Verkor | What does the energy crisis mean for the EV battery market?


What does the energy crisis mean for the EV battery market?


March 17, 2023





Never have we experienced an energy crisis of this magnitude. Post-pandemic economic recovery, compounded by the war in Ukraine, has led to energy supply tension around the world.

Verkor’s ambition has always been to accelerate the manufacture of low-carbon batteries in Europe as demand for electric vehicles grows. So, what are the stakes for the EV battery market, and what threats does the current crisis pose?

Benoit Lemaignan, co-founder and CEO of Verkor, and Margaux Delaune, energy sourcing buyer, give their take on the energy crisis.

Margaux, how do you interpret the current energy market?

MD: Today’s crisis shows that the European electricity market that has reached its limits. Prices are under pressure and have surged to unprecedented levels, and the market design is being called into question.

With the recovery of the economy after Covid-19 came a sharp increase in electricity consumption, with an impact on prices from 2021. The invasion of Ukraine by Russia in February 2022 put pressure on Russian gas supplies, ultimately turning off the taps, which caused prices to soar. It also raised questions about gas supplies and gas storage for the winter.

A large portion of France’s energy mix comes from nuclear power. However, with the backlog of maintenance outages at certain plants due to Covid, generation dropped significantly. The result was a greater need for fossil fuel-based power to meet demand. In 2022, the nuclear fleet’s generation capacity was still below optimum level. France therefore had to rely on gas imports and fossil-fuel based electricity to make up the shortfall in its energy mix in order to meet demand. We should see an improvement in 2023 — and in fact we already do. However, prices don’t look to fall back to pre-crisis levels.

The context is extremely tense. There is a lot at stake for the competitiveness of French businesses, especially in industry. This includes energy-intensive industries, for which electricity constitutes an essential resource, as well as to small and medium-sized businesses whose contracts expire at the end of 2021 or 2022, and which in 2023/2024 face prices that are 10 times higher, depending on the buying period. The impact is less visible for households, which for now are shielded by a cap on energy prices.

What’s at stake for a battery manufacturer like Verkor?

MD: Setting up the battery industry on French soil is a hugely strategic move to end dependence on Asian players — particularly those in China. Other than the sovereignty aspect, France needs its own battery industry if it is to achieve the government’s energy transition goals. This means electrifying mobility and manufacturing low-carbon batteries.

Another stake is the competitiveness of battery manufacturers. The price of electricity cannot and must not hold back battery manufacturing in France, particularly since our low-carbon energy-mix is a key advantage in our achieving this transition.
The government has a decisive role to play to support the competitivity of French battery companies, and to provide decarbonated electricity at a competitive price. The survival of industries — suppliers of decarbonisation solutions — depends on long-term contracts for stable and affordable renewable or nuclear energy.

The energy crisis is far-reaching and has an impact on industry and households alike. As a company director and a private individual, how do you see this crisis?

Benoit Lemaignan: This crisis is the result of a completely dysfunctional energy market because of political decisions, both domestic — shutting down coal-fired and nuclear power plants to prioritise renewable energy without an adapted market design — and external — economic sanctions to stop Russian gas imports.

Another contributing factor is the liberalisation of the market by Brussels, the outcome of which is a massive deficit of power generation in numerous European countries.
The electricity market design is completely decorrelated with the reality of what energy is. This has consequences for small and medium-sized businesses, which do not benefit from the energy price cap, and for individuals. The European Commission has therefore undertaken to reform the functioning of the energy market, and made its first proposal in March 2023.

What is the impact on the European battery market?

BL: France has immense strengths, one being its ability to generate low-carbon electricity to meet its needs. But if we don’t secure energy prices, we will be jeopardising the battery industry and the competitivity of these industries in France.

This might prompt some industries to move offshore, or even shut down some businesses because they can no longer absorb the cost of electricity.

Will the energy crisis impede the development of electric vehicles?

BL: I do not believe the crisis will impede the development of electric vehicles. The price of diesel and petrol now stands at around €2/l, and the sale of new ICE cars will be banned from 2035. It could, however, have an impact on the development of battery factories on the European continent, and therefore on the e-mobility sector. Ultimately, we face the risk of being outpaced, and our European projects not making it off the ground, thereby undermining our goals for sovereignty.

Energy policy will be decisive for industrial sovereignty at both the national and European level, and governments have already put it into action: in Sweden, Northvolt benefits from an electricity price that was agreed upon in advance for a period of several decades; and in Germany, industry benefits from hundreds of billions of euros in subsidies.

Does the crisis present an obstacle for Verkor?

BL: We don’t at all have the same level of energy consumption as an SME. For our Verkor Innovation Centre project — the VIC — in Grenoble, we only just scraped through because we qualify for the ARENH fixed-price mechanism at €42/MWh for 70% of our needs.

For the Verkor Gigafactory, we have a long-term contract at a competitive price for half our energy needs via access to a district heating network. This price is very advantageous and scores us a lot of competitivity points. But after 2025, when the ARENH mechanism comes to an end, the challenge will be to have long-term visibility for the entire energy bill of the factory.

Given how volatile the price of electricity is, ranging from €20 to €200 from one day to the next, it’s impossible to ensure a predictable return on investment when we need to spend €1.5 billion to build an industrial facility. It goes beyond reason. All European and French industries need long-term visibility to invest. The electricity generation fleet can make this happen. It’s up to the market to deliver.

As part of ARENH, France’s Regulated Access to Incumbent Nuclear Electricity mechanism, alternative suppliers can access electricity from EDF, France’s power utility, under conditions set by public authorities. The current price is €42/MWh for a total allocated volume of 100 TWh/year.

Has Verkor identified solutions to mitigate the crisis?

BL: An energy mix of nuclear power, renewables, and energy purchased from the market will account for close to half the Gigafactory’s total consumption.

The rest will be covered by waste heat from surrounding industries. The system is in the process of being set up, with the support of Grand Port Maritime de Dunkerque, the Port of Dunkirk. This source of energy is entirely decarbonated and highly competitive. It is also in tune with the values and essence of

Verkor, which wants to guarantee batteries with a low carbon impact that are manufactured using an energy mix that is as carbon-free as possible. This is a very important point for us, and a key part of our strategy.

Waste heat: Heat given off by a production process that would otherwise be lost if not captured by a heating network.

What should we take away from this crisis?

BL: Our ambition at Verkor is to install a battery industry in northern France and attract cathode manufacturers, recyclers and other players who will form a veritable battery ecosystem.

This industry has an important role to play in fulfilling the objectives set for France and Europe as a whole. To succeed, we need to align the key conditions to ensure our competitivity. One of these conditions is having access to electricity contracts that are decorrelated to the current market: long-term, low-carbon, stable and competitively priced.