(Report produced by: Huaxin Securities)
1. The energy revolution is advancing rapidly, opening up a trillion dollar market for energy storage
1.1 Emerging Racecourse under Carbon Neutrality, Trillion Market Rising
According to data from the International Energy Agency, over the past thirty years, 55% of global cumulative carbon emissions have come from the power industry, and 80% of carbon emissions from the power industry have come from coal-fired power generation. With the advancement of global electrification, the proportion of electricity in secondary energy will continue to increase in the future. Therefore, reducing the proportion of coal-fired power generation while vigorously developing clean energy has become an important way to achieve carbon neutrality. According to the Institute of Energy, Environment and Economics at Tsinghua University, if China achieves carbon neutrality by 2060, the proportion of wind and light in primary energy will be close to 50%, and the proportion in power generation will be close to 60%.
Building a new type of power system with new energy as the main body has become a global consensus, and energy storage will be involved as the core link. In the new power system, from the supply side, new energy gradually becomes the main body of installed capacity and electricity consumption; From the demand side, terminal energy consumption is highly electrified, and a large number of electricity "producers and consumers" have emerged. From the overall perspective of the system, the operating mechanism of the power system will undergo profound changes: due to the volatility and randomness of new energy generation, it is impossible to adapt to changes in user demand by adjusting its own output. The traditional "source follows load" mode will no longer be applicable to new power systems, and measures such as energy storage must be taken to achieve dynamic balance between power supply and demand through coordinated interaction between source, network, load, and storage. Specifically, the core role of energy storage in new power systems is reflected in three aspects: providing power system stability, peak capacity adequacy, and climbing flexibility. At present, thermal power is the main provider of these services. In a carbon neutral scenario, the proportion of thermal power units decreases to less than 5%, and photovoltaic and wind power, which account for the main installed capacity of the power system, cannot adjust their output according to the needs of the power system. Therefore, more diverse flexible power sources are needed, and energy storage is the best choice for flexible power sources.
Power system stability refers to the need for sufficient regulation capacity to maintain stability when fluctuations in the supply or demand side of the power system result in system frequency deviation. Because the demand side of the power system comes from end-users and is difficult to adjust, it can only be adjusted through the supply side, that is, the power plant. Renewable energy generation is affected by weather and cannot be adjusted upwards to increase output. Therefore, energy storage assistance is required for frequency regulation. IEA predicts that energy storage will provide 40% stability in installed capacity by 2060. Peak capacity adequacy, which means that the power system has sufficient capacity to meet high demand throughout the year. The increase in the proportion of renewable energy and the proportion of electricity in secondary energy has made it difficult to ensure adequacy. Flexible power sources, especially energy storage, will become an important source of ensuring adequacy. According to IEA predictions, energy storage will account for 40% of China's peak capacity reserves by 2060. Climbing flexibility, in a carbon neutral scenario, mainly refers to the need for sufficient and flexible climbing resources to compensate for the reduced output of photovoltaic power during the afternoon to night period. Energy storage can be charged during peak photovoltaic output periods, discharged during low periods, and assist the power system in climbing, forming full complementarity with photovoltaic power generation. The IEA predicts that the capacity to provide climbing flexibility in 2060 will be 15 times that of 2020.
Domestically, in order to implement the dual carbon strategy, efforts have been made to increase energy storage development in recent years. On October 24, 2021, the State Council issued the "Opinions on Fully and Accurately Implementing the New Development Concept and Doing a Good Job in Carbon Peak and Carbon Neutrality", which serves as the "1" in the "1+N" system and plays a leading role in China's carbon neutrality cause. During the 14th Five Year Plan period, the key position of energy storage in China's energy system construction has become increasingly prominent.
Overall, guided by the carbon neutrality goal, the development of global energy storage is imperative, and the trillion dollar market is slowly rising. Global policies tilt towards energy storage, with strong certainty in the long-term development of energy storage. At present, energy storage is still in its early stages of development and should be grasped β  Investment opportunities. Energy storage will become a segmented industry with a high growth rate in the new energy industry chain in the next 3-5 years. It is recommended to select leading enterprises and enterprises with a high proportion of energy storage business to enjoy β Simultaneously grasp α Opportunities will become the focus of investment.
1.2 Overseas: Energy storage in Europe and America has developed earlier and has formed regional characteristics
At present, the European household storage market has already begun to evolve, and the development of energy storage in the United States is also in full swing. We have conducted a review of the energy storage development situation in major countries and regions in Europe and America, and based on this, we have explored the necessary conditions for the outbreak of energy storage demand, in order to seek reference for China's energy storage development direction and seize the timing and investment opportunities of China's energy storage outbreak.
Germany: Household energy storage in a global position
In 2021, the installed capacity of electrochemical energy storage in Germany was 1.36 GWh, of which 1.27 GWh was installed for household energy storage, accounting for 93%. The global installed capacity of household energy storage is *. We believe that the main reasons for the development of household energy storage in Germany are as follows: 1) High household electricity prices in Germany have stimulated the demand for household photovoltaic energy, thereby stimulating the household energy storage market; 2) Germany has a comprehensive spot trading system in the electricity market, with a large peak valley price difference, which makes energy storage more economical; 3) Germany implements a subsidy policy for the household energy storage industry.
