Catalyst with Shayle Kann - 2023 trends: biomass, ESG, batteries and more

Episode Date: February 23, 2023

It’s the first year of what we hope is an annual event: Nat Bullard has released his first climate trends report. He was the chief content officer at BloombergNEF until last year, and now is a senior contributor at BNEF and Bloomberg Green. He’s also a venture partner at Voyager Ventures.  There’s so much in this 141-slide deck that we’ve split the conversation into two episodes. In this first part, Shayle and Nat dig into topics like: Land use. For example: we grow 40% of the U.S. corn to offset 10% of U.S. motor gas demand. Also, despite a growing world population, land used for agriculture globally has been shrinking. What do these trends mean for alternative proteins and sustainable aviation fuels? ESG. In 2022, there were more anti-ESG than pro-ESG regulatory developments. And while ESG fund flows were positive last year, they’re still only a fraction of their peak in 2021. Where is ESG investment heading and should we even be putting environmental, social and governance criteria in the same bucket?  Batteries. Battery costs rose in 2022, but battery system costs rose faster. And yet there’s still rising demand for utility-scale batteries. Meanwhile, the top ten battery manufacturers of 2022 were in Asia. What do these trends mean for the battery market and manufacturing supply chains? For a full transcript, click here Recommended resources: Nathaniel Bullard: Decarbonization: The long view, trends and transience, net zero Catalyst: Climatetech’s surprising bottleneck: Land access Catalyst is a co-production of Post Script Media and Canary Media. Catalyst is supported by Antenna Group. For 25 years, Antenna has partnered with leading clean-economy innovators to build their brands and accelerate business growth. If you're a startup, investor, enterprise, or innovation ecosystem that's creating positive change, Antenna is ready to power your impact. Visit antennagroup.com to learn more. Catalyst is supported by EnergyHub. The company’s platform lets consumers turn their smart thermostats, EVs, batteries, water heaters, and other products into virtual power plants that keep the grid stable and enable higher penetration of solar and wind power. And they are hiring! Learn more and see open roles at energyhub.com/catalyst Catalyst is brought to you by Sealed: The experts in home weatherization and electrification upgrades. Sealed is leading the way, with over a decade of experience being accountable to homeowners because they only get paid based on actual energy reductions. Visit Sealed.com/measuredsavings to learn more.

from the studios of PostScript Media and Canary Media. I'm Shale Khan, and this is Catalyst. Listen, you know me. I'm here for a 400-slide deck. If you can get to four figures, that's where I'm really going to start to get impressed. You start to run into the limits of time and space, and also of your family being like, what are you doing all of the time? Like, what are you doing at 6 in the morning? And what are you doing at 11 p.m.?

This week, my friend Nat Bullard delivers me a heaping portion of climate friends. friendly red meat in the form of his first annual decarbonization trends report. When utilities need flexible capacity they can count on, they turn to Energy Hub. Energy Hub works with more than 170 utilities, coordinating over 2.5 million devices to manage 3.4 gigawatts of flexibility, built for the moments when utilities can't afford uncertainty. Energy Hub builds and operates virtual power plants that utilities actually stake their grid planning on, coordinating EVs, batteries, thermostats, and more through a single platform. built for utility scale.

Predictive, verifiable, and designed to perform when it counts. Learn more at energy hub.com. Trillions of dollars are flowing into clean and critical infrastructure, but those investments aren't driven by technology alone. They're shaped by markets, by policy, by capital, and by the institutions that connect them. I'm Alfred Johnson, CEO of Crux and host of a brand new podcast, Critical Capital. Each episode, I talk with people deploying capital, shaping policy and building the clean

economy. Tune in as we unpack how progress is actually made. Listen to critical capital on Spotify, Apple, or wherever you get your podcasts. Catalyst is supported by Fish Tank PR, an award-winning PR firm focused on climate and energy tech, renewables, and sustainability. Fish Tank is known for generating prominent and effective media coverage for the brands they work with. If you want a PR partner that's thoughtful, shoots straight, and gets results, you'll like Fish Tank PR. To learn more about Fish Tank's approach, visit fish tankpr.com. That's F-I-S-C-H-Fish-Tankpr.com. I'm Shel Khan. I'm a partner at Energy Impact Partners, where I invest in revolutionary climate technologies. Welcome. So if you're in software tech world or tech

