As a result of the global energy transition, demand for electricity storage systems is growing rapidly. This is because powerful, long-lasting batteries are not only needed for countless new electric vehicles, but also to stabilize the power grids.
The expansion of battery production capacities is about nothing less than the question: How can the energy transition succeed - in Germany and worldwide? On the one hand, the transport sector, one of the biggest emitters of greenhouse gases, is to switch to e-mobility. On the other hand, the strong fluctuations in electricity generation from solar and wind power need to be balanced.
It is therefore not surprising that the demand for high-performance storage systems is growing exponentially, especially lithium-ion batteries. The greatest demand for lithium-ion batteries will come from automotive manufacturers, who are increasingly electrifying their fleets. In 2021 alone, for example, global demand for EV batteries was c. 375 GWh per year. By 2035, Bloomberg New Energy Finance[1] projects that that figure could be as high as 4,800 GWh per year. In contrast, stationary battery storage to cushion fluctuations in power generation will only account for a market share of around 10 percent.
Until now, the battery cells installed in Europe have largely come from Asia. But that is set to change. German automakers in particular have not only set themselves ambitious electrification targets, but also want to ensure a continuous supply of batteries in the future by building so-called gigafactories. For example, one of six battery cell factories that Volkswagen plans to build in Europe by 2030 together with its Swedish partner Northvolt is being built in Salzgitter. Together, VW, BMW, Daimler and Opel parent Stellantis have announced plans to create battery production capacity of over 200 GWh per year.
Each gigafactory requires enormous investment
However, Tesla's announcement that it plans to manufacture not only electric cars at its Gigafactory near Berlin, but also the lithium-ion battery cells needed for them, generated the most media attention. With a planned capacity of 100 GWh per year, it is likely to become the largest factory of its kind in Europe, perhaps even worldwide. The German Ministry of Economics puts the investment costs for battery cell production alone at around five billion euros. Tesla can probably count on government subsidies of over one billion euros for the project. Nevertheless, the example shows that financing such a gigafactory is a major challenge, if only because of the enormous volume involved.
ING has positioned itself as a pioneer in financing in the energy storage market by financing some of the first gigafactories in Europe. In 2020, for example, ING was the lead lender in a syndicated financing package worth around €1.4 billion for Swedish battery developer Northvolt, which will use it to build a gigafactory in Sweden and a production facility in Germany.
In addition, ING was one of the first banks to finance stationary storage projects in the U.S. and Australia and has so far financed over 750 MW of installed stationary storage capacity. Against the background of rising electricity prices and the expansion of renewable energies, these storage options are also becoming increasingly important in Germany. More and more companies such as ING clients Vena Energy and LS Power see attractive business cases in this field, providing critical ancillary services to support grid infrastructure or to benefit from the mismatch in supply and demand during a day through arbitrage.
Regardless of which solutions will prevail in this very dynamic market for battery storage, they all have one thing in common: with solid financing, they can contribute significantly to the success of the energy transition.
[1] Long-Term Electric Vehicle Outlook 2021, BNEF, https://www.bnef.com/insights/26533/view