Key Points:
Sodium-ion batteries offer affordability and stability, challenging lithium-ion's dominance in energy storage.
China leads the charge in sodium-ion production.
Sodium-ion may disrupt gas turbine investments, prompting utility and regulatory challenges.
Sodium-ion batteries may reshape capacity markets, prompting a re-think of renumeration for reliability.
Lithium-ion has been the technology of choice for battery storage, but a new technology is emerging as a credible alternative. Swapping lithium for sodium, sodium-ion batteries benefit from the relatively low cost and abundance of sodium[1], resulting in battery cells that could be more than two-thirds cheaper than Lithium-ion alternatives. Such a significant change in battery costs in such a short time will impact the case for new gas-fired investments going forward. To understand the impact, let’s examine the state of the supply chain, potential pricing, and the implications for utilities and system operators.
Swapping Lithium for Sodium
The rapid growth of demand for batteries has led to concerns over the ability of the lithium supply chain, from mining to refining, to satisfy the insatiable thirst for the mineral. There are also worries over the environmental impact of lithium extraction, which is water-intensive.[2] The industry went through a supply squeeze last year, sending the price of lithium carbonate up by more than 600% in 2022. Prices have since come down but remain more than double the level seen in 2021 (see Figure 1).
Source: Investing.com
Replacing lithium with the much more abundant sodium yields several benefits. First, sodium-ion batteries are more stable, making them safer to operate over a wider range of temperatures.[3] Second, the costs are expected to be much lower because sodium is made from soda ash, which is widely available[4], and some specifications of sodium-ion batteries do not require any critical minerals.[5] As a result, sodium-ion battery cells are expected to be much cheaper than lithium-ion. However, sodium-ion batteries are not as energy-dense as lithium-ion batteries, making them bulkier and heavier for the same amount of energy. [6] Their lower energy density makes them more suitable for stationary energy storage and city (shorter-range) electric vehicle applications.
Rush to Build Supply Chain
Wood Mackenzie forecasts 40 GWh of global production capacity for sodium-ion batteries by 2030 in the base scenario and 140 GWh in the upside scenario.[7] China is leading the production race, hosting 16 out of 20 sodium battery factories that are planned or under construction. Most of the Chinese capacities will initially serve domestic demand for budget electric vehicles (trading range for lower prices). Grid storage applications are already being explored in China with the first grid-scale demonstration (5MW/10MWh) announced this year.[8]
The table below shows some of the projects that are operational, under construction, or announced to come online soon.
Source: [9], [10], [11], [12], [13], [14]
Cheaper Alternative to Gas Combustion Turbine (CT)
According to CATL, the world’s largest battery manufacturer, the first generation of sodium-ion battery cells produced today is expected to be priced at $77/kWh, reducing to $40/kWh for the second generation as production ramps up.[15] This compares to $165/kWh for lithium-ion battery cells per the National Renewable Energy Laboratory’s recent estimate[16], although more recent reports suggest that prices might have come down closer to $100/kWh in recent months.[17]
Taking CATL’s estimated prices of sodium-ion cells, Figure 2 shows that sodium batteries would be cheaper than lithium-ion batteries and, more importantly, gas combustion turbines (CT) in meeting capacity needs. The levelized cost[18] of a second-generation sodium-ion battery could be about a quarter cheaper than a gas CT.
Source: 8760 analysis[19]
Justifying New CT Investment Could Prove Challenging
In the past, utilities typically preferred to build gas CTs to meet peak demand growth. Utilities usually operate them for several hours a day during peak demand periods. CTs are typically chosen because they have the lowest capital costs among dispatchable generation technologies. For something that only runs for a few hours a day, lower capital costs are better.
Sodium-ion batteries will be cheaper than gas CTs, but 4-hour batteries can only really be used to smooth out daily volatility in electricity supply and demand. There are circumstances where 4-hour batteries will not be sufficient, such as a long spell of low wind in areas with large wind generation capacity or a multi-day volcano eruption affecting solar generation.
Therefore, gas CTs would still be required to meet electricity demand in those rare instances, at least until ultra-long-duration storage becomes commercially available. But justifying an investment for low-probability high-impact events such as those will not be an easy task. This could pose challenges to utilities looking to receive regulatory approval for building new gas CTs, particularly in jurisdictions where the regulator has a history of prioritizing keeping bills low over other criteria.
Another Headache for System Operators
The low cost of sodium-ion batteries could also pose issues for markets that rely on capacity markets to ensure that there is enough capacity to meet peak demand. At a high level, capacity markets work by allowing generators to bid for the money required to keep existing capacity or, if there is a deficit, build new capacity to serve the market. It does not always work out that way because of different market design decisions.
An emergence of a cheaper battery would likely push future capacity prices down below the level required for new gas-fired power plant capacity as soon as 2027/28. This is good for the environment if the batteries are charged with zero-carbon electricity during off-peak hours. But it could also raise system reliability issues in events that require longer-duration dispatchable capacity.
