Amid concerns about the materials chain for lithium-ion batteries, energy storage providers like Powin Energy, Fluence and Wärtsilä say they’re facing a different, lesser-known supply issue: a small pool of well-known battery makers trusted by investors.
"There’s a relatively short list of suppliers who are household names, or at least household names for the investment community," said Logan Goldie-Scot, head of clean power research for Bloomberg NEF (BNEF). "On top of that, demand for lithium-ion batteries is growing rapidly, even more than suppliers were necessarily expecting. So we’re looking at genuine competition for supply."
The supply shortage isn't about materials, but more about bankability, the willingness of investors and financial backers to take risks on battery manufacturers who aren't household names. A smaller pool of trusted manufacturers means fewer opportunities for big-money storage projects to secure the necessary volume of batteries and leaves the energy storage industry at odds with electric vehicle builders for a limited supply of batteries. A concentration in China also means the market is vulnerable to international affairs.
It's a challenge being compounded by rapidly rising demand. A June 2021 forecast from Wood Mackenzie estimates that the U.S. energy storage market will grow to 33 GWh a year by 2026 and be worth $8.5 billion. Zero-carbon electricity goals in the U.S. and worldwide have spurred more pressing needs for storage installations, which can handle the intermittency of renewable energy production.
The Biden administration and some Democrats in Congress have also proposed a stand-alone tax credit for storage projects (currently, storage is only eligible if it is developed with certain solar energy production), which analysts say could accelerate interest even more by making storage more economical. In June, the Biden administration released a broad plan to boost domestic manufacturing and demand for lithium-ion batteries, including for energy storage.
"If you think about manufacturing as queuing for a plane, the automotive firms are the priority customers. They’ll board first. Stationary storage suppliers willing to put in these multi-year storage orders have their seats, they know they’ll get on. But the other suppliers, they’re on standby. They might only get on board if other people pull out."
head of clean power research, Bloomberg NEF
Meeting that demand will require a massive uptick in battery production around the world, including in the U.S. According to BNEF data, total demand for lithium-ion batteries will increase tenfold between 2020 and 2030, reaching more than 2,000 GWh per year by the end of the decade. More than half of that demand, however, will be in passenger electric vehicles, a market estimated to be 10 times the size of energy storage. Since EV batteries are typically more standardized and come in larger purchase orders, Goldie-Scot said there’s incentive for manufacturers to focus there at the expense of stationary storage.
"If you think about manufacturing as queuing for a plane, the automotive firms are the priority customers. They’ll board first," Goldie-Scot said. "Stationary storage suppliers willing to put in these multi-year storage orders have their seats, they know they’ll get on. But the other suppliers, they’re on standby. They might only get on board if other people pull out."
Going beyond Tier 1
Market analysts generally define the top, or Tier 1, battery suppliers as Tesla, Panasonic, Samsung, LG Chem and Contemporary Amperex Technology Co. Limited, based on their volume of production and track record on the market.
"These are the safe bets, these are the companies that customers will request," said Danny Lu, senior vice president for storage integration firm Powin. "We’ll have customers say they won’t accept any alternatives. We can have a tough time getting smaller vendors approved."
Lu said that some of the developers and investors backing large development projects may be worried about the technological and financial viability of startup companies.
Writing for a website affiliated with the Energy Storage World Forum in 2018, Semih Oztreves, business development manager at Wärtsilä-owned Greensmith Energy, wrote that outside investors may have concerns with the "lack of uniformity of best practices in battery management." That risk, he said, can be mitigated with a "tier 1 technology vendor" and a contracting partner "with a strong balance sheet and successful track record in the grid scale energy sector."
But focusing on minimizing those concerns, experts say, won't help drive down costs or foster innovation among even the well-known battery manufacturers, leaving utilities with fewer options as they add storage to the grid. Global battery vendors are working to boost their market share. Zinc battery maker Eos Energy Storage, artificial intelligence-driven storage provider Stem, and flow battery producer ESS are among the companies that have gone public in the past year.
