The switch from fossil fuels to renewable energy alternatives and the electrification of energy is one of the key elements of delivering carbon neutral economies, and batteries are set to play a critical role in delivering this low-carbon future, says investment research and advisory company Edison Group.
The company explains that this is largely owing to the critical role that batteries will play in transforming the future of transport, by rapidly accelerating the adoption of electric vehicles (EVs) and the decarbonisation of the electricity grid.
Limiting climate change to 2 °C or below requires both the transport and power sectors to significantly decarbonise by 2050, Edison points out, highlighting that batteries represent the both feasible alternative to fossil fuels in many transport modes and an “important way to balance the intermittency of wind and solar electricity generation”.
Edison adds that investors seeking to play within this transformation should focus on material battery developers, manufacturers and deployers.
In Edison Group’s latest report into the sector, ‘Battery charge: The rise of lithium-ion—options and implications’, the company discusses the role of lithium-ion batteries, which remain in question, with those attempting to realise its full potential inevitably confronting barriers in manufacturing, cost and market acceptance.
However, the company explains that the chemistry involved in the manufacturing process is rapidly improving and that it expects “the engine of the market’s performance gains to be improvements in chemistry and design”. This will lead to cost decreases, allowing the battery (which was previously too costly to be viable in many industries) to become a powerful disruptor.
Advancements in anode materials have led to storage improvements of up to 181% and charging speeds of as little as six minutes while cathode developments have led to a 44% capacity increase, Edison says.
Additionally, though still in its early stages, the arrival of solid-state technology in the future promises to revolutionise the applications of lithium-ion batteries by making them smaller, more efficient and safer.
“We see the lithium-ion battery market trebling in the next decade,” the company states, but questions whether sectors such as transport, raw materials, nickel, oil and gas as well as power will be able to “see the implications of the battery’s rise”.
The size of the transformation that will occur is difficult to understate, the company says, adding that, arguably, the shift to EVs will be one of, if not the most significant industrial transitions in the next 30 years.
“Many (mostly European) countries have set long-term targets to ban the sale of petrol/diesel cars and over 94 cities have announced plans to restrict them. Car makers are gradually responding, spurred on by ever stricter CO2 emissions targets,” Edison comments.
The company’s research forecasts that EVs (including hybrids) will account for 38% of new car sales by 2030, with growth expected in other transport modes along with the electricity sector.
“Our findings make it clear that the rise of the EV is an inevitability rather than a possibility. We believe investors should be asking themselves when, not if, EVs will start to dominate the market,” Edison notes in the statement.
The company elaborates that the key to this conclusion is in the price of batteries versus fossil-fuel competitors. |Since 2010, the price of lithium-ion battery packs has fallen on average 18% a year to $176 kWh in 2018. With this in mind, investors can safely expect EVs to reach price parity with fossil-fuel alternatives by 2024 in most markets.”
Once this line has been crossed, it will be cheaper for car makers to sell EVs on average, which should result in an increased adoption rate across markets. Current estimates have the sales of EVs growing from 2% as of 2018 to between 25% and 46% by 2030, making for sales of between 23-million and 43-million and an EV fleet of between 125-million and 250-million.
“Assuming there are no significant policy changes in this time, we expect China to account for 50% of the market by 2030 and penetration of new sales reaching almost 50% in Europe, with the US coming in somewhat lower at 30%.”
The wider acceptance of EVs as an alternative to fossil fuels additionally stands to significantly reduce the amount of CO2 emissions put into the atmosphere annually. According to Edison, if more governments treated climate change as an urgent issue and made meaningful responses in the form of policies (subsidies, taxes, targets combined with charging infrastructure investment and parking incentives), these estimates would substantially increase.
Meanwhile, Edison also expects to see batteries play a crucial role in the decarbonisation of the electric grid. National Grid estimations show current UK electricity consumption rising by nearly 50% by 2050, a figure partially driven by EV usage and heating. “If national climate objectives are realistically going to be met all of this power must come from intermittent sources such as wind and solar power. This will then result in an increased demand for rapid storage growth to ensure power consumption needs are met, even when power sources are not producing energy,” the company comments.
While the role that storage will play in the energy has yet to be defined, the company states that it has “already seen significant investment into infrastructure in countries such as Australia, and the National Grid estimates the UK will need a further 8 GW of storage by 2030”.
Commenting on the report’s finding, Edison Group director and report author Dan Gardiner states that “it’s clear from our research that it’s not a case of if but when demand for lithium-ion batteries will rocket and trigger the most significant industrial transformation in decades as the demand for electric vehicles soars and there is a further significant impact on sectors across the economy, such as power, raw materials and oil and gas”.
He adds that investors looking to play this theme have multiple opportunities to do so and “[the company] recommend they should focus on material battery suppliers, manufacturers and developers.”