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■ Date: April 26, 2021
Sparking a Second Life of Power Battery
PART 4. Economic Aspects of Battery Reuse
 
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Although battery reuse makes sense to fully utilize batteries’ residual value and improve the environmental sustainability, there’s still a high degree of uncertainty about its economic feasibility in China. The first reason lies in the ambiguous cost of battery repurposing, as there’s no uniform standard to follow in this nascent industry; while the second reason is the widespread informal market, which messes up the pricing criteria for retired batteries or second-use products.  
 
In this context, this article presents an economic analysis of battery reuse by discussing repurposing cost, cost reduction measures and product prices. Our analysis has found that battery reuse in general is economically feasible: second-use batteries are competitive in price compared to new batteries, with ~30% price gap; while despite the limited profit margin of 10% on average, great potential of cost reduction awaits to be realized. 
 
1. Methodology
In this analysis, we attempt to answer two questions to uncover the issues.
  • Firstly, what is required to repurpose retired batteries, and how much does it cost?
  • Secondly, how much are second-use batteries valued in the market, considering both profitability of this business and competitiveness of the products?
Figure 1. Economic Analysis Framework
 
Two pairs of comparisons are made to answer these questions (see Figure 1). 
  • The comparison of repurposing cost and second-use battery prices reveals the profitability (gain or loss) of this business. 
  • The maximum prices of second-use batteries are limited by that of new batteries, and their gap reflects the attractiveness of the former ones. 
 
 
2. Procurement Cost
Battery procurement involves process between collecting batteries from their owners and delivering them to the processing facilities. Its cost thus includes the purchasing price of used batteries and following operation cost (e.g., transportation, storage, labor, and primary screening). 
 
2.1 Purchasing Price of Used Batteries
After retiring batteries from automotive service, the majority (~ 90%) of used batteries still flows to the informal channels ([PART 1. An Overview of Battery Reuse in China]), which serve as our main data source here. 
 
During hearings with informal collectors, it’s found that their primary estimation of the battery value is based on its brand and time of usage, which help quickly estimate batteries’ potential electrical performance. Simply put, batteries from qualified brands could expect slower degradation in the future, and batteries used for more than 5 years are greatly devalued. If more specific information is provided, the price could be further narrowed down. 
 
Here we’ve collected prices of two major batteries in the market, LFP (lithium iron phosphate) and Ternary ones (see Figure 2). Prices roughly range from 0.15 RMB/Wh to 0.3 RMB/Wh. Ternary batteries are offered a slightly higher price, probably because it contains more reusable metal resources than LFP ones, and they will be ultimately recycled after reuse. 
Figure 2. Purchasing Prices of Used Batteries in China
 
2.2 Operation Cost 
Operation cost is roughly 0.2 RMB/Wh, according to our hearings. As such, total procurement cost totals 0.35 ~ 0.5 RMB/Wh. Unlike procurement cost largely determined by the residual value, operation cost has more potential to be reduced. The current market, especially the informal one, is featured with scattered, small volume but high frequency collection activities, which hinders the development of scale economy. However, as the rise of formal collection network, more large-volume transportation and storage are expected to reduce the cost. 
 
3. Processing Cost
 
3.1 Unstandardized Procedure 
As battery reuse is still in its early stage of development, the processing procedure is rather customized according to companies’ requirements (via cell, module or pack) and capabilities (e.g., level of automation), which leads to various cost levels in the market. 
 
  • Reuse methods: Battery reuse could be realized via pack (the whole pack directly used without disassembly), or via module or cell (batteries disassembled into module or cell, and then regrouped into packs). The trade-off between cost and performance needs to be considered when choosing reuse methods. Reuse via module or cell is more costly, with the presence of disassembly process. Moreover, batteries might be damaged as the current connection design between cells makes it hard for disassembly. Reuse via pack, however, enjoys cost advantages, but how to evaluate conditions of cells or modules within the pack remains a question unsolved.
 
  • Automation levels: High automated production would directly influence the fix cost, as it requires more sets of equipment and some of them might be costly. According to the two project cases presented below, GEM’s investment/MWh is more than three times as much as that of BYD, mostly due to more complicated sets of equipment. However, it’s worth noting that though automated equipment might leave burdens on firms’ cash flow for a while, its benefits of improved efficiency would trickle in the long period of production afterwards.
 
Table 1. Purchasing Prices of Used Batteries in China
3.2 Processing Cost Breakdown 
Normally the processing cost falls within the range of 0.14 ~ 0.18 RMB/Wh, according to industry rule of thumb. Based on a research project, its cost breakdown is provided in Figure 31. This research project analyzes the processing cost of retired LIBs used for energy storage station with rated power of 3 MW*3 h. Since the station is in its demonstration period, cost is relatively high because every step needs to be personalized. When the process is gradually industrialized, a cost reduction is expected, especially for equipment and production line. 
 
