Sustainability Atlas
Chemistry & Materials Science·14 min read··...

Explainer: Battery chemistry & next-gen storage materials — the concepts, the economics, and the decision checklist

A practical primer: key concepts, the decision checklist, and the core economics. Focus on duration, degradation, revenue stacking, and grid integration.

Global battery storage capacity surpassed 100 GWh of annual deployments for the first time in 2024, representing a 130% year-over-year increase and fundamentally reshaping how grid operators, investors, and policymakers approach decarbonization. Yet behind this exponential growth lies a complex landscape of competing chemistries, degradation mechanisms, and revenue models that determine whether a storage project delivers returns or becomes a stranded asset. This explainer unpacks the core concepts driving battery chemistry innovation, examines what separates commercially viable storage from laboratory curiosities, and provides a practical decision framework for evaluating next-generation storage investments.

Why It Matters

Energy storage has transitioned from a niche grid-balancing tool to a fundamental infrastructure asset underpinning the global energy transition. The International Energy Agency (IEA) projects that battery storage capacity must reach 1,500 GW by 2030 to align with net-zero trajectories—a fifteen-fold increase from 2023 levels. This trajectory demands not merely more batteries, but fundamentally better ones: systems capable of longer duration discharge, reduced degradation rates, and economic performance sufficient to compete with gas peakers without subsidies.

The economics are compelling. BloombergNEF data from 2024 indicates that lithium-ion battery pack prices fell to $115/kWh, down from $732/kWh in 2013—an 84% decline over a decade. However, this headline figure obscures critical nuances. Cell-level costs represent only 60-70% of installed project costs; the balance encompasses inverters, thermal management, balance-of-plant systems, grid interconnection, and soft costs including permitting and financing. For long-duration storage applications exceeding four hours, lithium-ion's fundamental chemistry imposes diminishing returns: the marginal cost per additional hour of duration remains roughly constant, while alternative chemistries like iron-air, zinc-bromine flow, and sodium-ion offer decreasing marginal costs at extended durations.

Grid integration complexity compounds these considerations. Modern electricity markets increasingly separate capacity payments from energy arbitrage revenue, creating multi-stream income opportunities—a practice known as revenue stacking. Storage assets can simultaneously participate in frequency regulation, spinning reserves, capacity auctions, renewable firming contracts, and wholesale energy arbitrage. However, each revenue stream imposes distinct cycling demands that accelerate degradation differently. A battery optimized for frequency regulation may complete 2,000-3,000 partial cycles annually, while one focused on daily arbitrage might cycle 300-400 times at deeper depths of discharge. Understanding how chemistry selection interacts with intended use cases is therefore essential for accurate financial modeling.

Key Concepts

Battery Chemistry Fundamentals

Battery chemistry refers to the electrochemical system governing how energy is stored and released within a cell. The dominant lithium-ion family includes multiple variants: lithium iron phosphate (LFP), nickel manganese cobalt (NMC), and lithium manganese oxide (LMO), each offering distinct trade-offs between energy density, cycle life, thermal stability, and cost. LFP has emerged as the stationary storage chemistry of choice globally, commanding over 95% of utility-scale deployments in 2024 due to its superior safety profile, longer cycle life (typically 4,000-6,000 cycles to 80% capacity retention), and avoidance of cobalt supply chain risks.

Beyond lithium-ion, next-generation chemistries target specific performance gaps. Sodium-ion batteries substitute abundant sodium for lithium, eliminating critical mineral constraints and enabling manufacturing with existing lithium-ion production lines. Flow batteries decouple power (determined by cell stack size) from energy (determined by electrolyte tank volume), enabling economically viable storage durations from 4 to 12+ hours. Iron-air and metal-air systems promise ultra-low cost at very long durations (100+ hours) by using atmospheric oxygen as one electrode reactant.

Catalysis and Electrode Kinetics

Catalysis in battery contexts refers to the acceleration of electrochemical reactions at electrode surfaces. Catalyst materials—often nanostructured metals, metal oxides, or carbon-based compounds—reduce the activation energy required for charge transfer, directly impacting round-trip efficiency and rate capability. In metal-air batteries, bifunctional catalysts must facilitate both oxygen reduction during discharge and oxygen evolution during charge, a demanding requirement that historically limited cycle life to <100 cycles. Recent advances in perovskite oxides, nitrogen-doped carbons, and single-atom catalysts have extended metal-air cycle life beyond 1,000 cycles in laboratory demonstrations, though commercial validation remains ongoing.

