Competition for lithium supply heating up between stationary storage, EVs

The stationary storage sector will need to strategically secure lithium supply or risk losing out to electric-vehicle makers if the metal moves into a deficit in 2027 as expected, industry participants told S&P Global Commodity Insights.

Warehouses full of rechargeable batteries are key to ensuring a constant stream of renewable energy to power grids when weather patterns inhibit wind and solar power generation, but the energy storage sector is small compared with the EV market when it comes to lithium demand.

Energy storage systems are expected to account for 8.6% of total lithium demand in 2023, compared to 66.2% from the EV sector, Commodity Insights estimates show. Stationary storage's relatively small share of the lithium market is expected to increase, jumping by 193.5% through 2027 compared with 2022 demand, according to Commodity Insights estimates.

New sources of the silvery metal will be trailing behind expected demand and Commodity Insights forecasts show a lithium shortage in 2027, but the sheer market size and funding capabilities of automakers far outweigh those of stationary storage. Carmakers are investing directly in developing lithium projects and securing offtake agreements, and stationary storage producers may face thin pickings in the medium term.

"I would anticipate, in my personal opinion, that transportation applications will be higher valued than grid-based storage, which means that producers tend to favor transportation applications," Austin Devaney, executive vice president and chief commercial officer of Piedmont Lithium Inc., told Commodity Insights.

Feeling the squeeze

Energy storage developers have historically been left with EV makers' unwanted battery cells.

"We are already seeing the EV market take priority," Aran Waid, a senior analyst at Benchmark Minerals, told Commodity Insights. "One thing that has held back the growth of stationary storage is a lack of [cell] producers producing dedicated cells for the energy stationary storage market."

Very few companies make specialty cells just for the stationary storage sector, but the growth of the industry is beginning to change the dynamic. Companies such as Idaho-based KORE Power Inc. and Michigan-based Our Next Energy Inc. are starting to focus on the sector.

South Korea-based chemical company LG Chem Ltd. plans to build a $5.5 billion lithium-ion battery hub in Queen Creek, Ariz., that will include a plant that manufactures lithium-iron-phosphate cells for stationary storage.

The exponential growth in battery demand has made the market "increasingly an intense competition, even if it is a relatively small amount of lithium or batteries, " Nathan Niese, global lead for EVs and energy storage at Boston Consulting Group (BCG), told Commodity Insights.

Stationary storage producers will have better luck getting lithium if their cell producers already have lithium contracts upstream. Often, these companies supply both markets.

"Companies like BYD Co. Ltd. or Contemporary Amperex Technology Co. Ltd., which have entered into the stationary storage market, will have a benefit because they've got more secure lithium supply from their agreements," Benchmark's Waid said.

Piedmont Lithium's Devaney said the company has been approached by a few stationary storage suppliers about potential offtake deals. The industry is "not a significant portion" of the company's plans as the sector has yet to mature, especially in the US, Devaney said.

Slow and steady may not win the race

Lithium and battery suppliers are finding stationary storage to be a stable customer, especially when compared with the more volatile EV market. Lithium prices dipped in 2023 amid slowing purchases in the Chinese EV market, the largest in the world. Lithium demand from stationary storage is expected to jump 83.0% year over year in 2023, faster even than the 41.5% increase estimated for the EV sector, estimates by Commodity Insights show.

The biggest growth in stationary storage capacity from 2020 to 2026 is expected to be in the US, Europe, India and China, forecasts from the International Energy Agency show.

Compared with prior years, the first three quarters of 2023 have not been "as hot" for the EV segment, BCG's Niese said. "[This] has only further emphasized the need to look for a diverse set of customers, but stationary storage is still relatively small," Niese said.

Though it can provide a ready customer during periods of tumult, the stationary storage sector is too small to have a meaningful impact on lithium prices, analysts said. The lithium carbonate EXW China battery price recently hit a low of $22,950 per metric ton on Oct. 4, dropping by 71.2% compared with a recent high of $79,650/t on Nov. 30, 2022, S&P Global Market Intelligence data shows.

"The stationary storage market will hold a certain final baseline for lithium demand, but the prices are still going to be very much sensitive to what happens in the EV market," Benchmark's Waid said.

The EV sector is still expected to overshadow the stationary storage sector by overall megawatt hours in capacity. The stationary storage sector will only account for 126,870 metric tons of lithium carbonate equivalent (LCE) in 2027, compared with almost 1.5 million metric tons of LCE from the EV sector, according to Commodity Insights estimates.

"On the stationary storage side, we will have one project that might be 200, 300, even 800 megawatt-hours, but we'll only have 20 to 30 projects per year, per competitor," Andrew Tang, vice president of energy storage and optimization at Finnish company Wärtsilä Oyj Abp, told Commodity Insights. "Now, carmakers are selling a couple hundred thousand a year, and cars ship with anywhere between 80 to 120 kilowatt-hours."

Ready for takeoff

Industry participants said lithium demand from stationary storage should be higher, but high financing costs, contract renegotiations and a lack of policy support are holding the sector back.

"Stationary storage is a sleeping giant," BCG's Niese said.

"What's holding back stationary storage from being even more of a growth engine is interconnection cues," the analyst said. "There's a ton of demand ... but if you can't connect it to the grid because the timeline to get approval from regulators is so long, then you're kind of hamstringing the growth of that market, particularly in the US."

Battery alternatives to the rescue

The relatively new sodium-ion battery chemistry could provide an escape hatch for the storage sector with the anticipated lithium shortage in 2027. Sodium-ion batteries' lower energy density requires more space in battery units. That's a problem for EVs, but that's "totally manageable ... in terms of our deployments," said Wärtsilä's Tang.

"Lithium-iron-phosphate [batteries] will remain the main focus for stationary storage, but sodium-ion is on the horizon," said Max Reid, a senior research analyst with Wood Mackenzie's EVs and battery supply chain service.

However, the industry may need to wait for manufacturers to increase the sodium-ion battery's lifespan to make it worth the purchase.

"The leap of faith you have to take is that, right now, the cycle count [for the sodium-ion battery chemistry] is only around 2,000 cycles and that compares against lithium-ion, where [it's] around 6,000 to 10,000 cycles. We need them to get to that 6,000- to 10,000-cycle level," said Tang. "I want to be a relatively early adopter; one of the reasons why is because I am concerned about the long-term supply-demand characteristics for lithium and whether we really have a problem."

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