The Federal Government's National Battery Strategy puts the Australian minerals and energy sector clearly at its core. If you are in these sectors and have not made a submission, you have until 11:59PM AEDT on 17 March 2023 to do so.
Below, we explore the main issues the sector should be considering in any submission.
What is the National Battery Strategy (NBS)?
The NBS forms part of the Federal Government's suite of plans for electrification and emissions reduction, such as the National Electric Vehicle, Rewiring the Nation and Critical Minerals Strategies. Its aim is to support the development of Australia's battery production value chain and encompasses support and direction at each stage – from mineral inputs to manufacturing and end-use implementation.
Critically, the NBS calls out the following funding targets which miners, manufacturers and energy generators may be able to take advantage of via the proposed National Reconstruction Fund (NRF):
- A$1bn for advanced manufacturing;
- up to A$3bn for renewables and low emissions technologies;
- A$1bn for value-adding in resources; and
- A$1bn for critical technologies.
The NBS' key focus appears to be to promote investment in each step of the battery manufacturing value chain, each step of which is captured by one of the strategy's four themes.
Theme 1 – Australia's existing advantages – particularly in mining
The Issues Paper correctly identifies that Australia holds vast reserves of the key minerals involved in battery manufacture such as nickel, cobalt, graphite and vanadium. In concert with the Critical Minerals Strategy, a key focus of the NBS is to leverage Australia's mining value chain by:
- co-locating mining operations and precursor cathode active material (pCAM) production to promote use of those minerals in Australia whilst minimising the cost base to remain competitive in both the international and domestic markets; and
- underpinning battery manufacturing and associated refining with long-term offtake agreements to mitigate market and supply-chain interruption risks.
Theme 2 – R&D
The Issues Paper touches on the need to expand on and invest in R&D and education to leverage Australia's domestic-know-how and human capital to progress battery technologies, IP and manufacturing processes.
Themes 3 and 4 – Investment and development of industry
In addition to the potential government support via the NRF, the Issues Paper flags the need for an estimated investment of A$17bn to A$23bn in Australia's battery industries by 2030 to ensure the necessary diversity and scale for the industry to be competitive with international competitors such as China and the USA.
The Issues Paper calls out the following, which we consider will take centre stage in the battle for private investment in Australia's future battery industry:
- Battery Hubs – The Issues Paper flags the development of battery manufacturing precincts, designed to centralise the battery value chain to reduce the cost-base of batteries and battery components. The Issues Paper calls out the joint delivery of a Queensland Battery Manufacturing Precinct with the Queensland Government and flags a commitment of up to A$100mn in equity to support that development. We therefore expect that battery hubs will form a cornerstone of the NBS (as was the case with the previous government's Hydrogen Hub strategy) and would expect to see government grants, knowledge sharing and government-led financing opportunities directed at those hubs.
- ESG – Given that battery and rare earths manufacturing can be water, energy and carbon intensive, the Issues Paper flags the need for the reformation of the Environment Protection and Biodiversity Conservation Act 1999 (Cth). The Issues Paper also notes the desirability of involving First Nations communities to support energy storage, particularly given that land required at various stages of the battery value chain is Aboriginal land or likely to be subject to Native Title Claims. We expect to see increased scrutiny and potentially heightened regulation in these areas.
- Safety – We expect there to be an increased focus on battery product safety, which may be supported by the ACCC's current scoping of product safety issues for consumer lithium-ion batteries and hazard prevention strategies. Proponents of battery-projects may wish to consider these implications from both an engineering and liability perspective.
- Recycling – Recycling is also called as necessary to minimise the environmental impact of increased battery manufacture and use. We expect battery recycling centres to form a key element of battery hubs.
What would a National Battery Strategy mean for …
… energy generators?
The movement away from traditional fossil-fuel energy generation to renewable generation with battery storage (and gas-fired peaking generation) is likely to result in a fundamental shift in the way in which the electricity generators deliver supply via the National Electricity Market (NEM). This is likely to be supported by a national battery strategy.
We would expect that a national battery strategy would encourage investment into local, small-scale battery storage by residential, commercial (and to an extent, industrial) energy users. Combined with the already increasing fulfilment of domestic energy needs by "behind-the-metre" production means (eg., solar), it is expected that energy generated by large-scale weather-dependent generation plants will need to be complemented by dispatchable battery storage so to fulfil demand gaps and address the increasingly steep impacts of "peak ramps".
Battery storage is likely to assist, but the challenge for energy generators will be to balance supply and storage capabilities to cater for:
- periods of long-term high demand from the NEM – for example where the sun isn't shining for a period long enough to deplete domestic behind-the-meter battery storage; and
- periods of long-term low demand from the NEM – for example during periods of excess supply from the domestic behind-the meter supply.
In AEMO's recently published Electricity Statement of Opportunities (ESOO) for the national electricity market, it was clearly and directly acknowledged that in order to make the most of the myriad renewable generation sources joining the grid and to avoid the problems experienced in 2022, which culminated in suspension of the electricity market for several days, long duration storage capabilities are urgently needed. The CEO of AEMO, Mr Daniel Westerman, is quoted as saying: "Investment in firming generation, such as pumped hydro, gas and long duration batteries, is critical to complement our growing fleet of weather-dependent renewable generation to meet electricity demand without coal generation."
… manufacturers and miners?
An NBS will likely result in the increased demand for investment in mining, domestic refining of key battery minerals and the manufacture of batteries and battery components. We expect this increased demand will also bring with it increased scrutiny as to how the miner, refiner, or manufacturer:
- manages the environmental impacts of the extraction and refining of key battery input minerals and manufacture of batteries and battery components;
- markets its "green credentials" (of which we note that "greenwashing" has been a particular focus area for the ACCC); and
- manages the other aspects of its "social licence" – such as the differential between export and domestic quantities and interaction with the local and First Nations communities.
The NBS Issues Paper considers the "colocation" of relevant mineral extraction with their subsequent end-use. The key focus of this appears to be to minimise the cost-base of each component of the battery value chain, in order to compete with lower-cost battery manufacturers such as China and the USA.
We therefore expect to see targeted grants, investment, government-equity and government-matched funding in battery hubs, given they ultimately decrease the cost of battery infrastructure by:
- creating locales of battery-specific mineral demand thereby decreasing aggregate transport costs (particularly where placed near existing mines, or port, rail and road infrastructure; and
- centralising battery component supply infrastructure thereby decreasing development, infrastructure and maintenance costs.
The Federal Government's end goal appears to be to see those savings passed on to end-users and so we suspect there may be increased scrutiny as to the pricing of various minerals, components and end-products.