Green Economy Journal Issue 61

STORAGE
STORAGE
CEA, BofA, Benchmark Mineral; Kearney analysis
The automotive industry’s dominance in lithium-ion
battery demand strains supply and impacts prices.
OEM reactions (vehicle withdrawals) to material
shortages can positively impact supply and prices.
The recovery of lithium prices eases the situation,
reducing short-term risks, but prices remain high.
Uncertain price development and forecaste increases
from 2025 onward create long-term price risk.
Figure 1. Lithium’s cost influences battery prices significantly, and although prices have partially recovered, future trends remain uncertain. 1Lithium
carbonate equivalent: battery grade lithium. 2Lithium-iron-phosphate.
FULL CHARGE
How energy companies can power up against supply chain
risks in battery energy storage systems.
It’s a gut response of our modern era: the assurance we feel from an icon lit with green bars,
telling us a battery is fully charged. Wouldn’t it be great if industries dependent on battery
energy storage systems saw that icon light up regularly to indicate a steady, reliable supply of
lithium and other essential raw materials?
BY KEARNEY CONSULTING*
Lithium-ion batteries are currently the dominant storage
technology for the automotive industry, utilities and renewables
developers. Yet key ingredients pose risks to the battery storage
supply chain, the most daunting of which influence cost, supply
and ESG matters.
Global disruptors ranging from volatile geopolitics and inflation to
technological acceleration are reshaping supply, causing shortages
36
The beauty of a
that have become fundamental business issues. For industries in
the renewable energy sector, risks to the battery energy storage systems
(BESS) supply chain and its need for raw materials can turn from orange
to red quickly, jeopardising considerable value. But there are ways to
proactively reduce the risks to ensure a secure and sustainable battery
supply. It’s a matter of understanding the risks and then adopting
strategies for mitigating them in the short and longer term.
Article courtesy of Kearney Consulting
Lithium-ion batteries have become the technology of choice for battery
energy storage due to their high energy density, long cycle life, fast
charging and widespread availability. These advantages have created
a huge demand for them. The automotive industry, which accounts
for 80% of demand, and electric vehicle makers are the hungriest,
followed by renewable-focused energy companies and the needs
of vital energy infrastructure and the military.
The strain has impacted prices, supply and issues surrounding ESG
for materials including lithium, graphite, nickel and cobalt. Kearney’s
research indicates that the price of lithium has risen 500% from 2020
to 2023. As global demand for the material grows, the compound
annual growth rate (CAGR) for lithium-ion batteries could go up by
33% in the next three years, and by 2030, lithium demand could see
another 400% increase.
We believe a comprehensive approach to the entire battery
supply chain is needed to address the rising risks. Among concerns
voiced by renewable-energy developers is their dependency on China,
which accounts for 75% of battery manufacturing, an oligopolistic
sellers’ market, the auto industry’s dominance over demand, raw
materials shortages, further price volatility and failure to comply with
ESG expectations.
The price for lithium has risen
500% from 2020 to 2023.
Achieving supply
chain control doesn’t
happen overnight.
THE THREE LEADING RISKS
Cost risk. Lithium prices have fluctuated a great deal recently, having
rocketed upward by a factor of 15 from 2021 to 2022 (figure 1). They
have recovered, but we see them remaining at a high level, creating
long-term price risk. This is significant because lithium comprises
approximately 40% of battery cell costs, and passing on the rising
expense is difficult, especially for utilities.
Supply risk. The supply chains for raw materials are complex, long
and span multiple continents, often reaching across South America,
China and Europe. China, for example, controls the refinement of most
of the world’s raw materials for batteries (including 70% of the needed
graphite). Its dominance comes in part from the cost advantages the
country enjoys, along with vertical integration. However, the risk here
is political. If global demand outweighs supply, the country could
prioritise Chinese companies, with political tensions leading to an
embargo for battery manufacturers beyond its borders.
Chronic lithium supply shortages are already emerging. If the
desire for EVs continues to rise, demand could overwhelm mining
companies’ ability to extract enough lithium to keep pace. Conversely,
inflation and slowing demand for new EVs could ease the need
for lithium. However, we believe the forecasted supply shortage
and China’s control over the supply chain will pose significant
risks (figure 2).
37