Battery recyclers set to take centre stage

To some — including, it seems, the UK prime minister — recycling is a dull affair that consists largely of sorting household waste into variously coloured bins. But the recycling of critical minerals, and of battery metals in particular, is becoming a major geostrategic issue in the new energy economy — and one of the most important clean tech sectors to watch in the next few years.

That’s the focus of today’s newsletter, drawing on my trip to Norway to shoot part of our forthcoming film on the lithium supply chain.

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The ‘above-ground mines’ that could help drive the electric car revolution

Fredrikstad, a sleepy historic fort city in southern Norway, is not what most people would imagine when they think of a mining town.

But that’s what it is now according to executives at Hydrovolt, which has built Europe’s biggest battery recycling plant there.

“We are actually creating an above-ground mine . . . an alternative to traditional mining,” Andreas Frydensvang, Hydrovolt’s chief commercial officer, told me during my recent visit to the plant.

Hydrovolt is a joint venture between Norsk Hydro, one of Europe’s biggest aluminium producers, and Northvolt, the Swedish battery maker. Norway was a logical location for this first plant because it has the continent’s most mature electric vehicle market.

Since 2019, thanks to strong government incentives, the majority of cars sold in Norway have been electric. That, over time, will translate into a steady stream of used batteries that can be shredded and separated into their constituent metals — with Norsk Hydro getting the aluminium from the casing, and Northvolt taking the battery metals such as lithium, nickel and cobalt.

Recycling has not always been seen as the most obviously exciting area of clean tech. But battery recycling, in particular, has emerged as a crucial element of the scramble for energy security in the low-carbon energy era.

The Critical Raw Materials Act proposed by the European Commission in March made clear the importance of this space. As the EU follows Norway’s lead by moving to battery-powered vehicles, its demand for battery metals will rise dramatically. The region’s own mineral resources — despite some interesting lithium mining projects in France, Portugal and England — will be able to cover only a small fraction of its battery metal requirements. And in procuring Congolese cobalt or Indonesian nickel, it faces tough competition from the Chinese refiners and battery makers who currently dominate that supply chain.

So battery recycling could be an important source of these minerals — one that will become increasingly fruitful over the next couple of decades, as the flow of used “end-of-life” car batteries grows.

The proposed EU law would mandate that domestic mining should cover 10 per cent of the bloc’s consumption of “critical raw materials” (minerals judged crucial to economic activity, especially around the energy transition, and with a high risk of supply disruption). Meanwhile, 20 per cent, under the latest version of the proposal, must come from recycling within the EU.

Battery metals recycling is a priority for the US government, too. Under Joe Biden’s clean energy-focused Inflation Reduction Act, government incentives for procurement of domestically produced battery minerals apply to recycled as well as newly mined metals — giving a useful shot in the arm for this sector.

Among the most prominent US battery recyclers is Redwood Materials, founded by Tesla’s longtime chief technology officer JB Straubel. Redwood has been one of the biggest beneficiaries of the Biden administration’s clean tech push, securing a $2bn loan from the US Department of Energy.

Announcing that loan on a visit to Redwood’s recycling plant in Nevada, US energy secretary Jennifer Granholm hailed the “outsized role” the company would play in “bringing the battery supply chain home”. “China might be starting to worry,” she added.

Given the current global balance of activity and investment in battery recycling, that latter remark from Granholm looks a tad vainglorious. China accounts for 80-90 per cent of current battery recycling activity, according to Duo Fu, who leads battery markets research at Rystad Energy. And the scale of Chinese recycling investment dwarfs what is happening in the west.

The biggest battery recycling plant in North America, opened in March by start-up Ascend Elements in Georgia, has the capacity to process 30,000 tonnes of used batteries and battery production scrap per year. Hydrovolt’s plant in Norway can handle 12,000 tonnes a year.

China’s biggest, run by a subsidiary of battery giant CATL, has a capacity of 120,000 tonnes. Rystad’s latest report on the sector profiles four more Chinese projects under construction or development of similar or greater scale, the biggest of which will have a capacity of 300,000 tonnes.

There are limits to what industrial policy can do to redress this imbalance. Much of the US government’s support is being deployed through Jigar Shah, the former clean tech investor who is now tasked with deploying up to $400bn in federal funds through the energy department’s Loan Programs Office.

A recent Wall Street Journal profile of Shah contained a telling anecdote about an exchange with Ajay Kochhar, chief executive of Li-Cycle, one of the most prominent US battery recycling companies. Kochhar was unsure about Shah’s offer of a big government loan, saying he was unsure how quickly Li-Cycle could repay it. Shah told Kochhar not to worry, and the two went on to agree a $375mn federal loan.

Subsequent developments have made Kochhar’s concern look prescient. Rising interest rates and cost inflation have hit Li-Cycle hard, forcing it to pause construction of a plant in New York state, and raising questions about whether the still pending government loan will be issued. Li-Cycle’s share price has fallen 84 per cent since it went public in late 2020.

The fundamental challenge here is around timing. In a decade or so, European and North American battery recyclers will start getting the large supplies of used batteries that they need to make a big impact on the critical minerals supply chain. But in the meantime, warns Duo Fu, who leads battery markets research at Rystad, many of them are in “cash-burning mode”.

Their Chinese counterparts are in a stronger position. China’s electric car market is much more mature, thanks to extensive government policy support dating back more than a decade. That means Chinese recyclers are already getting a greater supply of used car batteries. And because China accounts for the lion’s share of battery manufacturing, they also enjoy a much stronger flow of scrap materials from current production.

Consumer driving habits are another factor driving faster recycling growth in China, Fu told me. Chinese electric car owners tend to use their vehicles much more intensively than western counterparts, meaning their batteries are junked after eight to 10 years, rather than 10 to 15 in Europe and North America.

Back in Fredrikstad, Hydrovolt chief executive Ole-Christen Enger stressed the strategic importance of ensuring “that the materials that we use in products here in Europe, stay in Europe, and that we recycle them into new products”. The latest policy moves from politicians in Brussels, and in Washington, suggest they also view this as a key means of bolstering energy security.

But the new companies in this space have a difficult road ahead, as they work to build capacity for a surge in activity that is still years away — amid a punishing financial environment that has been pummelling companies across the clean tech space. If they are to play their part in bolstering domestic energy security, they will need to ensure they have the patient capital they need to get through the rest of this decade.

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