■Future prospects for RS Technologies ＜3445＞

3. New entry into the vanadium redox flow battery electrolyte market

(1) What is VRFB

The company established LE System, which develops, manufactures, and sells electrolytes for VRFB, as a wholly owned subsidiary in 2023/10 (business succession from the old LE System in December of the same year). VRFB is a storage battery that has been researched and developed as a national policy project since the 1970s as an energy saving measure, and although it is not suitable for miniaturization compared to lithium-ion batteries that are currently widely used, it is characterized by being non-flammable, highly safe, and that performance does not deteriorate over a long period of time, and that unlimited charging/discharging is possible. Furthermore, while other storage batteries perform charging/discharging due to chemical changes in electrodes, VRFB realizes charging/discharging due to chemical changes in the electrolyte. The storage capacity can be easily increased simply by increasing the electrolyte, and since the design is flexible, it is attracting attention as an ideal storage battery for stationary large-scale power storage applications, specifically for solar power generation, wind power generation, etc., and Sumitomo Electric Industries (5802) is the only manufacturer in Japan that is developing business as a VRFB manufacturer.

Although the initial cost is high, it demonstrates cost advantage in applications that assume long-term operation. In comparison with lithium-ion batteries (iron phosphate type), the company estimates that the cost will be almost the same after 10 years of operation, and that the cost will be lower by more than 30% after 20 years of operation.

(2) Market outlook

While daytime power supply of clean energy has increased due to the spread of mega solar power plants, cases where they are discarded from the supply and demand side are also conspicuous, and the need for large storage batteries to temporarily store generated electricity and use it at night is rapidly increasing both domestically and internationally. According to the “IEA World Energy Outlook 2022” issued by the IEA (International Energy Agency) published in materials provided by the company, it is predicted that the storage capacity of stationary storage batteries in the world will expand 10 times from 27 GWh in 2021 to 270 GWh in 2030, and 48 times to 1,296 GWh in 2050, and a certain percentage of this is VRFB It is expected that the system will occupy it.

VRFB's newly built storage capacity will rapidly grow from about 1.5 GWh in 2022 to about 20 GWh in 2028, and there is a forecast ※ that it will rapidly expand 13 times from about 0.09 million cubic meters to about 1.2 million cubic meters (less than 5 billion dollars in value) on an electrolyte basis, and 50% of that is expected to be occupied by the Asian region centered on China. Already, in China, electric power companies and the like have introduced VRFB systems, etc., and an increasing number of companies are entering the VRFB market in anticipation of future market expansion. The company developed the market by utilizing networks with local governments and local companies, etc. that have been built in China until now, and has set a goal of gaining top share in the VRFB electrolyte market by 2028.

* Forecast by Guidehouse Insights (US), a research company in the environmental energy field.

(3) Advantages of LE systems

Currently, there are many Chinese manufacturers as electrolyte manufacturers, but LE Systems cites the three strengths of stable procurement of raw materials, cost competitiveness of electrolyte production processes, and comprehensive technical ability that enables cooperation with a large number of battery manufacturers, and it is a strategy to expand sales to domestic and international VRFB manufacturers by utilizing these strengths.

a) Stable procurement capacity for raw materials

The four major countries that produce vanadium account for over 90% in the four countries of South Africa, China, Russia, and the United States. Applications for steelmaking additives (improved strength and heat resistance) account for 80% or more, but they are also widely used in the chemical and electronics industries. Vanadium pentoxide is commonly used for VRFB electrolytes, but the problem was that it was extremely difficult to control procurement costs due to changes in market conditions. In the LE system, intermediate products (AMV) are procured and manufactured as raw materials, so procurement is based on relative negotiations. Furthermore, the LE system possesses various technologies to recover vanadium from waste (residue) discharged from thermal power plants and plant facilities, etc., and it is conceivable that in the future, in addition to major domestic and international petroleum companies and steel manufacturers, they will partner with major South African mining companies to establish a system that can be stably procured.

b) Cost competitiveness

The general electrolyte manufacturing flow is to purchase vanadium pentoxide and convert it to 3.5 vanadium oxide through dissolution/filtration and electrolytic reduction processes to form an electrolyte. In response to this, the company has established a technology to directly manufacture electrolytes from ammonium metavanadate (hereinafter, AMV), which is an intermediate product until vanadium pentoxide is refined. AMVs can be procured at a lower cost than vanadium pentoxide through relative price negotiations, and since the dissolution time is as short as 1/5, electricity costs can be reduced by half or less. Also, the company estimates that it is possible to reduce the manufacturing cost of electrolytes to about 50% compared to other companies by using a reduction device with a high liquid surface contact area. Since the ratio of electrolyte to VRFB cost is as high as about 35%, there is a big advantage for VRFB manufacturers to adopt it. Also, according to the company's research, the fact that the components of impurities contained in electrolytes are lower than those of other companies' products is also an advantage. This is because it seems that the fewer impurities, the more suitable it is for long-term operation. In addition, lead-free and antimony-free technologies have also been established, and they are compatible with environmental regulations.

c) Comprehensive technical capabilities

LE Systems has been involved in research and development related to VRFB for over 30 years in Japan. In addition to having human resources who have built networks with domestic and international cell manufacturers as technical advisors, they also have VRFB design technology that enables cell development on their own, and their strength is that they can propose optimal VRFB systems. In terms of patent strategy, they also have multiple patents for vanadium recovery technology, electrolyte manufacturing processes, VRFB system design, etc. (more than 10 patents held).

(4) Current status and future prospects of LE systems

LE Systems currently has the Namie Plant (Fukushima Prefecture), which was completed in September 2021 as a mass production plant, in addition to the Tsukuba Plant, which is a research and development base. The Namie Plant has a production capacity of approximately 5,000 cubic meters per year, but there was no sales record until 2022. However, in 2023, inquiries were received from multiple Asian manufacturers, and of these, orders for large-scale projects for North American power plants were received via overseas cell manufacturers, and mass production began. Shipment preparations have already begun, but sales are recorded at the timing when inspection has been completed. Other than that, inquiries on the scale of tens of millions of yen to hundreds of millions of yen have also been received.

Sales targets are 1 billion yen for the 2024/12 fiscal year, 3 billion yen for the 2025/12 fiscal year, and 24 billion yen for the 2026/12 fiscal year, and the operating profit margin is expected to be 20% for the 2026/12 fiscal year. There is also a possibility that sales targets for the 2024/12 fiscal year will not be met depending on the inspection timing of projects (hundreds of millions of yen) for North American power plants, but since inquiries are increasing, there is a high possibility that sales will accelerate in the future. Since the sales capacity of the Namie Plant is around 3 billion yen per year, it is necessary to invest in increasing production capacity in order to achieve sales targets for the 2026/12 fiscal year. There is a high possibility that a new base will be established in China, which is the largest consumer country. When expanding, it is expected that it will become a factory with a capacity of 0.05 million cubic meters per year. The company aims to build a production system of 0.15 million cubic meters per year in the future. When converted to the current sales price of electrolytes, it is on a scale of about 90 billion yen, and even considering that prices will be lowered due to mass production, there is a good possibility that it will grow into a business on the scale of tens of billion yen.

(Author: FISCO Visiting Analyst Joe Sato)