The positives and negatives of electricity storage - August 2018 - SIMEC ...
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August 2018 The positives and negatives of electricity storage Cantor Fitzgerald Europe Equity Research Adam Forsyth Research Analyst +44 131 257 4623 aforsyth@cantor.co.uk
21 August 2018 | Sector Note | Alternative Energy & Resource Efficiency Equity Research | UK The positives and negatives of electricity storage Affordable electricity storage is likely to accelerate the energy transition ELECTRICITY STORAGE in our view. But storage is complex and lithium ion batteries in particular Storage and renewable development are only part of the answer. We see this as creating opportunities at Leclanché different points in the market, notably in project development, Electro Power Systems complementary technologies, control systems, renewables and in new SIMEC Atlantis Plutus Powergen storage technologies. Windar Photonics Lithium ion is a key part of the energy transition Complementary storage technologies Lowering costs and better performance from lithium ion batteries are changing both AFC Energy transportation and electricity markets, accelerating the growth of electric vehicles and CAP-XX renewable energy and driving the transition to a low carbon world. We think the Ceres Power relationship between EV demand and infrastructure needs in particular will accelerate RedT demand for lithium ion storage. ITM Power Lithium ion is not the only solution Ilika But lithium ion has persistent limitations in terms of economics and performance. These do not rule out lithium ion as a major component of the energy transition but it also creates opportunities for other solutions, notably outside the economic operating limits of lithium ion. Supercapacitors and LTO for very short duration We identify four key storage market segments based on storage duration. Very short duration markets for frequency management and the internet of things play to the strengths of supercapacitors and lithium titanate cells. Gel and solid state batteries are new technologies that could also win a share of this growing market. Lithium ion remains dominant for short and medium durations Short duration markets for frequency response remains a key area of opportunity for lithium ion technologies both NMC and LTO. Medium duration is again the preserve of lithium ion which we think will increasingly displace diesel and gas for electricity storage systems. It is also the market where urban transport lies and again we expect to see lithium ion dominate here. Flow batteries and fuel cells look to gain at longer durations At longer durations lithium ion suffers on both cost and performance. We see flow batteries emerging for mid durations and at longer durations hydrogen-based solutions including fuel cells coming to the fore. We note in particular this year’s KPMG survey of automotive executives which put fuel cell vehicles as the real breakthrough in electric mobility. Opportunities in development, technologies and renewables We see a number of listed companies who are exposed to the opportunities as these markets develop. In storage development Leclanché, Electro Power Systems, SIMEC Atlantis and Plutus Powergen are all active to a greater or lesser extent. Leclanché and Electro Power Systems complement this activity with strengths in storage control. There are a number of companies progressing opportunities in the supercapacitor Adam Forsyth hydrogen, flow battery and solid state battery spaces including AFC Energy, CAP-XX, Research Analsyt +44 (0) 131 2574623 Ceres Power, RedT, ITM Power and Ilika. SIMEC Atlantis and Windar Photonics can aforsyth@ cantor.co.uk also benefit as storage facilitates further growth in renewables. This is a marketing communication. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is not subject to any prohibition of dealing ahead of the dissemination of investment research. However, CFE has put in place procedures and controls designed to prevent dealing ahead of marketing communications. For institutional clients use only. Please see important regulatory disclaimers and disclosures on pages 77-80
Alternative Energy & Resource Efficiency | The positives and negatives of electricity storage Table of Contents The positives and negatives of electricity storage 3 Why batteries are a hot idea 10 Battery limitations 15 Lithium ion is not the only solution 35 Storage technologies compared 45 Leclanché 51 Electro Power Systems 54 SIMEC Atlantis Energy 57 Plutus Powergen 60 Windar Photonics 63 AFC Energy 66 CAP-XX 69 Ceres Power Holdings 72 RedT Energy 73 ITM Power 74 Ilika 75 2 Cantor Fitzgerald Europe Research
The positives and negatives of electricity storage Alternative Energy & Resource Efficiency | The positives and negatives of electricity storage Lithium ion is having a revolutionary impact on both stationary and mobile energy markets. Costs have come down and energy density, the amount of energy stored per unit of weight, has gone up. BNEF Lithium Ion Battery Price Survey Lithium Ion Battery Gravemetrc Energy Density 1200 300 1000 250 800 200 US$/kWh Wh/kg 600 150 400 100 200 50 0 0 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 1990 1995 2000 2005 2010 2015 Source: BNEF Source: Joint Centre for Energy Storage Research Storage can already down deliver investable paybacks without the need for subsidies in key applications. Genuinely objective data in this highly competitive environment can be difficult to source but there have been some helpful academic works in recent years which demonstrate the undoubted progress. Studies of Battery Payback Period Application Behind the meter PV support Electric Bus Behind the meter PV Offshore support vessel support Payback period (years) 14.0 7.7 7.2 5.0 Study National Renewable Energy Columbia University for New York City Universities of Liege and Norwegian School of Laboratory Transit Aalborg Economics Date Nov-15 May-16 Dec-16 Dec-16 Source: CFE Research estimates As a result, demand for storage is expected to grow dramatically led by electric vehicles (“EVs”) and electric buses. Storage for consumer electronics continues to growth augmented by Internet of Things (“IoT”) demand. Stationary storage (Energy Storage Systems, “ESS”) is a smaller market by comparison but should also grow rapidly from a low base. Cantor Fitzgerald Europe Research 3
