DOE backs US battery materials production with $107M loan

A long-dormant Energy Department program designed to boost U.S. production of advanced vehicle technologies has made its first loan in more than a decade — not to fund the building of electric vehicles or EV batteries, but to jump-start the production of a key battery material.

On Monday, DOE’s Loan Programs Office offered a conditional commitment to lend up to $107 million to Australian company Syrah Technologies so it can expand its Vidalia, Louisiana facility to produce natural graphite-based active anode material.

Graphite is one of a set of critical minerals targeted for increased domestic production by the Biden administration as part of its push to reduce reliance on foreign supply of materials considered vital to meeting its clean energy and decarbonization goals.

The loan comes from DOE’s Advanced Technology Vehicles Manufacturing (ATVM) Program, which since its 2007 creation has loaned about $8 billion to companies including Tesla to build electric vehicle factories, Nissan to build an advanced battery manufacturing plant, and Ford to upgrade facilities in six states to make more fuel-efficient vehicles.

But after 2011, both ATVM and the Loan Programs Office stopped lending money to any projects beyond nuclear power plants. Last year, cleantech entrepreneur and investor Jigar Shah was appointed to lead LPO and put its $46 billion in lending and loan guarantee authority to work in meeting the Biden administration’s clean energy goals.

Monday’s conditional commitment is the second loan announced by LPO since Shah took the helm of the agency. In December LPO offered materials company Monolith a conditional $1.04 billion loan to expand production at its Nebraska facility, which uses renewable energy to produce hydrogen, ammonia and carbon black — one example of the many kinds of innovative clean-energy technologies LPO was created to foster.

The $107 million loan for the Vidalia plant doesn’t target a novel technology, Shah said in an interview. Syrah Technologies is ​“using very established ways of refining graphite ore,” he said. Rather, the loan is meant to jump-start a domestic industry to produce a key component of lithium-ion battery anodes that’s in increasingly short supply, he said.

That supply is also centered almost entirely in China, he added. China controls about two-thirds of the world’s supply of raw graphite and close to 100 percent of production of active anode material, a refined form of the mineral used to make battery anodes.

“Even if we had graphite ore, we’d have to send it to China for processing to get the anode material here,” Shah said. ​“This is the first stage of being able to process it here.” 

Syrah Technologies, a subsidiary of Australia-based Syrah Resources, has already invested $79 million in the Louisiana facility and plans to invest $165 million more to bring it online in the third quarter of 2023. Over the next 18 months, it intends to ramp up production to 11,250 metric tons per year, enough to supply roughly 3 percent of forecasted U.S. demand for EV production through 2026.

Tesla has signed a four-year offtake agreement to commit to buying 70 percent of this output, and Syrah is targeting the expanding U.S. battery manufacturing sector to sell the remainder of its production. The next stage of Syrah’s plan calls for expanding production to 45,000 metric tons per year by 2024 or 2025, with potential to supply about 16 percent of forecasted U.S. EV demand through 2026, as well as markets outside the U.S.

Why graphite is so important for batteries

Graphite is an underappreciated yet critical component of the lithium-ion batteries that power cellphones, laptops and other consumer electronics as well as EVs and grid energy storage, Shah said. In fact, there’s more graphite per unit of mass in a lithium-ion battery than lithium itself, he said.

Lithium has seen a more drastic increase in price than graphite over the past few years, with market prices for spodumene, a lithium-rich raw material, rising nearly 500% from January 2021 to January 2022. But rising investments in lithium extraction operations at sites around the world are expected to reduce the gap between supply and demand over the coming years.

Prices for natural graphite have seen a less severe price increase of 19 percent through 2021 and 38 percent since November, according to an April report from Credit Suisse. Most graphite today is used for steelmaking, which requires lower-quality raw material and commands lower prices.

But the higher-quality graphite needed for batteries requires higher prices to drive investment into new sources of raw material and processing facilities, Credit Suisse’s report notes. These projects are at an earlier stage of development and face a combination of long lead times and uncertain funding pathways.

This ​“may cause a sustained supply deficit and put significant upward pressure on pricing” for graphite, the report states. It forecasts that a 10 percent deficit in graphite supplies for the global battery anode market this year will grow to a 32 percent deficit by 2025, compared to a lithium deficit of 17 percent this year that it expects to close to about 1 percent by 2025.

Nor are there clear alternatives to graphite for the next-generation battery technologies being developed by companies and researchers around the world. Demand for cobalt and manganese, key materials for the lithium nickel manganese cobalt oxide (NMC) currently favored for EV batteries, is expected to decrease as more battery makers switch to lithium iron phosphate (LFP) chemistries, for example.