1) The global high electricity prices for German residents have led to spontaneous electricity demand among residents. The average residential electricity price in Germany is about 0.3 euros/kWh, which is at a high global level. Under the high residential electricity prices in Germany, installing photovoltaic systems by residents to achieve self-sufficiency in electricity has become a better choice than using grid power. But the photovoltaic output * is located during the day, and residents' electricity consumption during working days is concentrated at night. The mismatch between power generation and electricity consumption time makes the application of energy storage *. 2) Germany has a very complete spot trading system in the electricity market, with reasonable electricity prices reflecting the supply and demand situation of the electricity market. The daily peak valley price difference can reach 0.7 euros/kWh, providing a clear source of income and a good business model for household energy storage. Overall, the cost of combining photovoltaic and energy storage is lower than the residential electricity price, which can provide economic benefits for residents and promote the demand for photovoltaic storage systems among German residents.
3) Germany implements an industry specific subsidy policy for household energy storage. Subsidies for photovoltaic energy storage began in 2013, and the German Renaissance Bank, in collaboration with the German Federal Ministry of Environment, Nature Conservation, and Nuclear Reactor Safety, issued a new policy to provide a 30% subsidy for investment in household energy storage equipment. After the expiration of this policy in 2016, Germany began implementing a new light storage subsidy policy. The initial support for the new policy was 19% of the investment amount, but after several cuts, it eventually dropped to 10% in 2018. At this time, the energy storage cost had already dropped to a lower level, and residents' willingness to install energy storage was less affected by the subsidy. Therefore, the subsidy decline did not cause the stagnation of the German household energy storage market. Under the Russia-Ukraine conflict, the demand for German household reserves surged, which gave enlightenment to China's long-term energy strategy. After the outbreak of the Russo Ukrainian War, the prices of imported natural gas in Europe skyrocketed, leading to an increase in electricity prices and an increase in household electricity costs. In this context, the installation of household optical storage systems to achieve spontaneous self use of electricity has become an important alternative to electricity consumption. According to BVES, the German national storage capacity for Q1 2022 is approximately 0.63GWh/yoy+150%. Similar to Germany, China's natural gas resources are relatively scarce. If natural gas is used as the main flexible power source, it may encounter resource constraints. Early deployment of a new power system with energy storage as the core may help China effectively avoid energy crises.
United States: Energy storage on the power generation and consumption sides mainly comes from California, with PJM leading auxiliary service energy storage
The United States is the world's largest energy storage market, with 3.5GW/yoy+133% of new energy storage projects put into operation in 2021, accounting for 34% of the global market. Maintain a high growth rate in the first quarter of 2022, with a new energy storage capacity of 0.96GW/yoy+240%.
California, USA (CAISO): A sound electricity market provides a revenue mechanism for energy storage, and subsidies strengthen the economy of energy storage
California's energy time shift, industrial and commercial, and household energy storage installations are all in a * * position in the United States. The reason can be summarized as the mature and cost-effective power system. The maturity of the power system is reflected in: 1) allowing energy storage to participate in the market through NGR; 2) The spot power system is mature, and there is a strong correlation between electricity prices and the net load of the power system. The economic benefits are reflected in the high proportion of new energy generation - high electricity prices during low photovoltaic output periods - sufficient participation of photovoltaic energy storage equipment in high electricity price periods. At the same time, the increase in natural gas prices drives the overall upward movement of electricity prices, coupled with California's tax rebate/subsidy policies for photovoltaic and energy storage, highlighting the economic benefits of integrated photovoltaic and energy storage. In 2012, CAISO allowed energy storage to participate in the bilateral capacity market, electricity market, and auxiliary service market through NGR. NGR is defined as a resource with continuous operating intervals that can generate and consume electricity. In the electric energy market, electric energy storage NGR can submit electric energy quotation curves, including charging and discharging quotations. Energy storage can participate in the market as power generation, load, or both. The launch of NGR lays the foundation for California's energy storage market participation.
The California electricity market is mature, and the daily electricity price trend is highly correlated with the net load of the power system (excluding the load of wind and solar power generation). According to CAISO, in 2021, the proportion of non water renewable energy generation in California reached 31%, resulting in a net load reaching a trough in the afternoon and peaking around 8 pm. The electricity price trend is similar to this. For photovoltaic operators, due to their zero nighttime output, they cannot enjoy high electricity prices through nighttime power generation. To participate in the high electricity market, they need to be equipped with energy storage systems. Starting from 2021, California Energy Storage began to widely participate in the night market through energy time shift and engage in price spread arbitrage. In addition, according to the simulation results of CAISO, the period from 18:00 to 21:00 is the high-frequency stage of insufficient system capacity. In this scenario, the scarce electricity price mechanism will be triggered, and the electricity price * can reach as high as 1 US dollar/kWh. The energy storage response speed is higher than other units, and they can fully participate in this market and obtain high profits. Overall, energy storage can complement photovoltaics and participate in the high electricity price market during the low output stage of photovoltaics, bringing stable power supply to the power system while obtaining high electricity price benefits.
PJM: The mature auxiliary service market complements energy storage, where the former provides good economics for energy storage, while energy storage * participates in the auxiliary service market
The high installed capacity of PJM auxiliary service energy storage comes from its mature auxiliary service market. PJM includes a wide range of auxiliary service products, including frequency modulation, rotating backup, non rotating backup, etc. PJM distinguishes FM signals into traditional FM signal Reg A and dynamic FM signal Reg D, while providing capacity and performance costs. According to PJM data, currently in the PJM market, energy storage provides 10.4% of daily rotation reserve and 23.7% of frequency modulation with less than 4% of capacity, reflecting the * nature of energy storage's participation in the auxiliary service market.