world in general, you'll be more than familiar with Mary Meeker's annual internet trends deck. Or if you're an even cooler kid, maybe you're familiar with Benedict Evans' own version. They're these mega annual compendiums of everything happening in tech distilled into a series of charts. It has long occurred to me that there is no equivalent really in climate tech. In fact, long ago, after we sold GTM, which was my previous company, and before I switched over to the dark side of investing at EIP, I had the idea to create one myself. I actually got through, I think, like the first two slides, and then right at that time, EIP came calling, and life got in the way, and I never did it. Fortunately, it only took another five years or so for my friend Nat Bullard

to pick up the torch. You've heard him here before, but Nat has been around the climate tech, clean tech, whatever you want to call it, sector for as long as, maybe even a little longer than me. And today, he's a columnist at Bloomberg, and he works with Voyager Ventures, which is an early stage venture fund focused on decarbonization. He's done it. Nat delivered 140 plus slides focused on decarbonization trends. So, as you can imagine, I want to dig into it. Actually, there's enough in there that we couldn't fit this into one episode.

So we're going to do this as a two-parter. So what you're hearing right now is part one out of two of my conversation with Nat Bullard about trends in decarbonization. Here's Nat. Nat, welcome back. Shail, good to be back. Great to have you. Very excited that you've finally done

what you and I have talked about for years, which has created the first annual. I'm calling it the first annual, because I'm going to force you to keep doing it every year. First annual, like, massive compendium of trends in decarbonization deck. So kudos. Thank you.

And I managed to keep it to a modest 140s or so slides at the moment. The challenge, of course, was that if I hadn't sort of cut it off at about the time that we're recording this in early February, it would be 200 slides or then 300 or then 500. And I figure, you know, if you want to follow in the footsteps of

Mary Meeker's amazing old internet trends deck that she used to do, you have to start with some modesty. You can't start at 400 slides. You can only get there over time. Listen, you know me. I'm here for a 400 slide deck. If you can get to four figures, that's where I'm really going to start to get impressed.

You start to run into the limits time and space and also of your family being like, what are you doing all of the time? Like, what are you doing at 6 in the morning? And what are you doing at 11 p.m.? And didn't I see that slide two weeks ago? And then me coming back and being like, yes, but wait, but like, you know, they've revised this data set from 1973 to 1975, and I have to therefore go back and redo all of the calculations that go with it.

Anybody who's currently revising a dataset from 1973 to 1975 has other problems. But let's get into it. Sure. So of your 140-ish slides, I've picked a bunch that are my favorites, at least, that I think present some interesting insight that either I wasn't aware of or that I think is worth talking through. So I'm just going to cherry pick a bunch of them and we could talk about them. So I'll give the slide numbers just for the sake of anybody who wants to go read 100. 40 slide deck themselves later. So let's start with slide 14, which is on agriculture and land use. Takeaway here is that we use, I think people probably know this, but the numbers are sort of striking.

We use an incredible amount of our land in the United States to grow corn that does not go toward food. So what's the takeaway here? That's true. So we grow in the range of about 14 billion bushels of corn every year. year in the United States. Of that, last year, 38% of it went to ethanol that's being used for fuels, which means that about 40% of the U.S. corn crop meets about 10% of our motor gasoline fuel equivalent demand, which is pretty extraordinary. I think on a land area basis, it's an area of land about the size of England that we're using for this purpose, just to grow corn, just for ethanol, just to offset about 10% of our motor gasoline demand. Yeah, that 40% number is the one,

or 38% is the one that's really striking to me that like, you know, up two-fifths of our corn crop goes to gasoline. I mean, you know it's a big number, I think. I don't think I appreciated how big a portion of our corn crop it is. And the reason that I, I think it's important or at least interesting to talk about is that, you know, is not the ethanol thing necessarily in and of itself, because I think that's been known for a long time. But it's on my mind a lot because I, as I'm sure is true of you as well, I see a real proliferation right now of new approaches to do biomass to X for decarbonization purposes. And it's a really wide range.

