In a world of low-cost batteries, performance matters

As energy storage system prices drop and production costs fall, global cathode and BESS producers are under significant pressure to constantly improve their products or face consolidation, or even extinction, in an increasingly competitive midstream battery manufacturing market.

CRU posits that the BESS industry is beginning to shift from a cost-reduction stage to a performance improvement phase, similar to the transition that occurred in the solar market with the evolution from multicrystalline to monocrystalline passivated emitter rear contact technology between 2015 and 2019. In the case of energy storage, that means a shift from lithium nickel manganese cobalt (NMC) oxide to LFP cells and optimizing around the core industry metric of dollars per kilowatt-hour. The charts in this article compare the earlier cost reduction witnessed in solar technology (below) with what is happening today in the battery space (near the foot of the article).

CRU’s hypothesis is that for battery storage technology to attain and retain significant market share, it must be able to keep improving in performance. That could be epitomized by more energy dense and durable batteries. In the case of BESS containers, it would result in more kilowatt-hours per square meter, meaning reduced land requirements for utility-scale project developers.

Cost reduction

Lithium-ion battery (LIB) production costs have fallen sharply since their commercial debut in the 1990s, as manufacturing scaled up. That included a scale-up of the mining and material and component supply streams to support the growth of LIBs. This is because, like solar, LIB industry manufacturing costs are driven primarily by materials.

Battery manufacturing has now reached the terawatt-hour scale. Beyond this point, cell and system costs cannot continue to fall without an improvement in performance or in the amount of energy stored in a given space or weight.

Performance improvement

Improving performance is becoming vital for manufacturers to maintain margins. For BESS applications today, that has been driven primarily by longer-life systems or higher-energy density batteries that store more energy per charge, as next-generation systems promising higher storage capacities and stronger performance are making their way through research and development.

Can battery performance keep improving, like solar, or are we nearing its limits faster than expected? Will future advancements focus on cycle life instead? In the end, BESS success hinges on the levelized cost of energy figure – or levelized cost of storage, in dollars per kilowatt-hour – driven by project capital and operational expenditure, battery cycle life, depth of discharge, and efficiency. For new technology to enter the battery storage market, innovations must offer a performance and/or cost improvement without impacting the life cycle of a storage system.

System weight

At the material level, LFP is highly mature, having been developed and optimized for almost 30 years, with the cathode material fast approaching its practical limits for specific capacity.

As LFP storage batteries bifurcate from those designed for the electric vehicle sector, cell capacities have surged over the last six years, boosting utility-scale BESS from 500 kWh per shipping container to 8 MWh. The chart at the top of this article illustrates the increased capacity offered by manufacturers. These energy-dense solutions significantly reduce project footprints for developers, despite potential temperature control and safety concerns.

Physical constraints could also dampen further system energy growth. State-of-the-art, 20-foot LFP product weights are beginning to encroach on safe trucking limits in regions such as North America and Europe. CRU expects those limits could restrict future system energy capacity to between 8 MWh and 11 MWh, in the medium term.

New next-generation innovations such as high-compaction-density LFP boosts battery energy storage without major redesigns, making market entry harder for new technology. Alternatives like sodium-ion batteries must combine a performance benefit at a competitive cost with a compelling performance roadmap to gain market share versus their heavily optimized lithium counterparts.

Future BESS advancement must focus on cost-effective innovations in safety, transactable energy, and operating life. While LFP life cycles extend and costs continue to fall, alternative chemistries will find it difficult to gain significant market share. In the short to medium term, LFP will remain the market leader until a viable mass-production alternative can match its cost and exceed its performance.

About the author: Edward Rackley is a materials scientist focused on material innovations in energy storage, and decarbonization through electrification. As head of the energy storage team at CRU, Rackley leads analysts and researchers who provide techno-economic insights and forecasts on the global energy storage market, including cost drivers and technology trends.