We can simply express energy storage demand as new energy installed capacity (increment/stock) * permeability. Therefore, breaking through energy storage demand requires an increase in new energy installed capacity or permeability, and the increase in permeability mainly comes from the economic benefits of energy storage. Based on the successful experiences of various regions in Europe and America, we believe that achieving economic efficiency through energy storage requires two essential conditions: 1) a high proportion of wind and solar power generation; 2) A mature electricity market (including spot trading market, auxiliary service market, capacity market, scarce electricity pricing mechanism, etc.). In the absence of these two conditions, preferential policies such as subsidies/tax refunds can be used to compensate for economic deficiencies and promote the early development of energy storage.
1.2 Domestic: Energy storage has gone through four major stages and will face a turning point in development in 2021
Review the history of energy storage development in China and predict its future progress in conjunction with the carbon neutrality process. We believe that the development of energy storage in China can be roughly divided into four stages. The first stage is before 2016, where the penetration rate of new energy generation is relatively low. Energy storage is mainly used for "peak shaving and valley filling" of the power system load, and the installed capacity is mainly pumped storage. The second stage is from 2016 to 2020, where electrochemical energy storage begins to take on the historical stage to solve the problem of wind and light waste caused by the increase in penetration rate of new energy generation. The third stage is expected to be from 2021 to 2030. With the gradual marketization of policies and the power system, electrochemical energy storage will usher in a comprehensive outbreak on the generation side, grid side, and consumption side. It is expected that the domestic power system energy storage demand will reach 76GWh in 2025, which is 111% higher than the CAGR in 2021. The fourth stage is from 2031 to 2060. Unstable power sources such as wind and solar power will become the main power supply in China's power system, and energy storage will become the core of the power system to ensure safe and stable operation of the power system.
Phase 1: Focusing on pumped storage
Before 2016, the installed capacity of new energy in China accounted for less than 10%, and the power generation accounted for less than 4%. The penetration rate was low, and the impact on the power system was relatively small. The energy storage demand mainly came from the power system's "peak shaving and valley filling". The load characteristics of China's power system are peak load during the day and valley load at night, with the power generation side receiving unified dispatch from the power grid to adapt to load changes. Thermal power is the main force on the power generation side. Although thermal power can control output through startup and shutdown, reducing fuel consumption, and other methods, on the one hand, startup and shutdown costs are high and time is required for power climbing. On the other hand, thermal power has excellent unit revenue and low unit pollution when operating at full load. Therefore, peak shaving and valley filling on the load side is a better choice than adjusting the output of thermal power plants on the power generation side. Energy storage can be charged during low load periods at night and discharged during peak load periods during the day to achieve peak shaving and valley filling at the load end. At that time, the cost of electrochemical energy storage was relatively high, and pumped storage was an economical choice. Therefore, pumped storage accounted for over 99% of the energy storage market at that time.
Phase 2: Electrochemical energy storage begins to enter the historical stage
Since 2016, with the increase in penetration rate of new energy generation, China's energy storage industry has entered the second stage. In 2015, the average wind and solar abandonment rates in China were 15% and 14%, respectively. With the continuous increase in the penetration rate of new energy generation, if not controlled, the phenomenon of wind and solar abandonment will become more serious. Energy storage can store the amount of wind and solar energy discarded, and release it when needed by the power system, thus solving the problem of wind and solar energy abandonment. Due to the geographical location, pumped storage power stations are difficult to jointly build with wind and photovoltaic power stations. Electrochemical energy storage has become a flexible installation and an excellent technological path for new energy consumption. Therefore, since 2016, electrochemical energy storage has entered the historical stage. However, at this stage, the economic benefits of electrochemical energy storage are still poor, so the overall installed capacity is still small. In 2020, the cumulative installed capacity was only 3.3GW, which is 0.6% of the cumulative installed capacity of wind and solar power.
Phase 3: The cumulative installed capacity of electrochemical energy storage exceeds that of pumped storage
The third stage is expected to be from 2021 to 2030, during which electrochemical energy storage will witness a comprehensive outbreak on the power generation side, grid side, and consumption side. Power generation side: Energy storage will continue to undertake the task of promoting new energy consumption, and local governments have also introduced new energy allocation and storage policies to support the development of energy storage on the power generation side. Grid side: Due to the unstable output of new energy generation units and the inability to independently provide peak shaving and frequency regulation, other generation units are required to provide peak shaving and frequency regulation services. Energy storage relies on its flexible and precise regulation characteristicsStage 4: Energy storage becoming the core link of the new power system
The fourth stage is from 2031 to 2060. It is expected that starting from 2030, wind and solar power will become the main power supply force in the power system. In the context of carbon neutrality in 2060, wind and solar power generation will account for more than 70% of the total power generation. Its power generation volatility and instability pose challenges to the power system, and energy storage can provide security and stability for the power system through its regulation value and capacity value. In terms of regulating value, the consumption of new energy is still the main application scenario for energy storage. However, at this stage, the electricity stored during the peak period of new energy output will replace retired thermal power units and become the main power source during the low period of new energy output; In terms of capacity value, energy storage will provide capacity guarantee for peak loads in the power system.
2. A hundred flowers bloom in technology, and electrochemical energy storage is thriving day by day
2.1 Energy storage technology: Each has its own advantages and disadvantages, suitable for different scenarios
In a broad sense, energy storage, also known as energy storage, refers to the cyclic process of using a medium or device to store or convert one form of energy into another form of energy, and releasing it in a specific form based on future applications. According to the form of energy storage, energy storage includes electrical energy storage, thermal energy storage, and hydrogen energy storage, with electrical energy storage being the main energy storage method. In electrical energy storage, it can be divided into electrochemical energy storage and mechanical energy storage based on different storage principles. Electrochemical energy storage refers to secondary battery energy storage, including lithium-ion batteries, sodium ion batteries, lead batteries, and flow batteries; Mechanical energy storage includes gravity energy storage, pumped energy storage, compressed air energy storage, and flywheel energy storage.
