The energy storage sector is booming. As lithium iron phosphate (LFP) batteries increase in performance and drop in price, large-scale energy storage projects are taking off en masse. In fact, the growth of the energy storage sector now outpaces the growth rate of electric vehicle sales. For now, electric vehicles still dominate overall battery demand, but energy storage is growing so rapidly that the sector is expected to make up about a fifth of the market in the next five years, according to a forecast by Rho Motion, an energy transition consultancy.
“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,” reports Reuters.
One of the major benefits of LFP batteries is that, unlike traditional lithium-ion batteries, this format does not include cobalt or nickel, which have historically been the costliest part of battery manufacturing. In fact, Tesla announced an ambitious plan to phase out lithium-ion batteries back in 2020. At the time, scientists thought this goal to be so lofty as to be nearly impossible, as cobalt is extremely energy dense and allows vehicles to travel for longer distances without a charge. Today, there are some electric vehicle models that are using cobalt-free lithium-iron batteries, but these are largely models from Chinese automakers, including BYD, which overtook Tesla to become the world’s biggest electric vehicle seller in 2024.
These developments have thrown global markets for nickel and cobalt into disarray. “Anticipating a demand surge, production ramped up – particularly in top nickel miner Indonesia and leading cobalt exporter Democratic Republic of Congo,” Reuters reported earlier this month. “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.” This has caused the price of cobalt and nickel to plummet.
But the prices of LFP batteries have also been falling. In the last year and a half, lithium-iron batteries has been cut in half. The increased uptake of these batteries will likely also batter the cobalt and nickel markets, while providing a boost to lithium demand and potential lithium prices as well. But in the immediate term, it’s fantastic news for the energy storage industry, which can now scale up their projects without breaking the bank.
While these technological and economic developments have been major catalysts for the recent proliferation of large-scale energy-storage projects, the energy storage sector has been poised for stratospheric growth for some time now. Last year, The Economist reported that the energy storage sector was gearing up to be “clean energy’s next trillion-dollar business.” In the near term, Allied Market Research estimates that the sector will reach $329.1 billion by 2032, with a compound annual growth rate of 5.2% from 2023 to 2032. And UBS bank calculates that global storage capacity will have to expand by a factor of eight to keep up with the expansion of renewable energy.
As our grids become increasingly dependent on variable energies like wind and solar, energy storage becomes more essential. These batteries are used to capture excess energy supply when the sun is shining on solar panels and the wind is blowing through turbines, to then feed energy back into the grid when energy demand outstrips supply. This is paramount for energy security, as evidenced by the crippling blackouts in Spain and Portugal earlier this month.
The drivers of growth for energy storage are significant enough to keep projections steady even in the face of geopolitical turmoil. “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,” reports Reuters. “But long-term growth is intact.”
By Haley Zaremba for Oilprice.com
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