Written evidence from Nyobolt (BEV0036)

Business, Energy & Industrial Strategy Committee: Batteries for electric vehicle manufacturing

  1. Nyobolt is bringing to market ultra-fast charging, high power density and long cycle life lithium-ion battery products to customers in multiple sectors. Nyobolt is commercialising UK IP discovered by Prof Dame Clare Grey at the University of Cambridge. The company, founded in 2019 and headquartered in Cambridge, has grown to over 70 employees worldwide, raised over £60m in private equity investment, and is in the process of establishing its first UK anode material manufacturing plant.
  2. Nyobolt believes that there are significant opportunities to supply high value domestic markets in the UK through local manufacture of Li-ion batteries. This would also serve to foster and increase UK innovation leadership and strengthen UK manufacturing capacity. These elements are central for the UK competitivity in a post-Brexit context, and for generating local jobs whilst reducing the reliance on imported technologies. Not only does local manufacture support domestic supply, it can also protect UK IP by retaining the local production of advanced technologies.
  3. Battery manufacturing is a globally competitive industry. To support manufacturing in the UK, a coordinated, efficient response is required. Drawing from approaches taken by other regions, actions could combine financial resources, tax incentives, education and skills training programs, and public policies that focus on strengthening manufacturing capacity and addressing the Net Zero goals and sustainability vision of the country. 

4.      Q: What other domestic end uses for batteries would provide a market for UK battery production?

 

a)      Li-ion batteries are critical for the transition to Net Zero in multiple sectors in addition to traditional automotive. Many of these sectors have a strong presence in the UK, and their requirements may not be met by the high-volume, low cost batteries being produced elsewhere. Specific examples are detailed below[1].

i)       High performance automotive is a luxury market currently valued at $148.4 billion with an expected growth rate of 12% in the next five years. The UK has a longstanding history of innovating and manufacturing this unique category of cars. High performance lithium-ion batteries are required to meet the needs of this application, for example higher power density, faster charging and longer lifespan. The growing adoption of EVs is one of the key high performance car market trends that is contributing to a market growth. 

ii)      The marine sector with electric and hybrid ferries, cruise ships, workboats (offshore, support vessels, tugboats), fishing boats, merchant vessels and research vessels. The existing fleet of hybrid ferries, workboats, tugs and offshore vessels have consistently demonstrated 15-30% fuel savings over comparable diesel boats and substantially reduced the CO2 emissions compared to fossil-fuel vessels. It is expected that a mixture of energy vectors will fuel different vessels within this sector, with batteries playing a critical role in both electric and hybrid powertrains. The UK has an established maritime sector (from shipbuilding, R&D, shipping, ports to services) contributing around £46.1bn to the UK economy and supports over 1,000,000 jobs.

iii)    Defence and  Aerospace: Lithium-ion batteries are a stronghold across the defence portfolio and their technology also facilitates energy storage and generation. These include  portable applications such as: radios, thermal imagers, ECM, ESM, and portable computing. In the next five years, the usage of lithium batteries will further expand to heavy-duty platforms, such as military vehicles, boats, shelter applications, aircraft and missiles.  The UK aerospace industry is the second largest in the world behind that of the United States, and it is an export-driven industry. In 2021, UK civil aerospace turnover totalled approximately $32 billion.

iv)    Robotics: Li-ion batteries are now increasingly common in the robotics industry. The energy and power requirement of a robot varies according to the function it is designed to accomplish. The UK is an important hub for innovation in this sector with an estimated size of $1.3 billion. This sector is experiencing significant growth including in automated manufacturing and logistics optimisation and is an important area for large companies such as Amazon, Ocado, Tesco to name a few.

v)     Micromobility (bicycles, e-bikes, electric scooters, electric skateboards, shared bicycle fleets): The majority of devices use a lithium-ion battery. The global micromobility market was valued at $48 billion in 2021 and is expected to reach over $198 billion by 2030.

vi)    Stationary storage: Driven by an increasing adoption of renewable energies, Li-ion batteries are a key component in the energy storage technology. Many renewable energy sources are intermittent in nature (e.g. wind, solar) – a reliable, commercially available technology for energy storage is therefore a critical part of the energy system. This sector has a market value of $40 billion in 2022.

vii)    Power tools: Lithium-ion batteries are the most popular type of battery for cordless power tools. The UK has an established industry with an estimated market size of $2 billion.

b)      Given the number of sectors and industries already established in the UK, the Government’s support to the Li-ion battery sector is essential to link and expand the opportunities and industrial-scale manufacture. Most importantly, the different pathways to support research and innovation in the battery sector will translate into commercial products beyond the EV sector that will meet domestic demand and provide export opportunities.

