Scale and the Economic Mechanisms of Learning Rate: Applying Lessons From Solar to the Battery Industry

This story is contributed by Charlie Parker and Dr. Nemanya Sedoglavich

• Price declines as a function of learning rate are typically perceived to be due to economies of scale but technology and native technology development play a more foundational role.
• As new and niche industries scale, novel innovations become further incentivized as their own markets become large enough to sustain a worthwhile return on investment.
• Technology and market development in batteries have tracked closely with PV solar, which, a decade further in commercialization, may offer insights into the future of the industry.

Intro

Learning rates quantify the unit price decline for every doubling of manufacturing capacity and have proven to be a reliable method to forecast price declines based on market growth. In renewable energy markets like solar photovoltaics (PV) and energy storage, these learning rates have held steady for years. These price declines are often considered to be a result of volume purchasing or “economies of scale” but research has shown technology to be the primary reason for continued price declines.

The mechanisms that drove PV cost reductions may offer insights into what will drive energy storage prices down further. PV’s 99% price decline from commercialization to present offers a historical precedent and is analogous to energy storage’s 97% cost decline since commercialization in 1991. While a further 1–2% price decline may not seem like much, it represents about 50% from current cost [1] or $60-$70/kWh decrease at the cell level necessary for mass adoption of unsubsidized, profitable passenger electric vehicles.

BNEF — Colin Mckerracher

This article will explore three ways in which growing markets foster technology adoption:

• Growing markets creating commercially viable opportunities for novel battery innovations; growing markets attract interest and the larger the opportunity the bigger the players
• Material price volatility creating opportunities; efficiency in material utilization and manufacturing yield come into focus in challenging business environments
• Large market thresholds to commercialize manufacturing technology; resource intensive technology typically requires more mature/derisked markets

Commercially Viable Markets For Novel Technology

From 2020 to 2021 the global battery market grew from $40.7B to $64.9B or from 291 GWh to 492 GWh measured in deployed capacity [2]. This economic gravitational force supports several billion-dollar markets in the battery value chain, and this scale of market opportunity is necessary to attract investment in a larger number of more risky innovations.

Green Car Congress

Specific examples of this in solar and battery technology are perovskites and lithium sulfur, respectively. These technologies have similar value propositions in terms of high performance, price-per-unit reduction, and low-cost abundant materials at the expense of reliability. Based on novel materials systems for their respective sectors, expanded value chains are needed to unlock their value propositions at a commercial scale. An analysis of annual funding from 2018 to 2022 shows a growing commitment in these two areas [3]:

• The VC in perovskite and Li-S battery companies show similar growth trends.
• The vast majority of funding in both areas have gone to companies that describe themselves as “material”, “technology”, or “manufacturing technology” providers, suggesting a focus on technology development as opposed to manufacturing and marketing.
• Since 2018, more VC firms have been making substantial investments into these two technologies
• Commercial production of perovskite cells are planned in Europe and China this year although it will take years to gauge their impact on price reduction.

Material Price Volatility In Majority Applications

“The best cure for high prices is high prices” is a favorite epigram in economics. While appearing paradoxical this maxim has held true for PV and may well hold true for batteries. Polysilicon, the primary material in PV, experienced over a 1000% spot price increase from $45/kg in 2004 to $475/kg in March 2008.

Two notable technology advancements were achieved during the spot price spike:

• 2005 — The thickness of wafers was reduced significantly, dropping the specific silicon consumption from 13 to 10 g/W.
• 2007 — The PV industry managed to tap 60% more scrap silicon from the semiconductor sector: nearly 4,000 metric tons (MT) compared to 2,500 MT in the prior year.

During this time, PV became the majority application for polysilicon, making the industry a victim of its own success. Nevertheless, the PV industry continued to grow at a remarkable rate during the price spike. A large number of silicon foundries were eventually brought online leading to the large drop in silicon price, however the technology developed to mitigate the spot price spike has since helped to bring overall costs down below even pre-spike levels.