Each technology path has its own advantages and disadvantages, and is suitable for different application scenarios. The rated power and storage capacity of electrochemical energy storage are relatively flexible, but there are generally safety or environmental issues, mainly used for new energy consumption, peak valley price arbitrage, power system peak shaving and frequency regulation, and UPS and other fields. Mechanical energy storage generally has a longer lifespan, but its response time is significantly slower than electrochemical and electromagnetic energy storage, and is mainly used in the field of peak shaving in power systems.
2.1.1 Hydrogen energy storage
The basic principle of hydrogen energy storage is to electrolyze water to obtain hydrogen gas and store it. When electricity is needed, the stored hydrogen gas is converted into electricity through fuel cells or other methods and transmitted to the grid. Electrolytic water hydrogen production requires a large amount of electrical energy, which is much more expensive than traditional hydrogen production methods. However, due to the instability of renewable energy grid connection, China has serious problems of wind and solar abandonment. Utilizing the surplus electricity generated by wind and photovoltaic power to produce hydrogen can effectively solve the cost problem of electrolytic water hydrogen production and solve the consumption of wind and solar power. Therefore, hydrogen energy storage is gradually becoming the focus of energy technology innovation in China. However, currently in China, there is a lack of convenient and effective hydrogen storage materials and technologies, and the energy conversion efficiency of hydrogen storage is relatively low. Therefore, there are currently few applications, and whether these two issues can be solved will become the key to whether hydrogen storage can obtain more shares in the future.
2.1.2 Mechanical energy storage
Mechanical energy storage stores energy through physical methods and converts it into electrical energy when needed. Mechanical energy storage mainly includes gravity energy storage, pumped storage, flywheel energy storage, and compressed air energy storage.
1) Gravity energy storage
Gravity energy storage media are mainly divided into water and solid substances, and the charging and discharging process of the energy storage system is achieved by lifting and lowering the energy storage media based on the height difference. In addition to more mature pumped storage, the mainstream gravity energy storage method is the energy storage tower proposed by Energy Vault (EV), which uses a crane to stack concrete blocks into a tower and store and release energy by lifting and dropping the concrete blocks. According to EV's official website, the energy efficiency of its energy storage tower can reach 90%, and it can discharge at a continuous power of 4-8MW within 8-16 hours, achieving high-speed response to grid demand.
2) Pumped storage energy
Pumped storage power stations consist of two reservoirs, one upper and the other lower. During low power loads, excess electricity is used to pump water from the upper reservoir to the upper reservoir, and during peak hours, water is discharged to generate electricity from the mechanical energy generated when water flows from the upper reservoir to the lower reservoir, thereby achieving peak regulation. Pumped storage energy can achieve large-scale energy storage, so it is widely used for peak shaving in power systems. However, due to its slow response speed, high initial investment, and limited geographical location, its future development space is limited.
3) Flywheel energy storage
Flywheel energy storage: When storing energy, the electric energy drives the motor to run, and the motor drives the flywheel to accelerate and rotate. The flywheel stores energy in the form of kinetic energy; When releasing energy, the high-speed rotating flywheel drives the motor to generate electricity, completing the conversion of mechanical energy to electrical energy. Flywheels have a higher energy storage capacity than power, a service life of up to 15-30 years, and a response speed of up to milliseconds. Therefore, flywheel energy storage is mainly used for frequency regulation and UPS. However, due to its low energy density and a backup time of no more than 30 minutes, it cannot be applied to large-scale energy storage power plants.
4) Compressed air energy storage
Compressed air energy storage technology originated from gas turbine technology. During the low electricity consumption period, the compressor is driven by an electric motor to compress the air and store it in a storage chamber, converting electrical energy into internal energy for storage; During peak electricity usage, high-pressure air is released from the gas storage chamber and enters the fuel chamber to burn together with the fuel, driving the turbine to work and driving the generator to generate electricity. Compressed air energy storage is another technology suitable for GW level large-scale power storage after pumped storage. In addition to high energy storage, it also has advantages such as high energy density and power density, low operating costs, and long service life. However, similar to pumped storage, compressed air energy storage is also limited by geographical conditions, requiring high airtightness caves as gas storage chambers, which further limits the development of compressed air energy storage.
2.1.3 Electrochemical energy storage
Electrochemical energy storage refers to the conversion of electrical energy and chemical energy through electrochemical reactions, thereby achieving the storage and release of electrical energy. The main energy storage batteries currently used include lead-acid batteries, flow batteries, and lithium-ion batteries. In the future, sodium ion batteries will gradually be applied to energy storage as the industry chain matures. 1) Lead acid batteries are a type of secondary battery that uses lead dioxide as a positive battery, metal lead as a negative battery, and sulfuric acid solution as the electrolyte. They have a history of over 150 years and are the earliest large-scale secondary batteries used. Lead acid batteries have low energy storage costs, good reliability, and high efficiency, and are widely used in UPS. They are also the leading technology route for large-scale electrochemical energy storage in China in the early stage. However, due to the short cycle life, low energy density, narrow temperature range, slow charging speed, and significant environmental impact of lead metal, the future application of lead-acid batteries will be greatly limited.