Alternative Energy & Resource Efficiency | The positives and negatives of electricity storage Annual Battery Demand by Sector 1400 1200 1000 GWh/year 800 600 400 200 0 2011 2013 2015 2017 2019 2021 2023 2025 2027 2029 EV E-Bus ESS CE Source: BNEF Despite the strong expected uptake of lithium ion technology, it suffers from a number of limitations. Many of these such as material constraints and lifetime limitations directly reflect back to cost. Others such as infrastructure considerations and usage complexity impact usability. The energy stored (effectively the duration of storage) is reflected in energy density. While this has improved dramatically, it remains a limiting factor, and results in the cost of storing more than a few hours of charge becoming uneconomic and in many cases simply impractical. In the transport space this is reflected in limited range. Energy Density of Transportation Fuels and Batteries 10,000 9,000 8,000 7,000 6,000 Wh/kg 5,000 4,000 3,000 2,000 1,000 0 Gasoline Ethanol NCA LCO LFP Lead acid Source: Qnovo Other performance limitations such as battery life impact cost. Lack of changing infrastructure for EVs, charging time constraints and thermal considerations all have solutions. Ironically infrastructure solutions are likely to lead to even greater demand for storage with stationary storage being a key tool in managing the additional pressures placed on grids as a result of EV growth. Application complexity is overcome with control solutions and we see this as a key area of differentiation within the sector. 4 Cantor Fitzgerald Europe Research
The positives and negatives of electricity storage Alternative Energy & Resource Efficiency | Cost reductions will have to be fought for and are likely to be slower than many expect. There are three reasons for this: • Raw material constraints • Existing low producer margins • Electrochemistry limitations These are major limitations but do not prevent lithium ion as emerging as a major storage solution. In fact we see it dominating storage for short and medium duration storage. However we also see the limitations creating opportunities for other rival solutions especially at longer storage durations and at very short durations. Notably we see fuel cells, flow batteries and supercapacitors as benefiting from strong demand. We see a renewed and stronger role for solutions based on hydrogen chemistries including fuel cells. The success of the recent Bloom Energy IPO suggests we are not alone in seeing the value here. But we also note this year’s KPMG survey of automotive executives which placed fuel cell EVs ahead of battery EVs. “Fuel Cell Vehicles Will be the Real Breakthrough in Electric Mobility” Absolutely agree Partly agree Nuetral Partly disagree Absolutely disagree Source: KPMG Global Automotive Executive Survey 2018 We also see strong potential in new battery technologies which can overcome some of the limitations of lithium ion although these may take time to develop. The leading technologies are likely to have most immediate success in consumer electronics and IoT applications and this is where we see most interest. Supporting our analysis we have developed levelised cost of storage curves which show the levelised cost of storage for different technologies for different storage durations. This shows four zones where key technologies dominate; very short, short, medium and long durations. Cantor Fitzgerald Europe Research 5
Alternative Energy & Resource Efficiency | The positives and negatives of electricity storage Broad Levelised Cost of Storage Groupings 10,000 1,000 US$/MWh 100 Very short duration Short duration Medium duration Long duration 10 0.0003 0.003 0.03 0.3 1 3 6 12 24 48 Duration (hours) Super capacitors Pumped storage Hydrogen storage old Lithium-ion battery old Lead acid battery Flow battery old OCGT Diesel Source: CFE Research estimates Key storage market segments Segment Duration Applications Current solutions Very short duration 20ms to 1s Frequency management, IoT Supercapacitors, LTO Short duration 1s to 1 hr Frequency response Lead acid, Li - ion Medium duration ESS 1hr to 6hrs Renewables arbitrage - Peak shaving Diesel and OCGTs Medium duration EV 1hr to 6hrs Urban EV NMC, NCA Long duration ESS > 6hrs Renewables arbitrage - load levelling Pumped storage Long duration EV > 6hrs Long distance EV None Source: CFE Research estimates Despite the constraints on cost progress there will be changes in competitive positioning and we can map these in terms of our curves to show how we think storage markets will develop. 6 Cantor Fitzgerald Europe Research
The positives and negatives of electricity storage Alternative Energy & Resource Efficiency | Levelised Cost of Storage Evolution 10,000 1,000 US$/MWh Li-ion cost reductions 100 Flow battery cost reductions Hydrogen storage cost reductions 10 0.0003 0.003 0.03 0.3 1 3 6 12 24 48 Duration (hours) Pumped storage Hydrogen storage old Hydrogen storage new Lithium-ion battery old Lithium-ion battery new Lead acid battery Flow battery old Flow battery new OCGT Diesel Super capacitors Source: CFE Research estimates As a result of this we see the key immediate technologies as being supercapacitors, LTO, solid state batteries, NMC, NCA, flow batteries and fuel cells. Further opportunities exist in control and development and renewable energy will be given a boost by storage as an enabling technology. Finally new storage technologies will be able to exploit the limitations of lithium ion in key markets and we see the IoT as a notable early area of opportunity here. Market development Segment Current solutions Competing technology Very short duration Supercapacitors, LTO, solid state Supercapacitors, LTO, solid state Short duration Lead acid, Lithium ion LTO, NMC Medium duration ESS Diesel and OCGTs NMC Medium duration EV NMC, NCA NMC, NCA Long duration ESS Pumped storage Flow batteries, fuel cells Long duration EV NMC, NCA Fuel cells Source: CFE Research estimates Cantor Fitzgerald Europe Research 7
Alternative Energy & Resource Efficiency | The positives and negatives of electricity storage Opportunities for investors Lithium ion storage is now seeing widespread adoption and we see this continuing. There is a degree of commoditisation already and we think this will continue. However we continue to see value in the development of storage project in the right situations. But the limitations of lithium ion mean that there are opportunities in complementary storage technologies including supercapacitors, flow batteries and in the emerging hydrogen economy. Control and implementation providers will also see opportunity in our view. The widespread adoption of storage will in turn support and encourage more renewables and we see relevant companies benefiting here. Finally developers of new storage technologies can exploit the limitations of lithium ion and find potentially major opportunities as they bring their technologies to market. Storage development companies The capital needs of storage systems and the skills required to develop projects makes the developer roles a valuable one in our view. • Leclanché • Electro Power Systems • SIMEC Atlantis • Plutus Powergen Complementary technologies Technologies other than lithium ion, especially at either end of the duration curve are likely to see stronger demand as the limitations of lithium ion become more widely known. We see opportunities in supercapacitors, flow batteries and fuel cells as being especially interesting at the moment. Newer technologies such as solid state batteries are also beginning to gain traction. • Leclanché (LTO) • AFC Energy • CAP-XX • Ceres Power • RedT • Ilika • ITM Power Control and implementation The difficulties in matching storage technologies to complex use needs means that control technologies and their implementation are less likely to become commoditised over time. The wider area of smart grid and other smart systems, notably micro grids is also an area of opportunity for investors. • Leclanché • Electro Power Systems Renewables Storage is an enabling technology for renewables and will make their deployment more attractive boosting demand in time. We see a number of companies benefiting from this. • SIMEC Atlantis • Windar Photonics 8 Cantor Fitzgerald Europe Research