System operators could tinker with capacity market parameters (again) to reward longer-duration dispatchable capacity more by adjusting peak capacity credits (discounting capacity from shorter-duration resources). Alternatively, system operators could enter bilateral contracts with existing fossil-fired plants directly to delay their retirements. But imagine the headline: Rate Payers Asked To Subsidize Dirty Coal. Whichever way the system operator chooses, it will certainly attract a lot of debates and challenges from various stakeholders. A headache indeed.
Excitement and Challenges Ahead
The emergence of sodium-ion technology as a viable alternative to lithium-ion batteries is poised to bring about significant changes in the energy landscape. However, the need for ultra-long-duration storage for exceptional circumstances remains. For utilities, this is the time to reevaluate how to value system stability in their generation planning process. For system operators, this is the time to rethink the future of capacity market and its role in maintaining system stability. The journey towards a cleaner and more affordable energy future is indeed a complex and evolving one.
[1] Wood Mackenzie (21 February 2023), “Sodium-ion batteries: disrupt and conquer?”, available at https://www.woodmac.com/news/opinion/sodium-ion-batteries-disrupt/
[2] Mining Technology (26 June 2023), “Lithium producers warn of a global supply shortage for electric vehicle demand”, available at https://www.mining-technology.com/news/lithium-supply-shortages-electric-vehicle-demand/
[3] See note 1
[4] Energypost.eu (11 September 2023), “Sodium-ion batteries ready for commercialisation: for grids, homes even compact EVs”, available at https://energypost.eu/sodium-ion-batteries-ready-for-commercialisation-for-grids-homes-even-compact-evs/
[5] See note 1
[6] See note 1
[7] See note 1
[8] Great Power (14 July 2023), “Great Power Passed the First Batch of Sodium-ion Battery Evaluations in China”, available at https://www.greatpower-battery.net/great-power-passed-the-first-batch-of-sodium-ion-battery-evaluations-in-china.html
[9] Natron Energy (18 October 2022), “Natron and Arxada announce world’s first large-scale production of battery grade Prussian Blue materials”, available at https://natron.energy/wp-content/uploads/221018-Arxada-Natron-starting-large-scale-production-in-Visp-FINAL9.pdf
[10] CNEVPost (2 December 2022), “World’s first GWh-class sodium-ion battery production line sees first product off line”, available at https://cnevpost.com/2022/12/02/hina-gwh-sodium-ion-battery-production-line-first-product/
[11] CNEVPost (24 July 2023), “Chinese tech firm Transimage secures order for sodium-ion batteries from German automaker), available at https://cnevpost.com/2023/07/24/transimage-secures-order-for-sodium-ion-batteries-german-automaker/
[12] CNEVPost (10 June 2023), “BYD to build sodium-ion battery production base in Xuzhou”, available at https://cnevpost.com/2023/06/10/byd-to-build-sodium-ion-battery-base-xuzhou/
[13] CATL (29 July 2021), “CATL Unveils Its Latest Breakthrough Technology by Releasing Its First Generation of Sodium-ion Batteries”, available at https://www.catl.com/en/news/665.html
[14] Zoolnasm (25 May 2023), “众钠能源首个钠离子电池基地落户广德”, available at http://www.zoolnasm.com/?m=home&c=View&a=index&aid=247
[15] CleanTechnica (30 July 2021), “CATL reveals sodium-ion battery with 160 Wh/Kg energy density” available at https://cleantechnica.com/2021/07/30/catl-reveals-sodium-ion-battery-with-160-wh-kg-energy-density/
[16] NREL (September 2022), “U.S. solar photo voltaic system and energy storage cost benchmarks, with minimum sustainable price analysis: Q1 2022”, available at https://www.nrel.gov/docs/fy22osti/83586.pdf
[17] Benchmarksource (6 September 2023), “Global cell prices fall below $100/kWh for first time in two years”, available at https://source.benchmarkminerals.com/article/global-cell-prices-fall-below-100-kwh-for-first-time-in-two-years
[18] The levelized cost of new capacity measures the minimum annual revenue needed over the project's life to cover capital expenditures, fixed costs, financing expenses, and equity returns.
[19] Gas CT based Brattle (21 April 2022), “PJM CONE 2026/2027 report”, available at https://www.pjm.com/-/media/library/reports-notices/special-reports/2022/20220422-brattle-final-cone-report.ashx. Lithium-ion based on NREL (September 2022), “U.S. solar photovoltaic system and energy storage cost benchmarks, with minimum sustainable price analysis: Q1 2022”, available at https://www.nrel.gov/docs/fy22osti/83586.pdf. Sodium-ion based on using NREL’s lithium estimate but replacing lithium cell pricing with CATL’s announced prices for first gen and second gen sodium-ion cells. Financial assumptions include 20% leverage, 8% nominal cost of debt, and 11-12% post-tax cost of equity.
Great data-driven post! Thank you!
What are the risks to the projection that 2nd generation sodium ion battery prices become as low as what you show?
Silly question, but why not use plain old salt (NaCl) to get the sodium? If we need to rely on soda ash, are deposits plentiful? (I know of a single US soda ash producer called Sisecam Wyoming.)