Excerpts from Alternative Energy Storage: Lithium, Lead or Both?

Dated November 10, 2008 by John Petersen

Two Decades of Li-ion Technology

Sony (SNE) first introduced commercial Li-ion batteries in 1991 ................. each major safety improvement has reduced energy density and increased manufacturing costs.

Sony’s original Li-ion batteries had energy densities approaching 200 Wh/kg, were able to deliver their stored energy in an hour and offered between 500 and 1,000 cycles. In comparison, today’s high-end Li-phosphate and Li-titanate batteries offer energy densities of less than 100 Wh/kg; can deliver their stored energy in three to five minutes and offer useful lives of 5,000 to 20,000 cycles. Between these extremes, the variables are almost endless.

While precise cost comparisons are difficult because nobody uses standardized reporting metrics, the bulk of available data indicates that lithium-cobalt batteries based on Sony’s original chemistry cost $0.45 to $0.55 per Wh and high-end Li-phosphate and Li-titanate batteries can cost upwards of $1.50 per Wh. About the only good price news in the group is Li-polymer batteries that cost about $0.35 per Wh to manufacture.

Battery cost per Wh is not a critical issue when a consumer is shopping for a 50 Wh laptop battery. But it will be the primary market driver when that same consumer is shopping for a 2,000 Wh battery for a Toyota Prius, a 16,000 Wh battery for a Chevy Volt or a 26,000 Wh battery for a Th!nk City runabout. After all, the only place a comma and two or three additional zeros don’t matter is Washington DC.

There is no question that today’s Li-ion batteries offer far better power and cycle-life than Sony’s originals. But gains in one performance metric have always reduced energy while increasing manufacturing costs. Over the last two decades,  Li-ion technology has seen incremental improvements of 8% to 10% per year, but it's never seen anything even close to the "Moore's Law" type performance gains so many investors have come to rely on.

Since we have not seen disruptive performance improvements over the last two decades when Li-ion technology was rapidly evolving and research chemists had all the R&D funding they could possibly use, I think it is unreasonable to assume that disruptive performance improvements will arise in the future as a mature technology is scaled up to larger sizes. I am also troubled by recurring reports from natural resource analysts who note that Li-ion batteries require raw materials that are not abundant in North America and may not be abundant anywhere else.

I believe Li-ion is a wonderful technology that has a wealth of potential uses. But it is not and never will be a cheap general-purpose solution for all energy storage needs. Julia Child is rumored to have owned a solid gold frying pan that had incredible thermal uniformity but no economic utility in the average kitchen. I remain convinced that many of the highly touted bulk storage applications for Li-ion technology are in a comparable category, technically feasible but impossibly expensive in the real world of paychecks and budgets.

Three Decades of Lead-Acid Technology

After the invention of VRLA batteries in the mid-70s, research on lead-acid technology plummeted and there were no substantive new research and development projects for almost 30 years. VRLA batteries were adequate for the work they needed to do and without the pain of necessity there was no compelling incentive for new invention.

That dynamic began to change a few years ago when it became obvious that new energy storage solutions would be essential to minimize waste. At that point, researchers once again began to look at new ways to improve lead acid battery performance by integrating new materials and technologies that were developed for use in other sectors during the 30-year period when lead-acid research stagnated. Established lead-acid battery producers funded some of the research work, but

• Firefly Energy,

• Axion Power International (AXPW.OB) and

• Australia’s Commonwealth Scientific and Industrial Research Organisation (CSIRO)

initiated the more ambitious projects.

Firefly / C&D Technologies

The Firefly project was spun out of Caterpillar (CAT) in 2003 and its goal was to use a carbon foam composite to replace lead current collector grids. Firefly’s hope was that its carbon foam technology would reduce the amount of lead used in a battery, minimize lead that was not chemically active and improve energy density. Over the last five years, the Firefly project has grown from a pure R&D initiative to a manufacturing and commercialization partnership between Firefly and C&D Technologies (CHP) that was announced at the end of October. While pricing information hasn’t been released yet, the available performance data indicates that the new Oasis battery will offer a 40% to 50% increase in energy density, higher power and up to 800 cycles at an 80% depth of discharge. My current sense is that the Oasis battery will probably cost $0.20 to $0.30 per Wh, or twice as much as a normal lead-acid battery, but offer four times the performance in suitable applications.

Axion

The Axion project was also initiated in 2003 and its goal was to create a true hybrid between a lead-acid battery and a supercapacitor by replacing the lead-based negative electrodes with carbon electrode assemblies. Axion’s hope was that its PbC devices would reduce the amount of lead used in a battery, eliminate sulfation, which is the primary cause of lead-acid battery failure, and bring supercapacitor-like power to the lead-acid world.

