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SA Inc must act now to take ownership of battery metals value chain

SA Inc must act now to take ownership of battery metals value chain
Mining News Pro - Bold steps need to be taken by South Africa Inc now to take ownership of a significant share of the global battery metals market, says Bushveld Minerals CEO Fortune Mojapelo.

following this week’s presentation by the company of solid 2019 financial results and maintenance of its vanadium production guidance for this year, Mojapelo sketched the big picture of the huge potential that South Africa has to carve out a major slice of the battery metals market at a time of an increasing number of macro features that are elevating the world stationary energy storage market to heady new heights.

The first one Mojapelo highlighted is the way the world is consuming energy in the form of electrical energy at a rapidly rising pace. Back in 1980, 10% of the world’s energy consumption was in the form of electricity. Today it is double that percentage. By 2050, it is projected to be 45%

“It’s easy to understand how that will come about when you look at whole electric vehicle advance. We’re consuming energy more and more in the form of electricity,” notes Mojapelo.

The second point is that this is happening at a time when the climate change energy transition imperative is increasingly getting more teeth.

“It’s no longer talk. Investors increasingly want to know how you are reducing your carbon footprint, which means that the manner in which we generate electricity is growing in importance. We’ll see renewable energy take an increasingly greater share of the energy generation mix,” he says.

Renewable energy’s scalability is a major plus. One can install a 100 kW photovoltaic solar power plant and also build a 100 MW photovoltaic solar power plant, which has the potential to disrupt the way that traditional utilities operate.

“Traditionally, big power plants have been built with large transmission infrastructure. But what is taking place increasingly now is distributed energy generation systems, helped significantly by the proliferation of renewable energy, which interestingly is now at cost parity even with coal,” Mojapelo, a one-time McKinsey & Company business analyst, points out.

When you take all of that into account, the need for stationary energy storage is huge. Bloomberg estimates that by 2040 there will be 2 800 GWh of installed stationary energy storage systems, up from 17 GWh last year, a massive increase and capital investment is anticipated at $660-billion in this space.

“It’s a big deal and it’s real and it’s here. The growing share of renewable energy and stationary energy storage is real.

“When you have a morning and evening energy demand load and you need to flatten the curve instead of running those diesel generators in the morning and the evening, you install batteries to store power during the off-peak periods and you use it to meet requirements during the peaks. The consequence of that is that all our transmission infrastructure capital investments can be deferred for much longer. The business case for stationary energy storage is real and it’s here, “Mojapelo emphasises.

For vanadium batteries, it is the long duration type of storage that can be served. Some forecasts are that by 2027, 90% of stationary energy storage deployments will be long duration storage, which is important for vanadium because this is the space in which vanadium shines the most.

Vanadium flow batteries are simple in their architecture. They use vanadium in different states - in the liquid form is one element. It has full discharge capabilities and it can operate as an uninterrupted power supply that is fast and, as importantly, it is safe. They are long lasting. They have a 25-year life.

Within that period, there is no degradation of the electrolyte. At the end of the period, the electrolyte can be put into another battery. At the end of the life of that second battery, a recycling facility for that electrolyte does not have to be built.

Vanadium flow batteries are heavy duty long-duration batteries, with the biggest 800 MWh version currently under construction in China. The first 400 MWh half of that project is expected to be completed this year. In 2015, the 60 MWh vanadium flow battery Sumitomo installed in 2015 is still working well.

Battery storage uptake is on the rise and in Africa, particularly, there are interesting developments against the background of electricity access on the continent being a big issue. Just to support its growth, Africa needs to install 7 000 MW of new electricity generation capacity each year.

“This is not going to come by relying on big power stations. If you use the systems, you can reach the continent a lot quicker,” Mojapelo advises.

The World Bank has launched a programme of 17 000 MWh. South Africa’s 2019 Integrated Resource Plan (IRP) makes an allocation for battery storage of 2 000 MW.

“In addition, when the IRP talks about peaking capacity of 9 000 MW, a lot of talk assumes that that’s going to be gas but if you read the IRP text carefully you’ll see that there is an openness to other technologies that can fulfil this. Long-duration energy storage systems can provide a peaking solution,” he points out.

“The third thing I’d highlight is that we’re looking at is something like 15 000 MW of renewable energy generation capacity. What that means is that you need storage. South Africa will allow parties to generate electricity for their own use without having to go and get a licence as long as it is self-contained and it’s not being fed into the grid. That itself opens up a massive market of parties that can deploy solar with storage,” he calculates.

Bushveld developed a mini-grid at its mine to show that the economics works at a time when the regulations limited it to under 1 MW for self-generation.

It built a 4 MWh battery, four-hour storage, with one megawatt per hour, to prove that it could be done sustainably, without subsidisation. This mini-grid is moving forward with a vanadium redox flow battery (VRFB).

“We’ve got a EPC that is wrapping it all together with solar. That project is going to deliver power to Vametco at a cost that equal to what we get from Eskom. So, that what it tells you is that the bigger projects are going to be even more cost effective.

“To their credit, Eskom has also woken up to the value of batteries and they’ve gone public with plans to procure 1 400 MWh of battery storage.

“We expect them to go to tender anytime now and that project alone is massive. We know it’s going to be multiple technologies. That’s well and good for us. We think that vanadium flow batteries have a story to tell and certainly we hope they can get a share of that programme.

“Our approach as a company is to acknowledge that the technology has been around and the future is battery storage but there are major hurdles in that the amount of vanadium you will need to support this is massive.

“If you look at estimates of something like 10 GW by 2027, if vanadium flow batteries get 10% of that market, the amount of vanadium that is required is more than 50% of what we produced globally last year.

