Executives and investors gathered during a recent energy transition symposium hosted by RBC to discuss the innovation and trends in this space and the challenges and opportunities that lay ahead.
Mike Epstein, co-founder and chief executive of Lightening Grid Quebec, James Larsen, e-Zinc chief executive, and Marek Wolek, chief strategy and commercial officer with Fluence, offered their expertise and insights on how supply and demand, government energy transition policies including deep subsidies, is nurturing innovation, new applications, and what this means for the future of energy storage.
For decades, there has always been a demand for flexible storage capacity. Even before the U.S. Inflation Reduction Act (IRA) in 2022 that earmarked hundreds of billions in national clean energy investments, a number of “mega projects” were already being built without government incentives. But a confluence of factors is accelerating that demand.
“For the first time, we see a number of areas of policy, technical need, and advancement of technology – which makes it better, safer, less costly – all play together in a given time,” Epstein told investors.
The growth in renewable energy amid corporate and government decarbonization goals are also creating challenges for power grids, requiring solutions like energy storage to help stabilize this growing shift.
The cost of batteries has also become increasingly attractive over the last several years, with new technological innovations and other factors driving double digit decreases in cost, executives noted. This in turn, is fueling new potential use-cases for how battery storage can solve problems.
“It's also important to acknowledge that energy storage is also what is enabling the EV revolution as well. So batteries are a really hot topic because they're decarbonizing transportation and also enabling the grid transition,” said e-Zinc’s Larsen.
Together, these powerful forces have generated enormous innovation, a lucrative manufacturing and supply chain environment, and significant investment opportunities.
“It’s a very simple calculation of demand-supply,” said Fluence’s Wolek. “The demand driver has been positive. Around the world, there’s a global realization that we all want to tackle climate change – I don’t think it’s a question of if we should – just how fast, and where, and how to approach it.”
Today, energy storage is evolving into a very attractive solution to solving specific market problems. It serves an important function in eliminating the use of diesel generators, enables clean energy production and also provides clean capacity.
Innovation and Expanding Applications
From breakthroughs in lithium-ion technology to dramatically longer duration capacity, there is a burgeoning ecosystem of innovative energy storage solutions that are vital to global energy transition goals. The companies represented by the symposium panelists illustrate the diversity in applications.
Toronto-based e-Zinc uses electrochemical technology to store energy in zinc metal, creating a low-cost, flexible energy storage solution for applications that require upwards of 100 hours or more of battery power in the event of a grid outage. Examples include data centres, hospitals, and outages during natural disasters like the California wildfires.
Lightning Grid Quebec (LGQ) is a Quebec-based firm that just received authorization from the province to construct a state-of-the-art energy storage manufacturing and research facility. The plant will specialize in manufacturing battery packs, cells and systems, serving critical energy, environmental, and security infrastructure across North America. The company's products are uniquely salable (up to 3000 Ah cells), enabling fewer systems components and high capital efficiency. Superior thermal and electrical performance also enables ultra-rapid charging/discharging and very long life of up to 10,000 - 20,000 cycles.
Fluence, a Siemens and AES company, offers energy storage products that are highly configurable, optimizing them for large, utility-scale power storage. Their cutting-edge cloud-based management software incorporates complex market rules and real-time data to manage renewables and storage. Using AI, the system also provides forecast pricing, and automates and optimizes bidding.
“There’s a huge upcoming need for a different type of energy storage solution, but that market needs time to mature,” said Larsen, who also noted if the renewable energy growth curve were extrapolated, the obvious conclusion would be that existing technologies do not have the ability to sustain that type of penetration of renewables.
The question of segmentation and segment needs will drive much of the market over the next few years, executives said. One way to look at market segmentation is by duration: those of short duration, which may be less than four hours; mid-duration, which falls into the four to 12 hour range, with applications including load shifting; long duration, which falls between 12 and 100 hours; and ultra long duration, for anything beyond 100 hours.
As the market and applications for battery storage expands, storage requirements will also grow. Utility needs, for example, went from seconds to minutes, then single-digit hours. Today, there is a push towards 10 hours and beyond. Meanwhile, data centres require anywhere from two to three days of backup power on-site in the event of an outage. Hospitals require 72 hours of backup power. During California wildfires in 2022, power was shut off for multiple days for public safety.
“Because you have those specific needs developing now all around the world by specific customer groups, what it does is it creates also an opportunity for new innovative companies to come in and think about how to solve that problem a little bit better, more efficiently,” Wolek said. “It’s really a win-win situation.”
Tackling the Challenges
The battery storage market is not without its difficulties, executives acknowledged, citing challenges around costs and fire safety, for example.
While technologies have advanced, they can still be expensive to implement quickly and at scale. Even as overall falling prices help drive market growth, meeting the technical needs at decreasing price points can be a challenge.
