Updated: Jan 25, 2020
The need to add value to raw materials in Chile has been discussed for years, particularly the issue has focused on LITIO raw material, due to the enormous industrial and technological context associated with this material which is associated to electromobility, batteries, electronics, etc. However - and in my point of view - the development of advanced industry is wrong linked from adding "value" to the raw material. This is as if some industry as a salt producer, is projected to prepare sophisticated salads or even invest in restaurants business.
This has led to an attempt, for example, to invite foreign companies to settle in Chile to produce advanced materials (cathodes), batteries or even electric cars getting in exchange for providing them with lithium (which, crudely explained, would be like the knowed Chilean company "SAL LOBOS", invite gourmet centers to invest and settle near the Salar de Tarapacá, to sell salads or set up restaurants in Iquique city in exchange for provision of abundant salt). I understand that the example of salt sounds pejorative, but it's not. Both(lithium and salt) are cheaper , abundant products, are used in small quantities, but are crucial and essential as chain supply of Lithium cells or salads.
CHILE has called trough CORFO two important contests, called CALL TO ADD VALUE , in order to do exactly what I indicated. The first was awarded in 2018 to three differents companies ( coming from Chile, Korea and China) that offered to invest and install in Chile to produce a battery key component called "cathode" and re-export it to Asia.
However, the three winners retracted from the project this year, arguing multiple reasons and apologies, which in my opinion have more to do with the non convenience of the business for them, considering the risk of investment, compared to settling in Asia than from Chile ( They only get a warranty of lithium provision plus some discount). The additional difficulty is importing the other components that Chile does not have (such as Cobalt or Nickel) and above all being so far from its demand (cell manufacturers) located in China or Korea.
In course there is a second very similar contest, same objetive , but because the failure of first one mentioned above, there is uncertainty of receiving offers in January. But anyway the worse scenary ( but probable) its that are received offers but never be materialized, as has just happened.
The basic question is ¿ what is the advantage for the country's industry and tech development by producing this material here? ¿Jobs? ¿ which category of jobs?, ¿Technology? ¿ To get a knowledge link to producing Lithium cells? All these aspects are very controversial. The idea of the projects presented and withdrawn, were to re-export 100% of the product to Asia.
The idea that we have proposed and spread in past months at various academic and hi officers of public levels, is quite audacious and we call it the"frog jump"because it requires a courageous quantum leap. A little disruption out of the box in thinking mode.
Instead of talking about value chain, we'll call it a supply chain, as it's called in the real industry. The Customer(e.g. the electric car manufacturer) cares about the supply chain where the LITHIUM is at the level of critical materials, at the beginning of the chain. Also for battery manufacturers, the LITHIUM is part of its supply chain at the early upstream.
An industry needs to have a demand to install and must consequently organize its supply chain. The supply chain does not call itself a "value chain" and should generally be adjusted to serve its customer in technical and economic terms. That's his role.
¿In Chile do we have any interesting local demands worthwhile in this field?
In my opinion, we do have significant local demand and it has to do with the demand that will occur in the coming years for "stationary" lithium batteries (BESS, Battery Energy Storage Systems) for variable energies (sun&wind) aimed at stabilizing the electricity grid. It also has regulatory mechanisms operating well and ongoing modifications that incentivize this field. Chile should also be considered a major global player in this field.
A "Grosso mode" we have two types of market segments, one associated with large generators (which we leave to the world's largest manufacturers of BESS) and another segment, much narrower, associated with small generators distributed, namely PMGD and also NETBILLING, growing markets with a large proportion of variable energies, which will represent, according to our estimates, more than 600 MWh of batteries accumulated by 2030 with a annual demand of more than 50 MWh in 2022 and over 180 MWh by 2030.
This segment of the BESS market of between 10 KWh and 1,000 KWh per unit, is perfectly plausible to be competitively supplied by local technology based in small technological companies and would generate a market-place of about US$ 50 Million/year. On our “reasonable-Chile scale” , it's not bad to begin with.
The proposal is to imaginatively create this industrial segment locally and to fullfil that also should be competitive and sustainable, then we rewarded with a "frog jump"
From this starting point , then we can speak correctly about "chain supplies" which can be local or anywhere.
Locally, we have evaluated that there is -on this scale- the possibility of producing the Lithium cells required by battery assemblers for the mentioned demand with not very large investments (Stationary batteries not need very sophisticated cells as required for electromobility eg). A potential lithium cell industry in automated plants can be created virtuously. We estimate that it niche early industry can border the US$ 35 Million/year of sells.
Obviously for this small cell manufacture industry a supply chain of materials is required, among others the famous "cathode" (mentioned above) which can also be imported or also locally produced.
The rest of the value chain, like the chemical lithium product (Carbonate, Hydroxide or Metallic) is super-known and we have no problems. It already exists capacity and the industry in Chile.
But ¿ what do we need for this local industrial and technological ecosystem, implemented at the scale of technology Small companies (now abandoned to their providence) to succeed without 20th-century industrial protectionism, as it is encouraged in neighbouring countries?
We can just change the “concept” of the famous CALL so that instead of foreign companies settling in Chile with high investment risk, in exchange for long-term security of lithium supply (which is what they are really interested in, but not at that cost, as demonstrated), they get that guaranteed supply, in exchange for providing the comparative advantages that our mentioned ecosystem project requires to start, perhaps the first 5 years. This is licenses of patents, technologies and pilot plants, factory training, supplies at wholesale prices (for example), low-cost manufacturing contracts, etc.
On the other hand, a very small part of the $400 million of money associated with lithium royalties in order to produce local industry and technology and which are bringing SQM and ALBEMARLE for the next 10 years, be occupied by CORFO directly through perhaps through the Institute of Clean Energy ITL , currenty in tender, to support this ecosystem but in a role not only pasive and providing research founds by challenge . We seem a active rol as “risk investor" oriented to innovation (workingcapital, breakeven support, marketing, association, etc.). This local support should be direct, simple, aggressive and also cross-cutting by leveraging risk to attract the extra capital of Chilean liquidity that deals with low-risk real estate rents.
This would also mean letting Small technological companies to do their jobs, to earn a place in this new business space.