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3.3 Exploring the market of vanadium electrolyte leasing A common critique of the VRFB is the relatively high and volatile price of vanadium [24,25]. For example, in 2018, the price of vanadium pentoxide (V2O5), one of the most common vanadium electrolyte precursors, fluctuated greatly and nearly quadrupled before decreasing in early 2019 [39]. At this juncture, supply volatility and high prices can be attributed to the relatively small size of the vanadium market, rather than scarcity or geological constraints [84]. Vanadium use is primarily limited to a single market, the production of steel, which accounts for about 90% of demand [85], and only China, Russia, and, most recently, South Africa are major exporters [84]. In 2018, in addition to the growth of the VRFB market, demand for vanadium rose after the creation of new Chinese rebar standards for steel that mandated an increase in the vanadium content [86]. Simultaneously, supply dropped as various vendors halted or fully shut down production due to ongoing environmental inspections and project closures [86]. Vanadium leasing, whereby a third-party company leases the vanadium, usually in the form of VRFB electrolyte, to a battery vendor or end-user is a proposed solution beginning to gain market traction. While payment schemes for electrolyte leasing have yet to be fully articulated, at least in the open literature, in general, it appears to comprise of a marked reduction in upfront capital cost (ca. 30% [83]) coupled with the introduction of an annual leasing fee [83,84]. This option is attractive as it lowers upfront investment, however, its impact on LCOS is unclear. Thus, we model a vanadium leasing scenario to determine whether it can reduce LCOS. Unfortunately, implementing a sophisticated leasing scheme into the model is not straightforward due to the lack of information regarding how these leases are contracted. Thus, for our analyses, we define a simple leasing scheme in which the cost of the electrolyte is removed from the Ccap and a yearly leasing fee is imposed. To the best of our knowledge, the only reference in the published literature regarding the magnitude of leasing fees is recent work by Skyllas-Kazacos, which defined the annual fee as the “fraction of electrolyte cost per annum” and used a baseline fraction of 0.1 [38]. As the appropriate magnitude of the annual leasing fee remains unclear, we solve for the maximum annual leasing fee that makes the leasing scheme competitive with the non-leasing scheme, which can serve as an upper bound for what is profitable to the lessee. This upper bound can be determined by first calculating the non-leasing LCOS with the original model at varying electrolyte costs (optimizing for lowest LCOS over all lower caplim values) and then, subsequently, 36PDF Image | Bringing Redox Flow Batteries to the Grid
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