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What's behind the new boom in lithium-ion batteries?

Assif Shameen
Assif Shameen5/7/2021 07:00 AM GMT+08  • 10 min read
What's behind the new boom in lithium-ion batteries?
On the evening of May 8, the CEO of electric vehicle pioneer Tesla Elon Musk will host one of America’s most popular TV shows
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On the evening of Saturday May 8, the CEO of electric vehicle (EV) pioneer Tesla Elon Musk will host one of America’s most popular TV shows — Saturday Night Live. The award-winning programme that has broadcast live from New York since October 1975 welcomes guest hosts, mostly entertainers. Only once in late 2015, did a businessman, New York developer and presidential candidate Donald Trump host the show.

In the lead up to that appearance, America has been abuzz with what Musk, a controversial billionaire, will use the platform for. Will he tout Dogecoin — a joke that has become the number three cryptocurrency behind Bitcoin and Ether? Will he smoke weed as he did during a live radio interview two years ago?

Whatever Musk has up his sleeve, it is clear the live TV audience will be lapping up every word. While his firm is a pioneer in EVs, a key edge that it has against rival start-ups as well as legacy automakers like General Motors are its batteries.

From Wellington to Washington DC, policymakers around the world are tackling the challenge of decarbonising their economies as they drastically slash carbon emissions from key segments of the economy. On April 28, President Joe Biden addressed a joint session of the US Congress to outline his audacious US$4 trillion ($5.3 trillion) infrastructure plan and his climate change agenda.

A key plank in the global strategy to shun fossil fuels like coal or natural gas are renewable resources such as the sun, wind or hydro. The more renewables we use, the more we need a balancing technology for the electric grid.

One thing that might help us wean ourselves off fossil fuels and help decarbonise the world is batteries, which are a great short-term balancing technology — storing energy when it is plentiful and releasing it when it is not. With solar energy, the sun is up for 12 hours a day, at best. Similarly with wind, because sometimes it is windy and sometimes it is not, you are not generating electricity 24 hours a day as you are with fossil fuels. But if you can store electricity in a battery for future use, it is much easier to power up a grid that is connected to your home, office or the mall near you.

To be sure, the rise of renewables is changing the structure of the energy grid. The US Energy Information Administration (EIA) now expects renewables to supply up to 38% of America’s total electricity generation by 2050, up from around 19% in 2020.

Clearly, the world needs to accelerate the move towards renewables and embrace energy storage. Studies show the world is currently heading towards a 3.5°C global warming by 2050, compared with the 1.5°C target in key climate agreements. About 110,000TWh, or terawatt-hours — one trillion watts for one hour, of energy is consumed globally each year — about 30% each for manufacturing, transport and buildings, with other uses taking up the remaining 10%. Nearly 300TWh of energy storage would be required to fully electrify the energy industry in order to supplement periods when renewables do not generate power, assuming one day of storage.

Storage as a cheap power source

In recent years, batteries have emerged as an alternative, cheap source of energy. In late 2017, Musk won a US$50 million bet by building the world’s largest ever lithium-ion battery for South Australia following severe blackouts after a storm there a year earlier. The bet was that Tesla would get the battery installed and working within a hundred days of the contract being signed or would install it for free. The giant battery stores energy from a nearby wind farm. More recently, Tesla came to the rescue of Texas to prevent blackouts there after a bout of freak cold weather in February. The company built a giant battery on the outskirts of Houston to plug into the state’s power grid.

Last week, Tesla installed batteries in a suburb of the Australian capital, Canberra, to power up 5, 400 households and pump power into the grid in the event of a shortfall. Over the years, Tesla has invested billions in energy storage and Musk is betting that its technology can develop far beyond EVs and solar panels to become a key swing supplier to power grids, particularly in emergencies. Nearly a dozen US states now have policies in place that require a certain amount of battery storage to be built and in the aftermath of Texas experience more are following suit. Countries across Europe are following Australia and US states in embracing energy storage.

Lithium-ion batteries are emerging as the workhorses of energy storage. They have been around since the 1980s when they were developed in Japan. These batteries were first used in consumer electronics by Sony in the early 1990s. The advent of laptops and later smartphones helped lithium-ion batteries acquire huge economies of scale and helped them become more powerful, efficient and cheaper. Tens of billions that poured into research and development of batteries has helped spur more innovation addressing areas like higher energy density, a longer life cycle, improved safety and accelerating charging speed.