Life Cycle Assessment (LCA)

LCA provides a systematic methodology for quantifying environmental impacts across a battery's entire value chain: raw material extraction, refining, cell manufacturing, system integration, operational use, and end-of-life recycling or disposal. A rigorous LCA reveals that lithium-ion batteries produce 50-150 kg CO₂-equivalent per kWh of capacity, with manufacturing and mineral processing dominating the carbon footprint. However, this embodied carbon is typically repaid within 6-18 months of operation when displacing fossil-fired generation. Emerging chemistries must demonstrate comparable or superior lifecycle performance to justify adoption, particularly as European and North American markets implement battery passport requirements mandating cradle-to-grave carbon disclosure.

Transition Planning

A transition plan in the storage context encompasses the strategic roadmap for shifting from current-generation to next-generation systems within a portfolio or grid. Effective transition planning accounts for technology readiness levels, supply chain maturation timelines, stranded asset risks, and regulatory evolution. Investors increasingly require explicit transition plans demonstrating how portfolio companies will navigate chemistry shifts—for example, from NMC to LFP to sodium-ion—without value destruction.

Scale-Up Dynamics

Scale-up refers to the progression from laboratory cells (milliamp-hour capacity) through pilot manufacturing (kilowatt-hour scale) to gigafactory production (gigawatt-hour annual output). Each scale transition introduces distinct challenges: maintaining electrode uniformity across larger coating widths, managing thermal gradients in larger cell formats, and establishing quality control systems capable of detecting defects at parts-per-million rates. Historical data suggests new battery chemistries require 7-12 years from laboratory demonstration to commercial deployment at >1 GWh annual capacity, though accelerated programs targeting sodium-ion and LFP have compressed this to 4-6 years by leveraging existing lithium-ion manufacturing infrastructure.

What's Working and What Isn't

What's Working

LFP dominance in stationary storage has proven remarkably successful. CATL, BYD, and EVE Energy collectively shipped over 300 GWh of LFP cells in 2024, with utility-scale projects routinely achieving installed costs below $200/kWh for four-hour systems. The chemistry's inherent safety—no thermal runaway propagation between cells—has effectively eliminated catastrophic fire risk as a barrier to permitting and insurance.

Revenue stacking optimization has matured significantly. Software platforms from companies like Fluence, AutoGrid, and Habitat Energy now routinely extract 20-40% higher revenue per MWh of installed capacity compared to single-use dispatch strategies. Australian and UK markets have demonstrated that co-optimizing frequency regulation, energy arbitrage, and capacity contracts can push storage project IRRs above 15%, materially outperforming contracted offtake models alone.

Recycling infrastructure development has accelerated faster than anticipated. Redwood Materials, Li-Cycle, and Brunp Recycling have collectively commissioned over 100,000 tonnes per annum of lithium-ion processing capacity, achieving 95%+ recovery rates for lithium, cobalt, nickel, and copper. Closed-loop agreements between battery manufacturers and recyclers are now standard in major supply contracts, addressing lifecycle sustainability concerns.

What Isn't Working

Long-duration storage economics remain challenged. Despite significant cost reductions, technologies targeting 8+ hour duration—including vanadium flow, iron-air, and compressed air—have struggled to achieve levelized storage costs below $150/MWh for discharged energy. Utility procurement remains sporadic, with most long-duration contracts concentrated in California and Australia where specific grid conditions create compelling use cases. Without broader market signals or mandates, deployment remains subscale.

Degradation prediction accuracy lags commercial needs. While laboratory cycling tests provide useful baseline data, field performance often deviates significantly due to thermal gradients, calendar aging under varying state-of-charge conditions, and unpredicted failure modes at system level. Warranty claims have emerged as a material financial risk, with several early utility-scale projects experiencing capacity fade 15-25% faster than manufacturer projections.

Supply chain concentration creates geopolitical vulnerabilities. Over 75% of lithium-ion cell manufacturing capacity resides in China, with even higher concentrations for cathode and anode materials. Despite significant IRA-driven investment in North American manufacturing, domestic supply chains remain years from achieving meaningful diversification. Sodium-ion offers theoretical relief but currently shares many of the same manufacturing bottlenecks.

