Navigant Research Blog

China’s EV and EV Batteries Policy: An Update

— April 25, 2016

BatteriesWith some of the worst air pollution on the planet, China has been aggressively pushing for emissions reductions and sustainable development since the launch of its 12th Five-Year Plan. In March 2016, the 13th Five-Year Plan covering 2016 to 2020 was released. Some of the key goals include a 15% energy intensity reduction and an 18% carbon intensity reduction compared to 2015 levels. With air quality in the country being at such poor levels, the government is highly interested in new energy vehicles (NEVs)—referring to battery electric vehicles (BEVs) and plug-in hybrid vehicles (PHEVs)—to curb emissions.

Backed by government support, the Chinese EV market has made headlines in recent years. The country is on track to achieve its goal of putting 5 million electric passenger vehicles and buses on the road by 2020. Over 300,000 NEVs were sold in 2015, amounting to approximately 500,000 in cumulative deployment by the end of 2015. Plus, the government plans to increase the share of NEVs in government fleets from 30% to 50% in 2016.

New Stance on Subsidies

Although the Chinese EV market has made significant progress thanks to generous subsidies, the handouts have encouraged subsidy frauds as well. Finance Minister Lou Jiwei expressed concerns over the NEV industry’s heavy reliance on subsidies in January 2016. NEV development appears to be driven by policy incentives more than technological breakthroughs, to the extent that there has been a spate of media coverage about subsidy frauds in China in the last few months. For example, a company might assemble substandard NEVs and sell them to its own car rental company with the intent of receiving subsidies. The deficient NEVs are then left in parking lots and not put into actual use. Another common scheme is to sell license plates on the black market.

Consequently, the central government launched a fraud investigation and vowed to severely punish those involved in fraudulent schemes. Additionally, the government plans to end NEV subsidies after 2020 to encourage technological innovation. China plans to cut subsidies by 20% between 2017 and 2018 from 2016 levels and by 40% between 2019 and 2020, eventually leading to a phaseout after 2020.

Battery Technology Strategy

Chinese leaders are aware of the need to improve the country’s EV battery technology in order to stay competitive in the global NEV market. Therefore, the government’s decision to suspend subsidies for electric buses using nickel manganese cobalt (NMC) batteries is rather surprising. While most Chinese companies manufacture lithium iron phosphate (LFP) batteries, the global market prefers NMC or lithium manganese oxide (LMO) batteries for their superior performance and efficiency. Some Chinese manufacturers are making NMC batteries but have not yet mastered the technology yet—there were six reported cases of EVs with NMC batteries catching on fire last year.

This policy change is expected to affect NCM battery manufactures in China since subsidies can account for nearly 40% of the price of an NEV, and buses represent nearly half of the NEV market. In particular, South Korean battery manufacturers made major investments in new NMC battery production facilities in China. LG Chem formed a joint venture with two state-owned enterprises in August 2014 with plans to generate $1 billion in revenue by 2020. Samsung also formed a joint venture with Anqing Ring New Group and real estate investor Xian with plans to invest $600 million by 2020. Since subsidies will continue to be given for less-advanced LFP batteries, many Chinese battery manufactures will enjoy government support in the short run. However, China’s long-term battery technology strategy remains uncertain.


Unexpected EV Demand Has Automakers Looking to Lithium

— April 25, 2016

Electric VehicleWith the rush to reserve a Tesla Model 3 nearing 400,000 global pre-orders, the electric car race is on. This race is not characterized by vehicle speed but by range and cost. More than 200 miles of range at a price of under $40,000 has been the target for the initial market entrants since the first generation of modern plug-ins was introduced in 2010. Automakers that reach this threshold quickly will benefit greatly by seizing market share, establishing brand recognition, and, most importantly, creating advantageous supply chain contracts. Automakers slow on the take will find breaking into the plug-in market increasingly difficult, much in the same way that few automakers have made headway with hybrids besides Toyota and Honda.

Underestimated Demand

The response to the Model 3 is unheard of in the modern automotive era. However, Tesla isn’t the only electric car maker observing greater than expected demand. In February, a BMW spokesperson acknowledged that the company “just massively underestimated demand” in regards to the company’s plug-in hybrid electric vehicle (PHEV) 3 series variant, the 330e, in the United Kingdom. A month prior, General Motors (GM) affirmed its upcoming 200-mile range battery electric vehicle (BEV) will not be production-limited, and a volume of 50,000 Bolts in 2017 is possible if demand supports it.

Though plug-ins have met global light duty vehicle (LDV) markets in varying degrees of success, unanticipated demand is not new to the plug-in market. In fact, the most glaring example of the demand/supply imbalance has been going on for the last 3 years as a manifestation of Mitsubishi’s inability to introduce the Outlander PHEV to North America due to unexpected demand in Japan and Europe.

Looking to Lithium

Recognizing that annual sales of plug-ins are going nowhere but up, some automakers are thinking ahead and diving deep into the battery supply chain to secure raw materials before prices become a problem. Despite a general dive in global prices of oil, gas, and mineral commodities, lithium prices have been resilient and robust.

Lithium is a core component of batteries for mobile devices, EVs, and grid-tied or residential energy storage applications. With no clear alternative, Navigant Research anticipates lithium demand (and therefore prices) will rise substantially over the next decade. Within the battery, a lithium-based compound is layered onto the cathode and the battery is filled with a lithium-based electrolyte. In total, Navigant Research estimates lithium materials make up around 10% of overall battery production costs. All things being equal, a doubling in the price of lithium would mean a 10% increase in battery production costs.

Price increases from materials may be easily absorbed by battery makers as costs are cut elsewhere through economies of scale or energy density improvements. However, automakers that can help their suppliers hold raw material battery costs low while the market is in its infancy will likely achieve significant advantages over emerging challengers and witness Prius-like success in a technology segment with much more growth potential.