The positives and negatives of electricity storage Alternative Energy & Resource Efficiency | This time it’s different Electricity storage has been around for a long time and has not always been suitable for public markets. “The storage battery is, in my opinion, a catch-penny, a sensation, a mechanism for swindling by stocking companies. The storage battery is one of those peculiar things which appeal to the imagination, and no more perfect thing could be desired by stock swindlers than that very selfsame thing.” Thomas Edison, Interview with the New York Sunday Herald, January 28, 1883. However the clearly improving technologies coupled with real demand arising from concerns about both climate change and particulate emissions has changed the nature of demand for storage in our view. We are moving from a policy driven, normative world to a genuine needs based market. Cantor Fitzgerald Europe Research 9
Alternative Energy & Resource Efficiency | Why batteries are a hot idea Why batteries are a hot idea Until quite recently, storing electricity in large quantities sufficient to power a car or provide back-up power for the electricity grid has been largely unfeasible in both practical and economic terms. Pumped storage has been a possible exception and a go to solution for power grids but it is itself an expensive option at up to £1.5m per MW of capacity and requiring a significant amount of space. This exemplifies the problems faced by most storage solutions, namely cost and energy density, the amount of energy that can be stored in a given space. However recent developments, notably improvements in lithium ion battery technology, have seen the cost of storage fall and energy density rise. Price reductions and technology improvements The cost of battery technology has fallen dramatically in the past decade. BNEF Lithium Ion Battery Price Survey Lithium Ion Battery Gravemetrc Energy Density 1200 300 1000 250 800 200 US$/kWh Wh/kg 600 150 400 100 200 50 0 0 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 1990 1995 2000 2005 2010 2015 Source: BNEF Source: Joint Centre for Energy Storage Research Battery technology has also improved significantly over this period with new technologies being developed to meet market needs and these technologies then improved. Lithium Ion Battery Timeline Michael Stanley Whittingham proposes Ned Godshall, John Goodenough LCO LMO and LFP NCA NMC lithium battery for Exxon Research and and Koichi Mizushima demonstrate commercialised by commercialised commercialised commercialised Engineering 4V LCO cell Sony 1972 1979 1991 1996 1999 2008 Source: CFE Research estimates 10 Cantor Fitzgerald Europe Research
Why batteries are a hot idea Alternative Energy & Resource Efficiency | Not all lithium ion is the same As lithium ion has been developed over the years, a number of cathode and anode materials have been tried resulting in six main chemistries with differing characteristics. These are summarised in the table below. Broadly speaking for vehicles and stationery storage, NCA and NMC are the dominant chemistries with LTO being available as a more expensive but more useful chemistry in certain applications. Lithium Ion Battery Chemistries Compared LCO LMO NMC LFP NCA LTO Specific energy (Wh/kg) 150–200 100–150 150–220 90–120 200-260 70–80 Specific power (W/kg) 400-2200 300-1600 300 3000-5100 Cycles 500–1000 300–700 1000–2000 1000–2000 500 3,000–7,000 C rate (C) 0.7–1 0.7–1 0.7–1 1 1 1-5 Thremal runaway (°C) 150 250 210 270 150 One of safest Source: CFE Research estimates For EVs and stationery storage, NCA, NMC are the most appropriate given their better specific energy and cycle lives. LTO has a key role where power and longevity are important considerations. Most of the other chemistries are more suited to consumer good applications. The drive to reduce exposure to cobalt has led to reformulations of the key NMC chemistry. Originally nickel, manganese and cobalt were present in equal amounts with cells described as NMC (111). The industry is through different formulations with NMC (622) in sight where nickel represents 60% of the total and manganese and cobalt with 20% each. The target is NMC 811. However there are issues here. The formulation has been found to show increased impedance with cycling leading to a rapid capacity fade. For low cycle life cells this may be acceptable and some manufacturers are already offering product for consume applications. For large format cells the material is not an option at present. BNEF expects chemistries to develop as follows. Share of Chemistry 2017 Share of Chemistry 2030 LMO LMO NCA NCA LFP LFP NMC (111) NMC (111) NMC (433) NMC (433) NMC (532) NMC (532) NMC (622) NMC (622) NMC (811) NMC (811) Source: BNEF Source: BNEF However we think this may be optimistic on NMC 811 for the reasons we have outlined above. Cantor Fitzgerald Europe Research 11
Alternative Energy & Resource Efficiency | Why batteries are a hot idea Economic viability in key use cases Batteries are now an economically viable solution as substitutes for other energy sources in certain situations. In particular, battery solutions for marine and bus transportation and for certain stationery storage applications now make economic sense before the consideration of any policy support. The payback periods for investments in buses, marine transport and solar (PV) support are all beginning to look attractive. Research shows payback periods in these key areas as beginning to look viable for subsidy free investment. Studies of Battery Payback Period Application Behind the meter PV support Electric Bus Behind the meter PV Offshore support vessel support Payback period (years) 14.0 7.7 7.2 5.0 Study National Renewable Energy Columbia University for New York City Universities of Liege and Norwegian School of Laboratory Transit Aalborg Economics Date Nov-15 May-16 Dec-16 Dec-16 Source: CFE Research estimates Additionally growing need for energy supply for internet of things applications (“IoT”) has created demand for small scale energy storage. IoT uses – need for better batteries The very large growth in demand for sensor and control devices fed by IoT applications is creating a similarly large demand for power sources for these devices. Small devices have traditionally been powered by nickel cadmium, nickel metal hydride or even alkaline batteries. However these all have a number of limitations including temperature sensitivity and memory effects. The biggest limitation of all is poor energy density. As a result lithium ion cells are becoming dominant in this area. In certain applications where power density is important, supercapacitors are also making inroads and there are a number of newer technologies that have applications here including solid state batteries. The IoT market continues to grow with Forbes magazine summarising a number of recent market forecasts and showing a CAGR to 2020 of between 16% and 31% and overall market valuations in 2020 of up to US$8.9Tr. IoT CAGR Forecasts to 2020 PwC GrowthEnabler/Markets&Markets Dutch ITC Gartner BCG Statista Bain IDC 0.00% 5.00% 10.00% 15.00% 20.00% 25.00% 30.00% 35.00% Source: Forbes 12 Cantor Fitzgerald Europe Research
