From pv magazine USA
The battery industry today comprises a range of commercialised energy storage technologies, from pumped hydroelectric to lead-acid batteries — but none match the quality and performance of lithium-ion battery storage, which excels in terms of cost efficiency, energy density, end-use flexibility and production volume.
According to the Energy Information Agency (EIA), lithium-ion battery storage has captured upwards of 90% market share in the U.S., and I believe that it will likely be the de facto energy storage technology from here on out. Beyond the automotive sector, batteries power everything from consumer electronics to aerospace to grid-scale and more, making it all the more imperative to understand the trajectory of the battery sector and its role in the transition to full electrification.
When we look at the market as a whole, we can draw clear parallels between the evolution of the battery sector and that of the solar industry decades ago. For early technologists, investors and adopters, the solar industry has taught us vital lessons that are now applicable as interest grows in the battery sector.
Today, battery technologies are one piece of the puzzle to accelerate the energy transition, and specifically, the software layer is expected to play a massive role by offering insights into new, sophisticated models of physical and chemical interactions, whether in electric vehicles or on the grid.
We’ve seen this play out in solar, and now we’re bringing the same playbook to the battery industry.
By reflecting on the challenges that impacted the solar industry, battery materials manufacturers will be better equipped to scale these next-generation technologies from the lab to have a real-world impact.
In particular, there are two challenges that we saw with the rise of the solar industry that the battery sector now must address and overcome in order to create a sustainable ecosystem for the long-term transition to 100% clean energy.
Optimising project design from the start
Amid the excitement of new battery technologies entering the market, companies need to prioritise the technology’s overall design from the get-go to avoid bottlenecks down the line. Specifically, battery manufacturers need to factor in a battery’s life expectancy based on frequency of use and track degradation, remaining life cycles and other considerations all the way to end of life.
In the early aughts of solar, we saw companies fall victim to poor initial project designs that ultimately inhibited potential growth. Firms that overlooked the importance of project design came out blazing with systems that were oversized in terms of capacity and cost by 10% to 30% – sometimes in an attempt to erase errors in actual operations – that in turn made deployment more expensive.
Tracking design from the start is essential to meeting end goals, and the right software can provide the best top-down transparency in real-time, enabling projects to be more configurable and scalable. As the battery sector continues to grow, hardware companies need to explore software solutions that can mitigate bumps in the road to keep up with the fast-moving electrification goals.
Unprecedented asset maintenance
Another unprecedented hurdle faced in the solar industry is the intensive amount of maintenance required to keep installed assets in good condition. Before the global PV industry developed in full swing, companies assumed the innovative solar systems at the time could conveniently produce electrons for their 20-30 year life cycles unmaintained.
In reality, many of these systems require replacement inverters, regular cleaning and other operations and maintenance care that were often initially overlooked. Analyst firm Wood Mackenzie predicts that operations and maintenance costs for global PV systems could reach as high as $9.4 billion annually by 2025.
In the case of batteries, maintenance has become a clear but economically draining priority amid higher-than-expected degradation rates from charging or discharging too quickly, which harms battery cells, causes fires and destroys the end-use product.
While a battery life cycle ranges depending on its application, sectors that rely on larger battery systems such as EVs and grid-scale will need clear, data-driven visibility into the health, performance, and eventual degradation of the battery in order to keep all assets up and running.
The solution lies in software
There is no silver bullet for the energy storage sector, but battery technologies can certainly benefit from better visibility enabled by software. In the coming years, batteries — whether lithium-ion, lithium-metal, or a yet-unmet technology — will only evolve to become increasingly software-defined, requiring breakthrough chemistries and production techniques that can buoy higher-quality energy density and competitive costs.
With software, what would traditionally take months or years of battery material development and testing condenses into mere weeks or days. Moreover, modern-day software will enable chemical architectures to be built in the cloud before being incorporated into physical lab bench testing. All these progressions will enable manufacturers to have more time to iterate and simulate thousands or millions of battery material combinations, resulting in significantly fewer costs and shorter development timelines down the line.
A major driving force of battery technology adoption lies in cost; as we saw decades prior in the solar industry, huge strides are being made in the battery sector to reduce hard costs. A recent influx of cost-competitive materials and advanced manufacturing techniques has reduced waste, improved quality and decreased hardware costs.
But how can we further drive down costs in order to drive cost-parity for EV or grid-scale batteries?
With the rising commoditisation of lithium-ion battery cells, costs won’t hinge on battery cell or equipment prices but on the “soft costs” that have been a looming detriment to the global PV market, accounting for up to 70% of installed solar cost. Similarly, lithium-ion battery system soft costs could account for over 50% of total expenses in the industry.
In order to unlock substantial market share, maximise operational efficiency and decrease these soft costs, we must look to breakthrough technologies that can streamline critical and innovative processes while remaining economical.
Today, the global battery market size across EVs, grid storage and other use cases is approximately $77 billion, slated to grow to $390 billion by 2025. As we saw with the solar industry, a battery industry at this scale can and will support standalone, venture-backable software businesses to elevate the battery ecosystem even further.
At Energize Ventures, we’ve been evaluating the battery and energy storage market for more than four years, waiting for the right time, technology and team to invest. Now, we’re seeing strong comparisons between the market sizes of the solar industry five years ago and the battery industry today.
In reality, the battery market is continuing to experience rapid growth as companies are spending 5 to10 percent of installed costs on software. This means we can anticipate today’s multi-billion dollar market to grow to about a $40-$50 billion market by 2030 for software innovation exclusively.
We are sitting at a junction in the industry’s evolution as the level of market maturity and rate of growth signal a turning point for greater and more meaningful digital innovation to help drive these formative renewable energy systems of the future. Right now is the peak of the battery era, and we are fast-approaching full electrification.
Author: Tyler Lancaster.
Taylor is a principal at Energize Ventures, a Chicago-based global alternative investment manager focused on digital innovation for energy and industry, where he drives investment activity and portfolio management.
The views and opinions expressed in this article are the author’s own, and do not necessarily reflect those held by pv magazine.
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