There's biomass to, obviously to bio gas and renewable natural gas. There's using biomass to produce sustainable aviation fuel. There's just biomass carbon removal approaches. There's a variety of different kinds. There's biomass to biochar, which can be carbon removal and or soil amendment or something else. And there's others, you know, biomass to materials, all sorts of things. And the premise of all these companies and all these approaches is that we are going to use waste biomass, of which there is admittedly a lot. But the historical thing that happened is this ethanol

thing with corn, where we sort of subsidized it sufficiently that it made sense to grow corn for ethanol. And then it turns out that we use a ton of land and a ton of our corn crop for the purpose of ethanol. And so, like, the fear with all this biomass to X stuff is that at some point you start to run out of the waste. And meanwhile, these markets have taken off. you start shifting toward dedicated crop and you end up in a situation just like this. Do you think that's like a warranted fear? I do absolutely. I mean, this reminds me way back when of, we'll have two things.

One was the food versus fuel debate that was very prevalent in the run-up to very, very high oil and general commodity prices, including foodstuffs in the 2007-2008 era. So there was a big debate about use of land and then use essentially, secondarily, of calories derived from that land and for what purpose they were going. You know, you might offset inflation in transport fuels at the expense of creating more inflation for human food calories. That's one thing. The other is that you and I will also remember the time when cellulosic ethanol was supposed to, to be the thing that was going to dominate the liquid fuels market in the United States, if we could only bridge our way there by doing a little bit of corn ethanol first.

But look, I mean, the science on this, and I'm not a deep scientist when it comes to this, is that it's way easier to synthesize something with simple sugars than with things that are hard to digest by their nature, like Ligden and Cellulose. And so it's proven to be very, very difficult to do. I think too when it comes to making sustainable fuels, we're going to find that starting with easy to work with hydrocarbons to make more complex hydrocarbons is probably just energetically easier than going for things that are very, very hard to break down

and then synthesize and get into shape. And it will be very interesting to see what takes precedence. I guess one thing we could imagine is the competing energy input for motive power for that ethanol is an electrical. in now. Like the thing that should be eroding, road transport fuel demand isn't more ethanol, but is more electrons. And that's definitely already happening.

But then the question is, does that land get converted to making sustainable aviation fuel? Instead, do we simply have shift in the kind of abstraction layer of our food versus fuel debate to all of aviation fuel demand instead of 10% of U.S. road fuel demand? And I do think, though, that there is interesting stuff happening with. every other aspect of agriculture, such as using the soil as a resource. So, you know, there are definitely ways to think of large, even probably monoculture or plots like would grow corn in the U.S. as another other kind of climate resource besides just marginal substitution for a barrel of oil. Right. And there's lots of nuance to this, the definition of what's waste and what's

not waste. You can add multi-cropping to a place that's currently doing monocrops and then, you know, consider that second crop not using additional land. There's lots of different nuances to this. And to be clear, I think, from everything that I can tell, there is an enormous volume of waste biomass. And that waste biomass is a useful resource to decarbonize, either directly via just sequestering the CO2 or by turning into something useful that displaces some other emissions. So, like, we should be doing that. It's just striking where we've landed on ethanol, and it's obviously a lesson we need to be learning as we're considering, you know, using biomass for any new significant market, which obviously things like aviation fuel are.

No, and, you know, I think, look, in the American discourse, this comes up every four years in presidential primaries. You know, it has a very sticky constituency, particularly at the Senate, not so much the House of Representatives level, because a lot of states grow corn, and they all have two senators. And it becomes a difficult thing to get away from. But I just think that it's important, yeah, and this will be kind of a running theme throughout all of the skies that I put together, is to just kind of collate a clear, statistically grounded picture of where we are

with so many of the things that are happening in energy. Not to get too deep into politics, but one thing that I think is a sort of interesting little trend here, is the Democrats in the U.S. are trying to change the order of their primaries now. There's a proposal. Yeah, and it would put South Carolina first. Basically, it would move Iowa from first to third, I believe, something like that. And, you know, Iowa has had this, like, outsized influence on politics in the United States

as a direct result to that, that first place spot. And so, and that plays into politics around ethanol, actually. Absolutely. I mean, look, that feels like the kind of thing. actually, this is a slight aside, but I'm being tasked today with writing a little bit of climate sci-fi for a workshop I'm doing coming up. And this is exactly the sort of thing that if you cast forward like 10 years, you're like, actually, it turns out that a huge amount of like U.S. energy-related policy change because they moved the primaries from Iowa to South Carolina.

