What Are The Implications Of $66/kWh Battery Packs In China?

By Imran Last updated Dec 25, 2024

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The Energy Building Company of China drew 76 bidders for its tender of 16 GWh of lithium iron phosphate (LFP) battery power storage programs (BESS), in line with stories. Bids averaged $66.3/kWh, with 60 bids underneath $68.4/kWh. The tender, masking provide, system design, set up steering, 20-year upkeep, and security options, targets programs to be inbuilt 2025-2026.

That’s an astounding worth, as earlier this 12 months even I, as a battery optimist, was astounded by CATL’s announcement that it could be delivery LFP cells at $56 per kWh. I did a value workup of the implications for buffering batteries for truck cease megawatt scale charging in Could, and located that at that worth level, the economics of slapping in large batteries to allow close to time period charging with out being delayed by large grid upgrades made lots of fiscal sense. I used to be all the time a bit of uneasy about that evaluation as I knew it wasn’t a full battery power storage system with cells, container, HVAC, thermal runaway safety, senses and a battery power administration system, nevertheless it was directional.

Over the summer time I engaged with a European infrastructure fund, a repeat consumer, to assist them assess acquisition of a place in an present pumped hydro facility. A giant a part of the query regarded whether or not battery worth decline would make it troublesome for pumped hydro to proceed to compete. On the time, we have been BESS worth factors over $100 per kWh. My speculation was that the steadiness of plant exterior of the cells was already commoditized and that cells have been already underneath 50% of the price of a BESS, so worth factors would see declining reductions sooner or later. Principally the sigmoid of price curve discount had reached its shift within the curve to flattening once more.

And now LFP BESS are coming in at a mean of $66 per kWh.

In fact, that’s in China. Which means it’s absolutely home provide chains, that are shorter than the west’s as a result of China deliberately clustered like industries, enabling far more sharing of human capital, very speedy decision of kit and course of considerations, wonderful overflow capability for bigger orders and really low power and time prices for transferring by way of the provision chain. Which means it’s absolutely inside China’s buying energy parity benefit sphere, the place every little thing prices 40% lower than within the west. Which means zero tariffs.

These home worth factors for BESS in China have some implications for the world which can be value exploring.

The primary, in fact, is that China’s grid, trade and transportation will proceed to affect and decarbonize vastly quicker than the remainder of the world. Actually low cost batteries means actually low cost grid storage, actually low cost buffering batteries for megawatt chargers, actually low cost buffering batteries for industrial and industrial photo voltaic and actually low cost batteries for industrial power ebbs and flows. That’s nice information for the world as China is at the moment the most important emitter on this planet, though nonetheless much less traditionally in whole than Europe or the USA. China bending its carbon curve down as quickly because it bent it upward since 1980 is way to be desired and applauded.

For context for the 16 GWh of batteries China is shopping for for its grid, it has eight to 12 TWh of pumped hydro in operation, in building or deliberate to begin by 2030, three orders of magnitude extra power storage. China is doing each associated to electrification in a really large approach.

However, in fact, that shiny cloud for China and the world has a darkish lining for the west. Northvolt received’t be the one western battery agency that disappears in a cloud of chapter filings and finger pointing. At these home worth factors, these BESS could be placed on container ships, sailed throughout the Pacific and into western ports and nothing inbuilt Europe or North America has an opportunity of competing.

The USA’s 25% tariff on Chinese language electrical automobile batteries don’t apply to grid storage, behind the meter storage, charging buffering storage or industrial web site storage. No western producer can compete in these markets except the west slaps 100%+ tariffs on all Chinese language batteries.

A full BESS worth of $66 per kWh goes to be a bit increased for an EV battery pack, however not that a lot. These are customary LFP cells, which implies a lot decrease probability of thermal runaway. Assuming they get to $80 per kWh for EV LFP battery packs, then the US tariff of 25% makes them about $100 per kWh.

That’s under Tesla’s US price of $100–$120 per kWh and nicely under the western trade common of $135–$160 per kWh. As soon as once more, western producers received’t have the ability to compete and even western EV producers will simply purchase Chinese language batteries.

However, in fact, China may also put these battery packs into Chinese language constructed EVs and ship them abroad. By delivery ultimate assembled autos, this may assist them undercut western automobile producers considerably even with tariffs.

Unimaginable high quality and vary electrical vehicles with all of the computerized and digital bells and whistles are promoting in China for lower than half of what American producers can ship inferior merchandise for. With these newest BESS costs, 100% tariffs simply implies that Chinese language EVs will nonetheless be cheaper than American ones, and that nobody on this planet will think about American (or European) vehicles. The proposed merger of Nissan and Honda is simply the tip of the iceberg. Huge legacy automakers will probably exit of enterprise within the coming decade.

This was the 12 months that China’s home automobile market noticed EVs attain worth parity with inside combustion vehicles, however greater than that, EVs exceed ICE vehicles in options as of late. European, North American and Japanese automobile producers have fully misplaced the Chinese language market as shoppers pivot en masse to Chinese language EVs, and that’s extending to the remainder of the world.

Why would a enterprise individual in South Africa purchase an American inside combustion automobile after they should purchase a less expensive, higher BYD? Why would a household in Australia purchase a VW after they may purchase one of many dozens of Chinese language EVs and get extra automobile for much less cash?

