Published April 17, 2023 | 2 min watch
Key Points
- Although the stationary storage industry is growing fast, it’s still very small compared to the demand from EVS, creating significant competition for battery procurement.
- However, this competition is likely to help drive policy and innovation going forward and change the chemical composition and efficiency of batteries.
- Competition between these verticals is also good for the energy transition as a whole, as the expansion in use cases and technologies for batteries drives innovation that then accelerates the transition to net zero.
With their key role in the energy transition, competition over batteries is fierce. Geographically, there’s increased competition for battery manufacturing as Western markets try to move away from a heavy early reliance on the Asian market. When it comes to deployment, the competition between utility scale storage and the EV ecosystem is hotting up.
EVs currently take up the vast majority of market demand and purchasing power. Companies like Volkswagen and Tesla are steadily procuring long-dated contracts back up the value chain with commodity players like Glencore and Rio Tinto to ensure their battery supply in the long-term. Storage players don’t have the same purchasing power as large automakers so they can’t enter these long-dated contracts. But demand in this vertical is also growing and must be met.
“There is a degree of competition, particularly as demand for lithium ion batteries is so elevated at the moment. But I think that's really important, because price will drive innovation, it will drive more capacity. And we may see cheaper and more innovative technologies coming online. So really, the first three or four years of this is going to be quite a crunch. But thereafter, we hope to see an easing of those circumstances as new technologies come online and new participants enter the market,” said Ross Board, Director in EMEA Energy Transition for RBC Capital Markets.
“I think this competition is really important, because price will drive innovation and it will drive more capacity. And we may see cheaper and more innovative technologies coming online.”
ROSS BOARD, DIRECTOR, EMEA ENERGY TRANSITION, RBC CAPITAL MARKETS
How global policy drives the ecosystem
A key driver for the battery value chain will be global policy and how regulation evolves in the coming years. EV policy in Europe has helped drive greater penetration than in the US, but the introduction of the US Inflation Reduction Act is encouraging investment in battery manufacturing with the lure of subsidies.
“Regulation is always changing and it’s not just about an individual country or the EU as a whole. It's about how that compares globally against the US, and against Asia. The right regulation will drive deployment of capital, it'll drive innovation, and will ultimately decide who is the front-runner across the battery ecosystem,” said Ralph Ibendahl, Managing Director and Head of EMEA Energy Transition at RBC Capital Markets.
“Regulation is not just about an individual country or the EU as a whole. It’s about how that compares globally against the US, and against Asia. The right regulation will drive deployment of capital, it'll drive innovation, and will ultimately decide who is the front-runner across the battery ecosystem.”
RALPH IBENDAHL, MANAGING DIRECTOR, HEAD OF EMEA ENERGY TRANSITION, RBC CAPITAL MARKETS
New chemistries and new ideas
That innovation drive has already started. In 2022, roughly 95% of all battery manufacturing capacity was lithium-ion based, but that is likely to change soon. While lithium ion will remain a dominant technology in the coming years, the high price of battery cells and components is driving new technologies.
“We're seeing innovation in sodium ion, we're seeing innovation in solid state batteries, and all kinds of material innovation, such as graphene. So I think there's a huge opportunity for high prices to actually beget innovation, provide supply response in terms of the demand shortage that exists at the moment, and really develop the market further into the future,” said Board.
Competition of all kinds is driving the market forward, which will ultimately power success for EVs, stationary storage and the energy transition as a whole.
“I think there's a lot of overlap between the markets and what's good for the EV market is also good for the storage market. Better batteries, cheaper batteries, batteries with different technologies and different use cases will help both markets develop and coexist and hopefully achieve net zero in an accelerated fashion,” said Ibendahl.