Yeah, 100%. All right. I don't want to spend too much more time on agriculture, but you have another slide in here a little bit later, slide 25, which I think is, is a very much. more global perspective that I think is one that is sort of unappreciated as well, which is that actually, despite a growing global population, land use for agriculture globally has been declining for a while, right, which implies increased productivity, basically. That's right. So we had a peak in the total percentage of global land area used for agriculture right around the turn of the millennium, a little bit more than 37%.

And let's be clear, it hasn't come down massively. It's come down maybe 1% of total global land area. But multiple billion extra people have been added to the global population in those two decades. And we're somehow reducing the total amount of land that's used for agriculture. It is very interesting. There are some nuances, again, underneath that. A lot of it has to do with changes in grazing land. but it is in general a factor of much greater efficiency.

There's another aspect within that too, which is a huge amount of aquaculture too, shifting a whole lot of food production into the ocean where necessarily it does not take up any of the land area that we have available. But again, it's not sort of a narrative that I think people would expect because you have to unpack a little bit

what that means, what that implies. It implies greater efficiency. see, it implies some changes in the way that we produce certain products. It implies making sure to be aware of everything that's happening in the ocean. But yes, there's less land that's being used for agriculture. And that's more land for something else. That's more land for urbanization as it continues and expands. It's more room for renewable energy production.

We could also argue about how much of that land that's available for agriculture being used could not be multi-cropped with wind and solar or with some other kind of productive asset over time. But yeah, we hit our peak a couple of decades ago, and that trend does not seem to be changing. Yeah, a piece of good news. There's also been sort of related reporting recently specifically about how we've been doing a little bit better of late at less deforestation for the purpose of production of palm oil, which has been historically a big problem. And we've also had a huge amount of reforestation take place. But, you know, reforestation takes decades to obviously have much climate impact or effect. But Europe has been reforesting.

Large parts of northern China have been reforesting. It's just that the effort of reforesting begins with planting seedlings. And the big carbon uptake of it takes decades before it kicks in. But yes, we're definitely getting greener. And again, to sort of dig even further into the whole matter. The fact that there are higher atmospheric CO2 levels means that things tend to grow a little better. Yeah, right. One of those weird side effects we don't love to talk about necessarily.

Right. All right, let's move on, actually, from agriculture to you mentioned northern China. So that'll be my segue to China. We'll pick a slide here just in order to have a jumping off point for discussion. But really, I just want to get your take on what's going on in the energy transition in China, because I know you've spent a lot more time focused on it than I have. So it's pick slide 19, which points out something that probably is somewhat intuitive, but still striking, which is that renewable energy generation in China has now surpassed all of Europe put together.

It has also surpassed U.S. renewable energy generation. It's growing across all places, but it is growing by far the fastest in China. One of the things you hear when often, if you say something like that, is, well, yeah, but they're also building a ton of coal. So, like, what is happening in the power sector? are in China now. So the power sector in China had a very complex year in 2022, which is, as ever, renewable energy at the five-year plan level being built out, lots of wind, lots of solar. In both cases, they've historically had some lagged times on interconnection, high degrees of curtailment. And I think that in general, China's assets, largely because of geography, unless they're

far in the west or the high altitude desert, tend to have. lower capacity factors than you would have in, say, Texas or New Mexico in the United States. So there's been a lot of build. There's a little bit of catch-up always being played, I think, to do integration. But it does get done. It's not as slow to build transmission, needless to say, as anywhere that we're familiar with in the Western Hemisphere. But then last year, and again, somewhat unremarked upon when we could see

footages of drought in Europe, but an extraordinary and profound drought happening in China last summer, which meant that hydro production, which is obviously huge percentage of China's power, was really imperiled, and that meant more coal, and to I think some extent, a little bit more gas. The thing is that the power fleet in China, the coal fleet is so big that small marginal changes in terms of utilization rate have global CO2 implications. Basically, China's little moves in coal consumption are like the size of top 10 country electricity consumption in any given year. So it is a complex picture.

