Navigant Research Blog

How to Build a Successful Battery Startup

— May 5, 2014

In the course of doing the research for our upcoming report, Next Generation Advanced Batteries – and the accompanying webinar, “Beyond Lithium Ion” – we encountered more than three dozen battery-related startups.  Some produce battery materials, some produce battery components, and others are planning on becoming full-fledged battery manufacturers.  It would be unreasonable to expect all of them to survive.  In fact, given the nature of the battery industry, it would be a surprise if more than two or three of these companies are successful over the long term.

Based on our understanding of the advanced battery industry, here are our three top tips for how to shepherd your battery startup through the valley of death and into the gates of post-IPO paradise:

  • Forget about becoming a manufacturer: Making batteries is hard.  It has taken the battery heavyweights decades to perfect their combinatorial chemistries and manufacturing processes so that they can operate enormous factories at speeds that boggle the mind (in a modern cylindrical cell factory the cells literally shoot through the machinery so quickly that their forms are blurred to the naked eye), and at efficiencies that are very difficult for new companies to match.  It’s also nearly impossible to scale battery manufacturing upward.  Starting small and slowly building out the manufacturing infrastructure over time is not an effective strategy when your competitors (such as Tesla) are building 50-gigawatt-hour factories from scratch.  The best path to market for a battery startup is to align with an existing manufacturer and let it do the capital-intensive and laborious task of building assembly lines.
  • Understand manufacturing completely: If you’re not going to manufacture batteries, then why do you need to understand manufacturing?  Because the lithium ion (Li-ion) industry has become so large, with so much manufacturing infrastructure behind it, that a new battery chemistry that requires a complete retrofit to the factory is not going to succeed.  To become attractive, any new battery technology has to have a “drop-in manufacturing process,” meaning that it can be made in pre-existing factories with similar equipment with minimal changes.  If a whole new factory, or even an exotic piece of equipment, is required, that’s a black mark against your technology.  And to understand how to create a drop-in manufacturing process, you have to intimately grasp the details of the manufacturing process in real battery factories today.
  • Niche markets are the lily pads that can keep your company afloat: Navigant Research expects that by 2023, the world will buy 245 gigawatt-hours of rechargeable batteries, which is more than three times the size of the market today.  It’s tempting to claim that your battery will be the one that fills that market and replaces all other chemistries.  It probably won’t.  But specialization in the battery world is no longer a dirty word.  Many applications that were previously considered niche, such as defense applications, power tools, and wearable electronics, are now billion-dollar markets.  Each of these requires special form factors or cell specifications that may not be met by mass-produced Li-ion batteries, opening up key areas of opportunity.

Following all of these tips won’t guarantee success in the rapidly advancing battery industry.  But the companies that do make it to the major leagues will have established these recommendations as core business principles.  For more information, join us for our webinar, “Beyond Lithium Ion,” on Tuesday, May 6 at 2 p.m. EDT.  Click here to register.

 

Criticism of EV Battery Environmental Impacts Misses the Point

— April 2, 2014

The environmental impact of electric vehicles (EVs) remains the subject of debate, with Tesla Motors becoming the latest scapegoat for allegedly contributing to acid rain in China.  Bloomberg News points out that EV batteries require the use of graphite, which is mostly mined and processed in China.  Graphite mining pollutes the air and water and harms agricultural crops.  The average electric car contains about 110 lbs of graphite, and Tesla’s proposed Gigafactory is expected to single-handedly double the demand for graphite in batteries.

While these are valid concerns, they ignore a few larger facts: the oil industry has far greater overall environmental impact; the production of electricity is much cleaner than refining and burning gasoline; and recycling and reuse techniques are revolutionizing the battery industry.  Tesla, meanwhile, has responded to the graphite concerns. The recent 25th anniversary of the Exxon Valdez Oil Spill reminds us of one of the worst environmental disasters in U.S. history, in which 10.8 million gallons of crude oil was spilled into Prince William Sound, off the coast of Alaska.  Ironically, the congested Houston Ship Channel (one of the world’s busiest waterways) was partially closed over the Valdez anniversary because of a weekend oil spill of nearly 170,000 gallons of tar-like crude.

