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Battery energy storage is emerging as part of the solution to managing intermittent renewable energy as grids go increasingly renewable. This is a key part of the transition from fossil fuels in the electrification of power. Companies like Tesla (TSLA) and Fluence (FLNC) that are involved with big end of town battery storage and energy management give one view of the energy storage space. Here I provide another angle by focusing on a big national battery play in the form of Norway’s FREYR Battery (NYSE:FREY), a clean battery manufacturer. FREYR Battery’s Executive Chairman and Founder Torstein Dale Sjotveit has the following view: “As a society, we must substantially accelerate our efforts to reduce CO2 emissions at scale over the next 10 years. Electrification and batteries are instrumental parts of the solution, representing one of the most exciting and sustainable growth vectors in the market.” FREYR Battery is fast emerging as a big battery company to complement the dominance of Chinese (CATL, BYD (OTCPK:BYDDF)), South Korean (LG Energy Solution, Samsung SDI (OTCPK:SSDIY)) and Japanese (Panasonic (OTCPK:PCRFF)) lithium battery manufacturers. This might be of interest to investors looking to access European/US battery manufacture.
FREYR Battery’s origin
Norway is a small Scandinavian country, but it punches above its weight in the renewable energy transition, being the country that’s well advanced in the transition from being gasoline-focused in transport to rapidly building a fully electrified transport fleet (all new cars will be BEVs (Battery Electric Vehicles) by 2025). And it isn’t stopping there with plans for all domestic air transport being electrified by 2040. It isn’t surprising that Norway is moving to take a prominent position in the whole battery lifecycle chain from sourcing raw materials to recycling of spent batteries. FREYR Battery plans to develop 50 GWh of battery cell production capacity by 2025. The battery cell production facilities at Mo I Rana in Northern Norway will use 100% renewable energy in their manufacture. The lithium batteries will be used especially for stationary storage.
FREYR’s technology
FREYR seeks to use the best technology and it has licensed the Boston-Cambridge entity 24M SemiSolid lithium battery manufacturing technology, which emerged from the Massachusetts Institute of Technology. Volkswagen (OTCPK:VWAGY) has a partnership with 24M on electric vehicle battery developments and it has been speculated that FREYR could potentially become a JV partner with Volkswagen on a 24M Gigafactory development. However it seems that the company is more focused initially on large stationary BESS (Battery Energy Storage Solutions) systems and this means LFP battery chemistry. Koch Strategic Platforms also has a partnership with 24M and it’s working with FREYR on a Gigafactory in the US (see below). So, 24M must be doing something right because it has some pretty impressive manufacturing partners, including Itochu (OTCPK:ITOCF) and Kyocera Group (OTCPK:KYOCY). Keeping it in the family, FREYR has a strong partnership with Itochu for sourcing and logistics to help ensure 24M technology access through pre-qualified suppliers.
Starting in Norway
The FREYR Giga Arctic project will be the most capital efficient Gigafactory in Europe and it will start production in 2024 with a big customer through a JV with Japanese company Nidec (OTCPK:NNDNF) (66.7% Nidec, with FREYR having a 33.3% stake). The JV agreement includes development, manufacture and sale of integrated low carbon BESS to industrial and utility customers. Nidec is the world’s largest small precision motor manufacturer in the automotive, industrial and appliance sectors. FREYR will supply 38 GWh of batteries to the JV between 2025 and 2030, with potential to upsize to 50 GWh in that period and potential additional volumes after 2030. Currently Nidec has 1.3 GW of BESS installed across 121 projects in 21 countries in Europe, South America and Africa. Nidec expects to expand its BESS business in EMEA and grow into North America and China.