I think the big challenge is going to be that price stability is always important. Reliability is always important. A lot of the, a lot of economic output relies upon reliable electricity. If hydro is going to be impaired in any particular time, then that probably means more coal. And there's always more coal build happening, but there's also sometimes things being decommissioned. And the utilization rates, again, are not being built. They're not being built with the utilization rates in mind that we would have. It's been a while since I've looked at this, but in the end of the past decade,

it was routine in years for the coal plant utilization to be below 50%, which is extremely low compared to what you would want to do in, say, the Mid-Atlantic U.S. or the Ohio Valley, if you still had a coal plant. If you were running it 50% of the time, you probably wouldn't be running it. Right. Something's gone wrong for you. But China's, yeah, to put it in perspective, China's just electrical generation from renewables last year, at that scale, not only bigger than Europe, it's like about the size of Japan in terms of total demand for electricity. Like, like, it's really, really big. And this is, that was 2021,

figures. It's going to be bigger again after last year's editions. Yeah, I've always been struck by the actual capacity factor numbers. Like, they're building, what's crazy is all the numbers are so big. The amount of renewable energy capacity

they're building is insane, such that even with really, really low overall capacity factors, because they're curtailing a ton of it or it's not connected or whatever, the generation figures are still way bigger. than anywhere else. It's just law of large numbers, basically. It is, and we don't really have other markets that are of that. Obviously, we don't have any

other markets that are of that scope at the moment. So you kind of have to cast them in an exceptional or standalone lens so that you can kind of look closely at those numbers. But look, generally, yeah, interconnection catches up. It's also just not the most amazing resource place except in the far west. So there's always going, there's always going to be a China story that's like China does more of this than everybody else. And that's, you know, it passed Europe, it passed the United States. And now it's standalone. It's unlikely that we would see another single market become that big at any point, you know, maybe ever. Virtual power plants are becoming a reliable way for utilities to manage capacity. But

enrolling devices is just the start. What really matters is confidence, knowing those resources will perform when dispatched and being able to prove it, from the control room to the living room. Energy Hub's platform handles the full picture, from near-real-time forecasting, locational dispatch, and the kind of rigorous verification that holds up when regulators, grid operators, or leadership ask, did it deliver? Easy enrollment creates momentum, proven performance builds trust. That's why more than 170 utilities rely on Energy Hub to manage over 2.5 million devices delivering 3,000. 4 gigawatts of flexible capacity. See what that looks like at energy hub.com.

We're living through a profound economic shift, and energy sits at the center of all of it. Trillions of dollars are flowing into power plants, transmission lines, battery factories, data centers, but the future of energy isn't shaped by technology alone. It's shaped by markets, by policy, by capital, and by the institutions that connect them. I'm Alfred Johnson, CEO of Crux, the capital platform. for the clean economy. Join me for my brand new show, Critical Capital. As I talk with people deploying capital, shaping policy and building projects. Together, we unpack how risk is priced, how incentives are structured, and how progress is actually made. Listen to Critical Capital

Capital on Spotify, Apple, or wherever you get your podcasts. Are you tired of overpaying for big-name PR firms, but not really knowing what they're delivering? Is your comms team wasting time reviewing lengthy messaging briefs and decks? Instead of engaging journalists or producing content? Are you wondering why your competitors are getting press and you aren't? Fish Tank PR is an award-winning climate and energy tech, renewables, and sustainability-focused PR firm dedicated to elevating the work of both early stage and established companies. Whether you need to position yourself as a thought leader in between project announcements or translate complex ideas and technologies into tangible, compelling stories that resonate