Why batteries are a hot idea Alternative Energy & Resource Efficiency | Demand for storage set to grow These breakthrough price points drive further demand growth, accelerating down the cost curve. We have already seen bidding ahead of the curve based on assumed cost reductions in certain stationery areas such as the UK’s EFR auction. More significantly, automotive OEMs and governments are planning as though EV demand will grow significantly. This of course has a propensity to be self-fulfilling. Policy in particular is advancing to support EVs at a rapid rate. Perhaps the biggest shift here has been the move in policy priorities from the long term impact of CO2 to the more immediate impact of particulate emissions notably fine particulates with a diameter of less than 2.5um (PM2.5). As a result there are various subsidy and other forms of policy support available around the world. Subsidies of up to 50% of a vehicle’s costs are available in some countries. EV Subsidy as % of EV Cost 60 50 % subsidies in EV price 40 30 20 10 0 Netherlands Spain Italy Norway France Denmark Germany South Korea Sweden China Portugal United States United Kingdom Japan Switzerland Source: McKinsey & Company China is now the leading market for EVs and as a result policy here is key. EV Unit Sales China USA Japan Norway UK France Germany Netherlands Sweden Canada Belgium Source: BNEF Chinese EV policy has developed from tentative support in 2009 to fully-fledged support in 2016 although there is now an emphasis on reducing the subsidy level with phase downs in order to follow the cost curve. Cantor Fitzgerald Europe Research 13
Alternative Energy & Resource Efficiency | Why batteries are a hot idea China EV Subsidy Development NEV pilot city Expansion to Expansion to promote Extension of First phase down Extension and Third phase-down with subsidy program include private hybrid city buses in central subsidy to of central subsidy second phase down stricter qualification and initiated NEVs non-pilot cities 2013-2015 2014-2015 2016-2020 compliance 2017-2020 2009 2010 2011 2012 2013 2014 2015 2016 Source: International Council on Clean Transportation Stricter policy requirements currently being introduced are reducing subsidy from short range vehicles and favouring longer range vehicles. Fuel cell vehicles also receive support. Additionally there are city level support policies which have been strongly instrumental in increasing EV penetration. Bloomberg New Energy now forecasts electricity storage capacity to grow at an average of 22% annually to 2030, driven principally by EV demand and E bus demand. Stationery energy storage systems (“ESS”) shows much lower demand in this forecast. However we think ESS demand is understated as the impact of EVs on system power demand will increase demand for ESS as a solution to grid constraints caused by charging demand. Annual Battery Demand by Sector 1400 1200 1000 GWh/year 800 600 400 200 0 2011 2013 2015 2017 2019 2021 2023 2025 2027 2029 EV E-Bus ESS CE Source: BNEF Change drives change While EV growth is the biggest source of potential demand, the demand for stationery storage may be underestimated. The US Federal Energy Regulatory Commission ruled in February that energy storage companies will be eligible to compete against traditional power plants in US wholesale markets by the end of 2020 (FERC Order 841). This has been seen by some as analogous to the US deregulation of the telecoms market in the 1970’s. Following the issue of Order 841, the Brattle Group issued research suggesting that ESS in the USA could hit 50GW if costs continue to fall. Assuming a three hour storage duration in line with the research, this would mean 150GWh of battery storage for the USA and extrapolating globally would suggest total ESS capacity in line with the E-Bus demand shown above. Growth for storage set to grow but there are issues While this might all sound positive for investors in storage opportunities there are major limitations around battery technology. These in turn create risks for investors who back the wrong vehicles. In many ways these risks have not changed in many years. 14 Cantor Fitzgerald Europe Research
Battery limitations Alternative Energy & Resource Efficiency | Battery limitations Batteries are now being seen as the ideal solution to both transport needs and to solving the intermittency issues of renewable energy. While they certainly have potential in these areas there are certain issues which mean that they are not necessarily a cure all in either sector. • Performance limitations • Raw material scarcity • Infrastructure limitations • Complexity of use Performance limitations Anyone who has owned a mobile phone for more than about two years will be familiar with one of the performance limitations of batteries, namely a degradation of performance over time. There are other limitations too famously including heat management issues which in some cases have been cited as being behind well publicised failures in products including the Tesla model S, the Boeing Dreamliner and the Samsung Galaxy Note 7. Performance limitations can be summarised as follows: • Lifecycle • Charging times • Thermal runaway • Power and energy density limitations • Cost development Life The life of a battery is usually expressed in the number of full charging cycles that a battery can deliver before there is a noticeable loss of power delivered. A full charging cycle is from being fully charged to fully discharged and then fully charged again. In use a battery is unlikely to ever be fully discharged and battery management systems can control charging so that it can maximise the number of cycles and thus the batteries life. However lifetime is still an issue. Cycle Life for Main Li-Ion Chemistries 8000 7000 6000 5000 Cycles 4000 3000 2000 1000 0 LCO LMO NMC LFP NCA LTO High Low Source: Battery University Cantor Fitzgerald Europe Research 15