2022 marked the first time ever Li-ion battery price had a year over year increase. A materials price spike is considered the primary reason and, after years of unconstrained growth, the battery industry appeared to be another victim of its own success. Batteries became the majority application for cobalt and lithium around 2015 and 2020 respectively [4]. The industry, having anticipated this scenario in advance, has pushed forward technologies to address the price spike in a similar fashion to the PV industry:

• Reducing (or eliminating) consumption of more expensive metals with a renewed interest in LFP/LMFP and sodium-ion technology being commercialized:

BNEF Electric Vehicle Outlook 2023

• Direct cathode recycling of manufacturing scrap that preserves battery-grade components and materials for reuse in batteries:

While direct cathode recycling capacity is currently small in comparison to the estimated 1 million tonne/year global Cathode Active Material (CAM) capacity, the relatively new technology has a durable value proposition and is proving itself out at scale.

When high costs threaten the business model, new technology risk to mitigate these costs becomes more acceptable.

Manufacturing Technology Threshold

Two papers published by MIT staff and students only a few years apart examine and characterize PV price declines and battery price declines using a similar methodology. There are a number of similarities in the characterized price declines of PV and batteries in their respective first 20 years of commercialization.

If the battery industry continues to follow the PV industry in cost reduction trends, manufacturing technology would be expected to lead price declines over the next 10 years. A number of cost-reducing manufacturing technologies, such as improvements to electrode manufacturing and alternatives to NMP-based slurry deposition, have been developed and may begin to have a market-wide impact on price:

• Water Based — GM has partnered with Nanoramic Laboratories to improve EV battery cost, efficiency, and sustainability.
• Semi-solid — 24M has formed a strategic partnership with VW to develop cost effective processes to meet the increasing demand for EVs.
• Dry Coating — Tesla and Volkswagen continue to develop dry coating technology in-house.

Dry coating startups AM Batteries and LiCap have recently announced agreements with Amperex Technology Limited (ATL) and Siemens, respectively.

A key factor driving the learning rate in the solar industry has been the commercialization of advanced manufacturing technologies. With a larger market, manufacturers have been more willing to invest in new technologies and production processes that can further drive down costs and improve efficiency.

A similar trend can be observed in the battery industry, where rapid market growth and increasing demand for energy storage solutions have incentivized manufacturers to invest in new manufacturing technologies. As the battery market reaches critical thresholds, the commercialization of advanced manufacturing technologies becomes more feasible, leading to further cost reductions and improved performance.

While a specific or absolute metric may not exist, there appears to be a market size threshold for manufacturing technologies to develop. The threshold characteristics for the market include the ability to support several optimally sized plants operating at or near nameplate capacity. Another consideration may be the resources required to validate the type of technology and the associated value proposition. While new materials can be proven out in low-volume production, manufacturing technology can only be validated at a production scale, which takes considerably more resources in comparison.

Insights & Takeaways

• Development and diffusion of innovations are the root cause of price declines as more niche/specialized technology becomes commercially viable and supported by bigger markets.
• Diversifying materials and sources can help avoid aberrations in the learning rate curve, especially where a high growth industry becomes the majority end user.
• Manufacturing technology innovation typically only appears as an industry matures; earlier investment in what is expected to be more durable technology may help increase learning rates.

Charlie Parker is founder and principal consultant of Ratel Consulting, a market intelligence and advisory firm in Cambridge, Massachusetts. Ratel serves clients throughout the energy storage value chain with a focus on commercialization and growth strategies in emerging battery technology for startups, corporations, and universities as well as government, industry groups, finance, and professional service providers. Charlie currently serves on the Board of Directors for NAATBatt International.

Dr. Nemanya Sedoglavich is an innovative technical leader with over 15 years of experience in clean tech, energy, photonics, and sustainable agriculture. His passion is in developing systems that make a positive impact on the world. At present, he is the Head of Product Development at Titan Advanced Energy Solutions, developing advanced high throughput inspection systems for battery cell manufacturing in Gigafactories. Prior to Titan, he worked at Shell TechWorks on New Energies projects in distributed energy resources, mobility electrification, and hydrogen.

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Reference

[1] BNEF 2022 cell price of $120/kWh

[2] BNEF EV Outlook 2022 — Demand (GWh) x Pack Price ($/kWh)

[3] Ratel Consulting — Funding for R&D/development, excludes production facility CapEx

[4] Materials — Based on 2021 market size of $64.9B; Manufacturing Equipment — McKinsey

[5] Assumes manufacturing scrap averages higher cathode content