But the efforts to develop anode technologies that could replace the need for graphite-based anode materials are far less developed, leading Credit Suisse to forecast that ​“graphite will remain the dominant anode material for the foreseeable future.”

China has natural graphite resources, low capital and energy costs, and government policies that have led it to dominate this part of the battery supply chain from mining and processing to final anode production. It is also a leader in producing synthetic graphite from petroleum coke and coal tar, which makes up the majority of battery anode supply today, Credit Suisse notes.

But natural graphite is cheaper and offers better battery performance characteristics than synthetic graphite, according to Credit Suisse. Producing anode material from natural graphite also carries about one-third the carbon emissions footprint of synthetic graphite production, an important factor for companies concerned with the carbon footprint of their EV and battery products.

Syrah’s facility in Louisiana will process graphite extracted at the company’s mines in Mozambique, making it one of a very few vertically integrated anode material producers outside China, Viren Hira, Syrah’s general manager of business development and investor relations, said in an email.

That will give the company more stable and predictable prices for the raw material going into its active anode material production and avoid the risk of third-party graphite supplies being interrupted, he wrote. These advantages have allowed Syrah to design its facility ​“to be cost-competitive with existing anode suppliers in Asia.” 

Filling the commercialization gap for a domestic clean energy industry

At the same time, battery-grade graphite trading is an ​“obscure market with limited price reporting,” lacking the kind of exchange-traded pricing and hedging structures that exist for other major commodity minerals, Hira wrote.

These factors leave would-be commercial lenders to Syrah’s Vidalia facility with little visibility into the underlying data needed to assess its long-term competitiveness against China’s dominant players. Syrah’s access to raw graphite from its Mozambique operations, plus its long-term offtake agreement with Tesla, help boost the creditworthiness of the project. But the uncertainties Hira has sketched out still make Syrah’s Vidalia facility a tough sell for commercial lenders.

The DOE Loan Programs Office’s mission is to fill these kinds of gaps between proven technologies and uncertain private-sector economics, Shah said. Given the Advanced Technology Vehicles Manufacturing program’s goal to grow U.S. advanced vehicle manufacturing, ​“we started, obviously, with EV manufacturing, with the Tesla loan,” he said. ​“Today, we have a large number of battery manufacturing loans being processed by the office — but we expanded our mandate to include critical minerals to supply those battery plants.”

China manufactures the vast majority of lithium-ion battery cells today, with South Korea and Japan in second and third place, respectively. Investments in U.S. battery production from U.S. automakers such as Tesla, General Motors and Ford aren’t expected to significantly close the gap between the United States and Asia.

But as Shah pointed out, many of the technological advances in lithium-ion batteries over the past decades have come from U.S. research and development efforts that were forced to turn to China for cost-competitive manufacturing.

A similar dynamic led to China’s current domination of the global market for solar photovoltaic panels, Shah noted. ​“That’s been one of the problems we’ve had for solar manufacturing…a lot of the breakthroughs that have happened here have been licensed overseas.”

The Biden administration hopes to avoid that fate for advanced batteries, Shah added. ​“The battery manufacturing plants we’re building here will be a substantial leap in technology, and the materials used in those plants will be a substantial leap forward,” he said. ​“Now that we have a business case for these sectors, it’s time for the U.S. and the private markets to start scaling this up.”

Supporting domestic production of the materials going into advanced batteries is a part of that strategy, according to Shah. ​“You start to allow the experts in the United States who work on graphite to work here, not to fly around the world,” he said. ​“A lot of the research we do at the Department of Energy can be put to work here.”

Tracking the social and environmental impacts of critical minerals

Shah wouldn’t say what other advanced vehicle technology projects the Loan Programs Office is considering for future loans or loan guarantees. But he did say that the office had received applications for loans that add up to more than the $17.7 billion in current lending authority for the advanced vehicle technology program.

As for the kinds of critical materials these proposals were focused on, ​“we’ve certainly seen applications for cobalt, for lithium, and for others,” he said. Last week, Lithium Americas Corp., the company seeking to develop a controversial lithium mining operation in Nevada, announced it had submitted a formal application for funding from the program.

Balancing the need for critical minerals with the environmental and human harms that are often caused by their mining and production is a major challenge for the Biden administration and governments around the world. On that front, Shah highlighted Syrah’s strong social and environmental track record at its Balama mining site in Mozambique and its commitments to diverse and equitable hiring in Mozambique and Louisiana.

Syrah’s Balama site has been evaluated by the U.S. International Development Finance Corporation as part of DOE’s due diligence into its conditional loan commitment, Shah noted. ​“The company has gone out of its way on ESG,” or environmental, social and governance standards, he said. ​“This has to be intentional. You have to decide you’re going to hire people locally to work in the mines safely.”