2) The technological path of liquid flow batteries includes all vanadium liquid flow batteries, iron chromium liquid flow batteries, zinc bromide liquid flow batteries, etc. Among them, all vanadium liquid flow batteries have excellent comprehensive performance and high commercialization degree. The positive and negative electrolyte storage tanks of the flow battery are independently separated and placed outside the stack. The positive and negative electrolytes are pumped into the flow battery stack through two circulating power pumps through pipelines and undergo continuous electrochemical reactions. The storage and release of electrical energy are achieved by converting chemical energy into electrical energy. The power of a liquid flow battery depends on the size of the reaction area, while the storage capacity depends on the volume and concentration of the electrolyte. Therefore, the design of the size of the liquid flow battery is more flexible and variable. We believe that in terms of long-term energy storage, all vanadium flow batteries will have a cost advantage and a differentiated competitive advantage compared to other technological paths such as lithium batteries.
3) Lithium ion batteries achieve energy storage by embedding and de embedding lithium ions in positive and negative materials. Lithium ion batteries have a high energy density and long lifespan, making them gradually becoming the mainstream route for electrochemical energy storage. According to different positive materials, lithium-ion batteries are further divided into lithium cobalt oxide, lithium manganese oxide, lithium iron phosphate, and ternary batteries. Lithium iron phosphate batteries have significant comprehensive advantages in the field of energy storage, with moderate energy density, superior safety and service life compared to other battery types, and lower costs; Lithium cobalt oxide batteries have few applications in the field of energy storage due to the scarcity of cobalt metal, which is much more expensive than other batteries, and their cycle life and safety are poor; The energy density of lithium manganese oxide batteries is similar to that of lithium iron phosphate batteries. Although the price is lower than that of lithium iron phosphate batteries, their low service life leads to a higher cost of electricity throughout their entire life cycle compared to lithium iron phosphate batteries, so they are rarely used; The energy density of ternary batteries is much higher than that of other battery types, and their service life can also reach 8-10 years. However, their safety is relatively poor, and their cost is much higher than that of lithium iron phosphate batteries. Therefore, in the field of energy storage that does not require high energy density, their application prospects are weaker than that of lithium iron phosphate batteries.
4) The working principle of sodium ion batteries is similar to that of lithium-ion batteries, using the insertion and removal process of sodium ions between positive and negative ions to achieve charging and discharging. Sodium ion batteries have higher safety performance, low-temperature performance, and fast charging performance compared to lithium iron phosphate batteries, with lower costs. Moreover, sodium resources are far more abundant than lithium resources and are distributed throughout the world. If sodium ions can be widely used, China will largely overcome the current situation of limited lithium resources.
2.2. Market Status: The stock is mainly pumped storage, with electrochemical energy storage leading the increment
Pumped storage energy accounts for the share of energy storage, and lithium-ion batteries are the mainstream technology route for electrochemical energy storage. The installed capacity structure of various types of energy storage in China is similar to the global situation, with pumped storage as the main installed type, accounting for about 86% of the installed capacity. The installed proportion of electrochemical energy storage in China and globally is 9.2% and 7.8%, respectively. In electrochemical energy storage, lithium-ion batteries dominate, accounting for around 90% in both China and the world.
From 2017 to 2021, the cumulative installed capacity of electrochemical energy storage in China increased by 14 times. The development path of energy storage in China is similar to the global situation. According to CNESA, the cumulative installed capacity of energy storage in China was 46.1GW in 2021, and the cumulative installed capacity steadily increased from 2017 to 2021. The cumulative installed capacity of electrochemical energy storage in 2021 is 5.7GW, with an increase of 2.5GW/yoy+55%.
2.3. Application Scenario: Multiple scenarios with rigid demands to support the rapid development of energy storage
According to the installation location of the energy storage system, we classify it into power generation side, grid side, and user side. With the rise of shared energy storage, the boundary between power generation and grid side energy storage is gradually blurred. Based on the different beneficiaries, we classify new energy distribution and storage as power generation side energy storage, energy storage for peak shaving and frequency regulation as grid side energy storage, and energy storage for distributed optical storage integration and peak shaving and valley filling as user side energy storage. The business models for energy storage vary in different application scenarios, and each has its own application necessity.
Power generation side: used for new energy consumption in the short term and an important way to meet the "net load" in the long term
New energy generation is unstable and unable to fully follow the power grid dispatching instructions. Energy storage stations store their excess electricity and release it during low output periods to assist in the consumption of new energy and generate profits through the excess wind and solar energy generated. At present, the proportion of new energy generation in China is relatively low, and the issue of consumption is not prominent. Relying solely on wind and solar power generation cannot make up for energy storage costs, and this business model has poor economic efficiency. Under the high proportion of new energy integration, the net load of the power system will exhibit a "duck shaped curve". During the decline period of new energy generation, sufficient climbing resources are required, and the net load of superimposed photovoltaic and wind power will eventually be met during the stage of zero photovoltaic output. In a carbon neutral scenario, the proportion of adjustable power sources such as thermal power is relatively low. With its fast and precise regulation characteristics, energy storage will become a suitable climbing resource, and can meet nighttime electricity demand by utilizing the electricity stored during the peak period of new energy generation during the day.
Grid side: Energy storage has fast response speed and is a resource for participating in auxiliary services
The value of energy storage is mainly realized on the grid side through the electricity auxiliary service market. Auxiliary services are service products provided by market entities (including power generators, power users, and energy storage enterprises) to maintain the safe and stable operation of the power system, mainly including peak shaving, frequency regulation, backup capacity, etc.
