2022 is a difficult year for almost all industries across the country. While the pandemic and energy crisis continue to put pressure on all parties, new vitality is brewing. However, energy storage personnel are still passionate and even poetic. If you don't see me, energy storage and scenery dance together, and the subdivision of the track is suddenly emerging; If you don't see, the new type of energy storage will compete with hundreds of competitors, who will dominate the ups and downs; If you don't see, market expectations are heating up, complaining about "sodium" being new, and the court resisting "lithium"; If you don't see it, long-term energy storage will be vast and vast, with different "vanadium" sounds; If you don't see it, big depositors are flying together, and global energy storage is increasing; Can you see that electrochemical energy storage is advancing rapidly, and the supply of energy storage batteries is in short supply. All of this, there are both beautiful expectations and spiritual questioning. The value space of the energy storage trillion level track provides owners and investors with unlimited imagination and reasons to strive for it.
Since 2022, the energy storage industry has received increasing attention from investors, gradually becoming an independent investment theme from a branch that used to be affiliated with photovoltaic and wind power generation.
The energy storage industry has gradually moved from commercialization to large-scale development. With the intensive introduction of energy storage policies at the national and local levels, the development models of energy storage in various links are moving towards maturity.
On December 2nd, the Northwest Regulatory Bureau of the National Energy Administration issued two draft implementation rules for soliciting opinions, clarifying that incorporating new energy storage into grid connected entities can provide power auxiliary services, and providing compensation indicators. The compensation standard for primary frequency regulation is 15 yuan/KWh, and the capacity compensation standard is 20 yuan/MW. After the monthly utilization rate reaches 98%+, 100 yuan/MW will be compensated for every 1% increase. In addition, compensation indicators for moment of inertia compensation, peak shaving, voltage regulation, reactive power compensation, black start, etc. have also been clarified. This once again proves that China's energy storage revenue sources have begun to diversify, its profit model has gradually become clear, and it has shifted from forced allocation to market-oriented allocation. In the future, the price pressure on the energy storage industry chain will be released to a certain extent, which is conducive to promoting the development of the energy storage industry.
Since the beginning of this year, due to factors such as the epidemic and rising raw materials, the installation of domestic energy storage systems has not brought about the expected rapid growth. However, it is expected that in 2023, the inflection point of upstream raw material prices will approach, and the backlog of projects in the early stage may accelerate, and the overall growth rate of the industry is expected to reach a higher level.
The time is ripe
With the advancement of technology and the expansion of production capacity, the cost of wind and photovoltaic power generation and the manufacturing cost of lithium-ion batteries have significantly decreased in recent years. Based on the parity of new energy on the grid side, the world is currently moving rapidly towards the direction of "new energy+energy storage" parity. On the other hand, the positioning and business model of energy storage in the power system are becoming increasingly clear. Currently, the mechanism for market-oriented development of energy storage in developed regions such as the United States and Europe has been basically established, and the reform of power systems in emerging markets has continued to accelerate. The conditions for large-scale development of the energy storage industry have become mature.
According to BNEF statistics, the global newly added energy storage capacity in 2021 was 10GW/22GWh, more than doubling compared to 2020. As of the end of 2021, the cumulative global energy storage capacity was approximately 27GW/56GWh. Considering that the global cumulative wind/photovoltaic installed capacity has reached 837/942GW by the end of 2021, it is estimated that the proportion of energy storage in the global wind/photovoltaic installed capacity is only 1.5%.
On the basis of rapid growth in 2021, the global energy storage industry continued to maintain a high level of prosperity in 2022, but the increase came more from household energy storage (especially in the European region), with the continuously soaring residential electricity prices being the core driving factor. Against the backdrop of high upstream raw material prices, the demand for large-scale energy storage markets, which are more sensitive to costs, has been suppressed to a certain extent in 2022.
