Stockhead took that question to vanadium expert David Gillam, the principal and CEO of financial consultancy Mastermines, who reckons while a lithium or Elon-Musk-style moment will come for vanadium redox flow batteries (VRFB) in the next two years, there are several reasons why this battery technology hasn’t taken off yet.
For a quick summary, vanadium redox flow batteries (VRFB) are used in large scale, battery storage systems that store excess power from the grid for use during peak demand periods.
Whether in combination with solar PV, biogas generators, wind power, or in parallel operation, the bulk storage capacity of these batteries allows consumption to be shifted completely to off-peak hours with cheaper electricity.
As the name suggests, VRFBs use vanadium-ions in the electrolyte solutions and are considered safer, more scalable, and longer lasting than their lithium counterparts with a lifespan of more than 20 years.
Other battery types like lithium-ion or leach-acid are subject to a charging cycle but VRFBs come with vanadium electrolyte storage tanks, which can be replenished even when the system is supplying power.
According to Gillam, investors are sitting back watching vanadium stocks wondering why market penetration has taken so long, but the situation is “very complex,” he says.
“Vanadium is quite unique as far as a battery metal goes and investors don’t really understand the basis of the problem.”
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Vanadium cost drives up the cost of VRFBs
The initial investment for vanadium batteries is considerably more expensive compared to lithium, Gillam says, and while the price of lithium is increasing, VRFBs face a bigger issue.
Vanadium is an expensive metal and significantly drives up the cost of a VRFB system compared with other battery types.
If the uptake of VRFBs increases dramatically, so does the price of vanadium pentoxide (V205) – the material used in the electrolyte solutions.
“We believe anything under $10/lb is viable but let’s say there is a huge uptake in vanadium batteries – what happens when the price goes to $20?” Gillam asks.
“It has happened before, and it happens very quickly.
“You’ve got this very volatile price of the major component, so you can imagine battery companies would be worried about the cost because it could add 30% overnight to the batteries.
“At the same time, the financiers and miners would also be worried about the volatility of V205 – it’s great when it’s going up but what happens when a major starts up and there’s 10% additional capacity?” he explains.
The International Renewable Energy Agency (IRENA) reports installation costs for both vanadium redox flow and zinc bromine flow in 2016 ranged between US$315 and US$1680 per kWh as compared with lithium iron phosphate at US$200 to US$840 per kWh.
By 2030, IRENA says the installation cost for VRFBs is expected drop to between US$108 and US$576/kWh.
“Although they presently indicate high upfront investment costs compared to other technologies, these batteries often exceed 10,000 full cycles, enabling them to make up for the high initial cost through very high lifetime energy throughputs,” IRENA points out.
“Their long-term electrolyte stability, however, is key to this longevity and is the focus of an important avenue of research effort.”
Mine development
In 2019, China was the world’s top vanadium producing country with output totalling 40,000Mt followed by Russia at 18,000Mt and South Africa at 8,000Mt where major players include LSE listed Bushveld Minerals and Glencore.
China is also a large spot market, which makes everything more difficult for ASX vanadium stocks, Gillam says.
“While off-take agreements will not be difficult, getting the funding from China to move towards mining is another matter that would take considerable effort.
“All investors want to see is new mine development outside China, but the problems are many.”
Around 90% of vanadium production is used to strengthen steel, making it economically vulnerable owing to its sensitivity to market demand by developing countries.
As Geoscience Australia notes, the vanadium price surged from US$5.70 in 2004 to US$16.89 in 2005 due to the growth of global steel production that caused an increase in vanadium consumption and a commensurate depletion of stockpiles.
Over the years, Australia’s reserves and resources of vanadium have also fluctuated in response to the volatile nature of the vanadium market but of the few main contenders in the space, Gillam believes we are beginning to see real effort from management.
“Investors will need to be patient and hope for a massive uptake that forces a market development outside China that can attract finance,” he says.
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Competition and market outlook
The question of whether flow batteries based on vanadium electrolyte are the main event is even more complex.
As it stands, China is leading the charge in the vanadium redox flow battery space where a hot bed of activity is taking place.
Last month, Shanghai Electric – a Chinese multinational power general and electrical equipment company – held the ‘Energy Integration, Smart Future’ Enterprise Summit where Yang Linlin, vice chairman of Shanghai Electric Energy Storage Technology Co revealed up to now, the company had 3GWh of orders for vanadium batteries.
In a LinkedIn post, Bushveld Energy CEO Mikhail Nikomarov said Shanghai Electric also announced the delivery of more than 50 vanadium battery energy storage projects and a cumulative installed capacity exceeding 50MWh.
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