with the media, Fish Tank can help. Check out fish tankpr.com. That's F-I-S-C-H-F-T-T-T-T-T-T-T-E-H-T-T-T-P. PR.com. Okay, so let's move on from China to another topic that I do want to get your thoughts on, which is the backlash against ESG. So you actually have two different slides that are sort of related that I'll just combine together. One is slide 33, which points out that there were more anti-ESG regulatory developments in 2022, then pro-ESG new regulatory developments. And then the second is slide 65, which is about

fund flows and basically shows that ESG fund flows were still positive in 2022, but a small fraction of their peak a couple of years earlier. So both speaking to sort of the like turn in general sentiment about ESG, you talk to a lot of big institutional investors, like what is your sense of what's really happening here, set aside all the news and the, like, political posturing that you see a lot in the U.S. Well, the tricky part is setting aside the news and the political posturing in the U.S. This is, I would say that the sentiment around ES, anti-ESG sentiment, is at the political level, almost uniquely U.S. It's something that happens really only here. It's not nearly as big of a topic in Europe at a sort of polity level or definitely not at like a local politics level.

As far as the investment flows goes, that's, you know, that's just very clearly hitting a peak. That's one element of it. That's the, that's the ETF side. So think about that as largely the retail flows into ESG coming off the boil, not necessarily all of the other managed institutional funds, in particular in Europe that are doing, that are still doing more and more ESG. But it is a distraction, I think, if you're a fund manager and you're trying to meet for legitimate reasons, a lot of your goals around ESG. I think it's casting some scrutiny,

and we have seen this in Europe that there are funds that are essentially not holding up well to scrutiny in terms of like the actual ESG componentry of their indices or their their metrics. We also have to say that, like, you know, a lot of noise is coming from relatively small fiduciaries. Meanwhile, you find your institutions there in California or the institutions in New York State that say, do not pull back on any of your ESG goals because we devote $200 billion to you as fund managers and we expect you to maintain those. It is something that you can't really ignore. I think if you're an executive, you do have. have to pay attention to it. You do you have to traips in front of like local regulatory bodies

and courts in Texas and stick up for your ESG policies? I think that the two big questions out of this that really need to be explored over time are the first. What's the actual portfolio implication for retail investors? And in particular, for people saving for the long term, like is ESG, anti-ESG bias actually going to make them more money? like, you know, is an attack on the sort of perform, a performative attack on the wokeness of big fiduciaries going to actually end up with more money in people's pockets? I think that's very debatable. I think the other issue is what actually does constitute ESG over time.

You and I have been doing this a long time. And I think that when we started and ESG was the sort of the first sort of offshoot coming from the old socially responsible. investing, meant to be more metrical, meant to be more granular and quantitative. It was, I wouldn't say an improvement, but it gave us more things to measure. I think the challenge is that there's not necessarily a high correlation between each of these individual factors. So a tech company could be a classic example of having fantastic environmental things because

it's basically only consumes its electricity, which is made almost entirely renewable, and recycles all its wastewater, but it could have horrendous governance. You know, it could have a board that's comprised mostly of insiders, or it could have supermajority shares for one of the executives. So I think that there's probably an opportunity to break this out into new sets of very specific risk screens, whether or not they would be grouped together is another real question. Yeah, I mean, I think that's been, ESGs, to the extent there's been sort of like a central failing of the ESG movement, it is the idea to group ES&G together as one thing. And even each one of those individually has a million subcomponents. But the result of that mishmash is you get this kind of Frankenstein, you get these Frankenstein-y scores where you see situations where like Tesla scores really low on ESG and people look at that and they're like, well, a Tesla is better than anybody on E, but it is also true.

Tesla is pretty bad on G. And so, you know, just how do you reconcile all that? I think that just leaves the whole notion up to, I think that just leaves the whole concept more open to scrutiny, which makes it a challenge. It leaves it open to legitimate scrutiny, as it should, and to political footballism, which is not necessarily deserved in every case. So, but, I mean, what do you make of the fund flows component? Well, I mean, retail fund flows are always impacted by just sort of retail sentiment in general.

