China’s iron grip on the battery supply chain is set to weaken thanks to ambitious US and EU policies to boost their manufacturing capacity, according to an International Energy Agency report.
The dominance of China in battery manufacturing has caused increasing political unease in the West, with EU leaders recently warned against getting hooked on Chinese batteries in the same way that they had been on Russian gas previously.
Batteries are critical to the renewables rollout, including the global target to triple green power capacity, as they store energy from wind and solar farms when the wind isn’t blowing and the sun isn’t shining.
In its first comprehensive analysis of the battery sector released on Thursday, the International Energy Agency (IEA) said that 1.5TW of energy storage will be needed by 2030 to meet the tripling renewables target, with 1.2TW coming from batteries.
China currently “dominates” the battery supply chain, said the report, with nearly 85% of global battery cell production capacity and substantial shares in cathode and anode active material production.
Europe, the US and Korea each hold 10% or less of the supply chain for some battery metals and cells today.
The concentration of the supply chain is “a concern,” said the IEA, as it can make the “entire supply chain vulnerable to individual country policy choices”.
This fear was realised in October, when China slapped export restrictions on graphite – the most widely used material for market-leading lithium-ion batteries – causing its export of the mineral to plummet.
Accounting for 90% of global graphite mining, the IEA report said China “dominates the entire graphite anode supply chain end-to-end."
“Ensuring energy security also requires greater diversity in supply chains,” said the IEA, including for extracting and processing the critical minerals used in batteries – and for manufacturing the batteries themselves.”
Here, there is cause to be optimistic, said the IEA, with 40% of announced plans for new battery manufacturing in advanced economies such as the US and the EU.
This has been aided by “ambitious industrial programmes” to support local manufacturing capacity, said the IEA, with targeted policies in the US, EU and India among others.
If all planned US and EU projects are built,” the IEA said those economies “would have nearly enough manufacturing to meet their own needs to 2030 on the path to net zero emissions.”
The US Inflation Reduction Act, which directed $369bn in subsidies towards renewables and energy storage technologies, provides up to a 50% tax credit for energy storage facilities and has been credited with turbocharging their rollout. Last year, the US added a record 7.9GW of energy storage and its battery storage is expected to nearly double this year.
In the EU, member states are collectively targeting deployment of around 45GW of storage by 2030 through National Energy and Climate Plans, with several member states providing support for battery storage.
Another concern in the battery market is the “recent volatility” in the price of critical minerals, with the price of lithium increasing nine times over in 2021-2022, and then plummeting again by nearly 80%.
This has highlighted the “importance of adequate and reliable mineral supplies,” which is much like manufacturing capacity highly concentrated among a few countries, said the IEA.
“Efforts to reduce the demand for critical minerals are putting a spotlight on potential new chemistries,” it said, including, sodium-ion batteries, which need far fewer critical minerals than lithium-ion batteries, while sodium is one of the most common elements on Earth.
Overall, in the last 15 years, battery costs have declined by more than 90%, said the IEA, “one of the fastest declines ever seen in clean energy technologies.”
In 2023, battery deployment in the power sector increased by more than 130% year-on-year, adding a total of 42GW to electricity systems around the world.
“The combination of solar PV and batteries is today competitive with new coal plants in India,” said IEA executive director Fatih Birol. “In the next few years, it will be cheaper than new coal in China and gas-fired power in the United States.”
“Batteries are changing the game before our eyes.”
An earlier version of this article stated that 1.5TW of batteries, rather than energy storage, will be needed to hit the global 2030 tripling renewables target. The IEA have clarified this was an error in their press release and the article has been updated accordingly.