Smartphones used to be the principle drivers of lithium-ion battery demand. EVs are now driving scale and innovation in the battery space. This year, they will account for over 70% of total lithium-ion battery demand worldwide. In 2010, Tesla was launched as one of the first battery EVs. There had been hybrid cars like the Toyota Prius, basically internal combustion engine cars that could also drive on electricity when needed. Tesla ditched the hybrid part and went straight for pure BEV, or battery-powered electric vehicles. Tesla simply moved the flat smartphone lithium-ion batteries to EVs. That kicked off an enormous race that is only gathering pace this year.

The world is now on the verge of a real transition in the automotive industry from internal combustion engine-based vehicles to pure electric battery ones. EVs are no longer a niche product. Electric cars made up 4.1% of the total global auto market last year. EV penetration is projected to rise to 12.8% of all vehicles sold worldwide by 2025 and 22.9% of total global vehicle sales by 2030 according to a recent report on batteries by Nomura Securities.

Total EV battery sales in US dollar terms are expected to surge 80% this year, their highest-ever annual growth, as the number of new EV model launches soar to over 50 in 2021 and 2022 compared with a total of 30 launches in 2019 and 2020. Nomura estimates global EV battery demand would rise from 140 gigawatt hours last year to 717GWh in 2025 and leap to 1,534GWh by 2030.

Behind the boom in EVs and the dawn of a new era in energy storage is battery costs which have been plunging faster than many optimists predicted just a few years ago. In 2010, the price of top-range lithium-ion batteries was around US$1,100 per kilowatt hour. The current EV battery cost is around US$130 per kWh. By next year, it is expected to fall to under US$100 per kWh. Essentially, over 11 years, battery costs have declined more than 90%. Indeed, some analysts believe we are headed for batteries that are US$10 per kWh in five years. Even if those projections are a tad too optimistic and are off by a few years we are on the cusp of a battery revolution that will make fossil fuels too expensive within this decade.

Given the relatively high cost of the power grid, energy users are increasingly seeking to avoid utility grid fees by going “off-grid” through a combination of solar power and energy storage. As such, energy storage, when combined with growing use of solar power, is now poised to disrupt utilities in the developed world. While “off-grid” applications are the most disruptive use of energy storage, there are also less disruptive applications such as strengthening the grid to compensate for the variability of solar output.

The opportunity being created by the global push towards clean energy and a “net-zero” paradigm is clearly huge. The global energy storage addressable market is slated to attract over US$1 trillion in new investments and grow nearly 30 times over the next decade to 676GWh from just over 11GW at the end last year, notes RBC Capital in a recent report. The US energy storage market alone is likely to attract more than US$120 billion over the next 10 years, RBC estimated. Large scale energy storage costs, like those mega batteries installed in Australia and Texas to power up the grid for whole cities are projected to decline 33% by 2030 from over US$400/kWh currently. Bloomberg New Energy Finance (BNEF) estimates lithium-ion battery pack costs could fall to around $58/kWh by the end of this decade.

After Thomas Edison, a key proponent of the direct current (DC) system beat Nikola Tesla, the main protagonist of the alternating current (AC) system, to steal the title of “inventor” of electricity at the turn of the last century, the big problem was finding new uses for electricity. So, lightbulbs, fans, refrigerators, washing machines, air conditioners and an array of appliances were invented that used all the new power that was being generated.

As the age of renewable energy dawns, the primary challenge is going to be electricity storage and new usages in all sorts of devices. Until now, the high cost of generating electricity had held back new usage. As battery storage costs slide, innovators will be in overdrive to push out new products and applications that use cheap and abundant power.

Power of tomorrow

Lithium-ion batteries are getting smaller, so tiny that they are just like slivers of film. Tiny batteries means that everything that uses batteries will become smaller and lighter. Apple stores are starting to showcase the new ultra-slim and light iMacs that go on sale in mid-May. New EVs will be far lighter as would just about anything that uses a lithium-ion battery.

Five years ago, lithium-ion batteries’ future seemed uncertain. There were plenty of competition technologies on the horizon that seem destined to end its dominance.

But in recent years, so much money has been thrown into lithium-ion battery technology and so much innovation has taken place that it has got the sort of head start that would make it difficult for competing technologies to catch up in the next five years or, indeed, even 10 years.

It is already cheaper to generate electricity from renewable sources like solar and wind than it is from coal and gas. The cost of solar has declined 85% and wind energy 65% over the past 10 years while gas prices have remained flat during the same period and coal prices have actually risen.

As governments get more serious about climate change, the focus will turn to energy storage or batteries to expedite the switch to renewables. That will help push battery costs lower and make EVs more affordable.

Maybe Musk should keep his Saturday night message simple and focus on energy storage, or the power of tomorrow.

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