“Innovation that leads to cost reduction is important in a world market – even an ability to compete, no matter what the subsidies are, against others. And in scaling, we also have to get better performance too,” said Epstein.
Fire incidents at energy storage facilities also illustrate the risks around lithium-ion even as companies prioritize ensuring a fire-safe system.
One of the greatest challenges facing the industry, however, is around the sourcing of raw materials. Much of the lithium and the supply chain around it originate from a single country: China, which also processes the vast majority of battery mineral components. Executives say more global players are needed to diversify the supply chain, not only from a competitive cost perspective, but also from an energy security standpoint.
Energy security in battery storage is seldom a topic of public discussion but LGQ’s Epstein noted that the majority of the battery cells and some of the other control systems are from non-allied sources with aggressive subsidies, making competition challenging as well. But given the importance of the energy infrastructure to national security, ensuring power grids are protected is paramount.
The bulk of the world’s lithium supply exists in Australia, and the “Golden Triangle” region of Chile, Argentina, and Bolivia. At the same time, ownership for a large percentage of those mines are in China. Further down the supply chain, over 60 percent of the processing for lithium carbonate is also done in China.
“It’s not only supply constraints, but also the geopolitical instability of it: the fact that we have a precious resource…in the hands of a few nations, notably one,” said Larsen, pointing to pricing dynamics when a resource is monopolized.
Diversification would be a huge benefit to the industry as well as customers, but getting access to lithium in other parts of the world, processing it, and developing the supply chain around it would require time and a significant push, executives told attendees.
This also raises the question of recycling. Over the long term, panelists were somewhat divided over whether materials could eventually feed back into the system and be recycled. With the current shift towards LFP (lithium iron phosphate) batteries from NMC (nickel manganese cobalt), there is still some uncertainty around the economic viability of recycling some minerals over others.
As the battery storage market grows, it will likely become a “mosaic of different technologies” because they all have benefits and drawbacks. Some do not perform as well in cold temperatures, while others are not suitable for longer duration applications, for example. Distinctive technology characteristics will make different batteries more suited for different applications, durations, market segments, and geographies, executives said. With the right incentives and right momentum and scale, there are solutions for many of the obstacles facing the industry.
Opportunities Heading into the Future
Raw material costs have fallen significantly, with lithium prices sinking off their record highs in 2022 amid a downtrend in China. While there is some uncertainty around near-term fluctuations, Epstein said, he is bullish over the intermediate term on Canada and Quebec as mineral rich regions. “Where you manufacture matters in terms of proximity to the supply chains,” he said.
Whether the stakeholder group is a systems operator, a utility, or in customer service, there are a lot of different revenue opportunities in transmission, distribution, and behind the meter, with more to come in the future. And it’s not simply about selling a product, executives told investors.
In behind-the-meter applications, storage doubles as a battery and provides energy bill reductions, but also acts as a form of resilience.
“This is a really brilliant market for long-duration energy storage because you’re decoupling technology away from being priced as selling electrons. What you’re actually selling is resilience,” said Larsen, offering two examples. If a greenhouse operator lost its irrigation, killing its entire inventory, what is the price on that? It is not the cost of electrons, but rather the cost of the inventory. A data centre that goes down could cost millions of dollars a minute. The technology can be priced more as an insurance for the energy supply, making it an extremely attractive market.
Focusing on providing additional customer value is also essential in an increasingly competitive environment. “It’s not only the battery. It’s all the things around that, which increasingly become important,” said Wolek. For one customer, it could mean providing a hedge product to address concerns around supply chain risks. For another customer looking to build multiple systems, the first system may be about ensuring viability, but the overall focus is on optimization. Offering a digital application to provide management services can help address customer needs and concerns.
Innovation can not succeed on its own, however. Building manufacturing assets that are able to more quickly take innovations and materials, and move them into production without long delays – meaning flexible, agile production – is also important.
In the case of zinc, proponents note the metal is ubiquitous and relatively sustainable – it can be found all over the world and a substantial portion of the world’s zinc consumption already comes from a robust recycling market. At the same time, its electrochemical benefits, energy density, stability, are among the qualities that make it an ideal raw material for long duration storage systems.
The energy storage market is poised for significant growth and transformation in the coming years. With the increasing global emphasis on renewable energy sources and the need for grid stability, energy storage solutions are becoming pivotal. Advanced battery technologies are expected to drive substantial improvements in storage capacity and efficiency. In addition, the rise of electric vehicles and the integration of energy storage with the power grid are opening up new avenues for market expansion.
As governments and industries invest in sustainable energy solutions, the battery storage market will be a vital part of that transition, offering a wealth of opportunities for innovation, investment, and the development of more resilient and greener energy systems.