“So, it begs the question of where the vanadium will come from and it`s a source of understandable concern for the industry,” he says.

The vanadium price has been highly volatile, falling to as low as $13/kgV, going all the way up to $130/kgV, and now in the $20/kgV range.

Bushveld’s view is that vanadium flow batteries can be sourced through vertical integration. South Africa has by far the largest primary vanadium resource base in the world and the best grades.

“It’s a bit like platinum. We’ve got the resources and we’ve got the primary infrastructure built over decades. We didn`t build Vametco and Vanchem. We acquired these plants and between the two, we`re in a position where we’ll be supplying almost 10% of the global market in a few years’ time.

“To build on a greenfield basis is expensive. Once you’ve got the primary processing plant, taking the refined vanadium and producing electrolyte is actually quite cheap.

“We’re building a plant in East London that will make 200 MWh worth of electrolyte. That plant is only costing us just over $10-million, under R200-million. If you wanted to build a plant that produces that amount of vanadium, that is going to consume just about 1 000 t, you need ten times that amount of money. There’s the unique strategic advantage that South Africa has. The downstream capital expenditure is not high at all.

“After use, vanadium has residual value, so we’ve designed a rental product which enables users to rent the vanadium in a big battery system. So, instead of it being upfront purchase, you pay for use of the vanadium and at the end of the life, we take that vanadium back. We can put it in another battery and we can convert it into ferrovanadium or we can put it in another battery. Once the two hurdles are scaled, there’s a clear pathway to being a serious contender in this space.

“The second thing we did on top of building the electrolyte plant was to then acknowledge that you can’t sell battery systems the way you sell widgets. Energy markets are very structured and they are regulated. So, you need to unlock the structural levers of policy, which mining companies and engineering technology plays don’t know enough about. Once you unlock the structural levers of policy, you have a market,” he says, citing as an example the World Bank’s build programme to support weak grids in low- and middle-income countries.

Against such a background, the upstream in the form of vanadium supply security is derisked. Downstream manufacturing companies can then scale up their production.

“What we’re seeing is that all we need to be is a catalyst. Last year we invested $5-million in a small Canada-based battery company, which we observed as having the right product, but needing to merge with another company, and they accepted the idea. They merged and anchored the whole investment. They got into the market earlier this year with money in London on Aim. Today when I’m talking to you their market captalisation is about R2.3-billion and they are on their way.

“So, we don’t have to stand still. We can be a catalyst because we are the key on the supply side upstream and on the supply side and on the market side. That’s the way we want to go into vanadium flow batteries and we think that if we can do that, we really can build an energy business of scale.

“The final point I’ll make is what I think we’re doing here is creating a very good case study for South Africa in this way.

“if you look at the battery metals, all the metals that are important in the battery space, whether it is vanadium or nickel or platinum-group metals (PGMs) for fuel cells or manganese, South Africa has got most of these metals in abundance. South Africa has the primary processing infrastructure in place, it has the actual expertise needed and it has the market.

“What we need is to be bold in our view around the technology and make sure that we take ownership of the technology and we’ve got a unique opportunity to do that.

“If South Africa Inc does that, it will maximise its share of the battery metals value chain and move beyond just selling commodities and into the space of actually owning a significant share of that value chain.

“That ultimately is what we’re trying to do in the vanadium space with Bushveld Energy. As we put the various pieces of the puzzle together, I’ll certainly keep you in the loop and introduce you to my colleague, Bushveld Energy CEO Mikhail Nikomarov.

“I was part of a dialogue last year that was facilitated by former President Kgalema Motlanthe and one of the conversation points was what we do around the energy space. Former Trade and Industry Minister Alec Irwin said at that meeting that we have all the ingredients to move away from worrying about access to electricity to actually being a global leader in the primary energy markets. That’s quite a powerful statement and we have all the ingredients to do that.

“Companies, I see, are taking the right steps now, whether it’s ourselves or it`s the PGM companies with the fuel cells, and I can only hope that the government catches on and supports this from a policy point of view, because it can be a really exciting story,” Mojapelo emphasises.

Mining Weekly can report that Bushveld Energy’s business model focuses on five types of revenue-generating activities in the mid- and downstream segments of the vanadium value chain. These activities have comparatively low capital requirements compared with the mining business. These five activities broadly are electrolyte manufacturing, renting vanadium electrolyte, VRFB assembly and sale in African markets as a value-adding local distributor, and developing and investing in African energy storage projects.

Against the background of stationary energy storage applications probably eclipsing mobile applications for batteries within the next 20 years, Bushveld Minerals’ vertical integration is poised as a critical enabler for unlocking the VRFB opportunity in the energy storage space, particularly as the supply and cost security of vanadium represents much of the cost of a VRFB.

The vertical integration and going downstream meets the needs of the two main challenges of participating in the battery value chain.

South Africa’s large, high-grade primary vanadium reserves can be put to positive account by a vigorous joint country effort that is very timely currently, given the global determination, intensified by the coronavirus pandemic, to fight climate change to the death.

South Africa’s vanadium, PGMs, manganese and nickel, must be collectively harnessed by Minerals Council South Africa, the Department of Mineral Resources and Energy, the Presidency, the World Bank and every other relevant organisation to bring clean mobility and stationary electricity to the new health-conscious world and retain the clear skies that Covid-19 has shown to be possible.

South Africa’s deep metallurgical expertise must be put to use and Eskom must be painted green in a just transition that gains rather than loses jobs, creates much-needed new wealth and puts the country on a trajectory that helps the country to earn a premium through the export of metals and minerals that have been produced cleanly.

Other countries are daily beating us to the punch, needlessly so. Obstacles must be removed with vigour as scale lowers costs.

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