There’s never been a better time to build grid batteries, nor a harder time to get your hands on them.
After years of being “the next big thing,” energy storage in the U.S. has become a billion-dollar annual market. More companies are flocking to the space as new battery plants break size records every few months. But all that excitement, coupled with similarly robust demand for electric cars, has triggered a shortage of the battery cells that underpin energy storage plants.
Grid battery cells at top-tier manufacturers are already taken for the year, and 2022 is selling out fast, numerous developers have told Canary Media.
Electric vehicle manufacturers buy vast quantities of batteries compared to grid-focused companies. Now grid storage developers need to place increasingly large orders to secure an allotment of manufacturers' upcoming production. Several insiders said 1 gigawatt-hour is becoming the minimum order size to hold the attention of top manufacturers in this seller's market.
That poses extra challenges for companies seeking more modest amounts, whether for smaller grid projects or home backup batteries.
“Everyone’s trying to grab batteries at the same time,” said Aric Saunders, executive vice president at home battery company Electriq. “The facilities aren’t ready for it. There are not enough manufacturing facilities to meet current demand for the Tier 1 batteries.”
The industry-specific constraints coincide with the lingering effects of the Covid-19 pandemic, which turned bustling ports into nautical traffic jams and pushed up the prices of all kinds of commodities. These trends work against developers racing to hit their project deadlines with tight margins.
For now, developers must buy in bulk or get creative. A longer-term resolution relies on manufacturers building new factory lines to match the industry's growth.
Side effect of rapid storage market growth
A year ago, the U.S. didn't have any grid batteries breaking the 100-megawatt barrier.
Then LS Power's Gateway came online near San Diego. A few months later, Vistra's Moss Landing project in Monterey County, Calif. beat it out as the largest battery storage facility. AES commissioned its 100-megawatt/400-megawatt-hour Alamitos facility in Long Beach, Calif. in January. Strata Solar's battery of the same size began operating a few months later in Oxnard, north of L.A., taking the place of a gas plant that nearly got built.
That's just a sampling from California, where supportive state policy and a solar-heavy grid make for an attractive battery market. More mega-projects are slated to arrive there in the coming months and years. But major storage projects are headed elsewhere across the Southwest and in select markets farther east.
This step change in storage development means that the industry simply needs more batteries than it used to. It also inaugurates a new class of big battery developers. A project of 5 or 10 or 20 megawatts would have made a splash a few years ago, but increasingly it looks like a rounding error compared to this wave of behemoths.
The battery cell manufacturers that supply these projects have not grown at a comparable rate, however.
"This feels like short-term business cycle anomalies," said Jason Burwen, interim CEO of industry group U.S. Energy Storage Association, describing the current scarcity. "I have no reason to believe this is secular and longer-term. You have so much new capacity committed to coming online."
For now, though, the supply crunch is exacerbated by a tendency of the people who buy and finance battery projects to focus on the handful of vendors they know and trust. This so-called "Tier 1" typically includes Tesla/Panasonic, South Korea's Samsung SDI and LG Energy Solution, and Chinese heavyweight CATL.
"We’re not seeing a shortage of supply industrywide; we’re really just seeing a shortage with Tier 1 vendors," said Danny Lu, senior vice president of Powin Energy, which buys battery cells and integrates them into power plant units. "There are a lot of Tier 2 vendors or fringe-Tier 1 that have unsold capacity."
There's good reason to avoid unproven battery suppliers; the consequences of bad batteries can be fiery and dramatic.
Despite the authoritative sound of the oft-referenced Tier 1, the industry lacks a shared, quantitative metric for which companies qualify for that designation. That subjectivity risks overlooking capable suppliers that meet a high bar for safety, quality controls and financial strength, Lu said.
Scramble for small-scale storage
The supply crunch hits hardest for companies with smaller purchasing power, especially those serving the home market.
“In January, things were fine. By the end of March, it was ‘all hands on deck’ to make sure you’re supplied,” said Electriq Power's Saunders.
Electriq switched from the nickel manganese cobalt (NMC) chemistry, popular in the automotive space, to lithium iron phosphate (LFP) for its latest home battery product. Previously, the latter was buffered from the demands of the electric vehicle industry. But automakers in China, including Tesla, have adopted LFP for some of their car batteries, creating a new source of competition for those cells.
Electriq is agnostic as to battery manufacturer and can source from different suppliers if needed. The company leaned on that flexibility, and supplier relationships it had built over the years, to secure supply for this year and next, Saunders said.
SimpliPhi Power buys LFP cells and builds them into storage products for homes and businesses at its factory in Oxnard, Calif.
"Through a combination of strategic planning and cemented relationships with suppliers built over the last decade, we have created a resilient supply chain for our company and haven’t directly experienced any cell shortages," CEO Catherine Von Burg said in an email.
Even before the Covid-19 pandemic scrambled global commerce, SimpliPhi's planning for "black swan" events led it to frontload supply agreements and lock in longer-term commitments with suppliers, Von Burg noted. Holding additional inventory affects a company's financial profile on paper and runs counter to "lean" business philosophies that favor just-in-time delivery. But the trade-off can pay off when it comes to resilience in the face of unexpected events.
Companies able to secure supply stand to benefit if competitors fall behind in their deliveries. Tesla's famous Powerwall home battery faces a backlog of tens of thousands of orders, CEO Elon Musk acknowledged in a recent court appearance. He blamed the backlog on chip shortages, rather than battery supply.
“Due to Tesla’s supply constraints, our demand is skyrocketing,” Saunders said. “People are looking for alternatives. They’re calling all the other options out there and finding quality choices.”
California exacerbates the trend
The demand side of the battery equation shows no sign of slackening. To the contrary, the bellwether market of California is about to gobble up even more battery capacity than previously thought.
The California Public Utilities Commission, which regulates the power sector, recently ordered power providers to secure another 11.5 gigawatts of clean capacity in the next five years to keep the grid functional as natural gas facilities and carbon-free nuclear plants shut down. Fulfilling the order equates to building one-quarter of the state's current power plant capacity in five years.
California is already sprinting to bring new battery power plants online to meet demand in the evenings on hot summer days when air-conditioning usage stays high but solar generation drops. But some of the new projects that were supposed to come online this summer are running behind, regulators warned in a letter dated June 29.
"The CPUC recently received notice that several [projects] will be delayed by one to several months, and in some cases will push online dates past the summer window," the letter noted.
The CPUC did not specify if those particular projects were batteries. But batteries were the main type of new resource getting built to meet grid needs this summer. Other sources of new capacity included upgrades at existing plants or new contracts for existing power sources.
The CPUC is "calling every project developer asking if they're going to hit the August 1 date and asking if there is anything they can do to help or break roadblocks," one utility-scale storage developer told Canary Media.
When construction timelines are already tight, battery supply scarcity creates more friction just as California needs to accelerate.
But when batteries are delivered on time, developers can get them installed in just a few months. Strata Solar's project in Oxnard did just that, and in the midst of the Covid-19 pandemic, to boot.
(Lead photo credit: Andrew Francis Wallace/Toronto Star via Getty Images)
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