Will degraded batteries be a resource or liability? Industry hedging bets on BESS end-of-life question

However, right now the statutory rules in the UK which designate responsibility for disposing, recycling or re-using end-of-life batteries is largely irrelevant for the grid-scale BESS market. This is because the responsibility elapses one year after the batteries are placed into the market, law firm Freeths’ construction and engineering partner Suriya Edwards said, and no project is decommissioned after a year.

However, contractual parties in BESS projects are still having to think about the topic and even including contractual language around the end-of-life, but who the responsibility falls on is an open question, to be decided between those parties.

Lithium-ion batteries contain precious metals like lithium and sometimes nickel and cobalt, meaning potential value to be extracted after their use in BESS – especially considering the Batteries Regulations’ minimum recycled content thresholds.

“How that longevity piece is going to fit into your commercial model is something to think about,” Edwards said.

Level of end-of-life focus depends on contract type

Edwards said that grid-scale BESS in the UK are procured either via a single contract between a developer and engineering, procurement and construction (EPC), known as ‘full wrap’, or via multiple contracts for EPC and battery procurements separately, sometimes with a system integrator sitting in between.

The real thought is given to end-of-life solutions for BESS in the battery procurement contracts: between EPC and BESS supplier in the first example, or between system integrator or developer and BESS supplier in the latter.

But parties are not committing to specific agreements, but typically laying out the different options in writing, Edwards explained, keeping their options open for whether the batteries will be a liability or a resource.

Contracts include provisions for either scenario

“An EPC firm will typically tell its battery supplier ‘we will require it to eventually take the batteries back at your own cost’, but if later it proves to be a liability then it might offer to pay the supplier money to take those batteries away. Essentially, they are still determining if it’s going to be an asset or something that will cost money to recycle and dispose of,” Edwards said.

“Similarly, a battery manufacturer selling batteries will say ‘my contract does not include the price of taking the batteries back, and we will want money to do it’. But it will also include a provision that works out a way of you getting some money back from them if they decide it’s a resource they are keen to get back.”

Some contracts however make no mention of end-of-life BESS solutions at all. “It’s not a mainstream discussion, but the battery procurement contracts are the ones with the most advanced understanding of how risk is apportioned,” Edwards added.

It may however be a larger topic of discussion between battery manufacturers, BESS manufacturers and system integrators, for whom the battery technology is a key part of their long-term business model, but Freeths primarily works with developers and asset owners. More recently, the firm has been working with some mainstream BESS manufacturers.

The ambiguity over whether lithium-ion batteries will be a resource or a liability is unsurprising considering how quickly the technology moves and how fast prices have dropped (bar the blip in 2022).

Battery recycling companies even today tell Energy-Storage.news that whether they have to pay for batteries or are paid for batteries to recycle depends hugely on the type and quality of the battery, and battery pricing trends also likely play a role even today.

The related topics of insolvencies and ESG in contracts are also really important, Edwards said, and there are big questions around how to deliver these into procurement contracts.

Bigger players more ready for this than smaller ones

“The big guys are clearly on top of it and are looking at the Battery Passport, and speeding ahead with the supply chain focus and the due diligence focus around the end-of-life topic, but the smaller companies have potentially no clue that this will hit them,” Edwards said.

“I would say the smaller battery companies coming in from the Far East will need to quickly upscale themselves in order to work out the whole question of producer responsibility.”

UK likely to follow EU’s Batteries Regulation

Edwards and her colleague Kirstin Roberts (waste and renewables specialist), speaking on a recent webinar hosted by Freeths on the topic, both said that the UK is likely to follow in the EU’s footsteps and update its battery rules to something similar to the bloc’s Batteries Regulation.

The key pieces of the Batteries Regulation are minimum levels of recycled content for batteries as well as the Battery Passport, a digital register of every single battery made using a QR code, which will contain the necessary information to make reusing or recycling batteries easier.

“The UK is likely to follow up with something similar, it’s not certain but it’s more than a hunch. We are in an exceptionally globalised industry and the supply chains extend well into the Far East and China.”

“I would be very surprised if we did not have a consistent approach which mirrors the EU in this respect, both in terms of perhaps even establishing our own in-house internal industry to recycle or working cross-border with the rest of Europe on it. And if you look at all the different reporting and disclosures standards coming into the UK it will be useful to have a mechanism that records that stuff for batteries, like the EU’s Regulation does.”