- According to the Battery Strategy, the UK’s automotive manufacturing sector is the second highest by value in Europe with an annual turnover of £70 billion. Current battery production features complex value chains spanning multiple geographies and is heavily reliant on East Asia. Similar to most jurisdictions, the UK currently meets the bulk of its domestic demand for batteries and their components through imports. Developing a long term strategy for the design and manufacturing of batteries in the UK will aid the government in its net zero ambitions by reducing the carbon footprint of the supply chain and insulating the supply chain better from geo-political and other risks.
- Following Brexit, the UK and European Union entered into a Trade and Cooperation Agreement (“TCA”). The rules of origin requirements under the TCA for certain hybrid, plug-in hybrid and electric vehicles (“EV”) provide that a certain percentage of the EV’s value must be made up of locally sourced components. If the EVs do not meet the requisite requirements, then customs duties are imposed on all shipments between the UK and the EU. The government has stated that unlocking the capital investment proposed under the Battery Strategy will “……. also enable UK EV manufacturers to meet the Rules of Origin (RoO) requirements set out in the UK-EU Trade and Cooperation Agreement (TCA).…… Meeting these requirements and avoiding tariffs with our largest export market [i.e. the EU] is vital for the health of the industry.”
What capital investment will the government make in the battery sector to further its ambitions and support the automotive and other sectors?
The UK Government has promised, amongst other things to:
- Provide targeted support for zero emission vehicles, batteries and their supply chains, including through over £2 billion of new capital and R&D funding for five years to 2030.
- Provide sustained, consistent, and targeted support for large-scale, long-term research and innovation activities, from early to late stages, across applications and key areas of the battery supply chain.
- Invest an additional £38 million to enhance the UK Battery Industrialisation Centre development facilities, boosting its capability for research and development in new chemistries and future technologies. This builds on the government’s know-how in lithium-ion solutions and enables the scale-up of emerging innovations.
- Explore the case for new financial mechanisms to support start-ups in the battery sector, including through public/private equity investment with government seed funding (see examples of this below).
- Expand market access for the trade of critical minerals and promote high international standards in supply chains when negotiating new Free Trade Agreements.
What support will the UK government provide for private sector investment?
- In addition to public investment, the Battery Strategy includes measures aimed at encouraging private sector investment into the UK battery industry. For example, the Battery Strategy provides that the UK Government will leverage £5 of private investment for every £1 of spending from public sources.
- Government-backed financing options will be facilitated through existing channels (i.e. the British Business Bank, UK Infrastructure Bank (UKIB) and UK Export Finance (UKEF)) to help battery companies develop and scale their business. Examples of such support (noted in the Battery Strategy) include:
- In August 2023, the UKIB announced a £24 million equity investment in Cornish Lithium. This investment is financing the creation of a domestic supply of lithium, which is key for the development of battery energy storage and battery production for electric vehicles. Mayer Brown advised Cornish Lithium in connection with this fundraising – see press release.
- UKIB has announced a £60 million loan to support Pacific Green to develop a new 249MW/374MWh electricity storage park which, once completed, will be one of the largest standalone battery storage projects in the United Kingdom.
How are the UK Government’s Battery Strategy and Critical Minerals Strategy aligned?
- The Battery Strategy goes hand-in-hand with the updated Critical Minerals Strategy released in March 2023, which focuses on maximising the UK's access to critical minerals. Critical minerals, such as nickel, cobalt, lithium and graphite, amongst others, are required for the production of batteries - the UK Critical Minerals Intelligence Centre estimates that by 2030 battery manufacturers in the UK could require 15,000 tonnes of lithium, 90,000 tonnes of nickel, 11,000 tonnes of cobalt and 135,000 tonnes of graphite annually.
- International competition is significant, particularly following the introduction of the US’s Inflation Reduction Act and the EU’s Green Deal Industrial Plan which are both seeking to (a) accelerate battery design, manufacture and storage facilities and (b) provide public sector financing incentives to encourage investment in EVs.
What is the scale of the opportunity for EVs in the automotive sector?
- The government has stated in the Battery Strategy that "global transition to EVs means that lithium-ion batteries are expected to dominate the rechargeable battery market for the next decade. 46 About 70% of global lithium-ion battery demand in 2030 will be from passenger EVs, with the remainder from electric buses, consumer electronics, grid stationary storage, and commercial EVs. The value of lithium-ion batteries from mining through to recycling, could see global demand grow by over 30% every year, to reach a value of more than $400 billion and a market size of 4.7TWh by 2030. The Government has set out regulations for all new cars to be zero emission by 2035, providing clarity to manufacturers while safeguarding UK jobs."
Finally, what ESG considerations are underway on battery waste and recycling?
- Under the Battery Strategy, it is noted that addressing a battery’s whole life cycle will only grow in importance as tonnes of EV batteries begin to reach end-of-life, creating new challenges and opportunities for the UK. For example, the Faraday Institution estimates that 16,500 tonnes of battery packs will need to be processed by 2028, with volumes rising rapidly thereafter to about 150,000 tonnes by 2035. The government acknowledges that managing the environmental risks of battery waste and adopting a circular economy approach are important; and that battery recycling, as well as reusing and repurposing will be critical to achieving this.
- Recycling can be divided into two main stages, mechanical processing and mineral recovery: (i) discharging and disassembling batteries to then shred their components and (ii) mineral recovery by taking those components through hydrometallurgical refining, which is energy intensive, complex, and expensive. The goal is two-fold: (1) support the creation of recycling marketings for batteries and (2) the use and re-use of secondary raw materials from the destruction of waste batteries.
- In August 2023, the European Union adopted a regulation to incentivise battery recycling, establishing mandatory minimum levels of recycled content for batteries sold within its borders. The regulation applies to all batteries placed on the market in the EU whether produced in the EU or imported – see our Mayer Brown briefing on the EU Battery Regulation. There are currently no similar legislative proposals in the UK.
