Can Europe secure a self-sufficient battery industry?
By Anna Darmani, Lead Analyst, Energy Storage, Wood Mackenzie
Batteries will play a crucial role in achieving Europe’s ambitious decarbonisation targets. They will allow the integration of renewables into the continent’s power market and enable emission cuts in the transport industry – two sectors that account for a combined 60% of the world’s emissions.
A battery of batteries in Europe
Investment in Europe’s battery industry is growing. The European Commission has acknowledged the critical role of batteries in the future of the European market and economy, founding the European Battery Alliance in 2017.
According to our research, in 2019 and 2020 Europe invested more than any other region in its battery industry. In 2021, the European Commission approved a second Important Project of Common European Interest (IPCEI) in the field of batteries, injecting €2.9 billion into the industry with a view to unlocking an additional €9 billion of private investment. Based on our forecasts, Europe’s battery market value will pass €570 billion by 2030 and €1.7 trillion by 2040.
We expect Europe’s battery demand to grow almost 11-fold from current levels by 2040, driven largely by electric vehicles – likely to account for 94% of the demand by then. Stationary energy storage systems (ESS), meanwhile, will account for 4% of annual battery demand by 2040. ESS deployment in Europe has been slow, but higher growth is expected.
Europe’s battery manufacturing pipeline suggests interest in 1.3 TWh of annual battery capacity production by 2030. That would make Europe the world’s second-biggest battery manufacturer, just after China, and home to 27% of global battery manufacturing capacity. If all battery manufacturing projects are realised, Europe would produce nearly double its demand in 2030. However, there is a high degree of uncertainty in the European battery manufacturing pipeline, with several projects awaiting permits and financing to come to fruition.
Europe’s raw material supply indicates a new era of energy dependency
Lithium-ion technology will dominate European battery manufacturing. Europe’s nascent battery industry is highly dependent on the import of critical raw materials, however, creating risk to the supply and security of this industry. Europe needs to import more than 75% of its needs from other regions, mainly mined through ESG-challenging, carbon-heavy processes.
Investing in local mines for raw materials is necessary, as an overreliance on imports has left Europe unable to influence supply and future prices.
Getting the EV show on the road
Electric mobility will determine Europe’s battery demand, supply and prices. Electric vehicles account for more than 80% of European and global battery demand and future market trends will be crucial to global battery manufacturing capacity and potential supply crunches. Given the dominant role of the automotive industry in Europe, if supply issues happen, automotive players with long term supply contracts will be preferred clients over ESS project developers.
The EU wants 100% of all new vehicles sold from 2035 to be zero-emission vehicles. More significant investment in the continent’s electric automotive industry is needed for Europe to maintain its global competitiveness. The European automotive sector, alone, accounts for 13 million jobs and more than 7% of EU gross domestic product, so losing a share of that output to global competitors in the emerging electric mobility industry could put a major dent in the European economy.
This is an extract from the article “Charging stations: investing in Europe’s nascent battery industry”. The complete article can be accessed here