According to the Energy Storage Application Branch of the China Chemical and Physical Power Industry Association (CESA), the total installed capacity of electrochemical energy storage projects connected to the grid and put into operation in China in 2022H1 is approximately 0.39GW/0.92GWh. However, from the perspective of bidding, domestic energy storage bidding has significantly accelerated since Q2. According to incomplete statistics, the total bidding capacity from January to September exceeded 60GWh (mainly for EPC, energy storage integrated systems, and related equipment), with Q1/Q2/Q3 being 4.5/18.2/39.6GWh respectively, and the bidding scale has increased quarterly.
From the current time point of view, the global energy storage industry may experience a greater explosion in 2023. From the policy perspective, there is a rigid demand for supporting energy storage in domestic new energy projects, and energy storage subsidies in overseas markets such as the United States are expected to gradually be implemented. Based on the published competition results and energy storage allocation requirements of wind and solar projects in various provinces, the scale of domestic new energy generation side energy storage has been roughly calculated. Currently, the scale of supporting energy storage projects is close to 50GWh, and it is expected that these energy storage projects will gradually be implemented from 2022.
Starting from the revenue side, the domestic independent/shared energy storage business model is expected to mature in exploration. The upward shift of overseas electricity price hubs and the intensification of electricity price fluctuations are also conducive to the improvement of energy storage revenue space. Starting from the cost side, in 2023, with the gradual release of upstream production capacity, the price inflection point of raw materials such as silicon and lithium carbonate is approaching, and the cost of energy storage installation is expected to return to the downward channel.
Currently, energy storage containers are the main installation form for large-scale energy storage projects, mainly composed of batteries, power electronic equipment (PCS/BMS/EMS), temperature control systems, fire protection systems, system integration, EPC, and other links. From the perspective of value ratio, batteries account for 60% -70% of system costs, power electronic equipment costs account for about 15% -20%, and other costs such as temperature control and fire protection account for relatively small proportions.
Batteries are the core component of energy storage systems with a high cost proportion, and their performance will directly affect the stable operation and profitability of energy storage projects. Therefore, terminal owners have high requirements for the quality of batteries (some owners skip integrators and directly specify battery brands). Currently, leading battery manufacturers such as Ningde Times have obvious advantages in customer recognition, and their products can enjoy a certain premium.
At the same time, the fixed assets investment in the cell manufacturing process is relatively high, and requires a certain production expansion cycle. Therefore, in the context of the rapid explosion of downstream demand, the cell is currently a tight link in the energy storage industry chain. Although the soaring price of lithium carbonate has put some pressure on battery companies' profits since the second half of 2021, the cost transmission is relatively smooth in the situation of insufficient supply. It is expected that the gross profit margin of the battery cell segment will be repaired to some extent from the second half of 2022.
The cost of temperature control in energy storage systems is relatively low, but it plays a crucial role in the overall safety and stability of the system. Therefore, we believe that energy storage integrators or project owners are more inclined to choose high-quality and stable temperature control solutions, rather than simply compressing costs. From a technical perspective, energy storage temperature control has strict requirements for control accuracy and operational stability, and usually requires customized design tailored to the specific requirements of different projects or technical solutions from different manufacturers. Downstream customers have strong stickiness. Therefore, the current energy storage temperature control market is relatively concentrated, with obvious advantages of leading companies and high profitability.
The barriers to entry into the system integration process are low (external equipment can be assembled after procurement), and industry newcomers urgently need to accumulate project construction or operation experience. Therefore, seizing resources is a top priority. Order priority is higher than project profitability, and manufacturers with the ability to obtain project resources (such as relying on large power generation and power grid enterprises) are expected to take the lead.
The system integration process in the overseas market is mainly occupied by foreign manufacturers, and currently only a few domestic enterprises such as Sunshine and BYD have the ability to deliver overseas projects. In the fierce competitive landscape, the profitability of domestic integration links is under pressure, and there is a high probability that the industry will undergo a reshuffle in the coming years. Manufacturers with technology, experience, and scale advantages will be left behind.