Partnerships Form to Tackle Behind-the-Meter Storage

— April 11, 2016

Control panelAs highlighted in recent Navigant Research blogs, growth in the battery energy storage system (ESS) sector will be accelerated by standardized contracts and the move to more standardized, modular ESSs being deployed in the marketplace. Further, many interested stakeholders in the ESS sector now strive to develop battery ESS installations that can potentially monetize multiple revenue streams. Navigant Research believes the evolution of these trends will continue to support the growing energy storage market. A recently released Navigant Research white paper examines key ESS trends in greater detail, each of which addresses issues to further enable energy storage to meet its transformative and disruptive potential.

The Clean Energy Group’s Resilient Power Project recently hosted an excellent webinar that highlighted the joint go-to-market approach being undertaken by ViZn’s flow battery technology and Schneider Electric’s distributed energy resource (DER)/microgrid technology stack in the behind-the-meter energy storage sector. The partnership between ViZn and Schneider Electric represents a compelling, turnkey offering, with a financing partnership that highlights the trends referenced above.

Technology Stack

ViZn’s hybrid zinc iron redox flow battery has been designed to provide both long-duration energy and short-term power service in a standard 1 MW/3 MWh module. ViZn uses chemicals such as zinc oxide (commonly used in sunscreen) as the anolyte and yellow prussiate of soda (a table salt anti-caking agent) as the catholyte, along with a sodium and potassium hydroxide solution. The company claims these key chemical components give the battery design a stronger safety profile compared to most advanced batteries.

Schneider Electric, which Navigant Research recently recognized as an industry leader in microgrid controls, is bringing its Demand Side Operation technology coupled with its DER Box and Microgrid Controller technology stack to the projects as shown below:

Schneider Electric Demand Side Operation with Microgrid Controller

Schneider image

 (Source: Schneider Electric)

In addition to the technology stack, the ViZn/Schneider Electric development team plans to provide economic modeling of all potential revenue streams for the customer installation, including energy efficiency savings, resilient backup power, demand charge savings, energy arbitrage, and demand response capacity market participation. The partnership has also developed standardized lease, power purchase agreement, and shared savings agreement options with a third-party (as yet unnamed) financing partner. It appears the proposed technology stack will be able to take advantage of frequency regulation revenue where power market rules are available.

Most of the early project activity in behind-the-meter energy storage by companies like Green Charge Networks, Stem, and others has focused on demand charge savings at smaller commercial and industrial facilities with short-term demand spikes. The ViZn/Schneider Electric offering outlined above should bring a technology offering package to sectors of the energy storage marketplace with higher facility peak demand, variable load profiles, and more complex energy storage needs. This is important for the market because these new sectors represent a portion of the behind-the-meter energy storage space that has not implemented much battery energy storage to date. Navigant Research will be watching closely for more details on project deployments and financing partnerships in the near term from these two companies to see how their strategies play out.


Clean Cars, but Dirty Batteries?

— April 11, 2016

moving white carThe raw materials used to fabricate advanced batteries are becoming increasingly important when predicting future market trends. In Navigant Research’s Five Trends for Energy Storage in 2016 and Beyond white paper, improving battery power and energy densities of advanced batteries will come in part by a shift to increased modularity of manufacturing concepts. Not only does this modularity need to occur in energy storage project design, but also in raw material synthesis of battery components. Designing a better battery—especially the (good, yet imperfect) lithium-ion (Li-ion) battery that can address short-term power applications and longer duration energy applications—will be critical for the market to continue to develop.

Increased interest has grown around materials used in advanced battery anodes, and graphite, an allotrope of carbon, is currently one of the leading options due to its abundance in nature, large surface area, and high specific capacity. Current methods of processing natural graphite into coated spherical purified graphite (CSPG), the final product used in battery anodes, can be expensive and harmful to the environment. A consortium of six mining and manufacturing companies are looking to address these issues by jointly acquiring a micronizing and spheronizing mill to produce CSPG. These types of partnerships could push the advanced battery industry forward in developing high-performance electrode materials for next-generation battery technologies.

Improved Performance

Utilizing CSPG in battery anodes leads to improved charge/discharge cycle performance attributed to lower resistance at the anode/electrolyte interface. All companies involved in the partnership have agreed to share their proprietary spheronizing knowledge with each other going forward, with the end goal of meeting cost and capacity targets for Li-ion batteries developed for transportation. Being able to process CSPG locally and efficiently decreases purification times, dramatically improves costs, and significantly reduces environmental impact.

Currently, around 70%-80% of naturally occurring graphite used in batteries is mined and processed in China. It is purified using hydrofluoric acid, a toxic substance that is highly corrosive, dissolving glass and metal surfaces upon contact. Unsustainable methods in place to fabricate batteries and their materials bring rise to questions of whether they are truly a clean alternative and if electric vehicles (EVs) are end-to-end better for the environment. As much as 25 kg of high-purity CSPG is needed to fabricate the anode for one Li-ion EV battery, so ensuring that purification process is as inexpensive and pollution free as possible will be important as demand for these batteries increases.

A Growing Market

The advanced battery market is putting pressure on graphite demand, and improved graphite manufacturing methods means better forecasts for EVs in the future. Navigant Research estimates that light duty plug-in EVs in use will reach over 13.9 million vehicles by 2024 and that Li-ion battery prices will for EVs will drop by over 50% over the same timeframe. Technological improvements of advanced batteries can exceed expectations by better, leaner manufacturing methodologies; more strategic partnerships that further develop the battery’s shortcomings could help foster these improvements while decreasing the environmental footprint.


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