Battery supply issues jeopardise storage boom

• Group of leading battery suppliers is small and uncompetitive

• Battery suppliers could prioritise automotive clients over storage

• Preference for ‘big name’ manufacturers could strangle innovation

The lack of competition in the battery supply industry could be jeopardising the future of storage.

That’s the view of some in the storage sector who argue that customers’ preference for what they see as the elite battery suppliers – such as Tesla, Panasonic and Samsung – means that investors are reluctant to invest in battery manufacturing companies that have a lower profile.

The result is that the group of trusted battery manufacturers remains small.

The problem for energy storage companies is that this also keeps the supply of batteries limited, so there is much more competition for the relatively small number of batteries that are produced.

Suppliers could favour automotive industry

Who is competing with energy storage companies for supplies of batteries? Electric vehicle makers. And this represents stern competition – according to some estimates, the value of the electric vehicle market will grow to at least $800bn by 2027, up from around $162bn in 2019. That would amount to a compound annual growth rate of 22.6%.

Today it is estimated that the market for electric passenger vehicles is ten times the size of the energy storage market.

The concern in the storage sector is that this means, ultimately, when it comes to a battle between electric car companies and energy storage business for battery supplies, the automotive industry is always going to win out.

The theory is that electric vehicle batteries tend to be more standardised and are ordered in bigger quantities so battery manufacturers will be inclined to prioritise the motor industry.

Lack of choice could kill innovation

Anecdotally, it has been reported that energy storage companies have customers that insist that the batteries used in storage systems come from the ‘big name’ suppliers.

But for how long will they be able to make such demands? With massive growth in the electric vehicle industry anticipated, it could be that storage companies will have to look to smaller companies for their supply of batteries.

The issue is, will those smaller companies exist? With investors potentially concerned about the viability of start-up battery manufacturers – due to the fact they will have minimal market share because of customers’ preference for established manufacturers – where will these new, innovative companies get the finance they need to develop and grow.

This is a problem for the storage industry because it could kill innovation and make it difficult to reduce the costs of batteries due to lack of competition.

As a result, it is thought that projections indicating that the battery storage market could grow dramatically in the coming years may be overly optimistic. For example, Wood Mackenzie has predicted that $8.5bn of energy storage will be deployed in 2026, which compares to less than $2bn deployed in 2020. But is there a chance that this growth could be derailed?

Developer-manufacturer partnerships could be solution

Achieving this projected growth will require a significant increase in battery production. For example, Bloomberg NEF has predicted that, in 2030, demand for lithium-ion batteries will be around ten times the level it was at the start of this decade.

The answer to this problem could well be partnerships between manufacturers and developers. For example, in April this year, energy storage technology provider Fluence and battery manufacturer Northvolt agreed a deal to develop battery technology for grid-scale storage. One of the key reasons for the deal was to expand the Fluence’s battery supply chain.

As Manuel Perez Dubuc, CEO of Fluence, put it, the link-up with Northvolt will make Fluence’s systems more cost-effective and enable the company to meet the growing demand for energy storage systems around the world.

It was a shrewd move on the part of Fluence. More energy storage companies may need to follow its lead if the vision of a dramatic increase in global energy storage capacity is to be realised.