Philadelphia's stake in plans for massive lithium-ion battery factory in Ky.

By the end of this month, the Department of Energy is expected to award up to $2 billion in grants to encourage the manufacture of lithium-ion batteries on U.S. soil.

Right now, Asia dominates production of the batteries that go into consumer products such as laptops, cell phones and camcorders. But lithium-ion batteries are key to the development of hybrid, plug-in hybrid and electric vehicles, so U.S. authorities have grown concerned that where battery manufacturing goes, so goes the future auto industry.

The smell of hundreds of millions of dollars attracted 165 applications from companies and at least one industry consortium that claim to have shovel-ready projects to bring to life the federal Electric Drive Vehicle Battery and Component Manufacturing Initiative. (Rolls right off the tongue, doesn’t it?)

International Battery Inc., based in the Allentown area, applied for $100 million to expand its 80,000-square-foot factory, where it employs 55 people who make large-format lithium-ion batteries.

Ener1 Inc. is seeking a $480 million loan to increase manufacturing capacity at its factory near Indianapolis that it acquired from Delphi Corp.

Last week, Quallion L.L.C. said it had picked Palmdale, Calif., for a new battery manfacturing factory - as long as it wins a grant from the Energy Department.

But one of the more intriguing applicants is the National Alliance for Advanced Transportation Batteries, which is seeking a $342 million grant to build a 1 million-square-foot plant in Kentucky to manufacture four different formats of lithium-ion battery cells.

Sanjay L. Deshpande, president of the nonprofit cooperative that calls itself NAATBatt, said the group consists of more than 50 companies, including several in the Philadelphia area. Members paid a $10,000 fee to start NAATBatt last December.

Local members are battery makers C&D Technologies Inc., of Blue Bell; EnerSys, of Reading; East Penn Manufacturing Co. Inc., of Lyon Station; and Lithium Technology Corp., of Plymouth Meeting. (Colorado-based Porous Power Technologies, which has operations in Plymouth Meeting, and International Battery are members, too.)

Philadelphia-based FMC Corp. and Radnor-based Airgas Inc., which supply raw materials to the battery industry, are also NAATBatt members.

Based in Kentucky’s “Auto Alley,” the plant would specialize in manufacturing cells on behalf of its members. Deshpande said organizers liken their effort to Sematech, formed by the U.S. semiconductor industry with grants from the federal government in the ’80s in response to the growing concentration of chip manufacturing in Asia.

The big difference is that where Sematech is R&D-driven, NAATBatt is manufacturing-driven. Deshpande said the U.S. semiconductor industry in the ’80s had giants such as IBM, Intel and Texas Instruments with huge manufacturing capabilities. Everything about the U.S. lithium-ion battery industry is small, he said.

But the goals of the two organizations are same: keep key capabilities and expertise in the United States.

No one company will control NAATBatt, said Deshpande, who is an executive with EnerSys. Any “profits” made by the factory would be either reinvested or rebated to members through lower prices for the cells they buy.

If the Energy Department does award a grant to NAATBatt, construction could start by Oct. 1 with the first batteries ready for shipping by the end of 2010, according to Deshpande. Plans call for 2,000 people working there within four years.

At the end of 10 years, the Department of Energy would have the right to sell the factory to a third party or through an initial public offering, splitting the proceeds with Kentucky, Deshpande said.

NAATBatt has come up with an interesting approach, but the question remains: A decade from now, will Kentucky be able to compete with China, Taiwan and South Korea?