Alternative Energy & Resource Efficiency | Battery limitations Charging time The time taken to charge a battery is also problematic. While progress has been made here and EV drivers now have the option of superchargers, charging still takes time. In the case of an EV it is still quicker to fill up a traditional ICE powered car than to charge an EV. Additionally rapid charging can have a significantly negative impact on the battery life. C Rates for Key Li-Ion Chemistries 1.6 1.4 1.2 1.0 Hours 0.8 0.6 0.4 0.2 0.0 LCO LMO NMC LFP NCA LTO High Low Source: CFE Research estimates Charging time is normally expressed as a “C rate” which measures the rate of discharge relative to a batteries maximum capacity. A 1C rate means that the discharge current will fully discharge the battery in one hour. A 2C rate would see full discharge in 30 minutes. In a similar fashion, discharging can be expressed as a D rate although often the term C rate is used interchangeably for charging and discharging. Life and charging are related. Battery life is affected by maximum voltage, temperature and C rate. The first is fixed at the design stage and the second is largely a function of the application. However the C rate represents a major limitation in that either you can have a long life or you can have rapid charging but not both. Cycle Life for Different C Rates Source: Choi et al. Journal of Power Sources 111 (2002) 16 Cantor Fitzgerald Europe Research
Battery limitations Alternative Energy & Resource Efficiency | Batteries get hot Lithium ion in particular has a tendency to overhead leading to thermal runaway. This can lead to cells exploding if overheating gets out of control. Battery manufacturers are moving to design in fail safe solutions and in most applications cooling is key. Thermal Runaway Source: NREL Extremes of temperature can also have an impact on battery performance which is severely limited at low temperatures. Low Temperature Performance Source: NREL High temperatures can also limit battery life quite dramatically. In this case the performance degradation is not reversible and will lead to a reduction in the overall life of the battery. Cantor Fitzgerald Europe Research 17
Alternative Energy & Resource Efficiency | Battery limitations High Temperature Performance Source: NREL As with charging, temperature affects lifetime and in turn this increases the effective or levelised cost of storage of the battery. Power and energy but seldom both Many applications need high power to deliver the required performance. These include high power grid needs such as black start as well as the heavy end of the vehicle market. Other applications need a large amount of energy which in the case of EVs translates into range. Broadly most storage technologies are either good at power or at energy but seldom both. Ragone Plot 10000 1000 Energy density (Wh/kg) Fuel Cells Flow-VRD 100 Li-ion 10 Pb-acid 1 Supercapacitors 0.1 10 100 1000 10000 Power density (W/kg) Source: US Defence Logisics Agency, CFE Research estimates 18 Cantor Fitzgerald Europe Research
Battery limitations Alternative Energy & Resource Efficiency | The amount of energy stored in a battery is limited. This is what limits the range of an EV. Improvements are being made all the time but range is still a major deterrent for many. Additionally for certain grid applications which require storage for many hours, batteries cannot yet provide a suitable solution. Energy Density of Transportation Fuels and Batteries 10,000 9,000 8,000 7,000 Wh/kg 6,000 5,000 4,000 3,000 2,000 1,000 0 Gasoline Ethanol NCA LCO LFP Lead acid Source: Qnovo Costs The cost dynamics of a battery mean that while the technology will follow an experience curve and see significant cost reductions as volume increases, the relationship is unlikely to be as strong as Moore’s Law was for semiconductors. This was of course an observation rather than a law and it observed that costs came down linearly with annual production. Observations to date of battery costs suggest that costs come down with cumulative production which is necessarily a slower rate of improvement. It has been termed Snail’s law by one commentator. Performance Improvements Compared Source: Qnovo Additionally raw material constraints and efficiency limits in balance of plant are acting as brakes on the most rapid cost reduction forecasts. It is important to remember that Moore’s Law is not a law but merely an observation. There is no defined causality. This is a feature typical of learning curves. Abernathy and Wayne’s classic paper on learning curves (The Limits of the Learning Curve, Cantor Fitzgerald Europe Research 19
Alternative Energy & Resource Efficiency | Battery limitations Harvard Business Review, September 1974) which studied the learning curve of the model T Ford emphasised that the cost reductions achieved had to be worked for and had to come from a deliberate focus on cost above all else, notably flexibility. Looking at the facts we see a number of issues that might result in slower than expected cost progression. • Low margins – limited scope for competition to drive reductions • Material constraints – supply chain restrictions in key materials • Electro chemistry – gains cannot be considered linear Electro chemistry does not usually lend itself to simple solutions. For example Lithium ion technology has been struggling with a problem known as voltage fade for a number of years now with no sign of solving it. This has limited gains in energy density and hence duration. Perhaps the biggest barrier to cost savings is that batteries are effectively three dimensional solutions compared with semiconductors or PV cells which effectively work in layers. This means a thinner solution will not reduce costs without reducing performance and makes a Moore’s law type outcome less likely. Overall the performance considerations of batteries limit their usefulness in terms of range and charging. Poor usage regimes also impact performance and, as a result, cost. Raw material scarcity A crucial issue with modern battery technology is the use of key materials that could see supply constraints as market demand grows. Demand for the key materials including lithium, cobalt, nickel, manganese and graphite is set to grow as demand for lithium ion batteries grows over the next ten to fifteen years. The cell materials used in the main lithium ion battery chemistries are shown below. Note that the total cell materials make up 39% of the typical battery pack cost. Percentage of Metal Content 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% NMC (111) NCA LMO LFP LCO Li Mn Ni Co Al Fe P Source: BNEF NMC is the chemistry with most potential for EV applications which is itself the highest area of potential demand growth. Much work is being undertaken to reduce the cobalt and manganese content of NMC batteries. Most are formulated as NMC 111 which means equal parts nickel, manganese and cobalt. More extreme formulations up to NMC 811 are being trialled. However this formulation has significant performance drawbacks. Notably the cell’s impedance increases with each cycle leading to quite rapid capacity fade. While this is less of a problem in certain consumer applications 20 Cantor Fitzgerald Europe Research
