Bushveld Minerals Limited (LON:BMN), a diversified mineral development company with projects in Southern Africa and Madagascar and Namibia, has today provided an operational update for its 84%-owned energy subsidiary, Bushveld Energy Limited (“Bushveld Energy”).
a) Completion of studies carried out in conjunction with the Industrial Development Corporation (“IDC”):
· Market studies for African vanadium redox flow battery (VRFB) demand and global electrolyte demand have been completed and indicate:
– Favourable demand for VRFBs, especially in the utility and off-grid, mini-grid use cases, peaking in 2025-2030;
– Global electrolyte demand likely to peak in the same time frame at 1200-1800 megawatt hours (MWh) or 40-60 megalitres (ML) p.a.;
– Potential for Bushveld to conservatively supply an initial 5-10ML of this demand, supporting supply of an initial 200MWh in energy storage per annum;
– At present, the electrolyte market is dominated by China, with ~90% of global production capacity, with smaller facilities in Europe and batch production in other regions;
· Bushveld Energy and the IDC are also progressing the techno economic study on a vanadium electrolyte production plant to be located in South Africa. The study results highlighted that:
– Bushveld can manufacture electrolyte at a cost-competitive basis, thereby allowing it to compete both regionally and globally;
– A scalable plant can be configured with an initial annual production capacity of 200-400MWh;
– The estimated initial capital expenditure for the plant of ZAR130 million (US9.7 million), of which more than 75% comprises balance of plant;
– There is scope to reduce the capital expenditure further through co-locating the electrolyte plant with Vametco Alloys (Proprietary) Limited, the primary vanadium producing mine and plant in Brits, Northwest Province, South Africa;
– By far the main driver of costs (upwards of 70%) is the vanadium feedstock, making locally available, low-cost supply a critical success factor and natural competitive advantage for South Africa;
b) Increased participation by Bushveld Energy in global energy storage industry platforms, such as the Energy Storage Committee (“ESC”) of Vanitec, will continue to support the emerging leading role for Bushveld Energy in the energy storage market;
c) Continued exponential growth in the energy storage market, especially longer duration energy storage that suits applications serviced by VRFBs.
Commenting on this progress, Fortune Mojapelo, CEO of Bushveld Minerals Limited, said: “There is no longer any doubt about the growth of energy storage globally to gigawatts of annual capacity and billions of dollars in market opportunity. Similarly, favourable factors in this industry, such as the move toward longer duration storage, are increasing the demand and competitiveness of VRFBs. We are seeing this with massive systems deployed in 2015, 2016 and under construction in 2017. Through our energy platform, Bushveld remains in a leadership position to participate in this market, cemented by the results of our work with the IDC and now Vanitec.
“As we have maintained for three years, the largest threat to the success of VRFB technology remains the supply of low cost vanadium feedstock. As an integrated mining to energy minerals company with an interest in an operating, scalable, low cost mine, thanks to our participation in the acquisition of Vametco by Bushveld Vametco Limited, we are uniquely positioned to address this challenge.”
THE BUSHVELD ENERGY – IDC STUDIES
In the second half of 2016, Bushveld Energy and the IDC commissioned two studies:
· a market study for the African opportunity of VRFBs and the global opportunity for vanadium electrolyte (the “Market Study”);
· a techno-economic study for the local manufacturing of vanadium electrolyte for the global VRFB industry (the “Techno-economic Study”).
The studies have now been completed with positive outcomes and provide a sound base for advancing the company’s objectives to participate in the VRFB value chain.
a) Market Study
The Market Study focussed on the African market opportunity for VRFBs and the global requirements for vanadium electrolyte. Results confirmed favourable demand for VRFBs, especially in the utility, off-grid, mini-grid and commercial and industrial use cases, achieving peak demand in 2025-2030. Unsurprisingly, global electrolyte market demand is directly related to VRFB demand forecasts but supply was found to be even more heavily concentrated than vanadium supply, with nearly all of it being produced in China.
Key insights from the Market Study on global vanadium electrolyte demand and the African market for VRFB’s include:
· Africa VRFB demand will come primarily from off-grid/mini-grid and utility applications (especially decentralised, grid-connected storage) peaking around 2025-2030. The size and speed of the market will depend on how quickly regulations evolve in Africa. If similar to developments in the US, Europe, Australia, India and China (e.g. favouring renewable energy and more distributed electricity production and consumption), we expect the market to be multiples larger than current forecasts;
· Global electrolyte demand is likely to peak during the same time frame. Bushveld would be able to compete cost effectively for not just the electrolyte market in Africa but other regions, as well.
At present, the electrolyte market is dominated by China, with ~90% of global production capacity, with smaller facilities in Europe and batch production in other regions. This market concentration creates an opportunity for supply in other regions, such as the markets prioritised by Bushveld Energy.
b) Techno-economic Study for Electrolyte Manufacturing
In order to be able to cater to this growing demand for vanadium, Bushveld Energy and the IDC are also advancing the Techno-economic Study on a vanadium electrolyte production plant to be located in South Africa. The results show that subject to the necessary funding being available such a plant, located in South Africa and using locally produced vanadium feedstock, can manufacture electrolyte at globally competitive cost levels:
· The plant will be scalable, with an initial production capacity of 200MWh per annum that can be increased to 400MWh;
· A fairly low capital expenditure is estimated of ZAR 130 million (USD 9.7 million), with roughly 75% of the capital cost being the balance of plant rather than production-specific equipment.; The cost certainty level of the analysis was +/- 35%;
· As a result of the plant costs being the more generic balance of plant equipment, there exists significant scope to reduce the capex further through co-locating the electrolyte plant with Vametco Alloys (Proprietary) Limited, the primary vanadium producing mine and plant in Brits, Northwest Province, South Africa;
· With respect to operations, by far the main driver of costs (upwards of 70%) is the vanadium feedstock. This makes locally available, low-cost supply a critical success factor for vanadium electrolyte production and provides a natural competitive advantage for South Africa;
· Efforts now underway include identifying potential sites for the electrolyte manufacturing plant, including the Vametco plant, and finalising the project costs, prior to commencing implementation of the production plant, as per the required approval processes of both Bushveld and the IDC.
