Reversing the Rise in Battery Prices

Reversing the Rise in Battery Prices

Battery pack prices dipped below US$500 per kilowatt-hour (kWh) for the first time in 2015 (in real 2021 dollars) and declined drastically to US$132 per kWh in 2021, after which prices started rising.1 What factors contributed to this dramatic price decline, what caused prices to rise, and what’s in store for the U.S. energy storage sector going forward?

Growing markets for consumer electronics and electric vehicles over the past decade, increased deployment of solar and wind coupled with storage incentivized by renewable portfolio standards (RPS), and environmental, social and governance (ESG) targets in the U.S., and the federal investment tax credit (ITC) for storage coupled with solar all created strong demand signals for the battery manufacturing industry. Technological advancements as a result of public and private research and development initiatives on battery subcomponents – specifically on cathode and anode materials, electrolytes and separators – followed by economies of scale in battery manufacturing were the biggest drivers for the battery price decline.2,3

With battery prices falling, utility-scale energy storage deployments in the U.S. shot up from a cumulative installed capacity of roughly 1,000 MW at the end of 2015 to nearly 4,000 MW by the first half of 2021. If battery pack prices had continued their expected decline to US$100 per kWh, the U.S. Energy Information Administration (EIA) had projected that another 10,300 MW of battery energy storage would be added in the U.S. in 2022 and 2023.4

However, in the third quarter of 2021, battery prices reversed direction and started climbing upward. This has been mostly due to supply chain disruptions caused by the pandemic, plus the ripple effects of the Suez Canal obstruction in March 2021, and the demand for batteries outstripping supply following the subsequent restarting of business activities, which was exacerbated by increases in shipping costs.

The mismatch in demand and supply, and the ever-increasing demand for batteries have created a shortage in three major battery raw materials: cobalt, nickel and lithium. Cobalt is facing a projected production deficit of 149,000 tons by 2030, and the demand for nickel and lithium also currently outweigh supply.5 As a result, costs for battery subcomponents increased astronomically from January to September 2021.

During this timeframe, in China, the cost has increased by 67 percent for lithium iron phosphate (LFP), 58 percent for single-crystal nickel manganese cobalt (NMC), 135 percent for electrolyte, 30 percent for synthetic graphite, and 22 percent for wet process separators.6

Rising raw material costs made integrated battery energy storage system (BESS) procurement more expensive. One BESS integrator reported a 20 percent increase in equipment price starting November 2021, with other integrators quoting similar price hikes. Due to the raw materials shortages, BESS supply has slowed down too, with integrators quoting lead times of 34 to 52 weeks, up from pre-pandemic lead times of 20 to 22 weeks. Battery price and availability have delayed a number of BESS projects in development, while a few developers are attempting to renegotiate power purchase agreements (PPAs) with offtakers due to the increased equipment price.

The battery industry is pulling all stops to meet demand. With the rapid growth in demand for lithium, the lithium mining industry is ramping up efforts to boost supply. Established major producers as well as newer players have raised substantial capital and are advancing novel lithium extraction technologies around the world. Lithium production is expanding from the more traditional hard rock resources to include lower grade and less pure sources such as pegmatite mineral and sedimentary clay deposits and, increasingly, brines found in salt flats, oil fields, geothermal well leachates, waste streams and even in the oceans. Lithium brine projects employing direct lithium extraction technologies raised over US$500 million in 2021 to scale up their processes.7

In response to supply shortages, many battery manufacturers are moving away from NMC chemistry that uses nickel and cobalt and are turning to LFP chemistry that uses iron-based cathodes, due to the abundance and relatively low cost of iron. The price hikes in lithium-ion batteries are also paving the way for alternative, non-lithium-based energy storage technologies to become cost-competitive. Aqueous zinc, iron-air, iron flow and sodium sulfur batteries that do not contain rare earth materials will get a stronger foothold in the storage market. Moreover, if lithium-ion prices do not resume a downward trajectory in the coming months, they may accelerate the adoption of long-duration storage technologies which were previously not competitive in the shorter duration applications that lithium-ion batteries currently dominate.

A few of these long-duration storage technologies that have made technological strides in recent years are thermal storage, compressed air, compressed natural gas, and geomechanical pumped hydro storage. It can be expected that as more solar and wind capacities come online on the grid, stationary energy storage will move away from lithium-ion technologies to long-duration technologies, and lithium-based batteries will primarily be used in mobile applications such as consumer electronics and electric vehicles.

The Inflation Reduction Act (IRA) of 2022 could prove to be the single-largest driver of growth for the U.S. energy storage market. The IRA not only extends the 30 percent base ITC for solar-coupled-storage through to 2033, but also establishes a 30 percent base ITC for standalone storage through to 2033, which is likely to turbocharge energy storage deployment. Both tax credits come with a potential 10 percent adder for meeting certain domestic content minimums and labor requirements, and a further 10 percent adder for siting the project in certain “energy communities.” Apart from creating demand drivers, the IRA also creates supply drivers through tax credits for domestic manufacturers of active electrode materials, battery cells, modules, and critical materials.8 Furthermore, the IRA expands the definition of energy storage beyond batteries to include thermal energy storage, providing an impetus to the development of long-duration energy storage technologies.

The U.S. Department of Energy (DoE) estimates that the IRA will double the installed energy storage capacity in the country by 2030 as compared to projections without the IRA. Energy storage plays a critical role in decarbonizing the power generation and transportation sectors. With exciting advancements in storage technologies coupled with new policy incentives, the U.S. energy storage market is poised for its largest growth ever. The next challenge for the industry is to decarbonize each aspect of the energy storage life cycle – from greening the raw materials sourcing operations to manufacturing, to establishing regulations and advancing technologies for extensive recycling of materials at the end of the energy storage system’s life.










Author Profile
Senior Renewable Energy Consultant - Wood

Abhishek Rao is a senior renewable energy consultant at Wood. His role requires advising clean energy developers, electric utilities, investors, lenders and governments to help develop, design and deploy utility-scale solar and storage. Rao has over 10 years of experience in the clean energy sector, during which he has supported over 6,400 MWdc of solar and over 5,500 MWh of storage globally. He received a master’s degree in solar energy engineering, business and policy from Arizona State University.

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