5.      Q: Does the UK have a sufficient supply of critical materials to support vehicle battery production?

c)      Li-ion battery (LIB) cells demand a variety of minerals such as lithium, nickel, cobalt, manganese, aluminium, copper, silicon, tin, titanium and carbon. Many of these elements are considered ‘critical raw materials’ due to risks in the supply side, their economic relevance, concentration of reserves and low levels of substitutability.

d)      In the coming decade, the global battery consumption is expected to increase five-fold, while the demand for critical materials will triple. The scale of the demand for battery materials in the short and mid-term might well overwhelm current installed capacity. Yet developing new mining projects and alternative extractive technologies are uncertain and long-term processes.

e)      Upstream in the LIB supply chain, the mining and refining stages are characterised by an important concentration of reserves and production in a few countries (Li Triangle in South America, China, DRC, Australia, Indonesia, South Africa).

f)        Downstream, the LIB supply chain has five different stages (battery components, production of battery cells, assembly of batteries, EV manufacturing and recycling). The most prominent feature here is the technological and manufacturing concentration in Asia (China, Japan and Korea). In terms of battery components (cathodes, anodes, separators) more than 65% of the capacity is concentrated in China, followed by Japan. The battery manufacturing capacity is even more concentrated in China (75%) followed by South Korea (15%). The last two stages of the LIB supply chain are the most competitive with American and European manufacturers aiming to compete with Asian counterparts. Once again, China is the country that concentrates 60% of battery assembly and dominates almost half of the market of EVs and hybrid vehicles (43%)[2].

g)      The Asian dominance of the downstream LIB supply chain raises concerns in terms of supply dependency and the possible negative effects that this could have on the battery strategies of the US, the European Union and the UK. The battery cell production capacity is a core element in the race for electrification. The supply dependence on a reduced number of countries in Asia, makes major automotive producing countries vulnerable in industrial and energy supply terms. The competition to control the battery technology and production is as much as economic as it is geopolitical for mayor industrial countries including the UK.

h)      The UK imports over 40 million tonnes of metal per year[3], this supply is not fully secure in the current post pandemic context. The UK aspirations to develop a sustainable and secure supply of lithium (and other battery materials) requires coordinated efforts between government institutions and industry stakeholders. Environmental and social challenges are considerable and the UK leadership should ensure that these are addressed in each of the stages of the LIB supply chain in the country and abroad.

i)        In order to secure critical raw materials for LIB, there is an opportunity for the UK government to build international partnerships, support industry efforts to raise environmental and social standards in sourcing raw materials, and use all the available diplomatic tools to promote the UK’s expertise in mineral processing to leverage alliances with countries rich in critical raw materials. Developing industrial-scale recycling will also be important as a long term resource.

6.      Q: How ready are UK vehicle producers for the EU-UK Trade and Cooperation Agreement (TCA) rules of origin (ROO) phasing in from 2024?

 

j)        The Rules of Origin agreement with the EU will require that the battery and 55% of a vehicle’s components be manufactured in the EU or the UK. Noncompliant vehicles will be subject to import duty of 10%[4].

k)      Without adequate government support, there is a risk that UK manufacturing will migrate to the EU to be able to compete.

l)        From the perspective of Nyobolt as a battery producer, there is an urgent need to expand and foster the UK battery ecosystem. Adequate support and public policies for attracting investments, human resources (local and foreign), and incentives to use renewable energy would positively impact on the manufacturing capacity and competitiveness of all the stakeholders in the supply value chain.

m)    Other aspects such as a stable economic environment, tax incentives and public-private partnership would positively impact on maintaining UK manufacturing capacity. Logistics support with customs (in particular with the EU) would enormously help UK businesses to continue the export levels.