Compared to Gas

Overall, the equivalent lifecycle environmental impact of electricity is much less harmful than gasoline – assuming it isn’t entirely generated by coal.  According to the U.S. Environmental Protection Agency (EPA), a gallon of gasoline produces 8,887 grams (g) of carbon dioxide (CO2) when burned in a vehicle.  An equivalent 10 kilowatt-hours (kWh) of electricity emits about 9,750g of CO2 when generated in a coal-fired power plant, 6,000g when generated in a natural gas plant, 900g from a hydroelectric plant, 550g from solar, and 150g each from wind and nuclear.  These figures include the entire lifecycle analysis, including mining, construction, transportation, and the burning of fuel.  Since 63% of the 2012 electricity mix in the United States was derived from non-coal energy sources, it has been estimated that EVs emit about half the amount of carbon pollution per mile as the average conventional vehicle.

At the same time, innovative recycling and reuse techniques are significantly increasing the sustainability of EV batteries.  In the United States and Europe, all automotive batteries are required by law to be recycled.  This has made the lead-acid battery industry one of the most sustainable industries in the world, with nearly 99% recycling rates of all the batteries’ components.  Additionally, the world’s first large-scale power storage system made from reused EV batteries was recently completed in Japan.

Second Lives for Batteries

While these approaches do not fully solve the problems associated with graphite mining, the environmental impact created by the manufacturing, transportation, and disposal of batteries is significantly lowered for each additional cycle a battery supplies.  If battery lifetimes can be doubled, the negative environmental impact is cut in half.  Navigant Research’s report, Second-Life Batteries: From PEVs to Stationary Applications, also points out that a global second-life battery market will create new businesses and jobs in addition to improving sustainability.  The global second-life battery business is expected to be worth near $100 million by 2020.

Even with the negative externalities associated with graphite production, EVs still offer an improved overall environmental picture than traditional internal combustion engine (ICE) vehicles.  And Tesla, perhaps in response to pollution criticisms, has announced that it will source the raw materials for the proposed Gigafactory exclusively from North American supply chains. Producing graphite in North America is a much cleaner process than in China.

 

Why It’s Still Too Early to Bet on Residential Energy Storage in the United States

— April 1, 2014

SolarCity announced recently that it is discontinuing the residential energy storage product that it rolled out in California 2 years ago.  The company put the blame on the shoulders of utilities, which SolarCity said were stalling permitting of its new units.  But, in fact, SolarCity has only itself to blame for the failure of its product.

That’s because the company never stopped to ask why a residential customer would want a battery storage system.  In some cases, such as with off-grid homeowners and homeowners (such as indoor horticulture enthusiasts) with very expensive equipment that needs reserve power, batteries are a requirement.  But the typical homeowner gets no financial advantage from shifting power from one point in the day to another.  Rates that would allow such an advantage, known as time-of-use rates, are rarely offered by utilities to residential ratepayers.  Because residential photovoltaic (PV) power is usually net-metered, meaning that homeowners can receive credit for putting energy back onto the grid, there’s no reason why a solar homeowner would receive a financial advantage from storing energy.

Diesel over Batteries

Meanwhile, SolarCity was trying to sell its residential storage units at an outrageous markup.  I have SolarCity panels on my house in Boulder, Colorado, and when I inquired about the cost of the battery backup system, I was quoted $25,000 for a 20 kilowatt-hour (kWh) system.  That’s despite the fact that Tesla Motors (which makes the battery packs for SolarCity) has told the world that it is able to build its battery packs for less than $300 per kWh.  It’s hard to understand why I should give SolarCity more than 3 times the money it cost the company to buy the battery pack for a system that doesn’t earn me one penny.  The only benefit that such a system could provide me is reserve power when the grid shuts down.  However, a far more reasonable solution to that problem would be an emergency diesel generator.  Yes, it’s dirty, but the carbon and pollutants produced by running a diesel genset during the few hours of a year that I would need it would be far less than that produced from the manufacture of 20 kWh of batteries.