FREYR CEO Tom Einar Jensen made clear in the Q2 2022 earnings report that things are accelerating in the big battery space. His view is that while there are a lot of new players, the companies that survive and flourish will be those who “move at pace, build at scale and pay true attention to sustainability.” Jensen indicates that the company is busy engaging customers, technology providers, investors, governments, talent, raw materials providers and equipment suppliers. He indicated that there’s strong momentum for modularized and scalable solutions, and that the company remains on track even in the most challenging macroeconomic conditions for decades. It will deliver on the promised goals for 2025, double that three years later and then double again after two years. He’s clear that size matters. The target capacity is now 200 GWh across multiple geographies by 2030 and this might be half LFP chemistry and half higher energy density (for BEV applications?) although that may change. Jensen doesn’t disagree with the view that the energy storage space will increase 40 fold by 2030.
There’s very strong support from the Norwegian Government (National Battery strategy was launched at the Giga Arctic site in June). The Giga Arctic (Northern Norway) facility will start with 29 GWh of LFP (Lithium Iron Phosphate) capacity which is three times larger than anticipated when FREYR went public last year. The 24M technology seems to be highly space efficient which means strong capital efficiency. FREYR is the first company to scale up the 24M technology to GW capacity. FREYR indicates that the Giga Arctic facility is a model for replication of scale up. FREYR’s activities are not limited to Norway in Scandinavia, as there’s also a MOU with the city of Vaasa in Finland giving exclusive rights to 130 Hectares for a battery cell plant. This continues FREYR’s focus on Government support for its major site developments.
The US Inflation Reduction Act of 2022 provides the basis for optimism about manufacture in the US because there are various financial incentives to do so, including $35/kWh tax credit for battery cell manufacture, $10/kWh tax credit on module manufacture, 10% tax credit on manufacture of anode and cathode materials in the US. A location for FREYR’s JV Gigafactory (with Koch Strategic Platforms) in the US will be announced later this year. The startup of the US Gigafactory has 2024/2025 as a target, with capacity beyond 50 GWh. FREYR sees local US manufacture being a big advantage for reducing costs and facilitating US supply chains, although it’s a big ask to compete with Chinese manufacturing costs.
With FREYR still very much in startup mode, the financials are obviously skinny, with revenue just $4.7 million in the quarter ending June 30 2022, and this revenue is technical rather than real. The spend was $77 million for the first six months of 2022. The company had $488 million cash as of June 30 2022 and no debt. The company will report soon on financing activities involving more than $1.6 billion of potential credit support for Giga Arctic.
Conclusion
Unlike Fluence and Tesla, which are substantial project developers and integrators in the stationary battery space, FREYR is at the commodity end of the BESS battery story. GS Analytics’ recent analysis explored the risks of being a battery manufacturer when you have licensed technology that others are accessing too. What’s missing from the GS Analytics analysis? How FREYR is working with the 24M team to ensure smooth, scaled up manufacture. Maybe what’s missing is the full scale of the opportunity for batteries. We’re at the beginning of electrification of everything, based on making electricity from solar PV and wind and managing it significantly using batteries. By “everything” I refer specifically to power and transport, and complete exit of fossil fuels (coal, oil and gas) in these processes. This is a massive task and I suspect there will be a scramble to cope with battery supply for the foreseeable future, especially for those wishing to avoid dependence on Chinese manufacturing. To give a specific example, in Australia, the State of Victoria plans for 2.6 GW of new energy storage by 2030, but the interesting thing is that the plan for 2035 is a massive 6.3 GW… ie an additional 3.7 GW over the following five years. So my take is that for most investors’ investment timeline, FREYR is going to be operating in a lack of sufficient supply environment, which has to be interesting for their business. I note that FREYR is focusing on European and US manufacture to supply these markets. I’ve considered taking a stake in FREYR, but the recent runup to ~$15 has me on the sidelines currently. If you want to participate in the electrification of everything, then FREYR should be on your watch list. Of course we’re early in the battery story and I’ve already indicated my interest in potential contribution of flow batteries in the stationary storage market, so as always with emerging markets it’s good to be watchful about new developments.
I’m not a financial advisor but I follow closely the massive changes happening as energy and transport get decarbonized. I hope that my comments about the FREYR Battery opportunity in particular and the lithium battery market more generally are of interest to you and your financial advisor as you contemplate the energy revolution that we’re entering.
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