The worst effects of the pandemic may have passed, but supply chain disruptions continue to be felt around the world. The effects of the war in Ukraine are also evident for all of us in our daily lives, from raw materials to energy, food supply chains and beyond. Battery energy storage system (BESS) supply chain disruption is no different, writes Cormac O’Laoire, senior director of market intelligence at Clean Energy Associates. Indeed, as the cost of raw materials such as lithium rises, battery prices increase significantly, in some cases by 20-30%, making some projects unprofitable.
Battery Energy Storage System (BESS) transport costs have accelerated, with the price of transporting a container from China to the US West Coast costing about 12 times more than two years ago. The time taken by the container to make this trip has almost doubled.
These factors helped create a perfect storm, but some steps can be taken to mitigate the worst effects. For businesses starting out BESS at scale projects over the next few years, there are several strategies that could help overcome the challenges involved:
The pandemic has served as a wake-up call for many companies around the world to improve the resilience of their supply chains, in particular by building more diversified supplier portfolios at all levels. It has never been more important. Although some Tier 1 suppliers may be exhausted in the next few years, if your purchase volume is less than 1 GWh, you may consider a smaller Tier 2 supplier. While large buyers can leverage their size to source batteries from Tier 1 suppliers, mid-sized or smaller players need to find the right size partner. Many Tier 2 suppliers have high-quality products, but buyers must protect their investment with strong contract terms and an independent, end-to-end quality assurance program.
Exclusively BESS factories
Many factories produce batteries for both electric vehicles (EV) and stationary energy storage systems, which can create challenges. The EV industry buys ten times more battery capacity than BESS buyers, and EV buyers often offer long-term contracts with guaranteed volumes. As battery manufacturers struggle with lithium shortages in the face of rapidly growing demand, buyers in the EV industry therefore tend to find themselves in an advantageous position in terms of allocating scarce capacity. Most small and medium-sized BESS buyers are less able to compete. What is the answer? There are a growing number of factories, including a combination of Tier 1 and Tier 2 suppliers, that only manufacture BESS’, eliminating direct competition with the EV industry. Consider sourcing from these facilities. Many of these factories are not yet built but will be operational within the next 18 months, so now is the time to secure supply agreements. As raw material costs rise, it is essential to source from local suppliers and set costs early.
Although it is difficult to predict the future in such a dynamic and rapidly changing environment, short-term contracts could reserve scarce lithium reserves for mobile applications, pushing stationary applications to migrate to other chemistries at as demand for electric vehicles accelerates. During this short-term supply shortage, while the electric vehicle sector is consuming much of this lithium, there are other alternatives, such as zinc and iron chemicals to consider. BESS buyers who are diligent about these new chemistries now will be in a much better position than those who wait.
Supply chain integration
If you’re considering a Tier 2 manufacturer, it can be reassuring to see upstream supply chain integration at multiple levels, including module, cell, and raw material sourcing. While you won’t face as much competition from the EV industry if you go to a BESS-only factory, supply chain integration should help ensure access to raw materials.
Security incidents in the industry have been all too frequent. When considering a new supplier, buyers should carefully check the company’s safety credentials and industry certifications, as well as possible failure modes with the type of battery they are supplying, and how these these are attenuated.
BESS systems have orders of magnitude more stored energy than an individual EV, making the potential scale of a fire significantly different. It will be reassuring to know that Tier 2 battery suppliers use the same technology and follow the same best practices as Tier 1 suppliers. Strict thermal safety testsare, however, essential.
Here are some strategies you can use to overcome battery system supply chain challenges that can help ease the frustration of not being able to find cells available at short notice. Learning more about the options and incorporating the information into your implementation plan as it evolves from year to year can help you avoid further disruption along the way.
By Cormac O’Laoire
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