Vanadium redox flow batteries (VRFBs) are the most mature flow battery technology, with systems reaching hundreds of MW for a single project. Due to the nature of the electrolyte chemistry, VRFBs achieve a significantly longer cycle life than other electrolytes in flow batteries and can truly decouple power and energy, unlike hybrid flow batteries, which are limited by electrode surface area. As the active redox metal in the aqueous electrolyte, vanadium cost dominates the total electrolyte cost. Growing demand for vanadium in other industrial sectors, such as steel and automotive, has the potential to disrupt low-cost VRFB energy storage. Vanadium is primarily extracted as a byproduct of other mining activities, sourced from phosphate rock, magnetite, or sandstone; therefore, scaling up supply is less straightforward than with other raw materials. Furthermore, three regions in the world dominate supply: China, Russia, and South Africa. As a result of the accelerating demand for vanadium in energy storage, natural resource companies have turned their sights to entering the VRFB business.
USE CASE AND BUSINESS IMPACT
Largo Resources supplies vanadium products to a variety of industries, and in December 2020, the company announced a new subsidiary, Largo Clean Energy. At the same time, it provided details on its acquisition of VionX IP to supply VRFBs. In June 2021, Largo Resources hosted its own Battery Day event, where it outlined plans to expand VRFB production to 180 MW/1,400 MWh by 2025 and ultimately deploy 40 MWh by 2022. The company revealed that it will be utilizing an electrolyte rental scheme, where it will gain revenue from asset owners during the lifetime of the flow battery, and then it will recover the vanadium at the end of the asset life, where it will gain additional revenue. CEO Paolo Misk estimated that the vertically integrated approach saves 30% to 40% in VRFB costs.
A few factors have led to mining companies being able to vertically integrate a VRFB business: The maturity of VRFB means that interested parties with no technical development experience can scoop up IP from startups; vanadium materials companies have the advantage of being able to reduce the costs of raw material; and vanadium's limited geographic distribution will pose supply risks to companies as they scale, which is an issue that vanadium suppliers can sidestep. Largo Resources' strategy has been done before; Bushveld Minerals created Bushveld Energy to produce VRFB and rent out its vanadium electrolyte. The South African mining company invested significantly in the merger between RedT and Avalon Battery to form Invinity Energy Systems in the U.S. as well as Enerox in Austria. The difference is that Largo Resources is vertically integrating in the strictest sense; it will not partner with regional technology developers like Bushveld but rather produce its own VRFB. The advantage Bushveld Energy holds is that its regional partnerships will help it enter those local markets, where the energy storage landscape is unique. Clients should expect further vertical integration efforts to cement VRFB dominance in a flow battery technology. We predict that vanadium suppliers will be the real winners over other industrial entrants; lower costs determine which energy storage technologies get deployed, and vanadium's value in energy storage will keep attracting raw materials companies that can easily enter the space.