A report from commodity research firm Roskill found that since the start of the year, Tier 2 battery suppliers had added more than 87.5 GWh to the forecast pipeline by 2030, including announcements by EVE Energy to invest $1.16 billion in U.S. operations and CALB’s plan to build a 50 GWh plant in Chengdu as part of a bid to boost its production capacity to 200 GWh.
"In a fast-growing industry, Roskill forecasts some Tier 2 battery makers will boost their standing and reach Tier 1 status in the next 2-5 years by improving the quality and scale of Li-ion battery products and securing long-term purchasing contracts," the report says. Not all of that supply will go to storage, but will serve to make the firms more bankable and attractive to investors increasing the potential pool of household names.
But amid that growth, the top battery suppliers remain concentrated in China. A September 2020 BNEF report found that China, with control of 80% of the world’s raw material refining for lithium-ion batteries, was the leading country in the lithium-ion battery supply chain in 2020, followed by Japan and Korea. The same report projected that China would keep its top spot in 2025.
In its plan for lithium-ion battery production, the Energy Department wrote that there is "a real threat that U.S. companies will not be able to benefit from domestic and global market growth [for lithium batteries], potentially impacting their long-term financial viability." Plus, said Elizabeth Crouse, practice group coordinator for the power group at K&L Gates, the U.S. vehicle and storage market could be choked if there is a trade war or some other international incident with China.
"This is of increasing importance right now because we are such a globalized community in energy," Crouse said in April on a panel at the ESA Energy Storage Annual Conference. "We [in the U.S.] are reliant on other countries, particularly in Asia, for supply of these things we really need to make sure the grid functions as we need it to."
The Energy Department announced several steps on June 8 to strengthen U.S. production, including requirements that battery technologies developed with taxpayer support be substantially manufactured in the U.S., securing more domestic access to raw materials and developing a framework to support domestic manufacturing.
Fostering new relationships
Whether that business growth translates to an increased flow of batteries for storage remains to be seen and could depend more on business relationships than any supply chain or production factors, said Powin's Lu.
"The customers have ultimate control over the diverse set of offerings that are approved for their projects," he said. Even when lesser-known suppliers could offer a cost advantage over the top tier firms, Lu said it can be a challenge to convince financiers to trust them. Powin has worked on bankability studies that can project manufacturers' financing, technical reliability and engineering to address those perception problems.
"Somebody has to take the plunge first and expand their vendors," Lu said.
Facing supply concerns, energy storage companies are also getting creative. "We’re seeing a lot of collaboration between manufacturers and integrators and developers," said Jason Dury, lead of the Open Source Solutions team for market intelligence firm Guidehouse. "They’re sharing software and models in order to get data to enhance the lifespan of batteries and align production lines with needs."
"There’s another wave of suppliers coming in. A future where we’re building relationships and bringing them into solutions and including different buying arrangements are all ways to get at this underlying capacity issue."
Chief Product Officer, Fluence
In April, for example, global energy storage provider Fluence, announced a partnership with European battery developer Northvolt to co-develop grid-scale battery storage. The deal will see the two collaborate on battery hardware and management systems, which Fluence says will lower the cost of ownership and offer new value opportunities for customers.
Crucially, it also gives Fluence a valuable supply chain partner in one of Europe’s leading battery producers; Northvolt anticipates producing at least 32 GWh from its new gigafactory in northern Sweden by 2024.
"This is an opportunity for us to produce value for customers globally that couldn’t happen through a traditional arrangement," said Rebecca Boll, chief product officer for Fluence. "We will be able to look at a comprehensive control system … where we take advantage of the best data available."
Additionally, Boll said the partnership gives Fluence some input in the manufacturing and supply chain, helping offer more market information on where and what type of batteries will be needed.
"I think there is tremendous opportunity to diversify our relationships and be more inclusive of the suppliers we work with," Boll said. "There’s another wave of suppliers coming in. A future where we’re building relationships and bringing them into solutions and including different buying arrangements are all ways to get at this underlying capacity issue."
CORRECTION: A previous version of this story misidentified Jason Dury's affiliation.