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19 March 2020

Lithium-ion rush could leave ‘market for lemons,’ says NGK

The energy sector’s frantic grab for storage capacity is focused too much on capital cost, according to NGK, which claims that an unsustainable lithium-ion bubble is building without considering product lifetime or environmental impact.

In conversation with Rethink Energy, Japanese ceramic specialist NGK cited its sodium sulfur (NAS) battery as a preferable, albeit more expensive solution. An NGK representative reiterated that market conditions currently mean that storage is viewed as a service, rather than an asset, resulting in a sector that is blinkered towards immediate revenue potential. The company believes that ignoring the sustainability of lithium-ion will leave a “market for lemons,” with an absence of higher quality products in the energy storage sector – especially in terms of environmental impact.

There’s a lot of excitement around storage at the moment, as the missing piece of the puzzle for full decarbonization. As far as electricity is concerned, lithium-ion dominates ongoing discussions – and stole the show at Solar Media’s Energy Storage Summit a few weeks ago.

However, in Europe at least, the line between storage and generation is somewhat blurred. There is currently no specific value ascribed to storage duration, product lifetime or environmental impact. Utilities are very used to signing deals on a MW rather than a MWh basis, and with revenues coming from how much energy is fed back to the grid, front-of-the-meter storage is naturally most attractive when operating at any possible moment, and on short charge/discharge cycles.

With lithium-ion technology, durations of between 1.5 and 2 hours currently offer the best 25-year internal rate of return (IRR), at just below 13%, although market incentives for rapid firm frequency response (FRR) in place like Ireland have driven this sweet-spot down to under 30 minutes. Ireland has done this through introducing revenue multiples through its DS3 program, with the aim of increasing the System Non-Synchronous

Penetration (SNSP) to 75% in the near term. SNSP is essentially the share that intermittent renewables can contribute towards the electricity mix at any given time and is heavily dependent on storage with rapid response to fill the gaps when wind or solar power drop off. By providing revenue multiples, storage operators that supply electricity within 0.15 seconds of triggered demand can earn three-times as much revenue for electricity fed into the grid as usual.

This bias towards rapid-response batteries isn’t necessarily a bad thing for the storage market. Even with solar power, storage requirements rarely exceed a few hours, and weekly and seasonal storage are unlikely to be needed at scale until markets are trying to push SNSP from 95% to 100%. But artificially incentivizing this short-term performance suddenly makes business cases a lot easier to make for storage developers. With exciting cash-cow opportunities, the market is rushing to take up low-cost lithium-ion to maximize profits.

The cost of lithium-ion batteries is in free-fall. Having fallen at 18% per year on average for the past 10 years, the levelized cost of storage for lithium-ion battery packs sits at around $156 per kWh. With the electric vehicle market picking up speed – sales grew 9% between 2018 and 2019 – economies of scale could further stretch the price-point lead that lithium-ion has over competing technologies like like sodium-sulfur.

While any uptake in storage is beneficial to the energy transition, lithium-ion has a whole host of problems with long-term sustainability. Levelized cost values are currently calculated over stated product lifetimes, which are often around 20 years, despite performance degrading over time.

The issue of safety has been reasonably well ironed out through software control, but the environmental impact of lithium-ion batteries is often overlooked in the race to provide capacity.

NGK emphasized the mining requirements to procure lithium, which are not only energy intensive, but can also cause significant environmental and social damage. South America is home to the lithium triangle, which holds over half the world’s supply of the metal beneath salt flats in Argentina, Bolivia and Chile. To extract the metal from this extremely dry region, miners pump mineral-rich brine to the surface, which is evaporated for up to 18 months before lithium-carbonate (white gold) can be extracted. This process can use up to 65% of the region’s water requirements, putting unprecedented pressure on agriculture activities.

There’s also the potential for toxic chemicals used to process the lithium to leak into the water table. Lithium mining projects in Tibet, Australia and the US have all been linked to impacts on fish as far as 150 miles downstream.

But the largest issue arguably lies in the lack of recycling capacity. The European battery directive mandates that 45% of the metals used for batteries must be recycled, although in places like Australia research has shown that as little as 2% of the country’s 3,300 tons of lithium-ion waste is recycled. Several lithium-ion recycling plants have also reported fires, as units are damaged through processing.

It is this disparity between the short-term financial promises and the encompassing ‘quality’ of the product in all regards that NGK believes will lead to a “market for lemons.”

A typical analogy of a “market for lemons” is between buying second-hand cars of varying quality. Compared to the sellers, car buyers have very little information about the quality of each specific car. Since the buyer is uncertain, they will look at the ‘average quality’ in the market, regardless of the level of the car’s quality. As sellers are more aware of the relative value of their cars, owners of poor-quality cars (lemons) tend to sell their vehicles in this ‘average’ price range to maximize profit – and assume that they can use buyer ignorance in their favor, while owners of high-quality cars are unwilling to sell at this point of undervalue, in the knowledge that their vehicle is of a better standard. This then deters higher quality products from being sold on the market – leading to a “market of lemons.”

