This article was published by the International Energy Agency on May 3, 2020.
As governments focus on dealing with the Covid-19 health emergency, they are increasingly turning their attention to the impact of shutting down their economies and how to revive them quickly through stimulus measures. Economic recovery packages offer a unique opportunity to create jobs while supporting clean energy transitions around the world.
Energy efficiency and renewable energy like wind and solar PV – the cornerstones of any clean energy transition – are good places to start. Those industries employ millions of people across their value chains and offer environmentally sustainable ways to create jobs and help revitalize the global economy.
But more than just renewables and efficiency will be required to put the world on track to meet climate goals and other sustainability objectives. IEA analysis has repeatedly shown that a broad portfolio of clean energy technologies will be needed to decarbonize all parts of the economy. Batteries and hydrogen-producing electrolyzers stand out as two important technologies thanks to their ability to convert electricity into chemical energy and vice versa. This is why they also deserve a place in any economic stimulus packages being discussed today.
What batteries and electrolyzers have in common
Batteries and electrolyzers are small‑sized, modular technologies that are potentially well-suited for mass manufacturing. Cost reductions like those experienced through the large-scale production of solar PV are not inconceivable and, in fact, are already underway. The progress of battery technology is more advanced than that of electrolyzers, with the cost of lithium-ion batteries in particular having decreased thanks to higher production volumes. The scale up of electrolyzers manufacturing, on the other hand, is at an earlier stage. But that makes its scope for significant near-term cost reductions even larger.
Batteries and electrolyzers apply the same scientific principles of electrochemistry, meaning that they share several components such as electrolyte and membrane materials, as well as key manufacturing processes. The future development of electrolyzers therefore stands to benefit from the experience of manufacturing batteries. The knowledge acquired from batteries should spill over into the scaling up of electrolyzer production, enabling faster cost reductions.
Specialized suppliers for both technologies such as Toray or BASF tend to capitalize on these similarities and innovate to the benefit of both devices. The human capital and skills that are developed cross-fertilize each other. The lessons learned in the development of individual components also have the potential to ripple through other industries that share them. These include fuel cells, control systems and specialized materials for other engineering applications.
The IEA will publish an Energy Technology Perspectives special report focusing on clean energy technology innovation on 2 July that will discuss these and other attributes of technologies that are particularly suitable for fast clean energy transitions.
The clean energy sector of the future needs both batteries and electrolyzers
The price of lithium-ion batteries – the key technology for electrifying transport – has declined sharply in recent years after having been developed for widespread use in consumer electronics. Governments in many countries have adopted policies encouraging increased deployment of electric cars, further accelerating the decline in battery prices. At the same time, the power sector now offers growing opportunities for the use of batteries to support the integration of variable renewables such as wind and solar PV into electricity systems. As such, lithium-ion batteries are now a technology opportunity for the wider energy sector, well beyond just transport.
Electrolyzers, devices that split water into hydrogen and oxygen using electrical energy, are a way to produce clean hydrogen from low-carbon electricity. Clean hydrogen and hydrogen-derived fuels could be vital for decarbonizing sectors where emissions are proving particularly hard to reduce, such as shipping, aviation, long-haul trucks, the iron and steel or chemical industries. These are areas where other clean energy technologies cannot be easily deployed.
However, natural gas and coal are currently the primary sources for almost all of the approximately 70 million tons of hydrogen produced each year for making fertilizers and for use in oil refineries. This means that the production and use of hydrogen is associated with more than 800 million tons of carbon dioxide (CO2) emissions today – a staggering amount that is equivalent to the emissions of the United Kingdom and Indonesia combined.
Battery manufacturing is growing, but there is significant room to scale up further
The world’s capacity to make battery cells has expanded rapidly in recent years. Today, manufacturing operations globally can produce around 320 gigawatt-hours (GWh) of batteries per year for use in electric cars. This is well above the approximately 100 GWh of batteries required for the 2.1 million electric cars that were sold in 2019.
Having sufficient capacity available for battery manufacturing is critical for the continued electrification of road transport. Global production capacity is unevenly distributed. China is the world leader, accounting for around 70 per cent of global capacity, followed by the United States (13 per cent), Korea (7 per cent), Europe (4 per cent) and Japan (3 per cent).
