With the publication of Lithium Ion Batteries for Stationary Energy Storage, we launched our first Navigant Research Leaderboard report, which is the rebranded version of the Pike Pulse series.  This report looks at the landscape of lithium ion battery vendors in the stationary energy storage space.  To score each market participant, we looked at six elements of strategy and six elements of execution.  Once the results were tabulated, we ended up with a few surprises.  Here are some of the lessons learned from this report:

Entering bankruptcy is a surefire way to damage a reputation.  A123 Systems, the historical market leader in stationary storage, has placed more than 100 MW of batteries into stationary systems since its inception in 2005.  Its team of engineers, marketing executives, and senior managers is world renowned.  So how did it end up in the Followers category, the lowest quadrant of the Leaderboard?  The answer rests primarily with the fact that it entered bankruptcy after a series of manufacturing setbacks with its automotive batteries.  The company recently emerged from bankruptcy under new ownership.  Now it’s part of Chinese automotive parts manufacturer Wanxiang Group and is re-entering the business of manufacturing and marketing batteries.  As the company formulates and articulates its strategy going forward, it will likely recapture its market leadership.  But the immediate after-effects of the bankruptcy severely damaged the company’s scores.  We anticipate that A123 will score significantly higher next year.

It Only Takes One Fire

Battery fires burn more than just the battery.  Fires struck several battery makers, such as Electrovaya and GS Yuasa, driving some to the point of failure.  Unfortunately for the industry, these incidents have received an inordinate amount of media attention, leading to lost sales and severe public relations problems (luckily no deaths or severe injuries have been caused by any of the fires).  In other industries, safety breaches can be tolerated.  In the advanced battery space, however, a single fire event can lead to the company’s collapse.

China is still playing catch-up.  While Chinese lithium ion companies have made tremendous gains in the last 3 years in the consumer electronics sector, they are still market laggards in stationary storage.  ATL, Lishen, China BAK, and BYD (the four horsemen of the Chinese lithium ion industry) have all either avoided the global stationary storage market or failed to make a lasting impression with buyers.  Don’t expect this to continue, though.  All four companies have plans to develop their stationary storage businesses in North America and Europe as soon as they feel an investment is warranted.

There’s more than one way to score highly.  The two market Leaders in the Leaderboard, LG Chem and Johnson Controls, both scored much higher than any competitors.  However, they got their scores for very different reasons.  LG Chem bet the house in 2008 and 2009, building large factories on multiple continents and blitzing customers with an all-out marketing push.  The results have put LG Chem into the driver’s seat in the automotive space and made it a major competitor in the stationary space.  Johnson Controls, on the other hand, kept its powder dry.  It invested heavily in basic research into the nickel manganese cobalt chemistry that most industry participants agree will dominate the space in the next 5 years.  The company kept its scientists busy while making relatively small investments on manufacturing capacity.  Now Johnson Controls is in an excellent position to invest in manufacturing even as many of its competitors are struggling to keep factory doors open.

The United States may be in for another resource boom.  Data from researchers at the University of Wyoming suggests that brines in the Rock Springs Uplift in that state could contain 228,000 tons of lithium.

It’s easy to forget how reliant we are on natural resources, such as lithium, for our clean technologies.  We typically think of natural resources in concert with energy ‑ it’s hard to forget that natural gas, oil, and coal are natural resources since we literally drill and mine them out of the ground.

However, new energy technologies are also reliant on natural resources.  Certain metals are key components in clean energy technologies.

For instance, fuel cells are reliant on platinum and platinum group metals (found primarily in South Africa and Russia).  Lithium ion batteries require lithium (found primarily in China, Bolivia, and perhaps now the United States).  Rare earth metals are used in smartphones, electric vehicles, wind turbines, and oil refining.  China famously – or infamously – instituted an informal ban on exports of rare earth metals.

Blood and Treasure

The reliance on these natural resources is frequently cited as a downside of new energy technologies.  The distribution of these metals is inequitable, and demand for them creates an inherent risk to changing the energy paradigm and adopting new energy technologies.

Why risk a conflict over rare earth metals, when we have the means to keep drilling for gas?

For one thing, we alredy risk conflict daily – and spend piles of money – to develop fossil fuel resources.  In the United States, we’ve had a century and a half to perfect the science and engineering behind finding, exploiting, and delivering petroleum resources.  In contrast, it’s still early days for new energy technologies.  As these metals become more desirable and valuable, more treasure ‑ and, likely, blood ‑ will go toward exploration and production of these elements.