7.      Q: What can the UK learn from investment in other countries in the establishment of gigafactories?

n)      The European Union and the US have both been successful in attracting investments in gigafactories outside Asia.

o)      Under the umbrella of the European Green Deal policy and the Circular Economy Action Plan, the European Union strategic plan for batteries (2018) identified three key actions: i) the mapping of critical raw materials for batteries, including the assessment of the EU-countries potential for sourcing; ii) the use and promotion of trade policy instruments to ensure fair and sustainable access to raw materials in third countries and promote socially responsible mining and iii) to set new standards, regulations and incentives for an efficient use of critical raw materials for batteries. This combined framework sets requirements aimed at reducing environmental and social impacts throughout all stages of the battery lifecycle and commodity chains, from extraction of raw materials to their recycling. The EU Battery Regulation approved in December 2022, sets high standards in terms of carbon footprint rules, minimum recycled content, performance, durability criteria, and supply chain due diligence obligations, all to be followed by a "battery blockchain passport".

p)      In February 2023, the Commission presented the Green Deal Industrial Plan as a response to the US-IRA. The plan seeks  to enhance the competitiveness of Europe's net-zero industry and support the fast transition to climate neutrality. The Plan aims to provide a more supportive environment for the scaling up of the EU's manufacturing capacity for the net-zero technologies and products required to meet Europe's ambitious climate targets[5].

q)      The Green Deal Industrial Plan has four main components:

        1. Provide a regulatory framework suited for its quick deployment, ensuring simplified and fast-track permitting, promoting European strategic projects. This will be accompanied by the Critical Raw Materials Act, to ensure sufficient access to those materials, like rare earths, that are vital for manufacturing key technologies.

 

        1. Public financing, in conjunction with further progress on the European Capital Markets Union, can unlock the huge amounts of private financing required for the green transition. The Commission will work with Member States in the short term, with a focus on REPowerEU, InvestEU and the Innovation Fund.

 

        1. Enhancing skills- To develop the skills for a people centred green transition the Commission will propose to establish Net-Zero Industry Academies to roll out up-skilling and re-skilling programmes in strategic industries. It will also consider how to combine a ‘Skills-first' approach, recognising actual skills, with existing approaches based on qualifications, and how to facilitate access of third country nationals to EU labour markets in priority sectors.

 

        1. Open trade for resilient supply chains- global cooperation and building on the engagements with the EU's partners and the work of the World Trade Organization. The Commission will continue to develop the EU's network of Free Trade Agreements and other forms of cooperation with partners to support the green transition. It will also explore the creation of a Critical Raw Materials Club, to bring together raw material 'consumers' and resource-rich countries to ensure global security of supply through a competitive and diversified industrial base, and of Clean Tech/Net-Zero Industrial Partnerships.  

r)       Although the EU has committed more than EUR 20 billion to the battery value chain and billions more are available via the InvestEU and the EU Recovery and Resilience Facility launched in the aftermath of the Covid pandemic, the main concern with the US-IRA is how to make EU production attractive in face of the billions of dollars available in tax incentives for battery companies based in the US.

s)      The new battery manufacturing plants in Europe have increased substantially over the past few years. Total battery manufacturing capacity in Europe is now expected to reach around 1,100 GWh per year by 2030. Germany is the leading location of choice accounting for 34% of capacity in 2030, followed by Hungary (10.5%), France (8.8%) and Italy (8.7%). According to a report of Transport and Environment (2022), the combination of incentives and regulation has positively impacted on the battery capacity: Europe is on track to produce 6.7 million battery electric cars (BEV) by 20302, or just over half of all the cars produced, half of the Li-ion battery cells used in electric vehicles and energy storage systems in the EU were already made in the bloc in 2022, notably in Poland, Hungary, and to a lesser extent in Germany and Sweden; two-thirds of all the cathode active material (the most valuable part of the battery that contains metals such as cobalt and nickel) can be produced in Europe by 2027 already, with largest projects in Germany, Poland and Sweden; materials available for recycling from end-of-life batteries or scrap (from European battery factories) could meet at least 8-12% of the critical metals needs in 2030, including a tenth of all cobalt, 7% of nickel and 6% of lithium[6].

t)        The US- Inflation Reduction Act (IRA) is an ambitious program based on new federal spending  ($369 billion) towards low-emissions energy and green technology. It is considered the most important climate action after the Paris 2015 agreement.

u)      The main aims are to catalyse investments in domestic manufacturing capacity and, encourage procurement of critical supplies domestically or from free-trade partners.

v)      The most notable features of the Inflation Reduction Act for battery companies are: 15% corporate minimum tax, Business Incentives and Tax Credits, consumer incentives and Tax Credits. In addition, IRA establishes a generous scheme: $2 billion in Domestic Manufacturing Conversion Grants to support the transition of domestic manufacturing facilities to manufacture EVs, hybrids, and hydrogen fuel cell vehicles and $3 billion as credit subsidies for Advanced Technology Vehicle Manufacturing through Department of Energy (DoE)’s Loan Programs Office.  

w)    Since the Act was passed in 2022, there has been a 35% increase in announced capacity in the US compared to a year ago, versus a 17% increase in Europe[7].