That extends out to most of transportation. The buffering battery packs Rish Ghatikar and I are projecting as core parts of grid-connected, solar-heavy charging microgrids within the USA shall be cheaper and the economics even higher. The containerized battery packs more and more getting used on ships of all sizes shall be cheaper, and the Berkeley Labs 2022 examine printed in Nature means that $66 per kWh battery packs would make 2,500 kilometer maritime journeys break even economically towards fossil gas costs with out subsidies. The batteries which can be more and more displaying up on trains to bridge gaps in overhead wires within the nations on this planet that aren’t in North America shall be much more price aggressive.

In fact, all these grid batteries, truck batteries, practice batteries and automobile batteries imply one thing else: quickly declining oil gross sales globally. The oil producing nations of the world are going to be in an more and more troublesome market within the coming years. Those with the very best price of extraction, processing and refining are those which can be going to be first off the market, and that’s most of North America’s product.

Shale oil within the States is already in what the trade is referring to as Shale 4.0, the place vital consolidation of web sites within the fingers of worldwide majors has occurred and the most affordable to begin up websites with probably the most output have already been developed. Now the worth of oil dictates whether or not the majors trouble to develop websites or simply lean into different power property. As the worth of oil structurally declines on account of declining demand, an increasing number of of the USA’s shale websites received’t go the financial sniff check and so received’t be developed. That’s going to speed up in coming years.

The EREOI of recent shale oil is down round 2 as of late, and whereas EREOI is an overused idea, that issues for the economics and the emissions. Principally, new shale oil websites as of late devour as much as half a barrel of oil or equal of fossil gas power to get a barrel of oil out of the bottom, and the CO2 emissions associated to which can be excessive. It’s worse in that shale oil all the time comes with pure fuel, and newly developed websites include much more of it. Shale oil is already the massive supply of methane emissions from the US oil and fuel trade as a result of they’ve simply been venting unmarketable volumes of the stuff, and now they’ll probably be venting extra and getting much less oil. The US oil and fuel trade, in different phrases, goes to show into an excellent worse local weather downside than it already is.

Canada’s oil sands have an analogous downside. It takes an incredible quantity of fossil gas power to warmth water into steam and push it a thousand meters underground to soften buried, sandy tar and pump it out. Then it takes extra power to rinse the sand out of the sludgy crude. Then it takes about 7.7 kilograms of hydrogen to take the sulfur out of the crude and break up it into usable merchandise. That prices cash and emissions are at the moment priced in Canada, and are priced in Europe. Canada’s product isn’t going to have the ability to be bought cheaply sufficient to compete on the approaching international market both, and the USA will defend its personal home trade quickly sufficient, so Canada’s product shall be left with a home market, probably mandated federally to forestall the whole collapse of the trade. I think Alberta shall be lobbying arduous for a regulatory regime known as one thing like a Nationwide Power Program within the subsequent 5 years.

There was hydrogen information this week that bookends the battery information. BloombergNEF (BNEF), as soon as optimistic about steep worth declines for inexperienced hydrogen, has considerably revised its forecast, tripling its 2050 price estimates. The agency now predicts inexperienced hydrogen will price between $1.60 and $5.09 per kilogram by mid-century, in comparison with its present vary of $3.74 to $11.70 per kilogram, citing higher-than-expected future prices for electrolyzers.

The underside finish of that vary is barely in China and India in BNEF’s opinion, however I think about these worth factors to be too optimistic. Additional, that is simply the price of manufacturing hydrogen, not the price of transporting or utilizing it, which add quite a bit. As all the time it’s helpful to remind readers what hydrogen prices delivered as of late as a result of it’s all the time the most affordable type of hydrogen obtainable, produced from pure fuel or coal.

The most effective case price is within the industrial heartland of Germany, the place pipelines ship grey hydrogen from a central pure fuel steam reformation plant to industrial shoppers. It prices €6 to €8 per kilogram delivered, or about $58 per gigajoule. Pure fuel prices about €12 per gigajoule. At Germany’s new industrial charges for electrical energy, a gigajoule prices about €17.

Nobody burns the most affordable delivered hydrogen for power at this time as a result of it’s vastly dearer than electrical energy or pure fuel, that are additionally far more handy and environment friendly to make use of. The spark hole continues to be too excessive between pure fuel and electrical energy, however closing with smart insurance policies together with carbon pricing.

It’s value calling out that new worth level for electrical energy in Germany. The nation has lengthy had among the many lowest wholesale electrical energy costs in Europe, however among the many highest retail and industrial charges, a coverage supposed to incentivize effectivity, however one which additionally saved trade burning pure fuel long gone the purpose when it was smart. Globally, everyone seems to be realizing that trade will solely decarbonize with electrification and an enormous spark hole prevents that. In consequence, electrical energy charges, particularly industrial ones, are within the highlight as nations work to reverse the spark hole, with Germany’s instance of dropping its charges by half as a number one instance.

At hydrogen refueling stations, a kilogram of (virtually completely grey) hydrogen runs €10 to €25 in Europe and $34 in California. That’s from hydrogen that prices about $1.50 to $2.50 to fabricate.

Battery costs persevering with to plummet. Hydrogen costs not budging and projections of future costs taking pictures upward. Electrical energy charges dropping whereas fossil gas costs in a number of nations rise with carbon pricing and lack of home extraction. The mixture implies that electrification goes to win and that nations and industries that cling to hydrogen are going to lose. This has been apparent for some time, however this week’s information will imply that much more individuals will get the message.