Noah Barrett: Renewables, they are an important part of the generation stack. And the percentage of the power that they generate in relation to the stack, that is going to continue to grow for the next several decades.
One of the interesting things to think about with renewables, particularly wind and solar, is the intermittent nature of the power they generate. So, when it is not windy or when it is cloudy, these assets don’t generate power. This isn’t a big problem when renewables are a small portion of the generation stack. But as they seek to take a majority share, battery storage solutions are increasingly going to need to be a part of the solution.
So, current storage technology is dominated by lithium ion, and it looks like this is going to continue to be the dominant solution for at least the next five years. Lithium ion works in many applications, primarily EVs [electric vehicles], but also consumer electronics. But we do see some problems when we move to utility-scale storage. One of the problems is the duration of these batteries. So, they typically can only hold 48 hours’ worth of power. That works well when you are just trying to match peak power loads. But when you have situations where power may be needed for days, if not weeks, traditional lithium ion batteries just aren’t a great match for that So, I do think as renewables continue to gain share, we will need to see alternative technologies come into play.
So, in terms of new technologies, there are a lot of promising ideas out there. Some of them include gravity solutions, compressed air, hydrogen and flow batteries. Ultimately, what I think matters most is scalability. A lot of these new technologies are doomed because without the ability to scale, they will always remain a niche solution. New technology needs to be viewed through the lens of compatibility and scalability with the existing market.
Right now, it is difficult to get pureplay exposure to renewables and battery storage in the public markets, particularly in the large-cap space. Traditional utilities and integrated oil companies are making big investments, but it gets diluted within the context of their asset base. If lithium ion continues to be the battery solution of choice, that could present some interesting opportunities on the upstream side, particularly for the companies that mine for the key metals, namely lithium, cobalt and nickel.
We also see some opportunities on the battery manufacturing side. If utilities go with lithium ion as a storage solution of choice, that will require an immense buildout and the forecasted battery manufacturing capacity doesn’t look like it will be able to keep up with demand.
We also see recycling as a potentially interesting opportunity down the road. If you look out over the next several decades and you think EVs will get to 20%, 30% even maybe 50% of the total global automotive fleet, I think recycling is going to be essential.
So, investing in new battery technologies certainly presents some opportunities, but there are a lot of risks as well. If a company’s battery product fails to reach sufficient scale or it is surpassed by a superior technology, that could materially impact the value of any investment. I think it is also important to consider the second derivative impacts of any mass storage solution. Mining for these key base metals is incredibly energy and capital intensive. And I think that, ultimately, the full-cycle impact on global CO2 levels may not be as impactful as theorized.
So, it ultimately comes down to scalability. I think one fallacy that the market has right now is focusing on one small market and using one metric such as the levelized cost of energy. And extrapolating that to the entire country isn’t the right way to think about a large-scale energy transition. It really is important to think about existing technologies, potentially new technologies, whether they can be scaled up to utility-size needs. That is going to be the determining factor of how fast the renewables transition can take place.
