1、 The construction of a new type of power system is advancing, and the golden race of large-scale storage is starting
1.1 Energy transformation ushers in a critical node, and the construction of new power systems is accelerating
Countries around the world have implemented the "dual carbon" strategic plan, and energy transformation has ushered in a key node. Climate issues have become a global focus, with the Paris Agreement setting a long-term goal to address climate change, which is to control the increase in global average temperature within 1.5 degrees Celsius compared to the pre industrial period, and strive to limit the increase in temperature to within 2 degrees Celsius. Currently, more than 70 countries have announced their accession to the "dual carbon" target implementation plan. The "dual carbon" strategic goal promotes the accelerated transformation of energy, and the global energy consumption structure will gradually shift from traditional fossil fuels to new energy in the future.
The proportion of new energy generation/installation has increased, and the construction of new power systems has accelerated. The proportion of new energy generation and installed capacity has significantly increased, and with the promotion of the "dual carbon" policy, the proportion of new energy has accelerated upward. In terms of power generation, as of 2021, China's total power generation was 8.4 trillion kilowatt hours, of which wind and photovoltaic power accounted for 11.7%, an increase of 7.8 pct compared to 2015. In terms of power generation installation, as of the end of 2021, China's cumulative installed capacity for power generation was 2.38 billion kilowatts, with wind and photovoltaic installations accounting for 27%, an increase of 15 pct compared to 2015. There is a certain time difference between the installation of wind and solar power and grid connected power generation. Currently, there is a significant difference between the cumulative proportion of wind and solar power and the proportion of power generation. We anticipate that the proportion of power generation will significantly increase in the next two years. Therefore, the construction of a new power system adapted to new energy sources will accelerate.
1.2 Energy storage has a rigid demand, and a new type of energy storage golden race is starting
Energy storage is a 'good solution' to the systemic problems brought about by the development of new energy. Energy storage can solve two main system problems that new energy will bring: 1) time mismatch of power generation/consumption. The timing mismatch of power generation/consumption is due to the fact that the power source generates electricity immediately, while wind power typically generates electricity in the early morning and photovoltaic power in the afternoon. The peak electricity consumption on the user side is mainly concentrated in the morning and evening, so the power generation/consumption naturally does not match. And energy storage can be charged during peak power generation and discharged during peak power consumption, solving the problem of time mismatch. 2) Optimize power quality and ensure the safety of the power grid. The allowable frequency deviation for large capacity power systems above 3GW in China is ± 0.2Hz, and for small and medium-sized power systems, the allowable deviation is ± 0.5Hz. New energy power generation is affected by weather and has significant short-term fluctuations, which in turn affect the frequency of the power grid. With the increase of new energy capacity, the frequency fluctuation range that the power system can withstand is smaller. Energy storage is one of the effective ways to solve the problem of frequency fluctuations. Therefore, energy storage has a rigid demand in the power system.
The construction of new energy continues to advance rapidly, and energy storage construction is urgent. The power generation of new energy lags behind the installation of new energy, and is currently at a critical juncture in large-scale grid connection of new energy, increasing the proportion of new energy power generation. In addition, the construction of new energy is also rapidly advancing. We expect that the installed capacity of photovoltaics is expected to reach 126GW (YOY+40%), wind power is expected to reach 63GW (YOY+12%), photovoltaics is expected to reach 210GW in 2025, with a CAGR of 40% in 21-25, 77GW of new wind power installed in 2025, and 13% in 21-25. Against the backdrop of continuous and rapid progress in new energy construction, the rigid demand for energy storage is prominent, and energy storage construction is urgent.
Pumped storage is currently the main energy storage entity, but it is limited by geographical location and response time. From the perspective of energy storage structure, both the global and domestic energy storage structures are mainly based on pumped storage, accounting for 86.2%/86.3% respectively in 2021. Pumped storage has a long history of development and a mature industrial chain, but it has certain disadvantages: 1) Due to geographical limitations, pumped storage needs to consider the location of water resources and the selection of construction sites; 2) Long response time, unable to meet the requirements of short-term changes in new energy. Pumped storage converts water potential energy into mechanical energy and then into electrical energy. The start-up of the unit usually takes time, with a climbing rate of 10-50%.
Benefiting from the rapid development of the new energy vehicle industry chain, electrochemical energy storage is the current optimal solution. From a performance perspective, electrochemical energy storage has advantages such as high climbing rate (* Pn/min), short start stop time, bidirectional adjustment of supply and demand, and fast adjustment rate; From the perspective of the maturity of the industrial chain, the thermal power flexibility transformation and pumped storage industry chain are relatively mature, while the electrochemical industry chain benefits from the development of new energy vehicles. Currently, it is relatively mature, while green hydrogen and nuclear power are in the early stages of development as a whole. The development level of the industry chain determines the cost of the industry, comprehensive performance, and industry chain situation. We believe that electrochemical energy storage is the optimal solution for the development of new power systems.
