Introduction to Case V

In this case study, second-life batteries are developed by a joint venture of four companies:

the OEM, the energy storage company, the energy trader and the battery recycling company.

The joint venture has built 1,000 used EV batteries into a single storage solution and started operation of the system since the end of 2016. The OEM in focus is Company H, a German multinational automotive company. Through its subsidiary, Company H is active in both the automotive and stationary battery storage sectors. Company I is an energy storage company in Germany who has been cooperating with leading automotive manufactures in over ten countries. With its innovative charging and energy storage solutions, Company I aims to integrate EVs as well as second-life batteries into the power grid as an aggregated swarm storage. The reason for choosing this case study is that Company H is one of the OEMs intensively involved in both EVs and stationary storage. In addition, the 13MWh battery storage system built by the collaborative development is the world’s largest of its kind made up of second-life EV batteries and it has been connected to support the German grid.

The data collection for this case study is composed of interviews and secondary data from documentation e.g. company reports and newspaper articles. The researcher visited Company I in Germany and conducted two rounds of in-depth interviews with the most relevant person, the managing director of Company I. Due to the lack of access, the German OEM (Company H) was not interviewed. Therefore, information regarding Company H were collected through the interviews with Company I as well as the secondary data. The detailed list of interviews in this case study can be found in Table 4.17.

Table 4.17 List of interviews: Case study V

Company Stakeholder

Germany Managing Director E-4 206

4.6.2 B2U motivations, benefits and challenges B2U motivations

For the German OEM (Company H), the main motivation for B2U is that retired EV batteries, though slightly degraded, remain operational after the service life guaranteed by the OEM.

Company H wants to apply those batteries for stationary storage operation for at least 10 years longer in the most cost-efficient way. And for Company I, they see the value of second-life batteries in the energy storage market that could promote the German energy transition. As said by the interviewee, “To accomplish the energy transition we need storage because of the volatile renewables in distributed production and you don't want to extend the grid…battery has an advantage in the energy system when it comes to response time…from the cost side, if you have second-life batteries, the system cost is even lower” (E-4). The data show that the motivation for Company I to develop B2U is to utilise cost-effective second-life batteries to fulfil the German market needs for storage.

B2U benefits

The envisioned benefit of B2U for the OEM is additional revenues from the batteries. Also, B2U helps “defer the recycling process which reduces the recycling cost because today you need to pay for recycling but we assume in the future you get money from that” (E-4). For Company I who monetizes and markets the batteries, they benefit from the profits of trading the storage capacity into the energy market. At the society level, more battery storage helps the integration of intermittent renewables. And by providing energy services to the grid, B2U also helps make the grid smarter and avoid the expansion of the grid infrastructure in the future.

B2U challenges

The most critical challenge described by Company I is that “currently the car manufacturers design the batteries only for being used in the car” (E-4). Company I explained that during the B2U development with the OEM, the lesson they have learnt is that to optimise the whole cost structure “you need to incorporate second use into the design” (E-4). And they think it is very important to “work together with the car manufacturers to design those batteries so that you can use them very efficiently, cheaply, durably and sustainably in second use applications”

(E-4). The large amount of confirming data from this case study indicate that the most critical challenge perceived is regarding the initial battery design which is not taking B2U into consideration.

4.6.3 Business model description

This section presents the BM of second-life batteries developed by the joint venture of Company H, Company I, the energy trader and battery recycling company. In this case study, the major B2U stakeholders discussed are the OEM (Company H) and the energy storage company (Company I) who repurposed and monetized the battery system in the energy market. The activity system of second-life batteries is firstly illustrated in Figure 4.10 which shows how stakeholders develop B2U through a series of activities and transactions at the system level. The BM of Company H and I are then analysed in detail at the firm level.

Figure 4.10 The activity system of second-life batteries: Case study V

Activity system of second-life batteries

In this case study, the OEM is both the battery provider and system integrator. They collect the battery packs and send them for testing and grading through outsourcing a battery testing company. After that, their subsidiary company is responsible for the storage system integration, adding the inverters, BMS and other power electronics around the second-life battery packs. As shown in Figure 4.10, Company I serves as the connection between the OEM and the energy trader to transform the retired vehicle batteries into the final storage solutions. Company I, as the energy market professional, is responsible for monetizing and marketing the battery storage system in the energy market in the most profitable way.

Company I works closely with the OEM to continuously optimize the system and cost structure to help realize the value of the batteries. Company I operates the battery system and offers storage capacity in response to the market demand. They provide the storage capacity to the end-customers (e.g. grid operators) through the energy trader who has access to various energy markets. And at the very end of the battery life, they have the partner company responsible for the battery recycling.

Business model of Company H for B2U

For Company H, the BM is to repurpose and monetize second-life batteries through a joint venture. Its value proposition is the second-life battery systems that can be utilized in the

energy storage market. Company H collects the old battery packs, sends them to an outsourced company for battery pack testing and grading, and then their subsidiary company is responsible for the storage system integration. Company H continuously works together with Company I to optimize the system on the battery side. They have the knowledge and expertise in battery storage systems because their subsidiary company is building new battery packs for both automotive and energy storage applications so “they have the know-how to make second-life battery systems” (E-4).

