Category Archives: Business

Curious case of Lithium-ion battery price

By Aditya Chhatre

The beginning of this millennium marked the shift towards institutionalizing energy transition towards renewable energy resources. This transition has largely manifested into the mainstreaming of solar photovoltaics and wind energy in the installed generation capacity. However, the transition would be incomplete without reliable energy storage systems. Within the on-going debate of the best energy storage technology, there are a dozen possible technology options. To achieve the short-term deadlines of 2030, it is important to rely on the existing matured energy storage technology – Lithium-ion (Li-ion) battery. (Read our past article to know the journey of Li-ion batteries). The investments and innovations have got the prices rolling down since 2010. However, since the second half of 2021 the prices are in a slack due to raw material shortages.

In the debate of batteries demand and supply, interestingly this time it is the supply which has caused the imbalance. Portable electronics industry in 1990s established the extensive use Li-ion batteries and now the electric vehicles (EV) market has yet again strengthened the acceptability of lithium-ion batteries since 2010. At present, more than 30 countries have announced ban on manufacturing of internal combustion engine (ICE) vehicles starting from 2029 and with such phase out policies of ICE vehicles, vehicle demands are foreseen to be tilted over to EVs. An additional application of batteries is the large scale battery containers used for grid stability and applications such as energy arbitrage. This has added on to the demand of Li-batteries. In the terms of cell capacity, there are plans to achieve over 3TWh production facilities by 2030 which stands at around 500GWh in 2020. This colossal future demand has induced stress in the supply chains of the raw materials for Li-ion batteries. It is a wakeup call for the battery industry indicating that the prices may not decrease every year henceforth and the mining of the required metals shall be crucial for energy transition.

The uncertainty of supply chains usually is hard to forecast but it is important to categorize these situations. These market dynamics occur in phases and categorizing it provides a better understanding of the scenario.

Effects of supply chain on battery prices

The electrochemical nature of Li-ion batteries and its improvements over decades have resulted in variety of Li-ion battery chemistries. The prices of these Li-ion battery types in such a dynamic market is often hard to predict. A recent study from McKinsey discussed the relation between the raw material shortages and its effect to the market in the form of a flow chart which can also be extended to Li-ion battery market as illustrated in Figure 1.

Fig 1. Flow chart of prices and raw materials

As seen in the flow chart, a new application leads to increase in the raw materials demand. If the supply chains are intact then the technology transition is smooth. On the other hand, if raw materials are not available, a process to enhance the supply chains would be necessary. Now, considering the nature of EVs, the driving range is usually the most important factor for comparison of battery types. This factor is governed by the energy density of the battery, which indicate the energy storage capacity. Batteries consist of mainly 3 components – cathode, anode and the electrolyte. Innovations and research usually have been focused on the cathode level. During the early years of the last decade, the cathode with Nickel-cobalt-aluminium oxide (NCA) and Nickel-manganese-cobalt oxide (NMC) with the metal ratio of 1:1:1 was commonly used. NCA and NMC batteries have an energy density around 200-260 Wh/kg and 250-300 Wh/kg respectively. Amongst them as NCA was a cheaper technology, it had a larger contribution than NMC.

Cobalt is a major material in both of the battery technologies. As of 2020 more than 80% of cobalt is mined in Congo. Depending on just one country for such an important battery metal has strained the supply chains for cobalt for the last 5 years. Moreover, the political instability of the country makes raw material availability prone to unforeseen situations. Due to the high demands along with these constraints, in the month of March 2018 the price of cobalt peaked to 93,750 USD/ton. This shortage of cobalt supply increased the overall NCA and NMC battery prices.

In such situations of raw material storage, concerns increase due to the unsure supply chain modifications. The prices start to soar which can cause instability in the market. These high prices are usually short lived if supply chains are successful to adapt to the new demand. However, an indication of change of market dynamics is when the prices continue to be high. This unstable situation usually follows the cycle in three phases as illustrated in the flow chart.

Phase 1: Reduce critical materials

Phase 1 of the scenario involves efforts put in to reduce the contribution of the vulnerable materials. The tension in cobalt supplies led to high nickel content battery technologies to gain market share post 2018. Nickel which was extensively used in steel production facilities was readily available and this got the high nickel batteries to be economical. The NMC batteries have also seen a technological shift towards less cobalt content from 1:1:1 metal ratio to 8:1:1. NMC Li-ion battery market share increased and as of 2020 stands at more than 60% of the Li-ion industry. But nickel being just 3 times more available than cobalt, the supply chains were strained to match the increased demands. These effects could be seen in the prices of nickel since the mid of 2021. The cost of nickel in Jan 2022 stands at 22,570 USD/ton which is the highest in last 10 years. The mining industry is currently in search of more nickel sources and also building refining plants to improve its supply chain. This has forced the Li-ion market to move to the phase 2.