Key Players

Established Leaders

CATL (Contemporary Amperex Technology) — The world's largest battery manufacturer, commanding over 35% global market share. CATL's Kirin and Shenxing battery platforms have set industry benchmarks for energy density and fast-charging capability, while aggressive pricing has driven industry-wide cost compression.

BYD Company — Vertically integrated manufacturer spanning lithium extraction through electric vehicles and grid storage. BYD's Blade Battery platform pioneered cell-to-pack architecture for LFP chemistry, improving volumetric energy density by 50% compared to traditional module designs.

Fluence — Joint venture between Siemens and AES, Fluence leads in grid-scale energy storage system integration and software. The company has deployed over 11 GW of storage across 50 countries, with its Mosaic software platform managing dispatch optimization and asset performance.

Tesla Energy — Tesla's Megapack product line represents the benchmark for factory-assembled utility storage, with over 40 GWh deployed globally. The company's Autobidder software demonstrates advanced AI-driven trading capabilities across multiple market structures.

Samsung SDI — Major supplier of NMC and prismatic cells for both automotive and stationary applications. Samsung's ESS Safety Framework has become an industry reference for thermal management and fire prevention engineering.

Emerging Startups

Form Energy — Developing iron-air battery technology targeting 100-hour discharge duration at costs projected below $20/kWh of storage capacity. Backed by Breakthrough Energy Ventures and ArcelorMittal, Form has announced a manufacturing facility in West Virginia targeting 2025 production.

Natron Energy — Commercializing sodium-ion batteries based on Prussian blue electrode chemistry, targeting data center and industrial backup applications requiring high cycle life and non-flammable operation.

EnerVenue — Developing metal-hydrogen battery technology using nickel-hydrogen chemistry originally developed for satellites, targeting 30-year operational lifetimes for grid applications.

ESS Inc. — Publicly traded manufacturer of iron flow batteries for long-duration storage. ESS has secured over 2 GWh of project commitments and operates manufacturing in Wilsonville, Oregon.

QuantumScape — Pursuing solid-state lithium-metal batteries with industry-leading energy density targets (>400 Wh/kg). While focused primarily on automotive applications, the technology platform could transform stationary storage economics if manufacturing challenges are resolved.

Key Investors & Funders

Breakthrough Energy Ventures — Bill Gates-founded climate technology fund with significant positions in Form Energy, Redwood Materials, and other storage innovators. BEV's patient capital model enables funding for technologies requiring 7-10 year development timelines.

BlackRock — Through its Global Energy & Power Infrastructure funds, BlackRock has committed over $5 billion to battery storage projects globally, anchoring financing for utility-scale deployments across North America and Europe.

U.S. Department of Energy Loan Programs Office — Authorized over $20 billion in loan guarantees and direct loans for battery manufacturing and deployment under the IRA, including major commitments to Ultium Cells, Redwood Materials, and numerous project financings.

Temasek Holdings — Singapore sovereign wealth fund with strategic investments across the battery value chain, including significant positions in CATL, Northvolt, and various recycling ventures.

SUSI Partners — European infrastructure fund specializing in energy storage, with over €2 billion in assets under management across grid-scale and behind-the-meter storage portfolios.

Examples

  1. Hornsdale Power Reserve, Australia — Commissioned in 2017 at 100 MW/129 MWh and subsequently expanded to 150 MW/193.5 MWh, Hornsdale demonstrated the technical and commercial viability of utility-scale lithium-ion storage. The project earned over $150 million AUD in its first five years through frequency regulation services, reducing grid contingency costs by $116 million and achieving payback in under two years. Hornsdale's success directly catalyzed Australia's emergence as the global leader in storage deployment per capita.

  2. Moss Landing Energy Storage, California — The world's largest battery installation at 750 MW/3,000 MWh, operated by Vistra Energy using LFP cells from CATL. Moss Landing provides resource adequacy capacity under California's regulatory framework while participating in CAISO wholesale markets. The project demonstrated that large-scale storage could be permitted, constructed, and commissioned within 18 months, establishing a template for accelerated deployment.

