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

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The Power Construction Corporation of China drew 76 bidders for its tender of 16 GWh of lithium iron phosphate (LFP) battery energy storage systems (BESS), according to reports. Bids averaged $66.3/kWh, with 60 bids under $68.4/kWh. The tender, covering supply, system design, installation guidance, 20-year maintenance, and safety features, targets systems to be built in 2025-2026.

That’s an astounding price, as earlier this year even I, as a battery optimist, was astounded by CATL’s announcement that it would be shipping LFP cells at $56 per kWh. I did a cost workup of the implications for buffering batteries for truck stop megawatt scale charging in May, and found that at that price point, the economics of slapping in big batteries to enable near term charging without being delayed by big grid upgrades made a lot of fiscal sense. I was always a little uneasy about that analysis as I knew it wasn’t a full battery energy storage system with cells, container, HVAC, thermal runaway protection, senses and a battery energy management system, but it was directional.

Over the summer I engaged with a European infrastructure fund, a repeat client, to help them assess acquisition of a position in an existing pumped hydro facility. A big part of the question regarded whether battery price decline would make it difficult for pumped hydro to continue to compete. At the time, we were looking at BESS price points over $100 per kWh. My hypothesis was that the balance of plant outside of the cells was already commoditized and that cells were already under 50% of the cost of a BESS, so price points would see declining reductions in the future. Basically the sigmoid of cost curve reduction had reached its shift in the curve to flattening again.

And now LFP BESS are coming in at an average of $66 per kWh.

Of course, that’s in China. That means it’s fully domestic supply chains, which are shorter than the west’s because China intentionally clustered like industries, enabling much more sharing of human capital, very rapid resolution of equipment and process concerns, excellent overflow capacity for larger orders and very low energy and time costs for moving through the supply chain. That means it’s fully within China’s purchasing power parity advantage sphere, where everything costs 40% less than in the west. That means zero tariffs.

These domestic price points for BESS in China have some implications for the world that are worth exploring.

The first, of course, is that China’s grid, industry and transportation will continue to electrify and decarbonize vastly faster than the rest of the world. Really cheap batteries means really cheap grid storage, really cheap buffering batteries for megawatt chargers, really cheap buffering batteries for commercial and industrial solar and really cheap batteries for industrial energy ebbs and flows. That’s great news for the world as China is currently the biggest emitter in the world, although still less historically in total than Europe or the USA. China bending its carbon curve down as rapidly as it bent it upward since 1980 is much to be desired and applauded.

For context for the 16 GWh of batteries China is buying for its grid, it has eight to twelve TWh of pumped hydro in operation, in construction or planned to start by 2030, three orders of magnitude more energy storage. China is doing every related to electrification in a very big way.

But, of course, that bright cloud for China and the world has a dark lining for the west. Northvolt won’t be the only western battery firm that disappears in a cloud of bankruptcy filings and finger pointing. At these domestic price points, those BESS can be put on container ships, sailed across the Pacific and into western ports and nothing built in Europe or North America has a chance of competing.

The USA’s 25% tariff on Chinese electric vehicle batteries don’t apply to grid storage, behind the meter storage, charging buffering storage or industrial site storage. No western manufacturer can compete in those markets unless the west slaps 100%+ tariffs on all Chinese batteries.

A full BESS price of $66 per kWh is going to be a bit higher for an EV battery pack, but not that much. These are standard LFP cells, which means much lower likelihood 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 below Tesla’s US cost of $100–$120 per kWh and well below the western industry average of $135–$160 per kWh. Once again, western manufacturers won’t be able to compete and even western EV manufacturers will just buy Chinese batteries.

But, of course, China will also put those battery packs into Chinese built EVs and ship them overseas. By shipping final assembled vehicles, this will help them undercut western car manufacturers significantly even with tariffs.

Incredible quality and range electric cars with all the computerized and electronic bells and whistles are selling in China for less than half of what American manufacturers can deliver inferior products for. With these latest BESS prices, 100% tariffs just means that Chinese EVs will still be cheaper than American ones, and that no one in the world will consider American (or European) cars. The proposed merger of Nissan and Honda is just the tip of the iceberg. Big legacy automakers will likely go out of business in the coming decade.

This was the year that China’s domestic car market saw EVs reach price parity with internal combustion cars, but more than that, EVs exceed ICE cars in features these days. European, North American and Japanese car manufacturers have completely lost the Chinese market as consumers pivot en masse to Chinese EVs, and that’s extending to the rest of the world.

Why would a business person in South Africa buy an American internal combustion car when they can buy a much cheaper, better BYD? Why would a family in Australia buy a VW when they could buy one of the dozens of Chinese EVs and get more car for less money?