Battery limitations Alternative Energy & Resource Efficiency | with low cycle life, it is still some way away from being a solution for transport or grid storage. That said intermediate formulations such as NMC 622 are now useable. Global lithium ion and materials demand forecast from EV sales 1,000 1400 900 1200 800 700 1000 '000 tonnes 600 800 500 400 600 300 400 200 200 100 - 0 2010 2015 2020 2025 2030 Lithium (tonnes) Cobalt (tonnes) Nickel (tonnes) Manganese (tonnes) Li-ion battery demand (GWh) Source: BNEF For manganese there is not really an issue but both lithium and cobalt, and to an extent nickel and graphite, could see demand reach almost four times current global production by 2030. According to the United States Geological Survey (“USGS”) there are more than sufficient undeveloped reserves in both cases but raising production will require new investment and any delay here is likely to create constraints on supply leading to pricing pressure. EV battery demand impact on selected mineral supply Material BNEF 2030 forecast BNEF 2030 forecast as a % of BNEF 2030 forecast as a % of (metric tonnes) 2014 production known global reserves Lithium 106,768 296% 0.7% Cobalt 265,747 237% 3.7% Nickel 292,909 12% 0.4% Manganese 254,445 1.4% 0.1% Copper 862,470 4.7% 0.1% Source: USGS,BNEF Both cobalt and lithium markets are already seeing speculative buying as a result, with lithium almost tripling over the past three years. Cobalt prices have retreated recently but still remain strongly up. Cantor Fitzgerald Europe Research 21
Alternative Energy & Resource Efficiency | Battery limitations Lithium and Cobalt Pricing (-3y = 100) 350 300 250 200 150 100 50 0 17/08/2015 17/08/2016 17/08/2017 Cobalt Lithium Source: Bloomberg Lithium Lithium looks likely to face constraints over the next year or so but a significant amount of new capacity is set to be developed and producing by 2020. Lithium Production Ramp Up 160000 140000 120000 100000 tpa 80000 60000 40000 20000 0 2016 2027 Country Australia Chile Argentina China Zimbabwe Brazil Portugal Bolivia Canada Mexico U.S. Source: BNEF Delays in ramping up these projects could mean market constraints last longer. Additionally lithium production is somewhat concentrated with four key developers controlling c.80% of the market. This means that even once supply is more balanced, prices may remain high. 22 Cantor Fitzgerald Europe Research
Battery limitations Alternative Energy & Resource Efficiency | Lithium producers market share Albermarle SQM Tianqi FMC Other China Orocobre Other Source: BNEF Cobalt Cobalt is already in a technical deficit and despite some new announced capacity additions a deficit will re-emerge from 2022 onwards. As a result new capacity is likely to be announced. A high proportion of the world’s cobalt reserves are in the Democratic Republic of the Congo raising security of supply issues. A reduction in output would put supply under pressure now. Cobalt Production by Country D.R.C Russia Australia Canada Cuba Philippines Madagascar Papua New Guinea Zambia New Caledonia South Africa Source: BNEF New cobalt capacity is highly concentrated on a small number of producers. For example, any problems at Glencore’s Katanga mine would be a major issue for supply. Glencore has already seen some of its bank accounts in the DRC frozen as part of a dispute with former business partner Dan Gertler and a JV with the state mining company Gécamines is also now uncertain following legal action by Gécamines. As all this is going on the DRC is also introducing a new mining code which will increase royalty rates from 2% to 10%. Despite this Glencore has recently increased cobalt output by almost a third. Together with inventory sales in China, this has reduced some of the recent pressure on prices. Cantor Fitzgerald Europe Research 23
Alternative Energy & Resource Efficiency | Battery limitations New Cobalt Capacity Glencore Katanga Eurasian Resources Group Australian Mines Conico Terrafame eCobalt Source: BNEF Nickel Nickel is primarily used for stainless steel, using two thirds of supply in 2017 compared with just 3% for batteries. However BNEF forecast that by 2030 77% of 2016 production levels will be used for batteries. Oversupply in the market peaked in 2013 has led to closure of several mines so there is dormant capacity in the market. Nickel needs to be processed to high purity for batteries and processing facilities will require additional investment as demand grows and there are developments underway. Graphite There is no immediate pressure on graphite and major new capacity is expected in the period 2020 to 2025. As with Cobalt, there is a degree of concentration in new mines and delays here could put pressure on supply. Chinese environmental regulations could also curtail graphite mining in that country. On the more positive side the possibility of producing artificial graphite from needle coke can be utilised but with an impact on pricing. Summary on material supply Overall we expect that material supply will sort itself as new production is brought on stream but this will not happen smoothly and prices are likely to remain high. Concentration of producers means that even if supply is sufficient prices will not fall dramatically. Cobalt is the biggest area of potential supply constraint although delays in bringing on new lithium capacity would also have an impact. While new battery formulations such as NMC 811 are trying to reduce cobalt content performance limitations make these unlikely to be commercially viable in the near term. NMC 622 and greater use of the older NCA chemistries might have some impact. We think material supply will act as a brake on the more rapid cost reduction assumptions making a slower cost progression more likely. Opportunities in upstream including mining are therefore likely to remain. Supply constraints will also act as an additional spur to new technology development making new chemistries beyond lithium ion and other storage solutions more viable. 24 Cantor Fitzgerald Europe Research
