Tesla's gigafactory charges up; UK offshore wind takes a blow

The electric vehicle market showed signs of revving up last week, while the growth of the UK offshore wind industry took a step back.

Panasonic, the main supplier of lithium-ion cells for Tesla Motors electric cars, signed a deal on 31 July to help build a battery factory that the former's chairman, Elon Musk, needs to lower the prices of his vehicles.

Panasonic will manufacture and supply cylindrical lithium-ion cells and invest in the associated equipment, machinery, and other manufacturing tools, while Tesla will prepare, provide and manage the land, buildings and utilities, the Osaka, Japan-based company said in a joint statement with Tesla.

The so-called gigafactory will produce cells, modules and packs for Tesla's electric vehicles and for the stationary storage market. The gigafactory is planned to produce 35GWh of cells and 50GWh of packs per year by 2020.

The announcement last week shows Panasonic’s commitment to the battery plant is solid. Responsibilities for the project have now been assigned. Yet, there are still no specifics on the total sum that Panasonic intends to commit. It has been reported that the company would spend between $US200m and $US300m initially and could then step up the investment to $US1 billion.

Panasonic is moving cautiously, according to Bloomberg New Energy Finance, given bad experience with past investments and the fact that it would face considerable risk if Tesla’s Model III did not sell as expected. It plans to commit gigafactory investment in phases, taking actual market developments into account.

Recently there has been positive news for both the electric vehicle and energy storage markets, Bloomberg New Energy Finance’s Logan Goldie-Scot told Bloomberg TV 29 July.

“Typically we’ve looked at stationary and electric vehicles as separate markets,” he said. “What’s really important now is looking at them together. When we talk of batteries, there are so many synergies between the two markets, and $US2.5 billion was invested in those two markets in H1 2014 alone.”

Meanwhile, Centrica and Dong Energy last week abandoned plans to develop as much as 4.2GW of offshore wind farms in the Irish Sea, citing challenging conditions that made it too expensive to develop.

The partners relinquished the right to develop the 2,200-square-kilometre Irish Sea zone, according to a statement posted on the website of their Celtic Array venture. UK developers have cancelled more than 9.5GW of potential offshore wind farms since November.

The announcement confirms developers’ concern over offshore wind budget availability under the UK government's Levy Control Framework. The announced budget allocation will only allow for up to 500MW of offshore wind in the first allocation round in 2014, and competition will be high among the 5-6 projects totalling 2GW that are expected to apply in the coming rounds. Bloomberg New Energy Finance covers the details in the Analyst Reaction: UK fog clears for first CfD round, biomass left out.

Affordability and cost reduction potential are crucial in going ahead with project planning. Under these circumstances, Bloomberg New Energy Finance says it is not surprising that developers decide to shelve projects that are not competitive in such a tight budget.

The challenge facing governments in encouraging renewable energy deployment at minimum cost were also on display last week as the Brazilian state of Pernambuco said that it is on the hook to buy power from 96MW of solar projects that won an auction, after other buyers for the electricity did not come forward.

Last October, the Climatescope study from the Inter-American Development Bank's Multilateral Investment Fund and Bloomberg New Energy Finance found that Latin American countries are increasing their share of global clean energy investment, thanks to strengthening policy support. That analysis is currently being updated in a new study, also covering African and Asian emerging economies.

Back to the events of last week, and on 29 July, the European Union agreed “Stage III” sanctions against Russia, in reaction to its continued destabilisation of Ukraine. The sanctions were triggered by the alleged shooting-down of the MH17 passenger plane and continuing obstruction to international teams leading the salvage and rescue effort in eastern Ukraine.

The impact of these Stage III sanctions on the energy sector is likely to be felt long-term, as Russian energy firms must now procure certain specialist equipment from elsewhere and potentially deal with limits on their ability to finance their operations and investment programmes. Several western oil and gas majors have project partnerships with, and equity stakes in, their Russian counterparts, and these may now be under threat as the legal complexities of doing business in Russia limits the value of these investments.

Bloomberg New Energy Finance’s note EU energy sanctions on Russia – not as harsh as feared assesses the full impact the latest measures will have on Europe’s gas market.

Figure: Mexico has already surpassed $US1 billion in new clean energy investments this year

Originally published by Bloomberg New Energy Finance. Reproduced with permission.