That's one element of it. But I do think that retail investors in particular can respond to things that are very distinct. I mean, look, the lowest month of ESG, ETE, in flows was the first time that Elon Musk said that ESG is a scam. That was in May of May of last year. So, you know, it's highly exposed. But again, retail flows are not a huge component of ESG flows in general and definitely not a big flow.

ESG retail funds are not a big part of all funds in general in terms of flow. But they're highly visible and they measure a bit of sentiment. I think what's more important to see is where can we find continued smarter, distinctly measured investing strategies that incorporate those elements, but maybe analyze them separately. They don't fall under the same bucket anymore. Bob Eccles, the business school professor, wrote something very useful about this last year, it said, these should just be risk screens. Like, you know, they shouldn't necessarily be ESG. They should be a risk screen.

The kind of thing that smart managers are constantly querying and refining. Okay, so last topic for us to cover in part one here is talking about batteries. And you have a couple of interesting sets of data on batteries that I think are worth talking about. One is with regard to battery costs. I think a lot of folks know that battery costs actually rose in 2022. You know, lots of costs rose. We had inflation in general. We had supply chain issues, all this kind of stuff.

So folks probably know battery costs rose just as solar costs rose and things like that. One thing that I think people don't often appreciate is the data that you put in here on the difference between how battery costs rose and how system costs, battery system costs, rose. So can you just compare those two? Absolutely. So yes, so for the first time, at least since my dear friends at Bloomberg, EniF, have been tracking the data. The weighted average pack price from lithium-bine batteries went up year-on-year last year. So 2021 actually came very, very close to going up. If you hadn't used full year data. It would have been close. But last year, the weighted average pack price was up

about 7% year and year. That means it's still down close to 90%, but not quite 90% anymore. But then the four-hour system costs for, you know, an energy storage system went up 25% last year. And I think that the important thing to note there is that like the battery is manufacturing. You know, that's the cost to manufacture to put together assemble high volume. for almost every application. Building a system is still pretty bespoke, and you're going to be exposed to every other kind of value chain along the way, the cost of trucking, the cost of fuel, the cost of employees, uptime.

All of these things have gone up significantly over the time. So basically you're aggregating in other inflationary pressures to get the full system cost. But what's really interesting about this is that in the survey that BNIF ran on getting these costs and getting a sort of sense of the market, is that almost no developers said that they're actually pulling back at these price levels. Because actually the grid benefit and the ROI that they can still earn is good enough that even with these price increases, they're able to be viable. And they're able to still be like valid and like a market contributor. So it's very, it's an interesting split. I mean, it's sort of not what I was expecting. The intuitive outcome of like pack prices went up and system prices went up more,

that I sort of get. But the fact that like there's still such demand at the grid level for batteries to be integrated and be useful and valuable that even a 25% increase is not actually putting them out of the money, I think that's very important. Yeah, it raises an interesting question as to where battery prices and system prices go, right? Even if costs fall, maybe there's more margin in it for the integrators and developers and the battery companies themselves, and maybe prices don't crash necessarily at some point. Right. I mean, look, there's always, we've dealt with EPC long enough in our varied careers. Like, there's always a margin there that cannot be abstracted away in the sense.

same way that manufacturing margins can be by just like brute force or massive competition for a varying like for like kind of product. Right. I mean, we've seen this happen in solar where like as time has gone on, again, 2022 aside, like solar module prices have continued to decline. Solar system prices have declined much more slowly because a lot of this other stuff is more intractable. I think that is inherently going to be the same thing. In battery world, and the reason I wanted to talk about is it's just like my periodic reminder to people that if you hear prices quoted for batteries, remember, particularly for stationary storage,

remember that's not the cost of the system. The cost of the system is that plus a bunch of other things, and those other things may end up being a bigger deal and more inflationary potentially than the battery itself. Absolutely. And even the cost that you do see at the pack level is weighted average, which is skewing heavily towards cars that use a gigantic battery and not what the question I get asked very often is,

why does my e-bike battery cost so much then? I'm like, well, to be honest, your e-bike battery is not exactly at like the top of the merit order of priority for who you want to sell batteries in volume two. So, you know, like it always needs a little bit of decomposition in order for it to be applicable at any given level. But the trend is still, you know, the trend is important.