The outbreak of the Covid-19 epidemic has affected all of China’s battery production hubs, located in the provinces of Hubei, Hunan and Guangdong. Manufacturing has resumed gradually due the time it takes to restore the supply chain and return employees to work.
There is a need for manufacturing capacity to grow further. Assuming that the global auto industry’s announced targets for electric vehicle production are met despite the Covid-19 crisis, around 1,000 GWh of battery manufacturing capacity would be needed in 2025. This output would require equivalent of 50 plants, each on the scale of a Tesla Gigafactory.
Longer-term targets set by governments around the world – as reflected in the Stated Policies Scenario of the IEA’s World Energy Outlook – could require global annual battery production to reach around 1,500 GWh by 2030 for all electric vehicles combined (including cars, buses, etc.). Moreover, about twice as much production would be needed in 2030 to supply the amount of batteries envisaged in the IEA’s Sustainable Development Scenario, which provides a pathway to meeting long-term sustainability goals.
While such figures are ambitious, they are achievable. Battery manufacturing capacity targets for 2030 announced by companies led by CATL, LG Chem, BYD, Northvolt and Panasonic stack up to around 2,100 GWh per year. Nevertheless, time is of the essence, as building a large-scale battery factory can take anywhere from two to five years, depending on the country.
Electrolyzer manufacturing is in its early stages, but growth is picking up
Electrolyzer production is still in its early stages. Europe, the world leader, has a manufacturing capacity of 1.2 gigawatts (GW) per year, enough capacity in theory to power more than half a million fuel cell passenger cars with hydrogen from water. Production capacity is expanding rapidly. The world’s largest electrolyzer plant, under construction by the United Kingdom’s ITM Power, is expected to produce 1 GW per year. In addition, NEL Hydrogen of Norway has announced plans to build a plant with a production capacity of 360 megawatts (MW) per year and the potential to expand to triple that amount.
The deployment of electrolyzers has also picked up in recent years, both in terms of the number and the size of the projects. About 10 years ago, the majority of projects were smaller than 0.2 MW. Over the last three years, several projects were in the range of 1 MW to 5 MW, with the largest at 6 MW. In Japan, a 10‑MW project just started operating, and a 20‑MW project in Canada is under construction. Larger projects in the hundreds of megawatts have been announced.
As a result, the next two years could set new records, with announced projects bringing the global installation of electrolyzer capacity from 170 MW in 2019 to 730 MW in 2021. To ensure that such momentum is kept up after the Covid-19 crisis, it will be important for governments to reassure investors about their continued commitment to hydrogen.
Why batteries need a stimulus boost
Batteries will have a central place in future energy markets. For this reason, government stimulus packages should recognize and anticipate their future prominence. Doing so is likely to pay off, given the expected size of future markets. For instance, stationary battery deployment at scale would enable a more rapid deployment of wind and solar technologies, which are themselves important potential areas for clean energy stimulus.
Furthermore, support for battery manufacturing would send strong signals to the auto industry that governments remain committed to the electrification of transport. Such stimulus support can safeguard existing jobs and create new ones if combined with demand-side policies that boost electric car sales. This is already happening in China through the extension of purchase subsidies as well as support for investment in public recharging infrastructure. Supporting battery manufacturing can also serve as a means to increase competition and drive down costs. This is no small benefit considering that, for electric cars, batteries are the main cost component at around 40 per cent of total costs.
For countries with strong auto industries, challenging transitions lie ahead. Support for battery manufacturing and electric cars alone does not necessarily offer a major economic boost in the near term, since it is the conventional car industry and its supply chains that are at the heart of the economic activity of many major economies and associated with millions of jobs.
On the other hand, support for conventional vehicle manufacturing and sales alone may generate some positive economic effects in the near term but, if poorly designed, may also undermine the competitive position of the industry a few years down the road. The appropriate level of stimulus packages for battery manufacturing in each country will therefore depend on medium-term targets for renewables integration and road transport electrification. It is likely to require a balancing act between supporting electric cars and highly efficient conventional cars.