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Stimulus Big Winner: Battery Manufacturing

The Congressional stimulus bill could help create a new, advanced battery industry in the United States.
February 17, 2009

Provisions in the Congressional stimulus bill could help jump-start a new, multibillion-dollar industry in the United States for manufacturing advanced batteries for hybrids and electric vehicles and for storing energy from the electrical grid to enable the widespread use of renewable energy. The nearly $790 billion economic stimulus legislation contains tens of billions of dollars in loans, grants, and tax incentives for advanced battery research and manufacturing, as well as incentives for plug-in hybrids and improvements to the electrical grid, which could help create a market for these batteries.

Significant advances in battery materials, including the development of new lithium-ion batteries, have been made in the United States in the past few years. But advanced battery manufacturing is almost entirely overseas, particularly in Asia. As a result, advanced battery startups in the United States typically have their batteries made outside the United States. But this need not be the case, says Prabhakar Patil, the CEO of Compact Power, a subsidiary of the South Korean company LG Chem, based in Troy, MI. Battery manufacturing is largely automated, so labor costs aren’t much of a concern, he says. Rather, the battery industry developed in Asia because countries there, particularly Japan, developed portable electronics and hybrid vehicles, creating a market for batteries.

Now, with the push to rely more on renewable energy and less on fossil fuels, a market for advanced batteries is starting to develop in the United States. This, combined with incentive for manufacturers in the United States, could allow an advanced battery industry to develop in this country. But many experts say that serious obstacles remain to getting the industry off the ground. Investors are reluctant to provide capital for battery plants because the markets are still relatively small. And the markets are still small in part because batteries are expensive, which is itself partly because they’re currently made in low volumes.

The stimulus bill could help address both problems. It sets aside $2 billion in grants for manufacturing advanced batteries, plus tax credits to cover 30 percent of the cost of a plant (up to $2.4 billion in total credits). This is in addition to $7.5 billion in loans authorized in a previous bill for manufacturing advanced technology for vehicles, which includes batteries. Employees for these factories could be trained as part of $500 million in funding for retraining workers for green jobs. There is also $16.8 billion going to energy efficiency and renewable energy, which will likely include money for battery research to bring down costs and improve performance.

Additionally, there are provisions that will help ensure a market for the batteries. Tax credits of up to $7,500 will go to people who buy hybrids with large batteries that can be recharged by plugging them in; there will also be smaller incentives for converting cars into such plug-in vehicles. What’s more, $300 million is set aside for federal agencies to buy alternative fuel vehicles, including plug-ins, as well as $400 million for “transportation electrification.” There will also be $4.5 billion set aside for improving the electric grid, some of which is supposed to go for research on and manufacturing of batteries.

Some experts are nervous about how the money will be spent. The Department of Energy (DOE), which will be administering much of the funds, is under pressure to distribute money quickly, which some fear will increase the possibility that the funds will be misallocated. Patil, whose company will be supplying the battery packs for the Chevrolet Volt electric vehicle due out in 2010, says that there are plenty of lithium ion chemistries that don’t make sense for automotive applications, and he hopes that the DOE will take note of this in its funding. Robert Kanode, the CEO of Valence Technologies, a battery manufacturer based in the United States (but with manufacturing in China), is likewise concerned that funding will go to technologies that have little chance of commercial success.

While it’s not clear that battery costs will come down enough to create a large market for plug-in hybrids, the advances in battery technology in the United States have put the country in a position to develop a new battery industry, says Ted Miller, the senior manager for energy storage strategy and research at Ford Motor Company and a manager at a research consortium set up by the Big Three automakers. “Our weakness is not in research,” he says. “Now we need to find a way to kick-start manufacturing.”

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