That extends out to most of transportation. The buffering battery packs Rish Ghatikar and I are projecting as core components of grid-connected, solar-heavy charging microgrids in the USA will be cheaper and the economics even better. The containerized battery packs increasingly being used on ships of all sizes will be cheaper, and the Berkeley Labs 2022 study published in Nature suggests that $66 per kWh battery packs would make 2,500 kilometer maritime trips break even economically against fossil fuel prices without subsidies. The batteries that are increasingly showing up on trains to bridge gaps in overhead wires in the countries in the world that aren’t in North America will be even more cost competitive.

Of course, all those grid batteries, truck batteries, train batteries and car batteries mean something else: rapidly declining oil sales globally. The oil producing countries of the world are going to be in an increasingly difficult market in the coming years. The ones with the highest cost of extraction, processing and refining are the ones that are going to be first off the market, and that’s most of North America’s product.

Shale oil in the States is already in what the industry is referring to as Shale 4.0, where significant consolidation of sites in the hands of international majors has occurred and the cheapest to start up sites with the most output have already been developed. Now the price of oil dictates whether the majors bother to develop sites or just lean into other energy assets. As the price of oil structurally declines due to declining demand, more and more of the USA’s shale sites won’t pass the economic sniff test and so won’t be developed. That’s going to accelerate in coming years.

The EREOI of new shale oil is down around 2 these days, and while EREOI is an overused concept, that matters for the economics and the emissions. Basically, new shale oil sites these days consume up to half a barrel of oil or equivalent of fossil fuel energy to get a barrel of oil out of the ground, and the CO2 emissions related to that are high. It’s worse in that shale oil always comes with natural gas, and newly developed sites come with a lot more of it. Shale oil is already the big source of methane emissions from the US oil and gas industry because they’ve just been venting unmarketable volumes of the stuff, and now they’ll likely be venting more and getting less oil. The US oil and gas industry, in other words, is going to turn into an even worse climate problem than it already is.

Canada’s oil sands have a similar problem. It takes a tremendous amount of fossil fuel energy to heat water into steam and push it a thousand meters underground to melt buried, sandy tar and pump it out. Then it takes more energy 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 split it into usable products. That costs money and emissions are currently priced in Canada, and are priced in Europe. Canada’s product isn’t going to be able to be sold cheaply enough to compete on the coming global market either, and the USA will protect its own domestic industry soon enough, so Canada’s product will be left with a domestic market, likely mandated federally to prevent the total collapse of the industry. I suspect Alberta will be lobbying hard for a regulatory regime called something like a National Energy Program in the next five years.

There was hydrogen news this week that bookends the battery news. BloombergNEF (BNEF), once optimistic about steep price declines for green hydrogen, has significantly revised its forecast, tripling its 2050 cost estimates. The firm now predicts green hydrogen will cost between $1.60 and $5.09 per kilogram by mid-century, compared to its current range of $3.74 to $11.70 per kilogram, citing higher-than-expected future costs for electrolyzers.

The bottom end of that range is only in China and India in BNEF’s opinion, but I consider those price points to be too optimistic. Further, this is just the cost of manufacturing hydrogen, not the cost of transporting or using it, which add a lot. As always it’s useful to remind readers what hydrogen costs delivered these days because it’s always the cheapest form of hydrogen available, made from natural gas or coal.

The best case cost is in the industrial heartland of Germany, where pipelines deliver gray hydrogen from a central natural gas steam reformation plant to industrial consumers. It costs €6 to €8 per kilogram delivered, or about $58 per gigajoule. Natural gas costs about €12 per gigajoule. At Germany’s new industrial rates for electricity, a gigajoule costs about €17.

No one burns the cheapest delivered hydrogen for energy today because it’s vastly more expensive than electricity or natural gas, which are also much more convenient and efficient to use. The spark gap is still too high between natural gas and electricity, but closing with sensible policies including carbon pricing.

It’s worth calling out that new price point for electricity in Germany. The country has long had among the lowest wholesale electricity prices in Europe, but among the highest retail and industrial rates, a policy intended to incentivize efficiency, but one that also kept industry burning natural gas long past the point when it was sensible. Globally, everyone is realizing that industry will only decarbonize with electrification and a big spark gap prevents that. As a result, electricity rates, especially industrial ones, are in the spotlight as countries work to reverse the spark gap, with Germany’s example of dropping its rates by half as a leading example.

At hydrogen refueling stations, a kilogram of (almost entirely gray) hydrogen runs €10 to €25 in Europe and $34 in California. That’s from hydrogen that costs about $1.50 to $2.50 to manufacture.

Battery prices continuing to plummet. Hydrogen prices not budging and projections of future prices shooting upward. Electricity rates dropping while fossil fuel prices in lots of countries rise with carbon pricing and loss of domestic extraction. The combination means that electrification is going to win and that countries and industries that cling to hydrogen are going to lose. This has been obvious for a while, but this week’s news will mean that a lot more people will get the message.