x)      Both the EU Green Deal and US-IRA show that a combination of incentives (in terms of taxes, subsidies, grants, loans) and regulation are effective in attracting green investments. However, an important lesson to consider is how the industrial strategies are able to connect and foster wider ecosystems to attract gigafactory investment. Gigafactories represent huge opportunities for economic activity and job creation within and beyond the Li-ion battery supply chain.

y)      An important component of a good business ecosystem is the integration of raw material supply with upstream components such as electrolytes, anodes and cathodes to produce cells and packs. In this sense, China’s dominance can be partially explained by the securing the supply of critical materials and the presence of downstream companies in the LIB value chain.

z)      Other important elements to consider are the longer-term availability of battery recycling facilities as there are important environmental impacts to consider and also, opportunities to recover critical minerals in a circular economy vision.

aa) The electricity supply for manufacturing infrastructure is another key aspect. As gigafactories are energy-intensive industries, the site selection will be influenced by the proximity of clean and cheap energy sources. In this sense, the UK has an enormous potential to promote locations for gigafactories as 43% of the electricity in 2021 came predominantly from renewable energy sources (mix of wind, solar, bioenergy and hydroelectric)[8].

bb) Additional examples are industrial clusters and special economic zones for battery-related industries. In Germany the Leipzig-Dresden-Berlin triangle host companies such as Tesla, Daimler and Volkswagen investing and expanding manufacturing infrastructure. In Japan, the Kansai region (which spans Kyoto, Nara and Osaka) offers a range of tax concessions and incentives to battery companies[9].

8.      Q: Do we have the skills in the workforce required for the production of batteries? If not, what needs to be done?

cc)  The UK, as well as the rest of Europe and the US, has a skills shortage for battery production, with most of the global expertise based in Asia.

dd) The UK government should promote short term policies to attract talent to the battery sector. For example simplifying the migrating process for foreign talent. In the long term, the collaboration between industry and academia should have a STEM outreach, internship and technical programs to attract young people to the industry.

ee) Another important policy should focus on providing training and incentives for experienced staff who have worked in other industries and have valuable skills that can be relocated and adapted to the battery industry needs.

9.      Q: Will the cost of UK batteries be competitive compared with batteries produced elsewhere?

ff)      From the perspective of Nyobolt, the UK competitive advantage lies in the quality and performance of the product offered to the market. Given the leadership in innovation of the UK academia and industry, the UK’s battery industry should put emphasis on high value niche markets.

 

  1. Q: What impact will the European Union’s proposed Carbon Border Adjustment Mechanism have on UK production?

gg) The Carbon Border Adjustment Mechanism (CBAM) is a system aiming to avoid the so-called ‘carbon leakage' – i.e. companies based in the EU could move carbon-intensive production abroad to take advantage of loose environmental standards, or EU products could be replaced by more carbon-intensive imports. Such carbon leakage can shift emissions outside of Europe and therefore seriously undermine EU and global climate efforts[10].

hh) In compliance with World Trade Organisation (WTO) rules and other international obligations of the EU, the CBAM system will work as follows: EU importers will buy carbon certificates corresponding to the carbon price that would have been paid, had the goods been produced under the EU's carbon pricing rules. Conversely, once a non-EU producer can show that they have already paid a price for the carbon used in the production of the imported goods in a third country, the corresponding cost can be fully deducted for the EU importer. The CBAM will help reduce the risk of carbon leakage by encouraging producers in non-EU countries to green their production processes.  It will be phased in gradually and will initially apply only to a selected number of goods at high risk of carbon leakage: iron and steel, cement, fertiliser, aluminium and electricity generation.

ii)      As such, the battery production in the UK would not be initially affected by the CBAM (with the exception of aluminium for coating), however, the Carbon footprint declaration requirement (to be implemented in 2024 as part of the EU Battery Regulation) requires an thorough  industry strategy to understand and address the requirements, standards of quantification and legal process for accessing the EU market.

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[4] House of Lords (2022). Battery strategy goes flat: Net-zero target at risk, Science and Technology Select Committee, London: UK.

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[7] Murray,C (2022). US gigafactory plans growing twice as fast as Europe’s since Inflation Reduction Act (Last accessed Feb 2023, https://www.energy-storage.news/us-gigafactory-plans-growing-twice-as-fast-as-europes-since-inflation-reduction-act/)

[8] National Grid (n.d). Energy Explained (Last accessed Feb 2023,  How much of the UK’s energy is renewable? | National Grid Group.

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