technology pretty common in China. Why are lithium iron phosphates gaining so much traction right now? Talk about the difference in technology compared to lithium iron battery with cathodes that use nickel and cobalt?

Yayoi Sekine: It's definitely this long history that's culminated in this current snapshot of what we see is this race between LFP, lithium iron phosphate versus the NMC and cathodes. I can say currently in terms of the fundamentals around why companies would choose LFP, that's definitely cost. The input cost for lithium iron phosphates is lower than for cathodes that use nickel and cobalt and aluminum or manganese and generally speaking, if you can, and because the cost is an important factor for you to drive costs around EVs and stationary storage, that's a huge factor as to why you would go for LFP. In the past, it wasn't like a slam dunk or seen as a slam dunk technology necessarily. The reason why was because energy density was not quite where it had to be in order for you to have long-range vehicles. That's a huge factor in the US market, for example, where the expectation is for you to have 300, 400 miles of driving range.

Stephen Lacey: We want our cars big and we want them to be able to drive for a long period of time.

Yayoi Sekine: Yes, unfortunately, unfortunately, whatever, however you want to see that the function of how the market is structured or consumer preferences. You still need quite a big battery that ends up being very heavy. The heavier it is, the harder is it is for you to take it farther if you have chemistry that's not very energy dense. Over the course of the last, I would say five years, maybe even a bit less, there's been significant improvements in the cell to pack integration of the batteries for LFP in particular. That's been a huge gain in terms of the pack energy density improvements. And that's had a significant impact on the uptake of LFP for electric vehicles. We're seeing a lot more of the companies. Obviously, we had seen a lot of LFP and batteries in EVs in China, but actually now we see VW, Ford, GM all committing to a product road map of EVs that includes LFP batteries. It is a very important part of a lot of the company's strategies in part to reduce costs, but also recognizing that the performance is actually at a place where they can offer these to consumers at a good range.

Stephen Lacey: Are there any other major developments happening in EV battery manufacturing, either on the performance side or on the capacity expansion side that are worth talking about?

Yayoi Sekine: Yeah, so the three that we looked at last year at BNEF, the first was next generation anodes. In the past, there's been a lot of focus around cathodes, which is the most expensive part of the batteries, but actually there's a lot of innovation happening on the anode side, which is really exciting. The reason why there wasn't so much focus was in part because it's primarily graphite, which is a very low cost material. Once you get to a level of energy density where you want to increase the energy density on the cathode side, you also have to kind of up the energy density on the anode side as well. One of the ways you can do that is by adding something like silicon into the graphite and you can essentially improve the energy density or the energy capacity, the specific energy capacity as you call it, to improve the energy density of a battery.

Then there are other innovations that are happening potentially moving to more silicon, maybe eventually even using pure lithium metal on the anode side. There is a lot of innovation actually happening. A lot of US-based companies actually focusing on those, so quite exciting. The other one, not a neutral exclusive I suppose, but the other one gets a lot of attention is solid state batteries. That's essentially using a solid electrolyte instead of what today is the incumbent technology liquid electrolyte. A lot of the companies are testing with something like solid and like a hybrid electrolyte, so using both solid and liquid. Of course, if you're able to fully do it as a solid, you actually can have a lot of the benefits around energy density and fast charging that you can't necessarily achieve in the current lithium-ion battery technology space. You can also just change the way you design the batteries, which can be really exciting.

You can design new types of vehicles because the batteries can be designed in a different way. There's a lot of interest and investment going to solid state batteries. Our view is in terms of mass commercialization, that's probably around post-2030 with a lot of investment actually going into that now. Like QuantumScape and other companies trying to do that are moving a path that's hard to do, but we expect that eventually we will eventually get there. The question is just around will lithium-ion batteries like the incumbent technology drop so much in cost by then and improve so much by then that maybe there isn't as much of a huge market share for solid state batteries? Will they primarily be focused on in more high performance applications? Things like aviation is a good example there.

Stephen Lacey: If we look out to the end of the decade to 2030, are there any storylines that you think are going to dominate by then that either are emerging today or are kind of unknowns that you think will be fully formed by the end of the decade?

Yayoi Sekine: There's so many. I think the fully formed ones are probably around gigawatt hour scale projects. We see a couple of examples of those today, but I think expecting them to be the norm of how a lot of large scale projects might go forward, I imagine that's going to be the case, like that becoming a standard of large scale development gigawatt-hour scale batteries. On the technology front, there's a fair bit. I mentioned a couple of the technologies. The other one that we are looking at is say something like sodium-ion batteries or other technologies that just don't use lithium. That would be important in the case where there's some supply crunches in the lithium side or in particular, because we need to build up a lot of mining capacity for lithium, so potential of sodium-ion batteries to even take a portion of the market share in either/or both EVs and stationary storage. I think that's pretty exciting. Then I think the other thing is just around how much of a norm we'll be building batteries together with new solar and new winds and what is the role of those combinations together with something like hydrogen as well. I think those are still questions that are up in the air and excited to see where that goes.

Stephen Lacey: Well Yayoi, thank you so much. We'll be following the analysis. I really appreciate it.

Yayoi Sekine: Thank you, Stephen. Great to be here with you.

Stephen Lacey: That's going to do it for the show this week. The Carbon Copy is a production of Latitude Media. It's produced and written by me. Sean Marquand is our technical director who mixes the show and wrote our theme song. Go to Latitudemedia.com where you can get all our stories, our show notes and transcripts for all of our podcasts. Latitude Media is supported by Prelude Ventures, Prelude backs visionaries accelerating climate innovation that will reshape the global economy. Learn more about their portfolio and investment strategy at Preludeventures.com, and spread the word any way you can. Shoot a link to someone who you think would like to show in the industry or who wants to learn more about these forces shaping the clean energy economy. Hit us up on X or LinkedIn or wherever you're active on these issues and give us a rating if you have a moment. We'll catch you next week. Thanks for being here. I'm Stephen Lacey and this is the Carbon Copy.

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