In this BM, Company H is the second-life battery provider and storage system integrator, as well as the knowledge partner in terms of B2U systems. They provide the battery systems for the joint venture and makes profit through sharing the revenues from the various energy services delivered by the batteries. The value created for the society and environment includes the deferral of the recycling process which incurs pollution and wastes and the improved resource efficiency. The key attributes of Company H’s business model for B2U are summarised in Table 4.18.

Table 4.18 Summary of key B2U business model attributes for Company H: Case study V

BM attributes Description Customer value

proposition

Second-life battery storage systems

Value creation Collect retired battery packs, test and grade the battery packs through an outsourced company;

integrate the storage system through their subsidiary company;

optimize the system together with Company I Value network

position

Second-life battery provider and storage system integrator;

knowledge partner in battery systems

Value capture Shared revenue from energy services delivered by the batteries Social &

environmental value

Reduced pollution and waste caused by recycling;

improved resource efficiency

Business model of Company I for B2U

For Company I, the BM is “monetizing the battery pack and aggregating a lot of batteries into a bigger swarm, and then offering those batteries as storage capacity to the energy market” (E-4). Its value proposition is the swarm storage capacity that can be used for various grid-related energy services. Company I works closely with the OEM to optimize the whole system for the most profitable applications. They integrate the OEM’s battery knowledge with their expertise in energy storage. Company I is able to operate the battery system “in the optimised points and it is kind of like a massage” (E-4). They have the knowledge and expertise in the energy market and they know where and how to trade the battery storage most cost-efficiently. As said by the interviewee: “We organize the whole setup and we have the technology to combine all those thousands of batteries, marketing them in the most profitable way to the energy market” (E-4).

Company I positions itself as the energy market professional and swarm battery storage aggregator as well as the partner of OEMs who “brings together the automotive and energy sides by monetizing the battery packs and realizing the value of B2U” (E-4). They make the decision “what kind of energy products to apply to those batteries and where” (E-4).

Company I offers the swarm storage capacity to different energy markets and shares the revenues. The value created for the society and environment includes improved stability of the grid which enables more renewable integration and avoids grid infrastructure upgrade.

The key attributes of Company I’s business model for B2U are summarized in Table 4.19.

Table 4.19 Summary of key B2U business model attributes for Company I: Case study V

BM attributes Description Customer value

proposition

Swarm storage capacity that can be used for various energy services

Value creation Optimise the battery storage system together with the OEM;

operate the system optimally to extend the battery lifetime;

organize the whole system setup and aggregate a swarm of batteries;

trade the swarm storage to the energy market in the most profitable way

Value network position

Energy market professional, swarm battery storage aggregator as well as the partner of OEMs

Value capture Shared revenue from trading storage capacity to the energy market

The application of second-life batteries in this case study is grid-scale energy services. The OEM’s business model in this case is to retain the battery ownership while having a joint venture to help them monetize the batteries in the energy market. The strength of the BM lies in the sharing and integration of knowledge and resources from various partners in the joint venture. In this BM, partners bring their knowledge and expertise from various fields into the

‘knowledge pool’ to try to maximize the value of second-life batteries. As commented by the interviewee,

“It is more than just building a storage. It is also the knowledge about how to apply a storage best. You need to bring together the knowledge from both the automotive and energy storage…you need partners who know where to put the storage to gain the maximum value out of the battery” (E-4).

Instead of selling the battery asset, the OEM brings the batteries into the joint venture and develop solutions for the batteries together with its partners. They share the revenues from the providing various energy services through the batteries. As said by the interviewee,

“Business model is not just about product but also services so you want to provide solutions… when it comes to second-life batteries especially and when it comes to grid or industrial application, customers just want to gain the monthly advantage but they don't want to get into any risk…” (E-4).

The data indicate that the other strength of the BM is the service concept that takes away the risks in terms of purchasing second-life batteries – the batteries are not sold to anyone but are used to deliver the services for the end-customers. And because the batteries are owned by the OEM, there is no need for any warranty terms. More importantly, this BM allows the OEM to be able to continuously benefit from the various energy services provided by the battery over its entire second life. The value captured through this service-based BM is much higher than selling the cheap batteries as products.

The limitation is that the B2U cost structure is not optimised and according to Company I, the OEM needs to “optimise something there in the future when it comes to the battery design”.

For the time being, the data of battery quality over lifetime are not properly tracked by the OEM so that they need to outsource an external party to do the battery testing and grading which incurs extra cost. As the interviewee of Company I said: “The lesson we have learnt is that you don't need to spend cost on that in the future. You need to track the data, being able to analyse the data and sort the batteries according to their quality for different applications”

(E-4). On the hardware side, the BMS inside the battery pack was designed only for the vehicle use and could not be reused for stationary storage application so that a new BMS needs to be built. In addition, Company I suggests “using the OEM’s purchasing power to apply inverter to the battery” so that the whole system cost could be reduced. When talked about the cost that might be involved in optimising the battery design for B2U, the

This BM is also influenced by external forces. According to Company I, when it comes to B2U for stationary storage: “It is actually not a matter of technology because technology is proven. It is more a matter of regulation – what we need is an open and economic-oriented energy market, especially when it comes to the whole grid market” (E-4). The interviewee of Company I described regulation as a key in B2U:

“One of the keys is the regulator understand the value of batteries in the energy market and the role of batteries when it comes to renewables. The more volatile renewables you have, the more storage you need, and the more batteries you have to apply to those markets. We need regulators who understand that more and apply those markets to the most efficient” (E-4).