Phase 2: Find trade-offs

The second phase starts with the change of technology away from the rare materials. The shortage of NMC batteries brought in the Lithium-iron-phosphate (LFP) batteries back in action. LFP batteries co-existed in the battery market. Even though LFP batteries were cheaper than NMC batteries, due to its lower energy density (150-200 Wh/kg) they were not used greatly in the EV market. Most importantly, to avoid supply shortages the markets started to rely on LFP batteries which consists iron and phosphorous which are comparatively abundant materials. Many automobile players such as Tesla declare in October 2021 to shift from NMC technology to use of LFP batteries in their standard models. Another application where energy density is not critical is the stationary storage grid applications and LFP batteries are quite dependable for such an application as well. Fig 2. Depicts the expected market share of these prevalent Li-ion batteries.

Fig 2. NMC, LFP, NCA Li-ion batteries production capacity

Even though, it seems that the LFP batteries have finally found its place, there are some concerns which should not be overlooked. Most of the phosphorous refining facilities are energy intensive and these refineries are highly concentrated in China. Knowing the electricity mix in China, the phosphorous refining could be an issue with high carbon intensive production. Additionally, the dwelling concerns of vinylene carbonate availability (an additive to the electrolyte) possesses risks for LFP batteries. If adequate measures are not taken in due time, these factors can cause LFP batteries prices to increase too and push the Li-battery market scenario in phase 3.

Phase 3: Alternate technologies

This is the phase wherein all sub technologies have been exhausted. A new technology shall be introduced to fulfil the application. In the case of Li-ion batteries, this would mean that new batteries such as sodium ion, solid state, silicon or air-based battery technologies shall evolve and come into effect. This shall start the loop of the phases again although with different raw materials.

Conclusion and path ahead

The erratic nature of Li-ion material availabilities is ought to affect the prices of batteries in the near future. The prices of NMC Li-ion batteries in 2022 are expected to remain high and be governed by the raw material availability. The focus of the investments has always been in supporting downstream activities such as EVs and their manufacturing facilities. Now, it is the need for the investors and OEMs, to divert investments upstream towards mining and refining activities.  

The supply chain has also suffered labour shortages due to COVID in western Australia. As Australia produces nearly half of the global lithium, COVID has delayed the supply chains improvement activities by 6 months. Also, as China holds the patents for LFP batteries, 95% of LFP batteries manufacturing has been confined in China and in the short term the prices of LFP batteries depends on China and its policies. However, in 2022, the patents held by China on LFP batteries expire. This allows more manufacturers from other countries to invest and contribute to the economy of scale of LFP batteries. These could lead to possible reduction of LFP battery prices from 2023 onwards.

These factors of technology, prices and raw materials, interact in a cyclic flow chart which test the technologies and ramp up the supply chains.

(Vidushi Dembi contributed in editing this article)

The price of ethical consumption

This post originally appeared as a twitter thread by Vidushi here.

Morality in markets is expensive. Why does the average consumer have to bear the burden of “ethical consumption”?

As a middle-class, keen-on-a-sustainable-lifestyle consumer, my consumption choices come at significant cost to me. It requires time, effort & money to choose products that are eco-friendly, have controlled emissions, fairly traded blah blah. Not the best user experience. Fashion industry is an emissions and labour exploitation juggernaut; hence it is my personal responsibility as a consumer to buy “ethically made” clothes that are worth three times my capacity, but hey, at least I don’t support industries exploiting workers in Global South. Supermarkets provide vegetables in unnecessary plastic packaging, and because it is my personal stance to minimize plastic waste, it’s on me to invest time in finding rare, low waste alternatives. And of course, these alternatives don’t operate at the usual market price.

Standard products that markets provide for a regular consumer optimizing for price: plastic packaged, emission generating, processed foods – all are inherently damaging. And deviating to sustainability isn’t as feasible for the common person. Got to pay a price for your morals. I have to constantly justify the higher prices of “ethical” products to myself by convincing myself of having a “moral high ground”. I’m supposed to pay more to stick to my belief for a better planet for everyone, while the companies make better profit out of me paying more. People trying to live sustainably are often questioned if this expensive individual action has any impact on the grand scale. We question ourselves too and continue living with this burden because well, it’s your personal choice & it’s fair to pay for what you chose. Is it? Being a vegan is an automatic hit on your wallet. Why should I waste time deciphering ambiguous labels? Ecolabels should make me happy, which can very well be mere greenwashing. The very concept of one’s personal carbon footprint was in fact first publicized by BP. Come on.

All I see is consumers constantly struggling for fair options while companies continue standardizing their hazardous offerings. Is it fair for consumers to pay for their choices when the choices available are in fact not what they would want? Shouldn’t the onus of this morality be on these companies who force this dilemma upon us in the first place? Why should consumers have to pay for the externalities that the producers create? Do only the privileged deserve a guilt-free consumption? We need better options.