The new type of energy storage installation is growing rapidly, and the golden race is starting. In terms of the global new energy storage market, the cumulative installed capacity in 2021 was 25.4GW, a year-on-year increase of 68%. Calculated based on 2 hours of storage, the cumulative installed capacity of energy storage in the corresponding 21 years is about 50GWh; From the perspective of China's new energy storage market, the cumulative installed capacity in 2021 was 5.73GW, a year-on-year increase of 75%. Calculated based on 2 hours of storage, the cumulative installed capacity of energy storage in the corresponding 21 years is approximately 10GWh. In the past 21 years, the cumulative installed capacity of wind and solar power has reached 635GW, with China's energy storage accounting for 0.9% of the total installed capacity of wind and solar power. The penetration rate is relatively low, and the golden track is starting, with broad market space in the future.
1.3 Large energy storage is the main type of energy storage in China, mainly used on the power supply side and power grid side
Energy storage application scenarios can be divided into power supply side, power grid side, and user side. Among them, the power side energy storage (accounting for 41%) is used to support renewable energy grid connection, auxiliary services, and large capacity energy services. The energy storage access location is energy storage+conventional units, wind and solar storage, wind storage, and optical storage; The role of grid side energy storage (accounting for 35%) is to support renewable energy grid connection, auxiliary services, transmission infrastructure services, large capacity energy services, and distribution infrastructure services. The energy storage access location is independent energy storage and substation; The role of user side energy storage (accounting for 24%) is to provide energy management services and distribution infrastructure services on the user side. The energy storage access locations include industrial and commercial areas, industrial parks, EV charging stations, port and port electricity, etc. Large energy storage is a type of energy storage with high power/energy, and its application scenarios are mainly on the power supply side and the power grid side. According to the national standard "Design Specification for Electrochemical Energy Storage Power Plants", large-scale energy storage power plants are defined as energy storage power plants with a power of 30MW and an energy of 30MWh or above. Since the beginning of this year, with the rapid development of integrated projects such as centralized shared energy storage and wind and solar energy storage in various regions, the market has also had higher expectations for the scale of large energy storage power stations. Taking the 2021 affordable new energy project recently released by the Hubei Provincial Energy Bureau as an example, the document stipulates that the scale of centralized shared energy storage power stations should not be less than 50MW/100MWh. Based on the recent construction scale of energy storage in various regions, the large-scale energy storage power stations mentioned in this article refer to energy storage power stations with an energy of 100MWh or more. From the perspective of application scenarios, large energy storage is mainly applied on the power supply side and grid side, and the scale of commercial energy storage power is gradually increasing in a small number of divisions. Therefore, we mainly discuss three types of energy storage: power supply side, grid side, and industrial and commercial energy storage.
2、 The overall economic performance of domestic large energy storage is under pressure, and independent energy storage is expected to break free from commercial models
The development of the energy storage industry is driven by both the market and policies, with the main body determined by energy storage investors and policy makers. Policy makers are considering energy transformation and the construction of new power systems to promote the development of the energy storage market, while energy storage investors are concerned about the economic benefits of energy storage. Currently, the application scenarios of large-scale energy storage in China mainly include auxiliary services such as wind and solar power distribution and storage, frequency regulation, independent shared energy storage, and industrial and commercial energy storage. Below, we will calculate the economics of the above energy storage types.
2.1 Wind and solar energy distribution and storage: new energy cost under policy pressure
The overall pressure on new energy consumption across the country has improved. In the early stage of the 12th Five Year Plan, there was a significant pressure on the consumption of new energy in the country, with an overall high rate of wind and solar energy abandonment. The wind and solar energy abandonment rate reached 19% in 2016. Subsequently, China attached great importance to the construction of new power systems, solved the problem of new energy consumption capacity, and significantly improved the wind and solar energy abandonment rate.
The pressure of new energy consumption is showing a trend of regional differentiation. In terms of specific regions, North China, Northwest China, and Northeast China have abundant scenic resources and are the main construction areas for large-scale centralized scenic projects. According to the data from the National New Energy Consumption Monitoring Center, the phenomenon of wind and light abandonment in 2021 is mainly concentrated in these three regions, with wind abandonment rates of 1.9%, 5.8%, and 0.9% in North China, Northwest China, and Northeast China, and light abandonment rates of 6.2%, 5.2%, and 2.9%, respectively.
The proportion of wind and solar energy distribution and storage is divided into different regions, with a general range of 10-20%. From a national perspective, the allocation and storage of wind and solar projects have basically become a mandatory indicator, with a distribution and storage ratio generally ranging from 10% to 20% of the installed capacity of new energy projects; From a regional perspective, some regions in Northeast China, North China, Central China, and Northwest China have a relatively high proportion of photovoltaic distribution and storage, with a requirement of 20-30% in Inner Mongolia. The greater the pressure on new energy consumption, the faster the installation and promotion speed of new energy, and the higher the distribution and storage ratio. For example, Zaozhuang, Shandong Province, is a city that has been included in the entire county's rooftop distributed photovoltaic development pilot project, with a distribution and storage ratio of up to 15-30%. The combination of policy pressure and an increase in the proportion of new energy is expected to increase the proportion of allocation and storage. New energy projects face strong policy pressure, and China attaches great importance to the consumption of new energy. Provinces with poor completion of the responsibility weight for new energy power generation consumption will be criticized. According to the report of the National Energy Administration on the completion of the responsibility weight for renewable energy electricity consumption in 2021, some regions such as Xinjiang and Gansu have been criticized in the report for not meeting the consumption targets. The installation of new energy continues to increase, and the difficulty of smoothing new energy power fluctuations increases. Therefore, in the future, the installation of new energy will continue to increase, and the distribution and storage ratio will also develop towards high capacity. The policy pressure and the increase in new energy installation are expected to increase the proportion of new energy distribution and storage in various provinces.
