By: Dr. Chris Wedding, Managing Partner
It’s easy to assume that the energy storage market is plagued with technology risks.
With over 70 battery chemistries being tested or deployed, it is no surprise that many financiers worry about backing the wrong horse and earning a “goose egg.”
However, as the Transformers comic series so wisely noted years ago, this is another situation where there is “more than meets the eye.”
(Get your nerd on, and read more at the Transformers Wiki. Yep, it’s a real thing.)
In this post, I will call out 7 factors that are projected to make lithium-ion batteries the top energy storage technology through at least 2025.
1. Lithium — Not One, But Many
This dominant type of battery is a leader in part because it is not defined by just one type of chemistry. So, the math is not quite fair.
Many of these versions of lithium-ion batteries actually compete amongst themselves.
Lithium-ion batteries include varieties with cobalt oxide, manganese oxide, iron phosphate, nickel manganese cobalt oxide, nickel cobalt aluminum oxide, and titanate (titanium oxide).
Use cases for this smorgasbord of lithium-ion options cover areas of great interest to us at IronOak Energy Capital — such as grid services, demand charge reduction, and EV uses — as well as non-power sector applications such as medical devices and power tools.
For more, here’s a good summary from Investing News.
2. Experience with the Technology
Lithium-ion is about as innovative as a middle-aged person.
(That was meant to terrify all Millennial readers.)
With roots in the 1970’s, lithium has gone from science labs and discussions of the distant future to billions of dollars of investment and global dominance.
In terms of actual energy storage installations, lithium-ion batteries increased their market share considerably: 29% (2012), 40% (2013), 46% (2014), 71% (2015), and 93% (2016) of all batteries installed globally. (Source: IHS and Navigant)
The numbers are even higher today. In the U.S., lithium-ion batteries led all energy storage installations for the tenth straight quarter, including a roughly 97% market share in Q1 this year. (Source: GTM)
The next biggest player was vanadium flow batteries with 3% market share.
With each additional quarter of lithium’s leadership, the whole host of market players becomes more comfortable with the technology, from regulators and developers to investors and suppliers.
Furthermore, costs for lithium batteries have fallen 50-70% since 2010 and are expected to fall another 25-50% by 2020. (Sources: Lazard, Moody’s, Tesla)
In addition, each year their performance continues to increase.
As such, competitors to lithium face a moving target, one where the bar is constantly rising.
3. Scale of Invested Capital: Divided and Conquered
With dozens of lithium-ion competitors trying to win over technology investors, they each receive less capital than they need to scale quickly.
Lux Research notes that “beyond lithium” battery companies raise an average of $40M over 8 years.
Compare this to the $5B invested in Tesla’s Nevada Gigafactory. Or the three additional gigafactories they announced in February of this year.
In addition, this trend is happening outside of Tesla’s magnetic media coverage.
Experts suggest Tesla’s factory is only 1 of 12 such factories around the world.
In Asia, Amperex Technology, Panasonic, LG Chem, and Boston Power are all planning new lithium factories in China. And Samsung and BYD plan to expand their existing plants.
And in Europe, Daimler announced in May this year its own big ole’ lithium-ion battery plant. But it will only cost about $500M. (Yep, sarcasm.)
4. Size of Balance Sheets
Startups are known for innovation, being nimble, and disrupting 800-pound gorillas. While exciting, those are also correlated with company-level risk and balance sheets that leave something to be desired.
So, if you are the developer and investor in a large stationary battery installation serving the power grid, or the global manufacturer of thousands of electric vehicles, do you choose an innovative startup or an 800-pound gorilla to supply your batteries?
Yep, you guessed it. Big and boring wins the day when it comes to scale. As an imperfect proxy, think of large market capitalizations — Samsung ($254B), Panasonic ($26B), LG Chem ($18B), or Tesla ($57B).
As they say, “You won’t get fired for hiring McKinsey.”
It reminds me of another grim expression: “I want just one throat to choke.” If something goes wrong with those batteries years down the line, you want to be able to … well, you get the idea.
5. Expert Analyst Projections
With its considerable inertia, the lithium-ion battery market is expected to continue leading the battery market through at least the next decade.
Projections vary, but here are a few to digest:
- Lithium market to grow 1.5x between now and 2020 (Source: Albermarle)
- Lithium used for stationary energy storage to grow 3x by 2020 (Source: Lux)
- Lithium-ion battery market to grow 3.2x between now and 2025 (Source: Market Watch)
It’s worth noting that some lithium competitors may have stronger Compound Annual Growth Rates than these projections imply. However, they are starting from a much smaller base so percentages can be deceiving.
6. U.S. Government Projections
When countries don’t have what they need, they look for alternatives. (Or go to war. But let’s stay positive.)
In terms of known global lithium reserves, the U.S. has roughly 0.3%.
That’s not so great when projections suggest $1.4T of U.S. infrastructure could be underutilized over the next 15 years without feasible energy storage solutions.
It can also be a limiting factor when electric vehicles hold the keys (yep, bad pun) to managing grid stability as renewable energy penetration grows. As an example, consider that California, the sixth largest economy in the world, is eyeing a new 100% renewables target by 2045.
Accordingly, U.S. national laboratories are on the hunt for lithium alternatives. The most notable initiative is Joint Center for Energy Storage Research (JCESR), an innovation hub based at Argonne National Laboratory.
So, what is their latest conclusion after considering dozens of next generation battery technologies?
Well, one of the two is still based on lithium — that is, lithium-sulfur batteries, which are lighter and have greater energy density than today’s lithium-ion versions.
7. Will Lithium Popularity be Its Demise?
You have undoubtedly seen articles suggesting that lithium is a rare metal whose availability will be entirely consumed by Tesla’s Gigafactory.
OK, now forget all of that.
Let’s talk about the difference between lithium reserves vs. resources.
- Reserves = what is extractable given economic feasibility today
- Resources = locations where lithium might be extracted in the future at higher market prices
Quiz time: Fill in the blank.
- _________ stand at roughly 14 million tons.
- _________ are estimated at 40 million tons.
So, which is reserves and which is resources?
Duh, right? Resources refers to the lower, much higher number. Reserves applies to the upper, lower number.
Moreover, the volume of resources should continue to climb higher as projected future demand for lithium entices companies to invest more in exploration.
Now consider some wild numbers from Mr. Musk: The world could be powered 100% by clean energy if we had the storage capacity output form 100 gigafactories.
If true, and if you assume that the full volume of resources is static, then experts suggest we would still have enough for 50 years of lithium supply.
All in all, no one can predict the future.
But it’s nice when many prognosticators are saying similar things: Lithium batteries make up 97% of new installs in the U.S. (and similar dominance globally). In addition, the seven factors above suggest that its market appeal is likely to continue into the foreseeable future.
That said, lithium-ion batteries are not perfect.
For example, their maximum duration is four hours of storage.
Yet experts suggest that in the years ahead power markets will demand longer duration batteries that allow for over four hours of capacity. Some even call for seasonal storage — think multi-month capacity.
And lithium batteries are also not perfectly scalable. So, a 5x increase in size may not mean a 5x increase in power, as would be the case for a flow battery.
But keep in mind that the perfect is the enemy of the good when it comes to controlling market share.