VANADIUM INDUSTRY PARTICIPATION
To ensure that its activities remain at the forefront of the global VRFB industry, Bushveld Energy is strengthening its position as a thought leader in the vanadium stationary energy storage systems (“ESS”) industry. Most recently this has included:
· In May 2017, formally joining the Energy Storage Committee (“ESC”) of Vanitec, the global body of vanadium producers. ESC was launched by Vanitec in 2016 to support and promote the global use of vanadium in energy storage, as the organisation historically focused on the steel industry;
· In June 2017, participating in the International Flow Battery Forum (IFBF) in Manchester. IFBF provided an opportunity to directly engage with existing electrolyte producers, VRFB manufacturers and other industry stakeholders, with nearly 80% of the focus being on VRFBs, underscoring the commercial proliferation of VRFB technology globally Some highlights included:
o Discussion with multiple companies to supply vanadium and/or produce electrolyte from Bushveld’s recently-acquired Vametco plant;
o Meeting with various VRFB manufacturers to understand their forthcoming vanadium requirements. In fact, many manufacturers expect “hockey stick” like demand growth for their products over the coming years;
o Presentation by Rongke Power on the progress of its 200MW/800MWh VRFB in Dalian, China. The first 100MW/400MWh is expected to be completed this year, with both electrolyte production and construction of the building for the battery already well under way;
· Participation in the Vanitec ESC session that followed the IFBF during which Bushveld Energy led a session considering the threats to VRFBs from lithium ion batteries and consideration of innovative leasing models to further drive down costs of VRFBs.
PRIORITIES GOING FORWARD
Priorities for the next few months for Bushveld Energy include
· Jointly with the IDC, complete a bankable business case for electrolyte production to determine unit costs in Rand and USD per kWh of production and confirm the initially implied strong economics of the electrolyte plant project;
· Study possible site locations for an electrolyte plant. Vametco will be among multiple sites to be considered, taking into account factors such as logistics, costs and tax incentives;
· Evaluate the potential quality of electrolyte production at Vametco, by performing laboratory test work with the Vametco team. This will identify current electrolyte production quality, plus processing techniques that could improve feedstock quality;
· Continue developing the existing backlog of possible projects, with a focus on southern Africa, including growth of the project development team. Currently, the strategy consists of three “routes to market,” focusing on the largest opportunities:
– Proactive engagement with power utilities in progressive countries, where the business for energy storage on both pilot and wide roll out basis is already being developed;
– Creating relationships with top-tier renewable energy project developers to create hybrid generation plus storage independent power producer (hybrid IPP) solutions;
– Directly target a set of private customers in South Africa whose electricity consumption patterns and circumstances (such as time of use tariffs) supports a business case for ESS deployment “behind the meter.”
GENERAL ENERGY STORAGE MARKET UPDATE
The overall market for stationary ESS continues to grow and meet the exponential growth forecasts of doubling annual demand for the subsector. The ESS is considered by a number of industry experts to be at a tipping point globally.
While market forecasts still vary significantly, all experts concur that the market will achieve exponential growth. According to the Energy Storage Association, the US market alone grew to 280 megawatt (“MW”) in 2016 and is expected to reach nearly 500MW through the deployment of energy storage systems in 2017 and over 1,600MW by 2020. Globally, Navigant Research expects the global market to grow at 50-60% per annum for the next decade, from a base of roughly 900MW of new ESS installed in 2016.
Within this impressive growth is a trend in the movement of energy storage from short to longer duration energy systems (typically 4-8 hours of storage per day). This is especially favourable for VRFB technology, which is especially cost-competitive for long duration systems, usually at least four hours of duration and upwards, as its power and energy components are independent. Although lithium ion technology currently dominates the ESS market globally, deployment of large VRFBs is also increasing. The largest ESS installed in 2015 was a 15MW/60MWh VRFB by Sumitomo in Japan. The largest ESS expected for deployment in 2017 is the 100MW/400MWh phase I of Rongke Energy’s VRFB in China. Although Africa has yet to see massive ESS demand, as has been seen in the US and China and more recently in the UK and Australia, the amount of interest from utilities, power developers and end customers continues to grow.
As a consequence of this growth to date, the amount of vanadium deployed into VRFBs is growing exponentially, as well. According to Vanitec and based on data from the US Department of Energy’s Energy Storage Database and analysis by TTP Squared, the amount of vanadium deployed in installed or awarded VRFB systems has grown from 200 MTV in 2015 to 300 MTV in 2016 to 5000MTV in 2017. Accordingly, the ability to guarantee supply of vanadium for VRFBs will remain essential to the success of these systems in the medium and long term. Bushveld remains in a unique position to mitigate this risk through its large, high grade, low cost resource base and scalable processing capacity.