Over the last five years, the Axion project has progressed from a pure R&D initiative to a planned commercial rollout that’s expected by mid-2009. While detailed performance and price specifications haven’t been released yet, the available information indicates that Axion’s PbC battery will offer a 400% increase in power and well over 1,200 cycles at a 90% depth of discharge. My sense is that Axion’s PbC batteries will probably cost $0.20 to $0.30 per Wh, or twice as much as a normal lead-acid battery, but offer six to eight times the performance in suitable applications.

CSIRO

The historical details on the CSIRO project are a bit sketchy but the CSIRO ultrabattery appears to have a lot in common with Axion’s PbC battery since both products are a battery-supercapacitor hybrid. While we don’t know much about the design, construction and electrochemistry of the CSIRO ultrabattery, there are some impressive results from a recent 100,000-mile road test in a modified Honda Insight. The bottom line was that the CSIRO device performed flawlessly; got 2.8% less gas mileage because of the added battery weight; but offered a $2,000 cost savings over the factory original NiMH battery.

I am not suggesting that the Firefly, Axion and CSIRO projects embody the pinnacle of lead-acid performance; innovation simply doesn’t work that way. Instead, I believe they’re simply important steps in the ongoing quest for a cheap general-purpose storage solution, But these advances clearly demonstrate that disruptive improvements in lead-acid chemistry are still possible when advanced materials and technologies that were developed in recent years are combined into new products based on inherently cheap lead-acid chemistry. When it comes to cost-effective energy storage, Firefly, Axion and CSIRO have made more progress in five years than the entire Li-ion group has made in two decades. So I think it’s far too early in the game for the press or politicians to be picking a winner.

My Cloudy Crystal Ball

I’ve spent five years immersed in energy storage because of the work our firm did for Axion. So circumstances and professional standards required that I carefully study the needs of the emerging storage market and the strengths and weaknesses of the leading technologies. The lessons my work taught me beyond any reasonable doubt are:

• Commercial decisions will always be based on detailed studies that carefully weigh the fully loaded cost of storage against the value of the stored energy;

• Consumer decisions will be very sensitive to both front-end costs and back-end energy savings;

• There is no silver bullet solution to the energy storage problem and our future will require the use of several different technologies; and

• The prize will ultimately be shared by dozens of companies instead of being concentrated in one or two.

For the reasons summarized above Li-ion technology has been the headline grabber for the last two decades. During that period the energy requirements of portable electronics have fallen by Moore’s Law multiples and while Li-ion batteries have gotten safer, they’ve also lost energy density and gotten more expensive. For most of the time that Li-ion technology was being actively developed, lead acid technology was the object of benign neglect.

Over the last 5 years, research projects from Firefly, Axion and CSIRO have resulted in disruptive improvements in lead-acid durability and performance. While none of them can claim energy, power and cycle lives that are as good as advanced Li-ion batteries, the size and weight multipliers are now in the 2x to 3x range, rather than the 6x to 8x range that the experts predicted when they first compared advanced Li-ion with conventional lead acid. But what Firefly, Axion and CSIRO lack in performance they more than make up for in price. After all, we Americans have never minded lugging around a few extra pounds if the heavier choice is 40% to 80% cheaper.

In the final analysis I don’t see the future of energy storage as an either-or proposition. I think Li-ion batteries, lead-acid batteries, flow batteries, pumped hydro, compressed air and flywheels will all make important contributions to the energy storage solution. So I believe a balanced portfolio of energy storage stocks is the only sensible approach for investors who don’t have the time or inclination to do their own research. Articles like this one can provide useful ideas, but they should not be relied on as investment advice because every author (including me) has his own agenda, preferences, predilections and prejudices.

As an investor, my goal is to buy low and sell high. Based on five years of work in the sector, I’m convinced that growth in the Li-ion group will be slower than most people expect and growth in the lead-acid group will be faster than most people expect. In the current market, the lead acid group including Exide (XIDE), Enersys (ENS), Ultralife (ULBI), C&D and Axion are trading at far lower valuations than companies in the Li-ion group like Advanced Battery (ABAT), China BAK (CBAK), Valence (VLNC), Altair (ALTI) and Ener1 (HEV). If my basic thesis about differing rates of technological change and sales growth is correct, the companies in the lead-acid group are likely to perform far better over the next few years than the companies in the Li-ion group.

The upcoming IPO from A123 Systems will focus the market’s attention on the storage sector in a whole new way and a rising tide of investor sentiment is certain to lift all of the boats in the marina. Astute investors ought to be doing their boat shopping now.

Disclosure: Author holds a long position in Axion Power International (AXPW.OB) and is a former director of that company.