1) Peak shaving: transitional product during the power market reform phase
China's electricity load has a significant difference between peak and valley, and the spot electricity market is not yet perfect. Therefore, peak shaving auxiliary services have been launched to promote the balance of supply and demand in the power system through peak shaving compensation. The future electricity spot market will gradually improve, and peak shaving will gradually withdraw from the auxiliary service market.
2) Frequency regulation: Energy storage frequency regulation is more effective than traditional methods and is a necessary means to maintain power grid stability
Frequency modulation service is the ability of the unit to track changes in electricity load in a short period of time. The unit providing frequency modulation service increases or decreases its output by receiving automatic control signals for power generation. Typically, this adjustment process is completed within a few seconds. The purpose of frequency modulation service is to correct the frequency deviation that occurs in the system and maintain the stability of the power system frequency. The rated power of China's power system is 50Hz. For large capacity systems above 3GW, the normal frequency deviation operating value is ± 0.2Hz, while for small systems, it is ± 0.5Hz.
User side: Peak valley price difference arbitrage and capacity cost management provide clear revenue models
Energy storage is used for peak and valley electricity price arbitrage. Users can use energy storage to store electricity during periods of low electricity prices, and use stored electricity during peak periods to avoid direct large-scale use of high priced grid electricity, thereby reducing electricity usage costs and achieving peak and valley electricity price arbitrage. Under the two-part electricity price system, the power supply department will charge a certain basic electricity price every month based on * large demand. Enterprises can use energy storage systems for capacity cost management, reducing high power consumption without affecting normal production, thereby reducing capacity costs.
Application status: New energy distribution and storage are the main application scenarios in China, while power side auxiliary services are the main application scenarios globally
According to CESA, both the global and Chinese power systems currently focus on new energy distribution and storage, power auxiliary services, and grid side energy storage. Among them, the global proportions of the three are 33%, 37%, and 24%, respectively, with a relatively balanced distribution. In China, the proportions are 45%, 29%, and 22%, respectively. The proportion of new energy distribution and storage is significantly higher than other scenarios.
3. On the demand side: Economy is gradually emerging, and the energy storage market is poised for growth
3.1 Economy: High electricity price regions have already achieved economic efficiency, and cost reduction remains the key
With the acceleration of global carbon neutrality, the proportion of new energy generation is gradually increasing, and the importance of energy storage is highlighted. At present, economy may be a key factor in suppressing energy storage release. Therefore, in this chapter, we calculate the energy storage economy under different scenarios to assess whether the energy storage installation in Europe and the United States originates from spontaneous demand, and explore the timing of China's energy storage ushering in endogenous demand, thereby providing a basis for future energy storage demand calculations in the United States, Europe, and China.

3.2. Market Space: China, the United States, and Europe are advancing side by side, and it is expected that global demand will exceed 280GWh by 2025
3.2.1 The United States: Policies continue to exert force, and energy storage is expected to continue to lead the world
In 2021, the installed capacity of electrochemical energy storage in the United States was 3.5GW/yoy+133.3%, exceeding the doubling growth rate for two consecutive years. In 2022, the United States will continue to maintain a high growth trend in energy storage, with an installed capacity of 0.96GW/yoy+240% in the first quarter. Looking ahead, as the Biden administration increases subsidies for new energy and energy storage, we believe that the US energy storage will maintain a high growth rate. From the perspective of installation scenarios, energy storage in the United States is mainly in front of the meter, with 88% of installed capacity being in front of the meter. The main reason is that the power grid is old, and the proportion of new energy generation is increasing year by year. Energy storage needs to be equipped to assist in consumption and meet the scheduling needs of the power grid. At present, the proportion of industrial, commercial and household energy storage is relatively low, but with the increase of subsidies and the maturity of the local electricity market in the United States, the economy is prominent, and the growth rate may be higher than that of pre balance sheet energy storage.
For industrial, commercial, and household energy storage, California is currently the main source of demand in the United States. The main reason is that California provides SGIP subsidies for distributed energy and energy storage, combined with ITC tax rebate policies, which makes California's user side energy storage economically viable. Looking ahead to the next stage, the extension of the ITC period for household storage in the United States will effectively boost household storage demand. In addition, the outbreak of household storage demand in Europe in the first half of 2022 has brought us inspiration. The stability of electricity consumption is a rigid demand for residents. In recent years, the weather in the United States has increased, and large-scale power outages have occurred in Texas and other places in 2021. Household storage demand may take over from Europe and usher in an outbreak. We estimate that the energy storage demand for businesses and households in the United States will be 5.9GWh and 13.5GWh respectively in 2025, with CAGR of 109% and 96% from 2021 to 2025.
3.2.2 Europe: In 2022, demand is exploding, with high electricity prices and subsidies providing protection for energy storage demand
In 2020, Europe added 0.8GW of electrochemical energy storage capacity, a year-on-year decrease of 11%. The new installed capacity of household energy storage is 1.07GWh, a year-on-year increase of 43.5%. Assuming an average storage time of 2 hours (referring to Tesla Powerwall), it accounts for 67% of the total energy storage weight.
Europe has become a global energy storage market, mainly due to the high penetration rate of household energy storage in Germany. Germany has a high global household electricity price, which has led to a high demand for household photovoltaic energy. At the same time, Germany's well-established spot trading system in the electricity market and subsidy policies for household energy storage make household energy storage more cost-effective. We believe that in the next stage of development, thanks to a clear business model and government subsidies, Germany's household energy storage will continue to increase its penetration rate in existing household photovoltaics.