Battery limitations Alternative Energy & Resource Efficiency | Infrastructure Limitations A virtuous cycle of demand growth There is a growing relationship between EV demand and power needs. There is a tendency to see demand from power grids for storage as more limited when compared to potential automotive demand. However the two are at least in part related. Lower battery costs makes EV ownership more affordable. As EV ownership grows the demand on power networks created by charging grows. This puts pressure on the grid. A system already under pressure At the same time, renewable energy is now at a key tipping point. The number of geographies where solar PV or wind generation has reached the point where it has the same cost as traditional power generation technologies (known as grid parity) is growing. The UK has seen offshore wind projects competing at £57/MWh, within 25% of last year’s baseload electricity price. Two major onshore projects in Germany are now going ahead based on market prices alone and Vattenfall has announced a subsidy free offshore wind project. Global Cumulative Installed Generation Capacity 18,000 70% 16,000 60% 14,000 50% 12,000 10,000 40% GW 8,000 30% 6,000 20% 4,000 2,000 10% - 0% 2012 2017 2022 2027 2032 2037 2042 2047 Fossil Nuclear Hydro Wind Solar Batteries and flex Other % renewables Source: BNEF This new renewable electrical supply is generally mismatched with the additional demand for EV charging. For example residential charging mainly happens overnight whereas solar cells only generate during the day. This puts more pressure on the grid, worsened by the intermittent nature of most renewables. The Duck Curve One further impact of increased renewable energy capacity and in particular solar is the creation of a “Duck Curve” in the daily demand profile. The potential impact of significant solar capacity on demand was first raised by the California Independent System Operator (“CAISO”). California used to see energy demand on the grid rise in the middle of the day and be fairly flat across the afternoon before rising to a peak in the early evening. Solar is recognised as negative demand because of its distributed nature. With considerable solar on the Californian system, demand now begins to fall from 11am as this capacity kicks in. Then in the late afternoon as the sun wanes and solar starts to come off demand rises very steeply into the early evening peak. This can be represented on a demand graph showing how demand is expected to behave as even more planned solar capacity is added out to 2020. The shape is said to resemble something that quacks. Cantor Fitzgerald Europe Research 25
Alternative Energy & Resource Efficiency | Battery limitations Duck Curve (UK data) 35.0 30.0 25.0 20.0 GW 15.0 10.0 5.0 0.0 0:30 1:00 1:30 2:00 2:30 3:00 3:30 4:00 4:30 5:00 5:30 6:00 6:30 7:00 7:30 8:00 8:30 9:00 9:30 10:00 10:30 11:00 11:30 12:00 12:30 13:00 13:30 14:00 14:30 15:00 15:30 16:00 16:30 17:00 17:30 18:00 18:30 19:00 19:30 20:00 20:30 21:00 21:30 22:00 22:30 23:00 23:30 0:00 2015 2020 2025 2030 2035 2035 - High 2035 - Low Source: National Grid The key message of the duck curve is that the grid used to have to deal with a small ramp up in demand in the later afternoon or early evening but now has to deal with a much more marked ramp up. This puts pressure on the system and increases demand for flexible and responsive capacity, potentially increasing demand for ESS solutions. EVs could make things worse Battery electric vehicles (“EVs”) have been seen as a potential source of storage that might help to eliminate some of the problem of intermittency. This makes the assumption that charging of the EV can occur when the sun is shining and the wind is blowing and discharge (driving) can occur at other times. However the propensity to charge is greatest when a vehicle returns to the home. This propensity is heightened by range anxiety and by a desire to charge efficiently without introducing additional charging cycles and potentially shortening battery life. Monte Carlo simulations by the University of Strathclyde for the IEEE using time of use survey data shows that charging is most likely to occur at times of peak electricity demand and thus increase demand. This in turn would exacerbate the duck curve effect. 26 Cantor Fitzgerald Europe Research
Battery limitations Alternative Energy & Resource Efficiency | Scenarios of EV Charging in UK Source: Strathclyde University/IEEE The problem could be overcome by changing behaviour so that charging does not start until later in the evening. Smart charging systems that defer the initiation of charging until after the evening peak are the obvious solution. Coupled with time of use (“ToU”) tariffs behaviour might be changed to avoid the inflated demand peak. However this is not a given as consumer behaviour is uncertain and it would only take a few well publicised charging failures to create hostility. Charging devices themselves are already being designed to work with control systems that will facilitate smart charging making use of customer friendly programming through mobile phone apps. In the UK, the government is already considering policy that will make smart charging mandatory. However it is likely that this will allow manual override. EV demand impact on grid The UK National Grid forecasts that EV’s could represent additional demand of up to 29% of current peak demand by 2050. This assumes that all charging is undertaken when most convenient for the driver which is co-incident with existing peak demand. However smart charging could defer charging times so that peak impact is minimised and reduce the peak demand impact to 8GW or 13% of current peak demand. Cantor Fitzgerald Europe Research 27
Alternative Energy & Resource Efficiency | Battery limitations UK Net Peak EV Demand Under Four Scenarios Including V2G 14 12 10 8 GW 6 4 2 0 2015 2020 2025 2030 2035 2040 2045 2050 Community Renewables Two Degrees Steady Progression Consumer Evolution Source: National Grid While the National Grid has said it is comfortable that this demand can be met, it is still significant and has the potential to put severe pressure on the transmission and distribution networks especially at the low voltage network level. Clustering of EV charging points in particular could exacerbate the local impacts. Charging may be forecastable but is not entirely predictable and this adds to the problem. This pressure on the grid can be solved with additional grid capacity but also by smart solutions including increased flexible storage and generation. V2G The pressure placed on networks by EV charging demand could be mitigated by vehicle to grid charging (“V2G”) where surplus power stored in a vehicle battery can be used by the grid. Recent research from the University of Warwick suggests that by managing the discharge and charging more efficiently, V2G could actually prolong battery life. However other research including work at the University of Hawaii suggests that V2G could have a detrimental impact on battery condition and life and even if merely suspected this could make it a difficult concept to sell to EV owners. Additionally V2G represents an unpredictable source of supply as the behaviour of individual vehicle owners cannot be perfectly predicted although adequate forecasting is likely to be feasible. The process must also result in a fully charged vehicle when the driver wants it. It would only need a few well publicised cases of owners finding their vehicles with flat batteries to make such schemes unworkable. For these reasons we think V2G cannot be assumed at least until it is developed further. Even National Grid is cautious on the number of EV owners who will participate in V2G. Percent of EV Owners Who Participate in V2G Scenario 2030 2050 Community Renewables 2% 13% Two Degrees 2% 14% Steady Progression 2% 10% Consumer Evolution 2% 11% Source: National Grid 28 Cantor Fitzgerald Europe Research
