Bushveld Minerals eyes Vanadium Battery market

By Henry Sanderson for Financial Times

Surging prices for vanadium, a niche metal used to harden steel, have been a boon for London-listed Bushveld Minerals this year, helping fuel a share price rally amid a broader industry pullback.

Now the South African company wants to target vanadium’s growing use in another industry: batteries, with an ambitious target to manufacture the technology as the country’s electricity grid moves away from coal-powered generation.

But Bushveld faces a conundrum: while higher vanadium prices are good for miners, they are detrimental to battery makers, who need to further reduce their costs to make them economic for use on electricity grids.

To solve this Bushveld hopes to lease the metal to battery companies as well as assemble the batteries in South Africa. It wants to build a $10m plant to produce battery electrolyte, backed by the state-owned Industrial Development Corporation.

Under this model Bushveld guarantees a supply of vanadium at a fixed price in return for an annual fee and smaller upfront payment. When the battery comes to the end of its life after about 20 years, Bushveld receives the vanadium back, which it can then re-sell. The vanadium is completely re-usable, it says.

“We think this concept is going to revolutionise the industry since it will take out arguably the single largest risk factor, which is the price,” said Fortune Mojapelo, Bushveld’s chief executive.

Vanadium has been one of the best-performing commodities this year, rising 166 per cent to $128 per kg, thanks largely to a broad-sweeping environmental crackdown in China that has curbed some production.

That has made vanadium miners some of the best-performing stocks this year, with shares in Bushveld up 415 per cent and its larger rival Largo Resources up by 204 per cent. Bushveld reported profits after tax of £21.1m in the first half, up from £1.1m a year earlier.

While more than 90 per cent of vanadium is used in the steel industry, it is quickly finding another use in large so-called flow batteries. They work by storing energy in large separate tanks of liquid vanadium electrolyte that is then pumped through a stack of cells, causing an electrochemical reaction that generates electricity.

They have the advantage of being long-lasting and durable, which allows utilities to constantly use them for large amounts of energy. As a result vanadium batteries have become an alternative to lithium-ion batteries produced by companies such as Tesla for the storage of intermittent renewable sources of energy.

“Changing the cost from a capital expenditure to an operational expenditure will help the producer and the battery maker share some of the risk of the price fluctuations, but it will not be a panacea “ Willis Thomas, Pittsburgh-based analyst

“As the cost of wind and solar comes down you are moving to a point where they are at cost parity with base load generation. So if you tie them up with energy storage you have a very cost-effective solution,” added Mr Mojapelo.

However, analysts said there remained uncertainty about the future of vanadium batteries and their sensitivity to vanadium prices, even with a leasing model.

“Changing the cost from a capital expenditure to an operational expenditure will help the producer and the battery maker share some of the risk of the price fluctuations, but it will not be a panacea,” said Willis Thomas, a Pittsburgh-based analyst for CRU.

“Adding an operational expense may challenge the economics of batteries to be profitable in an era of ever lower battery costs.”

Still, even if vanadium batteries make up 10 to 20 per cent of the energy storage market by 2030, demand for vanadium could increase by between 30 to 50 per cent from today’s levels, according to CRU.

“This is a critical time and we need to make sure as vanadium suppliers that we do support the industry,” said Mark Smith, chief executive of Largo Resources. “But we do have to face the music here. The price of vanadium is so high it really complicates things.”

Africa presents a huge opportunity for vanadium batteries, since many countries lack adequate grid infrastructure, according to Mr Mojapelo. That makes it possible for communities and factories to have their own local power supply, by using batteries paired with solar panels — so-called distributed generation systems.

“With renewable energy there is a growing case for distributed systems,” he said.  “Especially the industrial users who are thinking about energy security and therefore self-generation. Those who can afford to generate for themselves will increasingly move to do that.”

Last month the World Bank pledged to lend $1bn to bring about a fourfold increase in developing countries’ battery storage capacity.

South Africa, which relies on coal for 77 per cent of its energy, has pledged to shift to more renewable sources and not build new coal-fired power plants after 2030. Under a draft plan released this summer, renewables could supply 27 per cent of the country’s energy by that point, according to Carbon Brief.

Bushveld, which heads the country’s Energy Storage Association, is working with US manufacturer UniEnergy Technologies to deliver a battery to the country’s main utility, Eskom.

But it faces a highly competitive field if it wants to start manufacturing its own batteries.

In July VRB Energy, a Chinese vanadium battery company backed by Canadian miner Robert Friedland, signed an agreement with the country’s biggest vanadium producer Pangang Group to lease vanadium electrolyte.

“Making vanadium electrolyte is a complicated process as the material needs to be free of any contamination,” said Philip Comberg, chairman of Boston-based vanadium battery maker Vionx Energy.

“It’s another step in the value chain,” he said. “But some people know how to do it better than others.”

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