The vanadium market is starting to see major changes in its dynamics. Although the steel industry will remain the largest consumer of vanadium this decade and next, vanadium flow battery (VFB) demand is increasingly becoming a key driver for consumption – and one that will lead to changes in the vanadium market’s supply landscape.

At present, while there is global interest in VFBs it appears that China is largely dominating the VFB market, raising the question as to whether this dominance is set to continue in the future.

Pros and cons

The advantages of VFBs are manifold and they boast several advantages for large-scale energy storage, including an exceptionally long cycle life and high scalability. The capacity of VFBs can be easily increased by simply enlarging the electrolyte tanks, while their quick response times and safety features, such as low fire risk from their aqueous-based vanadium electrolytes, enhance grid stability. Additionally, the power and energy components are independent, allowing flexible system design. With a recovery potential of up to 97% and fully recyclable/reusable vanadium electrolyte, the (limited) environmental impact of VFBs is notable too: VFBs operate without emissions and have a relatively low ecological impact.

Like any technology, VFBs come with their drawbacks too. One issue is their relatively low energy density compared to other battery technologies like lithium-ion, which means they require more space for the same amount of energy storage. Additionally, the cost of vanadium electrolyte material can be high and subject to market volatility, potentially increasing the overall expense of the VFB system. These factors can make VFBs less attractive for smaller-scale or more cost-sensitive applications.

VRBs are gaining traction

Several key technologies dominate the battery energy storage system (BESS) landscape, each with distinct characteristics and applications. Lithium-ion batteries are the most prevalent due to their high energy density and efficiency, making them ideal for both portable and stationary applications. Project Blue expects LFP, LMFP and mid-Ni NCM formulations to dominate the BESS market over the coming decade.

Meanwhile, lead-acid batteries, known for their reliability and lower cost, are commonly used for backup power and load levelling, while nickel-cadmium and nickel-metal hydride batteries offer robust performance with a good cycle life, suitable for a range of industrial applications.

Other technologies will also play a part over the years ahead, including sodium-ion batteries which are advantageous for energy storage due to their use of abundant, low-cost sodium, which ensures scalability and affordability, making them a compelling alternative for large-scale applications.

Project Blue puts ESS demand by cathode chemistry in GWh at just over 100GWh in 2023, with VRB accounting for ~1% of that total. We see that increasing to ~630GWh by 2034 with VFB maintaining a similar market share.

In 2023, Project Blue estimates that VFB capacity totalling 2,285MWh was connected to the grid with another 5,220MWh under construction and 3,345MWh as announced projects. Our forecast of 4,100MWh coming from VFBs in 2030, implies an approximate 40% capacity utilisation, and a small 1% BESS market share.

China leads the way

For 2023, Project Blue has identified 194 operating VFBs worldwide with 43 in China and 151 in the ROW. However, in terms of MWh capacity, China accounted for nearly 90%, dwarfing Japan and the USA with respectively market shares of 5.6% and 2.2%. The best illustration of China’s dominance in the VFB market was the installation of the world's largest VFB power storage facility in Dalian in 2022, with a capacity of 100MW/400MWh, expected to expand to 200MW/800MWh.

China’s dominance is set to continue. Project Blue has identified 21 facilities under construction, 9 in China and 12 in the ROW – but with Chinese projects accounting for 95% of the total MW/h capacity. Some of the projects under construction are very large, such as the Guohua Qihe Energy Storage Power Station Project Phase 1, Hubei Phase 2 for Peak Plant and the Jimsar County PV Industrial Park Project with capacities of 2,000MW/h and 1,000MW/h. The largest plants under construction outside of China are in California, namely the Bodega Energy Storage Project and the Green Valley Energy Storage Project with respective capacities of 128MW/h and 80MW/h.

Project Blue is also tracking a list of ~40 announced (but not yet under construction) projects, with 13 being in China. Again, in terms MW/h capacity, these are set to be a China story with 83% of capacity in China.

China’s dominance in the VFB market is also evidenced by the production capacity of vanadium electrolyte, including operating and facilities under construction, with a 91% market share.

Why is China out in front?

There are several reasons for China’s dominant position in batteries. China has emerged as the world's biggest battery producer due to strategic government policies and subsidies that encourage industry growth, coupled with a well-integrated supply chain for critical raw materials. China also benefits from a massive domestic market for electric vehicles and renewable energy, which drives demand for batteries. Significant investments in research and development further strengthen the technological capabilities of Chinese manufacturers, while global expansion efforts have solidified China's leadership in battery production worldwide.

With regard to VFBs specifically, China’s position is aided by the fact that it is the world’s largest vanadium producer (60%) and has large reserves of vanadium titano-magnetite (VTM) used for vanadium co-steel production as well as considerable coalstone resources and reserves and solid secondary production capacity. Meanwhile, Chinese players have put a lot of R&D activity into VFBs which has helped their commercial development amidst a supportive policy environment.

What does this mean for vanadium fundamentals?

In 2023, Project Blue estimates that vanadium consumption in VFBs was 4,320t V, with about 90% coming from China. Based on the VFB and electrolyte projects, Project Blue forecasts that this trend will continue and could represent about 90% of the 18,450t V consumed by the VFBs in 2030, unless the construction of VFB plants accelerates in the ROW.

This however raises the question of whether China’s vanadium production capacity will be sufficient to match its demand for vanadium electrolytes in the future.

China’s vanadium supply comes primarily from the co-production route, which accounts for 90%, with coalstone accounting for 8% and secondary production for the remaining 2%.

Project Blue estimate that co-steel producers are running close to capacity, although steel mills have been able to increase their production in recent years through technical improvements or by changing the blending mix in furnaces.

But while co-production capacity utilisation is reaching a ceiling, China has other options. It has large VTM resources and could increase its production of vanadium pentoxide through the construction of new furnaces. Alternatively, it could produce more vanadium from coalstone, for which it has very large reserves, estimated at over 100Mt of vanadium pentoxide contained. However, coalstone production costs are high on the curve, due to low vanadium grades and environmental costs,

Increased VFB demand in China could mean considerably higher imports of vanadium for use in Chinese batteries. China might not find this dependency desirable for strategic reasons – especially as it has the resources to be self-sufficient – although economics may play their part. Ultimately, there are a glut of projects in the ROW with many targeting the VFB market, which may present a near-term source of vanadium to Chinese battery projects.

Project Blue’s base case is a VFB market dominated by China based on existing, under-construction and announced projects, and electrolyte facilities. It is difficult to see this trend reversing, but we do expect a gradual development of VFBs in the ROW in the medium term.

21

Read More