We can see three reasons for this situation arising within the battery sector, with lithium-ion batteries as the lemons. Firstly, in such a rapidly shifting market, energy developers may not have the knowledge of how to accurately value a battery to encompass its environmental impact. Second, the information might not yet exist in abundance, as suggested by MODO Energy at this year’s Energy Storage Summit. Or thirdly, storage developers just don’t care at the moment – if they can make money with lithium-ion today, the environmental clear up can be a problem for tomorrow. It’s most likely a combination of all three.

Focus will eventually turn to this issue, and lithium-ion could end up facing some competition from alternative technologies – with NGK pushing its NAS battery as a front-runner. This would ideally happen through governments providing a market subsidy for storage based on its MWh capacity, although its more likely that the artificial incentives for agile response will be phased down as the penetration of lithium-ion increases.

The NAS battery alleviates many environmental woes. Sodium and sulfur are both cheaply and easily procured without mining. Current research is suggesting that the product lifetime is greater than that of lithium-ion, and that 96% of NGK batteries end up being recycled.

Despite this, the company has historically marketed itself as a long-duration storage solution, rather than going toe-to-toe with lithium-ion. While NAS batteries are currently set-up to provide 6-hours of storage, an NGK representative highlighted that this is not really a point of differentiation. Longer duration can be provided equally by lithium-ion: if more cells are stacked together, storage capacity is increased, but developers would naturally rather stick to the economic sweet spot of just a few hours.

Marketing itself in this way has led to NGK struggling to make waves outside of its home in Japan. Of the 4 GWh of projects the company has installed, approximately two-thirds have been domestic. While the company has seemingly proved its concept through such a large number of installed projects that have lasted over 8-years without significant performance degradation, current costs – which NGK were unwilling to state – are too high to be competitive globally.

Unsurprisingly, NGK’s aim is to drive these costs down to be competitive, with the company considering a new mega-scale production plant as a priority outside of Japan – probably in Europe.

NGK’s sodium sulfur technology operates on the principle of two electrodes – the negative containing molten sodium and the positive containing sulfur. During discharge, the sodium donates electrons to an external circuit, leaving Na+ ions which migrate across the company’s ceramic alumina membrane to the sulfur-filled cathode, where they produce Sodium Polysulfide. During charge the reverse process takes place.

NGK is historically a ceramics company, with the NAS battery as its primary storage venture, although work is ongoing within Sodium-nickel chloride and zinc-based batteries. The company’s ceramic membrane is currently a key differentiator in its lead within the sodium-sulfur battery sector.

Each battery cell is formed of a tube of sodium encased in ceramic, surrounded by a carbon-felt-lined sulfur structure. These are then bundled together in 32 or 35 kW modules before being stacked into full systems of 1.2 MWh, which are the size of a 20-foot shipping container.

These systems can provide 6-hours of electricity at rated power but are well suited to up to 14-hours of electricity at below rated power to complement solar generation. Current work is being done to ‘tweak’ the system to be more economically viable in the 4-hour duration range.

The company currently faces a few issues with its technology. For optimum performance, and resistivity of its membrane, a temperature of around 300 degrees is required. NGK has recently partnered with BASF to provide insulators to improve the internal efficiency of the system, although problems are currently also being addressed around corrosion over the product lifecycle.

But this temperature, as well as the brittle ceramic, mean that the NAS battery are unsuitable for electric vehicles for the foreseeable future. This will be a key barrier in reaching the necessary economies of scale to become competitive with lithium-ion, which will dominate the EV market for the next 5 years at least – providing a key drive to cost reduction in energy storage. There’s a chance that other chemistries will enter the fray, with General Motors recently announcing its low-cost ‘Ultium battery’ using Nickel, Cobalt, Manganese and Aluminum, but we can’t see this forcing lithium-ion out of the sector. Because of this, sodium sulfur will be hard pushed to become cost competitive. For it do so, it’s likely that it would need some form of environmentally-based subsidy like a recycling tax credit.

To become competitive in FRR markets, NGK believes that software could enable sodium-sulfur batteries to compete with lithium-ion, but leading developers like Fluence have so far followed the status-quo in focusing on lithium-ion. This partnership approach is something that NGK is keen to promote, especially in accurately spreading information across the industry, with hopes of exposing several flaws in lithium ion.

The largest challenge that NGK faces however is a “business innovation challenge” – arguably in its marketing. A representative told us that its “challenge is to make it a product that fits the needs of today,” by cutting costs to become financially attractive, while holding the key points of differentiation in sustainability in the long run.