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Vanitec – 2nd Energy Storage Meeting (Part 1)

30th June 2017, Manchester

There was an initial introduction by John Hilbert of Vanitec and then a very careful explanation about the need to avoid discussions around future pricing or any specific pricing policies of individual companies, so as to meet anti-trust requirements that are designed to prevent cartel arrangements.

Market Update on Vanadium – Terry Perles of TTP Squared

The opening talk was from Terry Perles of TTP Squared who gave a historical overview of V2O5 pricing back to 2004 – he pointed out that most (73%) Vanadium production comes from processing of steel slag (the cheapest source), 17% comes from Primary ore processing (3 mines – Largo in Brazil plus Rhovan and Vametco in South Africa) and 10% come from more expensive secondary production routes (eg processing of Venezualan oil production.)

He pointed out the major price shock that occurred in 2005, when the price of V2O5 rose to over $30/pound due to the introduction of grade 3 reinforcing bar (requiring Vanadium) in China – more on this later. He also subsequently returned to the data to show that the long term mean price for V2O5 is $7.40/pound. Terry pointed out that VRFB manufacturers should assume this for any production cost estimates that they make  – a discussion over lunch with Dr Peter Fischer of the Fraunhofer Institute later confirmed that small VRFB projects (i.e. only a few hundred tonnes of electrolyte) often have to pay considerably more than this.

One of the most interesting graphs showed the excess of production that existed between 2005 and 2010 – significant stocks were evidently being accumulated during that time, it has taken 6 years to deplete those stocks, partly helped by the reduction in Vanadium price, which has taken some production out of play, the shutdown of Evraz’s South African Highveld plant and the 50% reduction of Vanadium coming from Venezuelan oil since 2014.

Terry explained in some detail how some cheaper non-vanadium containing types of rebar (produced via heat-treatment) have been entering the market, mainly in China. These bars do not meet all of the requirements of grade 3 rebar but have been generally harder to distinguish using on-site tests. Vanitec has addressed this issue at a technical level and will soon be introducing a strategy to distinguish the heat treated types from the more correctly specified Vanadium containing types of rebar steel. The effects of this on chinese Vanadium consumption are obviously yet to be seen but estimates for China for the next year or two are for an increased demand of between 7,000 and 16,000 Tonnes of Vanadium – that is an increase of 8%-19% of annual worldwide consumption.

In terms of future growth of the Vanadium supply to meet this demand and the potential demand from VRFB production Terry pointed out that 1 MW.h of energy storage uses about 5 Metric Tonnes of Vanadium (MTV) (my estimates are closer to 4 MTV but he may have been referring to generation 1 electrolyte and my calculations for the mixed acid electrolyte developed by PNNL). Either way the 800MWh Dalian Battery is going to require something like 3500-4000 tonnes of Vanadium and so if VRFBs are going to have significant adoption then new sources of Vanadium need to come online.

One doesn’t need it to be stated that Vanadium from the steel slag process is not going to increase, certainly not unless the world suddenly starts making a lot more stuff out of steel than has been the case in the past (not going to happen) – that seemed to be assumed. Terry pointed out that Vanadium derived from secondary production might increase – eg from chinese stone coal mines – but this is a rather dirty process that does not sit well with China’s recent attempts to reduce CO2 production and improve air quality.

Terry did not need to point out that this only really left primary vanadium mines (at present only Largo, Xstrata’s Rhovan and Bushveld-Vametco) to pick up the potential massive increases in demand from VRFBs .

In the Q&A session that followed Professor Maria Skyllas-Kazacos from UNSW (the original inventor of the all-Vanadium Redox Flow Battery) asked what had happened to the Windimurra mine in Australia – the subsequent discussion revealed that this plant apparently stopped production in 2004 after being taken over by a large mining conglomerate, but since then a number of different owners have tried to get the plant back up and running and despite over 550 million Australian dollars being spent, production had not been successfully restarted. (Remind me – how much did Fortune pay for Vametco again ?)

