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As Energy storage has come to the fore in the past year and more everywhere, the key reason for the spike in activity has been the dropping costs of BESS, in turn, thanks to falling prices of Lithium carbonate solution, a key raw material in these batteries. Eerily reminiscent of falling solar module costs, that, between 2015 to 2019, lulled many EPC firms into committing to fixed price contracts in expectations of a further fall in costs down the line. As it turned out, 2020-21 bankrupted quite a few of those EPC firms when module prices reversed trajectory, and the consequences are still being felt by some.
Could the same happen with lithium-based storage?
With prices dictated completely by demand and supply dynamics in China, the world's biggest producer as well as consumer of lithium-based batteries, Lithium carbonate prices rose to CNY (Chinese Yuan) 68,000 per tonne in July, extending a strong recovery from the four-year low of CNY 60,200 that was hit on June 2nd. The rebound has been attributed to the suspension of production at a major mine by Chinese producer Zangge Mining, which said it was ordered by authorities to halt activity due to a lack of documentation. The move was set to remove 11,000 tons of carbonate this year, according to the miner's guidance, reducing the odds of a glut caused by overproduction and lack of matching demand. While estimates from the IEA indicated that lithium supply surged 35% last year, demand has kept mainly due to measures taken by China to incentivize EV ownership.
Adding to the pressure on prices is permission issues in Argentina, a key brine-based supplier for mining, besides some disruptions in Australian mines linked to weather-related and other issues.
Industry sites claim that prices are likely to seek USD 15,000 levels from the current levels of around USD 9000. That will not bode well for many storage bids in India and elsewhere, possibly, where developers have been able to bid low based on price trends till June, which were going down all the way. Hopes of doing away with Viability Gap Funding, for instance, might evaporate if India wants to continue adding the level of energy storage it requires for its grid.
Keep in mind that the next phase of renewable growth is deeply linked to adding storage capacity, as seen in the higher share of hybrid and BESS tenders in recent months. The period beyond 2027 is when the impact of a sustained price rise is likely to become visible, as many existing developers have tied in or even started taking deliveries of batteries for their projects due this year. Ironically, some relief might come from China's actions on the rare earth magnets side, where a 90% monopoly and supply restrictions by it have meant a slowdown in production of EVs in other countries.
The rising price trend is a situation that demands urgent attention, and India would do well to seek stronger ties for both inputs, as well as long-term price visibility. With over 56 GWh of projects under execution, and over 60 GWh under tendering, the risk is real, and will require planning right now to ensure stakeholders do not take a significant hit, and more importantly, the country's long-term energy transition goals.