The UK can become a global player in EV batteries if billions of pounds are invested now to build a battery supply chain, according to a report from the Green Finance Institute’s Coalition for the Decarbonisation of Road Transport (CDRT).
The report highlighted the opportunity to invest in the growing global demand for EV batteries, which it said will underpin the future of road transport. But CDRT stressed that there is a narrow window to seize this opportunity and barriers to investment must be overcome.
Furthermore, the value of the transition from ICE to EV powertrains could benefit the UK economy by upwards of £24bn by 2025, according to the government-funded Advanced Propulsion Centre (APC).
Ian Constance, CEO, at APC, said: “The UK battery supply chain presents a real opportunity. Our forecasts show that demand will reach over 90GWh by 2030 but delivering growth on this scale requires a healthy appetite to invest significant capital.
“To maximise green jobs and economic growth, gigafactories and their supporting supply chains are essential. The right balance of policy and support, as outlined in the CDRT report, is essential to secure investor confidence in the UK EV sector.”
The UK currently produces around two gigawatt hours (GWh) of battery capacity a year but will need to ramp up to over 90GWh a year by 2030 to maintain a car industry at its current size, APC said. Investment is needed to increase battery production and secure for the UK a major share of the rapidly growing global battery supply chain market, which is forecast to grow from US$46bn (£37.2bn) in 2021, to projections ranging from US$116bn (£93.3bn) – US$278bn (£225bn) by 2030.
Mike Hawes, chief executive, Society of Motor Manufacturers and Traders, added: “UK automotive manufacturing and its supply chain has benefitted from decades of significant investment to make it successful.
“At least £10.8bn has been committed to EV production since 2011, but as the transition to zero emission motoring gathers pace so too does the need for fresh investment. To ensure the UK remains globally competitive as an EV manufacturer we need urgent backing to help transition our supply chain, bolster retraining and skills programmes and, crucially, increase our domestic battery production capability.”
Powering the Drive to Net Zero concludes that only the private sector can provide finance at the pace and scale needed to enable the transition to cleaner road transport. Yet, at present, organisations across the battery supply chain find it hard to secure the high levels of funding needed to scale up because battery developments are often considered high risk.
Banks and institutional investors are cautious about investing in an emerging sector, particularly when future revenues are not certain and offtake agreements to buy batteries have yet to be signed, the report stated. This means developers have to bridge a funding “valley of death” as they seek to scale up, with challenges around securing investment which matches the risk profile.
The report added that innovative financial solutions including de-risking mechanisms such as guarantees, along with supportive government policies, are essential to unlock the larger sums of capital needed to build battery supply chains.
It warned that failure to invest now risks seeing other countries capture this opportunity, because investment lead times and construction periods for battery facilities can extend to several years.