Mind the Wiring

So, is there any merit to SolarCity’s claim that the California utilities are responsible for freezing out the battery system product?  It’s not very likely.  That’s because a battery pack that is situated behind the meter does not require any utility permitting, just as a diesel generator doesn’t.  What does require approval is the capability of an individual building to island itself from the grid (which means that it continues to operate as a nanogrid by itself and shuts itself off entirely from the distribution grid when it does so).  If that’s the case, then the electric utility has every right to deny permitting if it doesn’t feel comfortable with the system.  Improperly set up, islanding can cause a life-threatening situation for an electricity linesman.  The practice of islanding is governed by the IEEE 1547 protocol, which is an extremely complex, difficult to engineer, and expensive set of rules governing an islanded system.

There are ways to do residential energy storage well.  In our upcoming report on the topic, Navigant Research expects that almost 20,000 residential energy storage systems will be installed in Germany, Japan, and South Korea combined in 2014.  All three countries have made concerted efforts to standardize the specifications and permitting process for PV-integrated residential solar systems.  They have also introduced generous subsidies for such systems.  It’s an expensive and politically difficult process, but it’s getting results in those countries.

 

With A123 Buy, NEC Reveals Its Storage Strategy

— March 27, 2014

NEC has made a major play for a global energy storage system (ESS) business, specifically targeting the Chinese market and information technology (IT) and telecom sectors by acquiring A123 Energy Solutions to create a new company, NEC Energy Solutions.

NEC is no stranger to the grid storage market.  The company is using batteries from Automotive Energy Supply Corp. (AESC), similar to those installed in the Nissan LEAF, for both utility-scale storage (2 MW will be commissioned in Italy by Enel Distribuzione shortly) and the residential storage market.  It has also developed a residential system targeting the Japanese market with a 5.5 kWh home ESS.

There are three pieces to this transaction that will change the storage market going forward.  First, NEC is slated to establish a partnership with A123 Systems’ parent company Wanxiang to target the Chinese storage market.  Having a local partner will set NEC apart from other lithium ion (Li-ion) cell and system vendors targeting China.  Second, the acquisition includes A123 Energy Solutions’ ALM product line, a 12V Li-ion uninterruptible power supply (UPS) product housed in the same form factor as a traditional lead-acid battery.  This, coupled with NEC’s success and relationships in telecom and IT, will put the new company in a strong position to target the UPS market.

Finally, although A123 Energy Solutions has focused on the utility side of the meter using A123 Systems cells, NEC has experience on the customer side and also has its own Li-ion chemistry that’s manufactured in volume by AESC.

Storage Combinations

Navigant Research’s Advanced Batteries for Utility-Scale Energy Storage report forecasts that the market will reach $17 billion in 2023, with Li-ion taking a $7.8 billion share.  This estimate is strictly for the sale of ESSs to customers on the utility side of the meter, not on the customer side.  By definition, it excludes telcos, data centers, and other forms of commercial, industrial, and residential storage.  Navigant Research believes that the telecom market for Li-ion hit an inflection point last year, reaching $100 million in annual revenue, and is poised to grow quickly.  Regardless, NEC Energy Storage will have stiff competition in nearly all of these markets from major Li-ion cell manufacturers such as LG Chem and Samsung SDI.

What can we look forward to from NEC Energy Solutions?  A123 Energy Solutions will bring software, controls, and integration expertise, three facilities in the United States and China, a portfolio of existing installed storage assets, and any new orders to the table, whereas NEC’s strength lies with data, analytics, IT, and the cloud.  In fact, NEC’s original concept for the storage market revolved around the energy cloud.  It makes sense that NEC Energy Solutions would combine the two areas of expertise to deliver new product lines and cultivate new business models.

As a 114-year old company with 270 subsidiaries in its corporate umbrella and total annual sales in the last fiscal year of $30 billion, NEC has the resources and business relationships to use the A123 Energy Solutions acquisition as the platform for building a global business.

 

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