the trend has been pretty durable over time. And there's exciting stuff potentially happening along the way. I mean, the fact that the LFP, the lithium ion phosphate battery, is steadily making itself felt and known in motive power applications is completely fascinating to me. And probably to you too, because a couple of years ago, this was like, yeah, they don't work for you. Well, it was like energy density is the thing. This is what we need. All we care about is range. We need to pack as much battery as we can.

obviously LFP is never going to succeed, except for in these low-end applications in China and places like that, and that's obviously not true. That's right. Speaking of which, final piece on batteries, the other slide, slide 47 on batteries that I thought was interesting, points out that the top 10 manufacturers of lithium ion batteries are all based in Asia, which is pretty interesting.

So not all based in China. So this is the interesting dynamic about battery manufacturing, at the moment. It is, yes, CATL, which is a Chinese company, is the biggest. But the big Korean battery manufacturers are still way up there. So it's an interesting dynamic in that market. No, it is. Yes, CATL was, in 2022, had 199 gigawatt hours capacity. But LG was not far behind. LG was 138 and ahead of BYD in China, which had 120. And then Japan, Panasonic, comes in, comes in fourth with like half of what BYD does. There's still a kind of a pretty steep drop off in terms of total capacity.

But like, yes, this has been an Asian game within that. It's been largely a Chinese game. But yeah, the European and U.S. battery makers are really nowhere to be seen at this moment. And this is going to be very important to watch. Again, like you and I probably have to fight having our spidey sense tingle too much every time we see a chart like this and think about, you know, think about the solar market. But it is, you know, if it's not repeat. repeating history, it's at least rhyming at the moment. The rhyming question for me is, like,

how durable is that Japanese and Korean presence going to be? Because we saw that certainly in PV two decades ago, at least for Japan. Also Panasonic, by the way, same company, and LG. Yeah, but also Sharp and Kyocera, who are no longer really as big players in the PV business from Japan. So, you know, it's always challenging to sort of expect that this is going to continue forever. But at the moment, it looks pretty durable. And these are the companies that are expanding as well? The question is, like, is there going to, are there going to be other products that get manufactured at enough scale to change that top 10 ranking in other markets for other applications with other priorities embedded in them, you know, is the battery manufacturing

in Europe that sort of has a strong, I would say, domestic, domestic industrial and to some extent security policy element to it going to prevail? You know, like, is battery making in the U.S. going to come back in a major way, regardless of who the sponsor of that, the ultimate sponsor of that is? Yes. I mean, the answer to that question is yes, right? Right.

It's clear. Right. And we have like tens of billions of dollars worth of capacity announcements happening in the U.S. And then the other question is, like, where, you know, like, if things get set up in the U.S. are all of the other supporting necessities going to come along to make them go? Is lithium processing and rare? its processing going to be brought back domestically so that you can not exactly close the loop,

but you can friend shore or near shore as much stuff as you want for the purposes of maintaining some security and all of these things. All right, Nat, we got through, I don't know, five or six out of roughly a million topics that we can talk about. And thankfully, we're going to do it again. Awesome. Thanks for coming on. We'll see you on the next one for part two. Thanks, Shale. Looking forward. Nat Bullard is a venture partner at Voyager Ventures and a senior contributor at Bloomberg Green. So what else should we cover?

As always, you can leave us a voicemail. The number is 911-808-5832. That's 911-808-5832. Or you can email us at Catalyst at PostScript Audio.com. You can also tag us on Twitter or LinkedIn if you feel like it. This show is a co-production of PostScript Media and Canary Media. You can head over to canarymedia.com for links to Nats deck and other topics that we covered today. As always, PostScript is supported by Prelude Ventures,

a venture capital firm that partners with entrepreneurs to address climate change across a range of sectors, including advanced energy, food and ag, transportation and logistics, advanced materials in manufacturing and advanced computing. This episode was produced by Daniel Waldorf, mixing by Roy Campanella and Sean Marquand, theme song by Sean Markwond. I'm Shail Khan, and this is Catalyst.