The decision by Toronto-based battery recycler Li-Cycle to delay its new hub facility in Rochester, New York, is raising flags within the wider cleantech industry.
While engineering and procurement for the project are “largely complete,” the project has been hit with escalating construction costs, Li-Cycle announced in a release earlier this week. The company is planning a comprehensive review, ahead of an update in its third-quarter financial report in November.
In an open letter, company executives said the decision was a “prudent pause”, but assured the Rochester community they are still “fully committed” to the facility, which was expected to create 270 jobs.
The news has “rattled” stakeholders and onlookers who’ve hailed Li-Cycle as one of Canada’s big success stories, writes Globe and Mail cleantech columnist Adam Radwanski. The delay is being seen as an indicator of stiff headwinds facing Canada’s cleantech industry, even as momentum grows for an economy-wide energy transition.
“I was surprised by this news,” said Joanna Kyriazis, director of public affairs at Clean Energy Canada. “But we’ve been hearing consistently from the clean energy sector that this high-inflation, high-interest-rate environment is pushing projects off course.”
Li-Cycle’s share prices dropped more than 45% to US$1.23 when the news first broke on October 23, and then fell further to $1.07 soon after. According to Simply Wall St., the company has less than a year of cash and will need to raise capital or take on debt.
Self-branded as a “leading global lithium-ion battery resource recovery company,” Li-Cycle has been a prominent player in battery recycling with an ambitious expansion strategy. After tripling its North American capacity in 2022, the company announced partnerships to expand operations into Europe.
“They have been extremely successful in attracting capital, which was unparalleled in the industry,” said Hans Eric Melin, managing director at consulting firm Circular Energy Storage. “Whether this means that they have been flying too close to the sun is too early to tell, but escalating costs and a terrible performance for the share is obviously a bad combination.”
The Rochester facility was a key element of Li-Cycle’s “hub-and-spoke” model, meant to give the company a competitive edge in a burgeoning recycling industry that will help meet growing critical mineral needs. Li-Cycle has already established multiple “spokes,” but the facility in Rochester was going to be the first operational “hub,” due to come online later this year.
On top of state and county financial incentives, the company has been awarded a $375-million loan from the United States government, though the Energy Department says the loan is in a conditional phase and no money has yet been disbursed. Still, the news could create a headache for President Joe Biden’s administration, especially with Republicans reportedly “on high alert” for another Solyndra—the defunct solar panel company that received $535 million in federal loan guarantees in President Obama’s 2009 stimulus package, before going bankrupt. (Even though the notably successful Loan Programs Office that issued the guarantees ultimately made money for U.S. taxpayers, and was reinstated by the Biden administration in 2021 under the leadership of cleantech veteran Jigar Shah.)
Li-Cycle’s news follows other signs of industrial slowdown, writes opinion columnist Brooke Sutherland, in an analysis piece for the Washington Post. Automakers like Tesla, Ford, and General Motors have recently rethought the timing of new electric vehicle production capacity. “GM separately on Tuesday backed off some of its near-term EV output targets, as it takes a more disciplined approach to ramping up the business.”
“The announcements are the latest reminder that even factories that are far along in the planning process can still be delayed or rethought,” Sutherland says. They also mean that the timeline could stretch for the “U.S. manufacturing renaissance” that is expected to churn out technologies for large-scale electrification.
As a start-up, Li-Cycle is struggling in these economic conditions, but some established companies are moving forward. BASF and automaker Stellantis have recently unveiled new partnerships for battery recycling initiatives. And one day after Li-Cycle’s announcement, elsewhere in New York, major energy companies like TotalÉnergies, RWE, and National Grid were awarded contracts for projects to supply renewable energy to help meet the state’s climate goals.