At the end of February 2022, the National Development and Reform Commission and the Energy Administration officially issued the "Implementation Plan for the Development of New Energy Storage during the 14th Five Year Plan", further clarifying the goal of "by 2025, new energy storage will enter the stage of large-scale development from the early stage of commercialization and have the conditions for large-scale commercial application", and "by 2030, new energy storage will be fully commercialized and developed". In addition, this document has clearly deployed energy storage on the power generation side, grid side, and user side, and the development mode of energy storage in each link is gradually becoming clear. In the future, energy storage may enter a faster growth period, and the industry chain * enterprises are worth tracking and paying attention to.
In August 2020, the four-year "Abandoning Wind and Abandoning Light" case in Gansu finally came to an end. The incident originated in 2016 when the environmental protection organization Friends of Nature filed a lawsuit against State Grid Gansu Company to the Intermediate People's Court of Lanzhou City. The reason was that the "wind and solar" electricity that State Grid Gansu Company had not fully acquired was replaced by coal-fired power generation, causing environmental pollution.
Gansu is one of the regions with abundant scenic resources in China. Taking advantage of this unique advantage, from the beginning of the development of the new energy industry, the installed capacity of wind, electricity, and photovoltaic power in Gansu Province has been unparalleled. However, on one hand, there are constantly emerging new energy projects, and on the other hand, there is an increasingly prominent phenomenon of "abandoning wind and light". This situation has not improved for several consecutive years, and the data of 'abandoning wind and light' has repeatedly reached historical highs.
In response to the policy of "abandoning wind and light", State Grid of China has summarized four reasons: firstly, the growth of electricity demand has slowed down, and the total consumption market is insufficient; Secondly, the power supply structure is unreasonable, and the peak shaving capacity of the power grid is severely insufficient; Thirdly, there is a lack of inter provincial and inter regional transmission channels, making it difficult to achieve a larger scale consumption of new energy; Fourthly, the imperfect market mechanism affects the consumption of new energy.
These four reasons all point to the objective problems in the power structure and power grid system at that time, and improvement and improvement will take a considerable amount of time. But to quickly fill the gaps in the wooden bucket, there is actually another important technical tool that can be used - energy storage.
Energy storage can first store the electricity that cannot be used up or sent out by wind and solar power plants, and release it during peak power load, achieving spatiotemporal transfer of electricity load. Due to the lack of sufficient energy storage facilities in Gansu, excess electricity can only be wasted in vain.
Not only China, but also countries around the world are vigorously promoting energy transformation, and large-scale energy storage technology is becoming the "Achilles' heel" that restricts the development of new energy.
On August 9, 2019, a large-scale power outage in the UK resulted in the suspension of subways, airport paralysis, and hospital shutdowns in multiple cities in England and Wales, affecting approximately 1 million households and businesses. This major power outage happened to jump on the dental nerve of the European energy system, causing toothache to faint around the world.
According to the accident analysis report afterwards, this major power outage is directly related to the insufficient energy storage capacity caused by a high proportion of wind power grid connection. The proportion of wind power with poor stability and continuity connected to the grid is high, which can easily impact the real-time balance and stable operation of the power system. At the same time, due to the lack of sufficient energy storage facilities to play a "stabilizer" role, it can suppress fluctuations and trigger disasters.
Driven by the "dual carbon" goal, China's energy revolution is continuing to deepen, and it is expected that the installed scale of wind and photovoltaic power generation will remain the world's largest for a long time. As the lifeline of clean energy development, the energy storage industry is seen as the next trillion level blue ocean market and is ushering in a historic turning point of rapid development.
For investors, this seems to be another wealth creation frenzy. But for most companies on the track, it is full of anxiety - this is a limited rally race that has no turning back, and most of the athletes are not yet proficient in driving skills. While providing map guidance, the organizer also provided a risk warning: the road ahead is still under construction, and if the speed loses control, it may be irreversible.