Battery limitations Alternative Energy & Resource Efficiency | Overall infrastructure is a challenge. The recent KPMG survey of automotive industry executives highlighted the issue. "Battery Electric Vehicles Will Fail Due to Infrastructure Challenges" Absolutely agree Partly agree Neutral Partly disagree Absolutely disagree Source: KPMG More storage Grids must therefore solve this pressure. That is likely to see them adopt more storage and so battery demand grows further leading to more cost reductions. This in turn allows more renewables and the process is driven further forward. A Virtuous Circle in Energy Storage Battery costs down and performance up More battery EV demand volume rises Flexibility Charging demand rises demand rises Pressure on electricity grid Source: CFE Research estimates In many developed countries including the UK, electricity demand itself has been falling as a result of efficiency gains and de-industrialisation. The energy transition and particularly the rise of EV’s is likely to reverse this decline and lead to quite substantial increases in demand for electricity. Cantor Fitzgerald Europe Research 29
Alternative Energy & Resource Efficiency | Battery limitations National Grid Peak Demand Forecasts Under Differing Scenarios 90.0 85.0 80.0 75.0 GW 70.0 65.0 60.0 55.0 50.0 2005 2010 2015 2020 2025 2030 2035 2040 2045 2050 History Community Renewables Two Degrees Steady Progression Consumer Evolution Source: National Grid Market complexity Stationery power storage needs can appear straightforward at first sight. We can summarise these into three main groups based on storage duration across a typical day. A simplified picture of power demand across a 24 hour period is shown below, illustrating the need to convert a typical grid daily power supply profile to a baseload demand need. The profile supplied varies across the day with small variations from second to second and larger variations across the day. Simplified Daily Demand Profile 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 Source: CFE Research estimates Storage can flatten this demand profile entirely but to do so there are three principal applications. 30 Cantor Fitzgerald Europe Research
Battery limitations Alternative Energy & Resource Efficiency | How Different Types of Storage Smooth Power Demand Short term storage - frequency response Medium term storage - peak shaving Longer term storage - load levelling Source: CFE Research estimates Here the short term market needs storage solutions of up to 30 minutes and the more responsive the better. Peak shaving needs storage of between an hour and six hours and load levelling needs at least 6 hours of storage. However this simplification masks a great deal of complexity. The Rocky Mountain Institute identifies 13 use cases for stationary storage applications alone. Power Storage Use Cases Source: Rocky Mountain Institute Cantor Fitzgerald Europe Research 31
Alternative Energy & Resource Efficiency | Battery limitations In the UK, the National Grid has embarked on an attempt to rationalise over X different flexibility needs in the stationery/power market. UK Balancing Services Markets Source: National Grid The transport market is in some ways more straightforward although is not without its challenges with differing needs for different transport types and distances. Overall we think the underlying complexity of use cases leads to potential marketing challenges and funding challenges. While we expect these will simplify over time into a smaller number of key markets (National Grid’s rationalisation initiatives will help) a degree of complexity will remain making some markets challenging and rewarding participants who can deal with this complexity adequately. Strong proprietary control offerings are key here. It is interesting in this regard that Engie’s acquisition of a 50% stake in Electro Power Systems cites the “differentiating control technology” at EPS in its acquisition statement. In fact the major recent M&A deals in the storage space recently have been dominated by acquisitions of companies with a strong control angle, notably Younicos and Greensmith. Significant Energy Storage Acquisitions Date Acquiror Target EV ($ million) EV / revenue EV / EBITDA Mar-18 Engie Electro Power Systems € 37 5.9 -20.8 Jul-17 Wartsila Greensmith 170 na na Jul-17 Aggreko Younicos £40 5.71 na Jul-16 Total Saft € 1,003 1.31 9.0 Jun-15 Energizer Energizer (Spin-off) $2,834 1.57 7.2 Nov-14 Berkshire Hathaway Duracell $2,898 na 7 Oct-14 OM Group Ener-Tek $24 1 8 Jun-13 Eurazeo Croissance IES Synergy € 22 1.57 na Oct-12 Johnson Matthey Axeon £41 0.87 na Oct-08 Ener1 Enertech $57 0.93 7.9 Median 1.3 7.9 Source: CFE Research estimates Controls Matching storage technologies to demand physically requires complex controls systems. Integrating hybrid storage and power increases this complexity dramatically. 32 Cantor Fitzgerald Europe Research
Battery limitations Alternative Energy & Resource Efficiency | This is a less commoditised part of the market than the provision of physical storage equipment alone and is seeing growing demand. Most storage systems will be connected to a grid via power electronics components. Normally an inverter modulates the waveforms of current and voltage to match with the grid. The inverter itself is managed by a controller that defines the set points of the storage system, normally in terms of the magnitude of active and reactive power. Control of the battery or other storage devices is undertaken by a Battery Management System (“BMS”) which monitors and controls the charge and discharge process. This maximises the lifetime of the cells and ensures safe operation. For a complex system a master control module will co-ordinate charging and discharging of slave control modules. For a hybrid power plant, control becomes even more complex. Between different power or storage sources, a further convertor known as a boost convertor or chopper boost is required to levelise voltages. More than one of these may be required in a full hybrid system. Complexity can increase as more assets are added. Finally a SCADA (supervisory control and data acquisition) system interfaces with the end users including the local grid if appropriate. This may include interface protection for the grid. A straightforward battery based system would look like the diagramme below. Energy Storage System Control Schematic Source: Electro Power Systems A number of key players can go far beyond this basic offering and provide the control systems and balance of plant to create a full hybrid power plant with a variety of storage, traditional generation and renewable generation sources and the ability to serve off-grid, grid connected and distributed demand. We expect to see more offerings in this space but the existing players have a strong advantage and given demand are likely to maintain an advantage. Cantor Fitzgerald Europe Research 33
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