Other European countries have also begun to exert efforts on the policy side, for example, the National Grid power system operator in the UK launched a weekly energy storage capacity auction test and launched its dynamic containment response service in October 2020; Sweden will provide tax exemptions to individuals who install household energy storage systems starting from 2021; Italy launched a new ecological reward policy in June 2020, allowing photovoltaic and energy storage systems related to renovation projects to enjoy a 110% tax reduction. Based on the policies and subsidies of European countries for energy storage, the economy of energy storage in Europe has been established, and the demand for household energy storage market has begun to rise. We calculate the household energy storage and other energy storage in Europe separately, and it is expected that the demand for household energy storage in Europe will be 20.95GWh and 6.5GWh in 2025, totaling 27.45GWh. The CAGR from 2021 to 2025 will reach 77.3%.
3.2.3 China: top-level policy guidance, high growth potential
China's electrochemical energy storage is growing rapidly, but the overall scale is still small. In 2021, China's electrochemical energy storage installed capacity is 2.4GW/yoy+53%. In the first half of 2022, energy storage maintained a high growth rate, with an installed capacity of 0.39GW/yoy+70%. China's electrochemical energy storage achieved a breakthrough from almost nothing in 2017-2021, with a cumulative installed capacity of only 0.4GW in 2017. By 2021, it had increased by more than 13 times, reaching a cumulative installed capacity of 5.7GW.
For China, the current energy storage economy is still poor and there are no conditions for energy storage development. However, the policy of strong allocation of energy storage can effectively stimulate short-term energy storage demand, and the combination of large bases and county-wide promotion projects brings strong centralized and distributed wind and solar power demand. The short-term installed capacity of energy storage is expected to grow rapidly. In the long run, the proportion of wind and solar power generation will continue to increase, And the country has successively introduced policies to increase the economic benefits of energy storage (improving the spot electricity market and auxiliary service market, exploring the cost of alternative energy storage facilities in the power grid to be included in the recovery of transmission and distribution electricity prices, researching and establishing a capacity electricity price mechanism for independent energy storage power stations on the grid side, exempting the transmission and distribution electricity prices of independent energy storage power stations that transmit electricity to the grid, government funds and surcharges, and widening the peak valley price difference, etc.), resulting in a marginal improvement in the economic benefits of energy storage, We are optimistic about the long-term development prospects of domestic energy storage.
We predict the installed capacity of energy storage in China based on the power generation side, grid side, and user side. It is expected that the installed demand for the three scenarios in 2025 will be 53.93GWh, 7.6GWh, and 14.76GWh, totaling 76.3GWh. The CAGR from 2021 to 2025 will reach 111%.
3.2.4 Other markets: Different regions have potential, and energy storage demand will gradually be released
In 2021, the total installed capacity of energy storage in markets other than China, the United States, and Europe was only 2GW, and large-scale applications have not yet formed. However, many regions already have soil for energy storage and development, and demand may gradually be released. South Korea led the world in energy storage installation in 2018, but at that time, the safety design of energy storage was poor, and the battery was mainly based on the ternary route, with frequent safety accidents. In the past two years, energy storage has achieved negative growth. Looking forward to the future, as leading enterprises such as LG began to develop lithium iron phosphate batteries, liquid cooling temperature control and fire prevention products have gradually matured, and safety concerns have decreased. South Korea's energy storage is expected to return to growth; The spot electricity market and auxiliary service market in Australia have developed maturely, with a high penetration rate of wind and solar power. In addition, multiple state governments have introduced tax refund/subsidy policies, and the conditions for energy storage development are complete, waiting for further expansion. In addition, Japan supports the development of energy storage through funding allocation, and the construction of power grids in Africa is relatively poor, requiring energy storage to replace some of the power grids. Overall, we believe that as the carbon neutrality process continues to advance, energy storage in other regions outside of China, the United States, and Europe will also gradually increase. It is expected that the demand will be 25.3GWh in 2025, and the CAGR from 2021 to 2025 will be 58.6%.
3.2.5 Other energy storage scenarios: steady development of communication energy storage, and the emergence of a blue ocean of portable energy storage
Communication energy storage: lithium battery replacement is accelerating, with an estimated global installed capacity of 60GWh by 2025
Based on the current situation of communication markets in various regions around the world and the demand for lithium batteries, communication energy storage is mainly divided into two major demand markets: 1) Asia Pacific (excluding China, Japan, and South Korea), Africa, the Middle East, and South America. The communication environment in this area is relatively backward, with high performance requirements for base stations and backup power sources. Lithium batteries have more advantages than lead-acid batteries; 2) In the markets of China, Japan, South Korea, Europe, and North America, the construction of 5G base stations is accelerating, driving the demand for lithium batteries. At the same time, lithium energy storage is gradually replacing lead-acid batteries in 4G base stations, bringing incremental space. According to GGII, the global demand for lithium batteries in base stations will reach 60GWh by 2025.
Portable energy storage: a new derivative market in the context of carbon neutrality, with an estimated global demand of 15GWh by 2025
In the context of carbon neutrality, with a large proportion of wind and solar power connected to the grid, it is difficult to ensure power supply stability. In European and American countries with fast carbon neutrality processes, emergency backup power has become a necessary backup for daily life. Therefore, the demand for portable energy storage has emerged. In addition to emergency power backup, portable energy storage can also be used for outdoor travel and other scenarios. According to GGII, the global demand for portable energy storage lithium batteries is expected to be 15GWh in 2025, with a CAGR of 80% from 2021 to 2025.