Further reading:

Indian Government’s Plan to auction off 41 coal blocks to private sector

India standing in the forefront of developing countries has a continuous increase in energy demands. In the race of energy generation technologies, we have come a long way to rely on coal as the more dominant resource. India is the second largest producer of coal with 716 million tonnes after China with 3523.2 million tonnes [1]. Analysing India’s coal usage, with the reserves of 319 billion of tonnes of coal [2], India uses 966 million tonnes of coal every year [3]. Although, 246 million tonnes of coal are imported mainly from Indonesia, Australia, South Africa and Russia. [4]

On 18th June, 2020 PM Modi addressed the event in which 41 coal mines (later changed to 40) were auctioned for commercial mining. Currently India has 83 operational coal mines with producing around 450 Mt of coal with Coal India Ltd. (CIL) being the largest coal producer of India [5]. Here, the roadmap started in 2015, where changes were made to make the laws in the coal mining sector so that private companies carry out mining as a captive requirement not for sale or other purpose. But this news has come with a further change with the removal clause of captive use being removed.

Considering Coal as a sector, this story can be linked to the target of increasing the GDP by 10%. (Federation of Indian Chambers of Commerce & Industry) FICCI in 2019, bolstered the increase of revenue from the mining sector to achieve this target. The mining sector now contributes approximately less than 3% to the GDP, NITI Aayog wants it to be 25% [6]. Moreover, this sector also provides around 355-500 thousand jobs, which are bound to increase with this auction adding more 280 thousand. All in all, this is a big thumbs up for the economy. [7]

Regarding the future of energy, renewable energy is the clear winner because of the cost and increasing efficiencies. Also, foreign investment and acceptability is more in renewable energy so we should not expect FDI in the mining sector. Moreover, various countries in the world are moving away from thermal power plants in the next 15 years. Having all this in the background, digging more 41 coal mines could turn out to be a risk. It is true that coal is our base load, but we can surely get rid of old and not efficient power plants. Also, the quality of coal from India has higher ash content making it non-compatible with highly efficient boilers in thermal power plants (example: Mundra, India). This deal can be helpful for making India independent and reducing imports, investing the funds in your own country. But rather, there are hidden costs to make these 41 coal power plants operational, which is 33 thousand crore rupees [7]. This money could also be invested in the renewable energy sector and try to shut down some thermal plants.

Talking about coal and mining, the environment is always a major parameter. Even though India should already start it’s plan of shifting its dependency on coal and ideally no more coal mines need to be explored, this system is complex and India even actively striving to be a pioneer in renewable energy has no concrete plans of phasing out coal. Geographically, coal and iron are found in dense forest regions. Out of the 41 blocks, some of the blocks have a forest cover of 50-80% [8]. These can turn in a setback for India with the targets of reducing carbon emission. There also exist tribal communities in the marked areas which would need to be displaced. So, these 41 blocks have reserves of approx. 17 billion and if India needs the coal to compensate with the imports of .2 billion/year, then these reserves would last for around 85 years [9]. This shows that there are no plans of phasing out coal from the government, instead to rely on coal for a long time of 85 years. Also, on a longer run, we would still face similar issues after 85 years. We need permanent solutions for reducing our dependency on coal.

Practical solution for the current situation is balance and delineating a plan for an optimum solution. As of today, 67% of the allotted coal mines are not even operational[10]. Firstly, we need to align with the renewable energy capacity targets of 175GW till 2020 and 450GW till 2030[11] and secondly, expanding and optimizing the use of existing blocks to its maximum efficiency. We then would be in a better position to decide upon only some of these blocks for mining, which are not so densely forest covered and meet the demand of imports. This would suffice the energy demand along with preserving the biodiversity and the tribal communities living there.

References:

[1] https://en.wikipedia.org/wiki/List_of_countries_by_coal_production

[2] https://coal.nic.in/content/coal-reserves

[3] https://www.worldometers.info/coal/india-coal/#coal-consumption

[4] https://www.theglobaleconomy.com/India/coal_imports/

[5] https://timesofindia.indiatimes.com/business/india-business/pm-modi-launches-auction-process-for-coal-mines-for-commercial-mining-key-points/articleshow/76438373.cms

[6] https://energy.economictimes.indiatimes.com/news/coal/mining-sector-key-to-indias-double-digit-growth-rate-ficci/69094627

[7] https://energy.economictimes.indiatimes.com/news/coal/auction-of-41-coal-mines-will-make-india-self-reliant-in-energy-sector-create-more-than-2-8-lakh-jobs-amit-shah/76455612

[8] https://www.hindustantimes.com/india-news/coal-mine-auction-opens-up-vast-stretches-of-forests-in-central-india-for-mining-show-documents/story-1SdToixA4Dcomld0op8lzH.html

[9] https://www.financialexpress.com/economy/new-model-privatisation-kicks-in-with-auction-of-41-coal-assets/1996250/

[10] https://youtu.be/dRi5u22FIYQ

[11] https://www.cnbc.com/2020/03/03/india-has-some-huge-renewable-energy-goals-but-can-they-be-achieved.html