By way of example, in 2011, Total’s exploration budget was $2.1 billion (independent of production).   Petrobras recently announced that it would spend $236 billion over the next 5 years on oil exploration and production.  In 2013, PEMEX, Mexico’s state oil monopoly plans to spend $19.98 billion on exploration and production.  Chevron’s budget for exploration and production in 2013 is $33.03 billion.

The magnitude of these investments far outweighs that for exploitation of lithium, rare earth elements, and other resources required for new energy technologies.  Needless to say, if there’s a run on lithium for EV lithium ion battery packs – it’s likely a forward-thinking miner or two who will put some resources to finding more.

Lithium ion batteries are truly fair weather friends – just like people, they fare best in a comfortable climate.  Lately, we at Pike Research have been delving deep into how environmental factors, such as temperature, affect battery performance and the rates at which vehicles are charged or discharged.  Our discussions with automotive companies and battery pack assembly companies have revealed numerous approaches for optimizing performance and extending a battery’s life – comparable to the many ways people dress to beat extreme heat.

According to our research, lithium ion batteries perform optimally, and will last longer, if they are kept at temperatures between -10°C and +30°C.  This range is consistent with findings by the U.S. Department of Energy’s Office of Energy Efficiency and Renewable Energy (EERE).

In very cold temperatures, batteries don’t achieve their full rated power until the battery cells warm up.  According to Ford engineers V. Anand Sankaran and Bob Taenaka, this short-term effect has greater implications for battery electric vehicles (BEVs) than for plug-in hybrids (PHEVs).  A PHEV can rely on its gas engine for power during warm up, but BEVs don’t have that other power source.

As the accompanying EERE graphic shows, batteries exposed to hotter average temperatures lose their ability to store energy; the hotter the temperature the faster they lose their storing ability.  So BEV owners in Phoenix will likely be looking to replace their batteries faster than owners living where the thermometer doesn’t often reach 110°F.

To combat the extreme temperature effect and keep batteries within their optimal temperature range, automakers use thermal management systems relying on either air or liquid cooling.  As the EERE data shows, liquid cooling is generally more likely to preserve a battery’s capacity than air cooling, though performance variations will occur depending on how well a battery management system was designed to control temperature.  According to Ford, the liquids used in cooling systems can retain a temperature for a long time, which contributed to Ford’s decision to use liquid cooling on the Ford Focus EV.  Ford has also used air cooling on its hybrid Escape and Fusion, as have Nissan and other BEV manufacturers on their vehicles.

In addition to external heat potentially shortening the usable life of a battery, operating batteries at high charge and discharge rates can have another negative impact.  That is particularly true for fast DC charging a battery pack at a rate of 50 kW for as little as 30 minutes (the expected time to charge a BEV 80%).  If done every day, that would generate enough heat to reduce the battery’s capacity.  BEVs that offer fast charging were designed with this fact in mind, so their battery management systems can force an EV charging system to slow down, thus protecting the batteries well before the pack is fully charged.

The interaction of batteries and fast charging is one of the many EV topics that Pike Research will explore at the Plug-In 2012 conference, the premier North American EV industry event, on July 23, 2012, in San Antonio.  I’ll be representing Pike Research at the conference where Ford and many of the leading companies will be discussing business models, technology challenges, and EV rollout strategies.

A good example of the trouble with storage – that commoditizing the full value of energy storage in a system is difficult – is a recently commissioned advanced battery system in Northern Chile.

The system, installed in partnership with AES Energy Storage and AES Gener at a 544 MW thermal power plant in Antofagasta, Chile, is a 20 MW lithium ion battery system supplied by A123 Systems with power controls contributed by ABB.  The project is frequently called Angamos, after the AES Gener subsidiary that operates the system.

The primary benefit of Angamos is that the 20 MW battery covers AES Gener’s spinning reserves obligation (4% of generation capacity) for this particular power plant.  As a result, AES Gener can sell more energy each day than it could before the system was installed.  The market benefits because the cost of energy has decreased as the supply has increased. The power system itself benefits because the battery system has a better response time to events on the grid.  And, since the battery system responds more quickly than other types of reserve assets, the system operator does not have to resort to load shedding as much to recover from events. That’s an economic benefit, particularly since the area has a great deal of industry. The primary benefit, however, is to the utility, AES Gener, which can now sell more energy every day because its spinning reserves obligation is covered by the battery.  That is why the energy storage system was installed in the first place.

From an analyst perspective, although consuming a product may offer many benefits, typically one or maybe two major problems will push a consumer to buy a particular product.  One of the most important parts of market analysis is figuring out what those one or two problems are. When we know that, we know the market need.

The fact that there are additive benefits is fascinating, but those benefits occur outside the transaction for the energy storage product.  In the future, it will be interesting to see what emerging business models reflect these various benefits.