Julian Dawson of Ultra Power Systems then made a really pertinent comment – he pointed out that whilst increased Vanadium pricing might benefit the Vanadium producers and that were clear signs that Vanadium prices might be on the verge of a rebound that this also risked killing VRFB production at this critical time for the commercial establishment of the technology. This point led perfectly into the next talk, which addressed the issue directly.

Financing and Leasing Options – Alberto Arias of ARCM

Arias Resource Capital Management (ARCM), headed by Alberto is the majority shareholder in Largo Resources, the Canadian listed miner which has developed the Maracas Vanadium project in Brazil, currently the largest primary producer of Vanadium in the world. Alberto started by stating that there was an elephant in the room – and this was that Vanadium constitutes a significant fraction (30%+) of the cost of a Vanadiun Redox Flow Battery and as Terry Perles had so clearly illustrated in the first talk, was also subject to quite volatile pricing.

How then were VRFB companies expected to make plans and develop their business if such a key component, even if it were sufficiently available, might vary in price so much from one year to the next ?

Alberto pointed out three key facts about the Vanadium electrolyte that would be used in a VRFB:

  1. There is no degradation of the vanadium electrolyte – unlike Li-ion where the internal battery structure degrades during use.
  2. The vanadium can easily be recycled to V2O5  (Terry Perles confirmed that it was very easy to hydrolyse the Vanadium in the VRFB electrolyte back to V2O5 for general sale) – unlike Li-ion where the lithium itself only constitutes a few percent of the overall battery cost – there is little asset value left in the Li-ion battery once it has degraded.
  3. VRFB systems have a long life (15-20 years) – assets that have only a short life are not a good asset for acting as security.

All these criteria mean that it is conceivable that it might be possible for the electrolyte to be leased to the VRFB user when in operation. This would be a leasing arrangement very similar to that used for precious group metals such as Platinum when it is used as catalysts in industrial plants. The Vanadium electrolyte would be owned by a third party, a Financial Intermediary or Electrolyte/Vanadium leasing company, who would always retain ownership of the electrolyte but would lease it for use to a VRFB end user. This would have the following effects:

  1. It would reduce the upfront installation costs as now only 70% of the battery cost needs to be found as initial Capital expenditure – more was said about this in Mikhail’s talk regarding how such an arrangement would affect the Levelized Cost of Energy Storage (LCOS) figures that are so prevalent when comparing energy storage technologies.
  2. The VRFB manufacturers do not have to supply the electrolyte along with their battery, thus they do not need to expose themselves to the price volatility of Vanadium – volatility which could threaten to wipe out all but the largest of them on occasional price spikes. The VRFB manufacturers need to be able to offer reliable sales prices to their end users, and they would not be able to do this if they needed to adjust their prices each month to take account of the changes in V pricing.
  3. It can be benefit VRFB end users who can reduce the equipment value on their balance sheets, and instead pay a leasing charge for the electrolyte, which would reduce their operational profit and thus their tax liability.

Alberto mentioned that another example of this type of arrangement is the company Cobalt27 which launched on the Canadian TSX Ventures exchange in the last two weeks and which intends to provide strategic Cobalt for Electric vehicles.

Should the worst happen and a VRFB end user default on the leasing contract (i.e. by not paying their rental) then the Electrolyte Company could simply repossess the electrolyte, which has basically not changed from day one. If they need the money and not electrolyte – then they simply can turn it back to V2O5 and sell it on the open market – the Vanadium value is never lost.

go to part 2 …

 

This article only conveys the personal opinion of the author. Whilst every effort is made to ensure the content is accurate, we cannot guarantee the accuracy of the data shown. This article does not constitute professional, financial or investment advice and must not be used as a basis for making investment decisions.

Site content is not authorised by the FCA and you are not safeguarded by the Investor Protection measures of the Financial Services and Markets Act 2000. See our full disclaimer

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This article only conveys the personal opinion of the author. Whilst every effort is made to ensure the content is accurate, we cannot guarantee the accuracy of the data shown. This article does not constitute professional, financial or investment advice and must not be used as a basis for making investment decisions.

Site content is not authorised by the FCA and you are not safeguarded by the Investor Protection measures of the Financial Services and Markets Act 2000. See our full disclaimer