The revenue from wind and solar energy distribution and storage comes from improving the consumption rate and increasing the income from power generation and grid connection. For investors in new energy projects, the benefits of wind and solar energy allocation and storage mainly come from improving the consumption rate, which is equivalent to increasing the utilization hours. In most regions, the consumption rate of wind and solar energy is over 90%, so the increase in the consumption rate of allocation and storage is not high.
We separately calculate the economic benefits of wind power/photovoltaic projects without energy storage or with energy storage. The core assumptions for wind power and distribution and storage are as follows: 1. The installed capacity is 200MW, and the annual utilization hours are 2300 hours; 2. The investment of wind power units is 5.7 yuan/W, and the proportion of self owned funds is 30%; 3. The online electricity price is 0.37 yuan/kWh; 4. The investment in energy storage units is 1.75 yuan/Wh, and the battery replacement cycle is 10 years. The core assumptions for photovoltaic and storage are as follows: 1. The installed capacity is 50MW and the annual utilization hours are 1300 hours; 2. The investment of photovoltaic units is 4.4 yuan/W, and the proportion of self owned funds is 30%. 3. The online electricity price is 0.37 yuan/kWh; 4. The investment in energy storage units is 1.75 yuan/Wh, and the battery replacement cycle is 10 years. Wind and solar energy distribution and storage is the cost item of wind and solar projects, which lowers the overall internal rate of return by about 1 pct. The revenue model of wind and solar energy distribution and storage is single, and the grid electricity price is relatively low, making the distribution and storage uneconomical. The internal rate of return for wind power projects without energy storage is 9.5%, while for photovoltaic projects it is 6.2%; With a 10% self built energy storage configuration, the internal rate of return for wind power projects decreased by 1.3 pct and for photovoltaic projects decreased by 1.4 pct. Assuming other conditions remain unchanged, the energy storage cost needs to be reduced to below 0.75 yuan/Wh in order to bring benefits to the wind and solar project.
Economically driven wind and solar energy distribution and storage projects drive down costs and greatly reduce energy storage performance. For investors in new energy projects, maximizing economic efficiency means reducing the cost of energy storage projects to a lower level. From the energy storage and electricity market tracking of energy storage projects in October 2022, the bid price for new energy distribution and storage is lower than other enterprises. The weighted average bid price for new energy distribution and storage projects is 1.43 yuan/Wh, while the weighted average quotes for independent energy storage and user side energy storage are 1.88 yuan/Wh and 2.07 yuan/Wh, respectively. The cost control of new energy distribution and storage involves purchasing equipment and battery cells that have poorer energy storage performance compared to other scenarios, resulting in a significant discount in energy storage performance. According to the "Research Report on the Operation of New Energy Distribution and Storage", under high cost pressure, some projects have chosen energy storage products with poorer performance and lower investment costs, increasing safety hazards. From January to August 2022, unplanned shutdowns of national electrochemical energy storage projects reached 329 times.
Shared energy storage has become a compromise solution for new energy distribution and storage. Shared energy storage is a large-scale independent energy storage project built by third-party investors. New energy project investors can meet policy enforcement requirements by leasing a portion of the capacity of independent energy storage, and pay a certain lease fee for independent energy storage annually. For investors in new energy projects, the annual payment of capacity leasing fees reduces the huge cash flow pressure on initial investments; For investors in shared energy storage, independent energy storage power plants have more profit models and higher investment returns. Therefore, the model of leasing shared energy storage has become a trend for new energy projects to meet policy requirements for mandatory allocation.
The cost pressure of new energy leasing and shared energy storage has decreased, and the demand for shared energy storage is expected to rapidly increase. We calculate the internal rate of return for new energy leasing and shared energy storage, and the parameters of the wind power photovoltaic project remain unchanged. The rental fee is assumed to be 300 yuan/KW * year. When the distribution and storage ratio is 10%, the IRR of wind power projects decreases by 0.1 pct (self built energy storage decreases by 1.2 pct), while the IRR of photovoltaic projects decreases by 0.9 pct (self built energy storage decreases by 1.1 pct), reducing the cost pressure on wind and solar projects. The installed scale of wind power is large, and the investment amount is large. Shared energy storage effectively reduces the cash flow pressure and cost pressure caused by the initial investment, resulting in a significant increase in profits. The demand for shared energy storage is expected to rise rapidly.