  3. UK National Grid ESO Stability Pathfinder — A series of competitive procurements securing 12.5 GW of stability services including synchronous inertia, reactive power, and fast frequency response from battery storage and other assets. The program demonstrates how market design innovation can unlock storage value beyond simple energy shifting, with winning projects earning capacity payments exceeding £30/kW/year in addition to energy and ancillary service revenues.

Action Checklist

  • Conduct chemistry-specific degradation modeling for intended dispatch profiles before finalizing technology selection
  • Evaluate LCA data using ISO 14040/14044 methodology to ensure compliance with emerging battery passport requirements
  • Model revenue stacking opportunities across available market products, including capacity, frequency regulation, and arbitrage
  • Assess supply chain exposure by mapping critical mineral sourcing and manufacturing geography for shortlisted technologies
  • Review warranty terms with particular attention to capacity guarantee conditions, exclusions for specific cycling patterns, and remediation mechanisms
  • Engage grid interconnection studies early; queue position and required upgrades frequently determine project viability
  • Develop explicit transition planning scenarios for next-generation chemistry adoption within portfolio time horizons
  • Structure offtake agreements with flexibility provisions enabling pivot between market products as revenue opportunities evolve
  • Establish recycling partnerships and end-of-life cost provisions in project financial models
  • Monitor regulatory evolution across key markets including IRA implementation guidance, EU Battery Regulation, and emerging carbon border adjustments

FAQ

Q: How do I compare levelized cost of storage (LCOS) across different battery chemistries? A: LCOS calculations must normalize for critical variables including discharge duration, round-trip efficiency, cycle life, depth of discharge, and auxiliary power consumption. A lithium-ion system at 85% round-trip efficiency completing 5,000 cycles will exhibit fundamentally different economics than a flow battery at 70% efficiency completing 20,000 cycles. Standardized frameworks from NREL, Lazard, and BloombergNEF provide useful methodological templates, but investors should construct sensitivity analyses around manufacturer-claimed versus field-verified performance parameters.

Q: What degradation rates should I assume for financial modeling of lithium-ion projects? A: Conservative modeling for LFP systems assumes 2.5-3.5% annual capacity fade under typical grid cycling patterns. However, actual degradation depends critically on operational parameters including depth of discharge (deeper cycles accelerate fade), temperature management (operation above 35°C accelerates fade significantly), and state-of-charge window (prolonged storage at very high or very low SOC accelerates calendar aging). Request manufacturer degradation curves specific to anticipated dispatch profiles and validate against operational data from comparable installations.

Q: How does revenue stacking work in practice? A: Modern energy storage systems can switch between market products rapidly—from frequency regulation requiring sub-second response to energy arbitrage requiring multi-hour discharge. Sophisticated control systems and market participation software evaluate real-time prices across available products and optimize dispatch accordingly. A typical four-hour battery might earn 30-40% of revenue from capacity payments, 30-40% from energy arbitrage, and 20-30% from ancillary services, though proportions vary significantly by market design. The key constraint is that cycling for one product consumes cycle life that cannot be allocated elsewhere, requiring careful co-optimization.

Q: What role will solid-state batteries play in grid storage? A: Solid-state batteries, which replace liquid electrolytes with solid ionic conductors, offer theoretical advantages in safety and energy density. However, current development priorities focus on automotive applications where weight and volume savings justify cost premiums. For stationary storage, where system size is less constrained, solid-state's cost trajectory does not yet indicate competitiveness with LFP or emerging sodium-ion alternatives. The technology may find niche applications in space-constrained urban installations, but widespread grid deployment appears unlikely before 2030.

Q: How should investors evaluate long-duration storage opportunities? A: Long-duration storage (8+ hours) addresses fundamentally different grid needs than short-duration lithium-ion: multi-day renewable smoothing, seasonal shifting, and capacity during extended weather events. Evaluate based on duration-specific metrics including cost per kWh of energy capacity (not just power capacity), self-discharge rates for extended standby periods, and cycling requirements under realistic dispatch scenarios. Current technologies including iron-air, flow batteries, and compressed air remain in early commercial deployment; due diligence should emphasize technology readiness, reference installations, and manufacturer financial stability given extended project timelines.

Sources

Topics

batterychemistrycatalysisLCAtransition planscale-upopex

Related Articles