Dive Brief:

• Developing a lithium industry in California's Salton Sea, an area that experts think could supply more than a third of lithium demand in the world today, could help set up a multi-billion dollar domestic supply chain for electric vehicle batteries, according to a new report from New Energy Nexus.
• But doing so will require navigating multiple financial and policy-related challenges, including receiving financial backing for demonstrating and commercializing lithium recovery projects, the report noted — without which, manufacturers could be hesitant to enter into contracts with lithium producers.
• For the power sector, having a domestic supply chain for lithium-ion batteries could allow projects to move faster, said Todd Tolliver, senior manager of storage technologies at ICF. "And given the volatility in financing that we've heard a lot about, to of course the dynamics of the global pandemic … it may help with some of the financing risk that's involved in the process."

Dive Insight:

The Salton Sea, located in southeast California, is the largest inland body of water in the state and a geothermal resource, currently hosting 11 geothermal plants. Regulators in California have been eyeing the potential of the region to be a 'Lithium Valley' for a while now; in May, the California Energy Commission (CEC) awarded around $10 million in grants for three geothermal-related projects, in part because of the potential to boost the state's emerging lithium recovery sector. Lithium deposits in the Imperial Valley could result in annual revenues of as much as $860 million, according to the U.S. Department of Energy's National Renewable Energy Laboratory, the CEC noted at the time. 

"[A] window exists for California to establish the domestic anchor of a comprehensive lithium battery supply chain in Lithium Valley," the new report notes.

Lithium-ion isn't the only energy storage chemistry that will be put to work in the storage mix, but it's clearly becoming a big part of it, according to Danny Kennedy, CEO of New Energy Nexus. Developing the Salton Sea region into a full supply chain could capture a lot of that value if done right, he said.

One of the benefits of this resource is that it's effectively a byproduct of the already existing geothermal power production business in the area, Kennedy said — the brine is already being brought to the surface for industrial purposes and power production, "and then as it's cooled on the surface, the salts will be precipitated out and extracted," said Kennedy, adding that this limits the additional physical footprint that's required to expand lithium extraction opportunities. 

Developing domestic storage supply chains has also been a priority of the U.S. Department of Energy, which early this year announced its Energy Storage Grand Challenge, an initiative aimed at reducing domestic dependence on foreign storage raw materials and developing its own manufacturing supply chain by the end of the decade. And the possibility of a 'Lithium Valley' has also piqued the interest of state lawmakers; last month, California Gov. Gavin Newsom signed legislation to create a Blue Ribbon Commission on Lithium Extraction in California. 

There are multiple advantages to an internal or local supply chain for lithium-ion batteries, Tolliver said — reducing the risks associated with global supply chains like tariffs, as well as restrictions on obtaining components from overseas. Additionally, because the battery industry is growing so rapidly, the lending community is still relatively new to understanding the technical risk around it and having battery supplies within the U.S. could make that a little easier. There are also logistical advantages to having to ship batteries a shorter distance.

At the same time, there are challenges to developing "Lithium Valley", New Energy Nexus found. From a financial perspective, battery manufacturers have historically stayed away from upstream investments, according to the report.

"Without early investment to demonstrate the technology cost and quality at commercial scale, manufacturers have been hesitant to contract with new lithium producers," it said. 

There are also policy challenges, including confusion over which bodies handle different parts of the California Environmental Quality Act (CEQA) guidelines, as well as the lengthy development processes that CEQA permitting requirements can cause. 

The report also identified next steps to developing the Lithium Valley, including possible economic stimulus legislation like production tax credits or subsidies for battery manufacturers that use a share of domestic lithium. In addition, there might be opportunities to access funding through the U.S. Department of Energy or U.S. Department of Agriculture, according to the report.