By Craig Mellow
Most roads in the green energy transition lead through China. The latest is no exception.
Environment ministers from the G-7 Western economies have targeted a sixfold increase in storage for renewable energy by 2030. Most of that will come from battery energy storage systems, BESS for short, which can hold solar- or wind-generated power, then release it when the sun doesn't shine or the wind stops blowing.
The announcement is good news for the planet. The cost of storage batteries has plummeted by 90% over the past 15 years, the International Energy Agency reports, making the G-7 target realistic. Storage is something of a missing link to a lower-carbon future, as solar generation increasingly matches fossil fuels on cost, but remains unreliable for obvious reasons.
"It cannot be overstated how important storage will be for the energy transition," says Eva Zimmermann, an analyst at Aurora Energy Research.
The news is more mixed for the Western policymakers themselves. If Chinese producers are ahead in the race for electric vehicle batteries, they outright dominate utility-scale storage batteries so far. Both battery families depend on lithium. For electricity storage, that's mixed with iron and phosphate (LFP), which are cheaper but heavier than the nickel-manganese-cobalt (NMC) alloy used in higher-performing EVs.
Chinese champion Contemporary Amperex Technology, or CATL, supplies two-thirds of the world's larger LFP batteries, says Eric Fogarty, portfolio manager for global clean energy at Duff & Phelps Investment Management. South Korea's Samsung SDI and privately owned, Stockholm-based Northvolt are distant runners-up.
CATL shares have bounced 30% this year after a dismal 2023, but Fogarty isn't biting. Geopolitics is one reason. The European Union looks open to CATL producing on its turf. The company has multibillion-dollar investments in progress in Germany and Hungary. The furthest it's gotten in the U.S. is licensing battery technology to Ford Motor, and that project has drawn ire on Capitol Hill.
Fogarty also fears "commoditization" of LFP battery cells, a process well under way in solar panels as technology matures and competition shifts to price. He is looking instead at companies that make the inverters to transform DC solar current to AC grid current. Leading names in this space are U.S.-based Power Electronics and SMA Solar in Germany.
He also likes systems integrators that actually put green power and storage projects together, like Fluence Energy, a joint venture between U.S. utility AES and German manufacturing giant Siemens.
Will Riley, portfolio manager of the Guinness Atkinson Alternative Energy fund, is also looking "downstream" for battery storage plays. He is partial to Florida-based power generator NextEra Energy, which already leads North America in battery storage and is poised to benefit from new Inflation Reduction Act incentives.
The global market for electric vehicle batteries last year was 20 times the size of power storage on a gigawatt basis, Riley notes. No matter how much storage grows, EVs will remain the main playing field for battery makers.
Green stocks in general are in a prolonged slump following some postpandemic irrational exuberance. The iShares Global Clean Energy exchange-traded fund has lost more than half its value from a peak in 2021.
The IRA's sweeteners and Brussels' RePowerEU plan haven't made up for soaring interest rates, which shelved or delayed capital-intensive power projects. Action at the G-7 and elsewhere shows that the energy transition continues nonetheless. China will loom large.
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(END) Dow Jones Newswires
May 03, 2024 21:30 ET (01:30 GMT)
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