Energy storage boom drives battery shift, leaving nickel, cobalt behind
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Energy storage boom drives battery shift, leaving nickel, cobalt behind
FILE PHOTO: A display shows lithium raw materials, in Perth
Eric Onstad
5 min read
By Eric Onstad
LONDON (Reuters) -When Fidra Energy acquired a 55-acre (22-hectare) patch of northern England countryside in 2023, its plan to transform it into a 1.45 gigawatt energy storage facility - Europe's largest once completed - was far from a done deal.
"We were struggling to make the economics work," Chris Elder, the Edinburgh-based company's CEO, told Reuters.
But that was before the lithium iron phosphate (LFP) batteries being used in the project, which were already recording significant improvements in performance, roughly halved in cost in a period of just 18 months.
Fidra now plans to start installing battery units for its 600-million pound ($800-million) Thorpe Marsh project next year.
LFP batteries are fuelling a boom in energy storage projects that - in percentage terms - now outpaces electric vehicle sales growth. UBS bank estimates total storage capacity must grow eight-fold by the end of this decade and 34-fold by 2050 to keep up with the renewable power expansion.
While EVs still dominate battery demand, energy storage will make up about a fifth of the market by 2030, according to a forecast by energy transition consultancy Rho Motion.
Growth in the U.S. - the world's second-biggest energy storage market, still dependent upon Chinese imports - will face headwinds in the next few years due to tariff uncertainty, analysts say. But long-term growth is intact.
That's good news for the renewables sector and should help national grids maintain balanced power supply as they transition to cleaner energy sources, avoiding the kind of massive blackout that briefly crippled Spain last month.
The rapid uptake in the use of LFPs, which are much cheaper than traditional batteries and do not use cobalt and nickel, is sending shockwaves through the already depressed markets for those metals.
"You've seen a truly monumental shift lower for nickel and cobalt in the intensity of commodity use in battery demand," said Martin Jackson at commodities consultancy CRU.
NICKEL, COBALT IN DECLINE
For years, analysts expected the battery sector would need huge amounts of nickel and cobalt for high-powered batteries allowing EVs to travel long distances between charges, a forecast that, for a time, sent their prices soaring.
Anticipating a demand surge, production ramped up - particularly in top nickel miner Indonesia and leading cobalt exporter Democratic Republic of Congo.
But a lack of affordable EV models and the slow roll-out of charging infrastructure have slowed EV uptake among consumers outside China, leading some carmakers to scale back their electrification plans.
Benchmark nickel prices, burdened by oversupply, have halved over the past three years while cobalt has slumped by 60%.
Global EV sales still grew 23% last year. But demand for storage batteries surged 51%, according to Rho Motion, and is on track to expand by 40% this year.
Energy storage - crucial for the greener national power grids needed to meet governments' net-zero climate goals - is dominated by LFP batteries.
They are also increasingly being used by Chinese EV makers - including BYD, which surpassed Tesla last year to become the world's biggest seller of EVs.
As a result, the intensity of nickel use for batteries used in EVs, storage and consumer electronics batteries fell by almost a third over the four years to 2024 and by two-thirds for cobalt, according to data from CRU.
The gathering pace of the shift to LFPs is likely to further weigh on prices for the two metals.
Lithium, on the other hand, could get a boost.
"The share of stationary storage within the battery demand picture is growing very significantly and is increasingly important for lithium players at a time of slower than anticipated EV demand," said Rho Motion's Iola Hughes.
That has not translated into a firmer market so far, with oversupply helping push already weak lithium carbonate prices down a further 20% this year.
BEYOND PRICE
Yet price is not the only factor helping drive the LFP battery storage boom.
Fidra's Elder said recent technological advances in LFP batteries mean that those being used at Thorpe Marsh will have a lifespan of 20 years, up from 10-15 years previously.
And concerns over the carbon intensity of nickel production and rights issues related to cobalt mining in Congo are also propelling the shift, said Lars Christian Bacher, CEO of Norway's Morrow Batteries.
"There are expectations on the battery suppliers and the traceability over where all of this comes from," he said. "Some of these minerals have historically been associated with ... countries that have some question marks related to human rights issues, child labour."
Lithium is also facing increasing scrutiny over indigenous rights and environmental concerns in major producing countries Chile, Argentina and China, but the criticism has not garnered the same level of public attention as cobalt and nickel.
Morrow, which will launch production in the second quarter, plans to manufacture 3 million cells - or one gigawatt hour of capacity - annually. Fully charged, that's roughly enough to power 1 million homes for an hour, according to the British government's energy regulator.
Existing battery makers are also piling in.
South Korea's LG Energy Solution is expanding its energy storage business to mitigate the impact of slowing EV demand in North America.
It plans to stop making EV batteries containing nickel at one U.S. plant and repurpose it for LFP battery production, an industry source in Asia told Reuters.
However, while U.S. President Donald Trump is pushing to break China's battery dominance, analysts expect the pivot to LFPs to only tighten its grip on the industry.
Battery production in the United States does not meet demand, with 90% of its energy storage batteries imported from China.
And ramping up U.S. energy storage capacity now faces the challenge of Washington's tariffs on Chinese battery imports - currently at 41% during the current 90-day trade war truce - with uncertainty over the levies likely to hit short-term demand, according to analysts.
While Europe is also seeking to reduce its dependence on China, Fidra's Elder, whose Thorpe Marsh project uses batteries produced by China's Sungrow Power Supply, said governments would need to be practical.
"If the (British) government wants to hit its net-zero targets for the UK, and I think it's pretty committed to doing that, it's going to have to work with China pragmatically," he said.
($1 = 0.7518 pounds)
(Reporting by Eric Onstad; Editing by Veronica Brown and Joe Bavier)