The growth space for energy storage in the power system is about 17 times over the next 5 years: Based on our calculations of power systems and other energy storage in various regions around the world, it is expected that the global energy storage demand will reach 288GWh in 2025, and the CAGR from 2021 to 2025 will reach 53%. Among them, the demand for energy storage in the power system will reach 213GWh in 2025, and the CAGR from 2021 to 2025 will reach 78%, leading the energy storage increment. According to BNEF's prediction, the cost of energy storage systems will be approximately 1.4 yuan/Wh in 2025, and the global energy storage market space will reach 403.2 billion yuan by 2025.
4. On the supply side: Various players are entering, competing for certainty * strong track
The upstream of the energy storage industry chain mainly includes suppliers of battery raw materials and production equipment; The midstream mainly includes suppliers of batteries, battery management systems, energy management systems, and energy storage converters; Downstream mainly include energy storage system integrators, installers, and end users.
4.1 Energy Storage Batteries: Focusing on Cost Reduction and Improving Cycle Life
A complete electrochemical energy storage system mainly consists of battery packs, battery management systems (BMS), energy management systems (EMS), energy storage converters (PCS), and other electrical equipment. The battery pack is the main component of the energy storage system; The battery management system is mainly responsible for monitoring, evaluating, protecting, and balancing batteries; The energy management system is responsible for data collection, network monitoring, and energy scheduling; The energy storage converter can control the charging and discharging process of the energy storage battery pack, and perform AC/DC conversion.
The energy storage battery system consists of two parts: a battery pack and a battery management system. The battery pack is the high cost component of the entire energy storage system, accounting for approximately 70%, BMS accounting for 6%, and the energy storage battery system accounts for 76% of the electrochemical energy storage cost.
At present, the main energy storage battery suppliers in China are mostly power battery manufacturers. According to CNESA data, the top four energy storage battery providers in China in 2021 were all power battery manufacturers.
At the current time point, the European household storage market has already begun to evolve. In the next stage, the US household storage may take over from Europe and continue to drive the high growth rate of the household storage industry; In terms of centralized energy storage, the United States has reached the point of spontaneous configuration. With the expectation of marginal decline in silicon and lithium carbonate prices, the demand for energy storage is highly deterministic, while in China, it is driven by strong allocation policies and also has high expectations for installation.
4.2 PCS: Photovoltaic inverter enterprises seize market opportunities
Energy storage converter is a device connected between the battery system and the power grid to achieve bidirectional conversion of electrical energy. It can convert the direct current of the battery into alternating current for transmission to the power grid, or convert the alternating current of the power grid into direct current for battery charging. In grid connected mode, during low load periods, the energy storage converter rectifies the AC power from the grid into DC power to charge the battery pack. During peak load periods, the energy storage converter converts the DC power from the battery pack into AC power and sends it back to the grid; In off grid mode, the energy storage converter is disconnected from the main power grid, providing electricity that meets the power quality requirements of the power grid to some local loads.
The scenario is similar, and the technology is of the same origin. Photovoltaic inverter manufacturers have a first-mover advantage in entering the energy storage PCS field. There is a high degree of overlap between energy storage converters and photovoltaic inverters in terms of usage scenarios, technical principles, upstream suppliers, and downstream customers. Therefore, most energy storage converter enterprises come from photovoltaic inverter manufacturers, and the industry competition pattern is also similar. According to statistics from the Energy Storage Application Branch of the China Chemical and Physical Power Supply Industry Association, there are currently 30 PCS listed companies. According to CNESA statistics, in the global market in 2021, the top ten Chinese energy storage PCS suppliers in terms of shipment volume include companies such as Sungrow Power, Kehua Data, Guliwat, and Shangneng Electric.
The energy storage converter market continues to grow. According to a global market research report released by IHS Markit, the scale of grid connected energy storage inverters will increase to 7GW by 2022. The global energy storage inverter market size is expected to be 63GW from 2018 to 2022, showing a rapid growth trend.
4.3. Energy storage temperature control: liquid cooling accelerates penetration, and the temperature control amount is flexible and can be increased in a timely manner
Temperature control refers to the effective control and regulation of the temperature of something through heating or cooling technology. The temperature control system, in conjunction with BMS, performs constant temperature and humidity control on lithium batteries to maintain them within safe operating parameters, improve their stability during operation, and prevent them from entering a thermal runaway state. Energy storage temperature control technology mainly includes air cooling, liquid cooling, heat pipe cooling, and phase change cooling. Among them, the air cooling system has a simple structure, high stability, long service life, low cost, and is easy to implement, making it the mainstream technology path in China at present. The liquid cooling system has high heat dissipation efficiency and fast heat dissipation speed, and its advantages are prominent in high magnification and high capacity scenarios. Therefore, the global energy storage system is showing a trend of accelerated infiltration of liquid cooling, replacing air cooling. Heat pipe cooling and phase change cooling need to be combined with air cooling and liquid cooling, but due to their high price, they are currently less used in the energy storage field.
We believe that the utilization rate of global energy storage systems has increased, posing higher requirements for safety. The importance of temperature control systems is highlighted, and liquid cooling systems, with their advantages in heat dissipation efficiency and speed, are expected to accelerate penetration. In addition, many countries in Europe and America have good energy storage economies. As the prices of lithium battery raw materials decrease, their sensitivity to temperature control system prices will decrease, which will also have a positive promoting effect on the application of liquid cooling systems. We expect the global liquid cooling penetration rate to reach 45% by 2025, and the market space for energy storage and temperature control in the power system will reach 10.7 billion yuan. The CAGR for 2021-2025 is 92%. The increase in liquid cooling penetration rate will drive an increase in the average unit value of the temperature control industry, and the composite growth rate of energy storage and temperature control will exceed the average growth rate of the energy storage industry.
Source: Future Think Tank