To successfully win each race station, players who are grouped according to their profession must achieve the following three points:
1. Technical and product capabilities outperform market recognition;
2. Business model coupling with new energy closed-loop ecology;
3. Hold the bottom line of security and improve integration capabilities.
Technical Bet: * Difficult Subject 2
The "Abandoning Wind and Abandoning Light" case in Gansu is just a small incident that has stirred up China's energy nerves. In fact, with the large-scale integration of renewable energy into the grid, the pressure on grid peak shaving has sharply increased not only in Gansu province.
In order to solve the stability and balance issues of the power grid, various regions generally reach private agreements with new energy developers when constructing the power grid, stipulating that the allocation of energy storage can be prioritized for grid connection. By 2020, this unwritten condition had been directly put on the table by multiple local governments and provincial power grid companies, and they had written down the allocation ratio of energy storage in new energy bidding plans. At that time, 17 provinces and cities across the country successively introduced relevant policies, and "integration of wind and solar energy storage" became a mandatory standard for new energy construction.
Energy storage has become a must-have option since its previous addition, and has been pushed into the spotlight for a while. In the capital market, it has even become as popular as the wind and photovoltaic sectors, which have been steadily boosted by the concept of "carbon neutrality".
Among numerous new energy storage technologies, electrochemical energy storage has become a hot track in the energy storage arena due to its advantages of relatively mature technology, flexible configuration, short construction period, and relatively lower cost, attracting a large number of players and capital bets.
The demand side is anxious, but the pressure on enterprises is enormous. From the current stage of domestic electrochemical energy storage technology development, overall, it is still in the early stage of commercialization. This means that the majority of the main players who have been caught up in the track by the One Paper Policy are still in the "Subject 2" exam stage.
On March 21, 2022, the National Development and Reform Commission and the National Energy Administration issued the "Implementation Plan for the Development of New Energy Storage during the 14th Five Year Plan", which clearly stated that by early 2025, new energy storage must have the conditions for large-scale commercial application. Among them, the performance of electrochemical energy storage technology has been further improved, and the system cost has been reduced by more than 30%.
In electrochemical energy storage systems, batteries are the core technology and the key to improving quality and reducing costs. The cost of kilowatt hour electricity, energy density, power density, number of cycles, and safety and stability are the five mandatory exams for this "subject two". In addition, there are several optional items such as environmental adaptability and fast charging ability.
Lithium batteries, which are relatively mature in development, have become the technical solution for all contestants due to their potential to simultaneously meet the above indicators. However, in order to adapt to the new rally track, traditional lithium batteries still need to break through several technological bottlenecks and complete various "major changes".
As a leading company for seed athletes, we strive to use various methods to modify our lithium-ion battery "racing cars".
On the one hand, it is technology iteration and process optimization. Traditional battery manufacturers such as Ningde Times and BYD have launched fierce attacks on multiple technological routes simultaneously, starting from battery structure innovation and enhancing battery cell materials, striving to break through technological barriers and tap into the performance potential of lithium batteries.
Since 2019, there has been a dazzling skill competition among major battery manufacturers. From the continuous exploration of diversified technological routes in the Ningde era to BYD's breakthrough in the lithium iron phosphate route, China's lithium battery technology has made rapid progress in this "difficult subject 2" exam, comprehensively achieving the world's first place.
On the other hand, it is to strengthen supply chain integration. Under the dual pressure of skyrocketing upstream resource prices and continuous downward pressure from downstream customers, top players who have accumulated abundant funds and customer resources not only accelerate production expansion, but also increase mergers and acquisitions and integration efforts to seize upstream resources.
In recent years, battery factories have established joint ventures with suppliers of materials such as separators and positive and negative electrodes, making it a routine operation to stand in line. Since the skyrocketing prices of cobalt, lithium, and nickel resources at the end of 2021, "who owns more mines" has become a direct indicator that can affect stock prices. Major domestic battery manufacturers such as Ningde Times, BYD, Guoxuan High tech, and Yiwei Lithium Energy have become active forces in global "buying mines"