Figure 3. Processing Cost in China
4. Prices of Second-use & New Batteries
 
Figure 4. Summary of Repurposing Cost and Product Price
 
After discussion about repurposing cost, comparisons are made to explore the profitability of this business & attractiveness of second-use batteries compared with new ones. 
 
  • Repurposing Cost VS. Second-use Battery Price: Here the prices of second-use batteries are based on the sampling from the biding documents of China Tower, one of the biggest consumers of retired batteries in China. The majority of second-use batteries is LFP for back-up power and energy storage, at the price of ~0.67 RMB/Wh2. In this case, the margin for battery reuse is limited, roughly 10% on average, and players are bidding for large volume contract to offset the low profit. As the business grows more industrialized and regulated though, the repurposing cost could be further reduced.
 
  • Second-use Battery Price VS. New Battery Price: Second-use battery is cost competitive as its price is only two thirds of new battery prices (~1 RMB/Wh2). Yet another threat comes with the ever-decreasing new battery prices. Therefore, it’s necessary for players to continually reduce cost and maintain competitiveness with new batteries. 
 
5. Cost Reduction Measures
The standardization of the market, no matter for large-volume battery collection, or processing procedure, would significantly drive costs down. A deep dive into other factors for processing is present in this section. To simplify the analysis, here we only discuss the process between collecting modules, screening & testing, and delivering the regrouped modules (see procedure in Figure 53). 
 
Figure 5. Steps and Associated Cost in Battery Repurposing
 
As shown in the flow chart, collected modules are inspected and handled by technicians, connected to the equipment for electric testing, and those qualified are then packaged for delivery. Important components then cover: 
 
  • Technician handling: Given a constant production volume, the module size actually determines how many modules to be handled by technicians (see Equation 1). Lower number of modules due to increased size, for example, requires less technicians and decreases the labor cost accordingly. 
Equation 1. Module Number Determined by its Size
 
  • Electric testing: Access to onboard diagnostics data and electrochemical model would significantly reduce the electric testing time and frequency, which will influence the electricity cost and procedure efficiency. In the scenario with the access to those data and model, the testing process does not require full cycles to ascertain battery capacity, but a specialized cycle is used to calculate battery state of health (SOH) through the model, complementing the onboard diagnostics data. This process takes 1.5 hours3While in the scenario without the access, a more traditional and time-consuming test to directly measure module capacity, efficiency, and resistance etc. is required, which entails full discharge and charge events, and takes 8 hours3
 
  • Proportion of faulty modules: when faulty cells within the module do not meet the requirements, it’s not cost effective to replace them as battery designs somehow impede efficient replacement. Thus, once faulty cells are identified, the whole module is assumed to be discarded. The facility’s module yield is then computed based on the likelihood that a bad cell was present (see Equation 2). Larger module size will have a higher likelihood of detecting faulty cells, which would drive down the module yield and increase the cost. 
Equation 2. Module Yield Rate
 
Based on the above discussion, cost under different scenarios is evaluated: 
 
Figure 6. Cost modelling under different scenarios
  • The left graph shows that there are optimum module sizes for each production volume. As stated previously, increased module size will have both positive and negative impact on cost. For module sizes smaller than optimal, increasing module size reduces the number of modules to be handled and lowers the labor cost accordingly. As module size increases past the optimum, however, costs rise because the probability of finding a bad cell in a module increases. Scaled merit in terms of the production volume is limited, as the processing cost is still heavily determined by labor cost and testing time, which have low correlation with mass production. Higher automation level and access to on-board diagnostics data and electrochemical model in this case could effectively drive down the cost by replacing human labor and shortening electric testing respectively
 
  • The right graph shows that cell fault rate would exert relatively huge impact on processing cost, especially when the cell fault rate reaches 1%, the module yield decreases dramatically. A cost-effective solution is to identifying batteries’ SOH using on-board diagnostics data before module purchase, so as to screen out those unqualified cells. 
 
 
Conclusion 
Faced with limited profit margin, the industry requires more efforts to reduce the repurposing cost and make this business profitable. The rise of formal players and a more standardized process could bring about scale merit for battery collection or production line configuration, while on-board diagnostics data helps reduce the testing time and screen out faulty cells before battery purchase. Other technology under development includes automated production line, better disassembly techniques, or explorations of various battery reuse methods. Whatever the factors are, however, they all require technological improvement as well as business collaboration among players, especially when it comes to market standardization and data sharing through the process. 
 
Reference
1. B. Sun et al. 2020 Economic analysis of lithium-ion batteries recycled from electric vehicles for secondary use in power load peak shaving in China
2. Integral’s summary based on China Tower’s bidding documents. 
3. NREL. 2015.02 Identifying and Overcoming Critical Barriers to Widespread Second Use of PEV Batteries
 
 
 
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