Deep Report on Energy Storage Industry: China US Energy Storage, Giving Time to Energy

(Report Producer/Author: Shen Wanhongyuan Research, Zhu Dong, Wang Lin, Wang Ziyue)
1. The energy storage market in China and the United States holds a significant position, and the penetration rate is accelerating
1.1 At the current time point, why should we attach importance to the China US large storage market
In the 21st year, the global installed capacity of electrochemical energy storage exceeded 11GW, with China and the United States being the two regions with the largest new installed capacity. According to data from CNESA, the new installed capacity of global electrochemical energy storage reached 11.12GW in 2021, a year-on-year increase of 135%. The new projects are mainly concentrated in pre meter energy storage in China, the United States, and household energy storage in Europe. From 20 to 21 years ago, in the global distribution of new energy storage projects, the combined proportion of China, the United States, and Europe exceeded 80%, occupying a dominant position. China and the United States have become the two regions with the largest increase in global electrochemical energy storage for two consecutive years, contributing to the main market growth.
The penetration rate of the energy storage market in China and the United States is accelerating, and the industry has entered a stage of high prosperity. Based on the study of marginal changes in energy storage market policies, industry trends, and product technologies between China and the United States, we have found that: 1) On the policy side, both China and the United States have introduced many incentive policies for energy storage development, covering various aspects such as energy storage subsidies, establishment of market status for energy storage entities, and incentive policies for energy storage participation in the electricity market; 2) On the industrial side, with the expected rapid growth of new photovoltaic installations in China and the United States in 23 years, and the gradual easing of cost pressure on energy storage lithium batteries, the large-scale development period of energy storage projects is approaching; 3) On the technology side of the industry, large capacity battery cells and long cycle life technologies are constantly maturing, and industrialization is progressing smoothly. Sodium power is also about to start industrialization in 23 years.
1.2 Policy benefits: frequent policies in 2022 and gradual results in 2023
1.2.1 China: Energy storage planning goals continue to be revised, and policies open up economic space for energy storage
From the national to local level, the 14th Five Year Plan has clearly defined the goal of energy storage and installation. The Guiding Opinions on Accelerating the Development of New Energy Storage and the Implementation Plan for the Development of New Energy Storage during the 14th Five Year Plan period were released around 22 years ago. At the national level, it is clear that the target for installing new energy storage capacity will reach 30GW by 25 years. Over the past 22 years, each province has issued its own 14th Five Year Plan for energy storage. From the 16 provinces that have been announced, the total installed capacity of new energy storage in local planning exceeds 40GW. According to statistics from China Electricity Union, the total planned 25 year new energy storage development goals for each province are expected to exceed 60GW. According to our calculations, according to the requirements of 20% and 2 hours of storage for the newly built centralized wind and solar project, the cumulative installed capacity of electrochemical energy storage is expected to reach 50GW in 25 years. The goal of energy storage installation from the national to local level is gradually becoming clear, and the certainty of energy storage development in the next five years is also increasing.
The source network side capacity leasing model is gradually implemented
Capacity leasing enhances independent energy storage revenue, and Shandong and Henan have successively introduced policies to support energy storage capacity leasing. In August 22, Henan issued the "Notice on Issuing the Implementation Plan for New Energy Storage in Henan Province during the 14th Five Year Plan", which clearly established a shared energy storage capacity leasing system, with a reference price of 200 yuan/kWh * year for capacity leasing, and supported the signing of long-term lease agreements and contracts for more than 10 years. In September 22, Shandong issued the "Several Measures for Promoting the Healthy Development of New Energy Storage Demonstration Projects in Our Province", which stated that the Shandong Power Trading Center would organize monthly matching of energy storage capacity leasing. The incentive policies for capacity leasing models will gradually be implemented, and in line with the mandatory storage allocation requirements of various regions, the revenue space for independent energy storage capacity leasing will gradually open up.
The price difference between peak and valley on the user side has widened
The time-of-use electricity price mechanism has been optimized, and the peak valley price difference between multiple regions is constantly widening. Since 2H21, more than 20 provinces across the country have adjusted their time of use electricity pricing policies, moderately widened the peak valley price difference, and established peak electricity pricing mechanisms to encourage industrial and commercial users to allocate energy storage. According to GGII, there are 21 provinces and cities in the region where the peak valley price difference exceeds 0.7 yuan/kWh. Apart from 1.5 times the proxy electricity purchase price, there are also 15 provinces and cities with a large peak valley price difference exceeding 0.7 yuan/kWh. At present, the main sources of energy storage revenue in the domestic industrial and commercial industry are two parts: one is peak valley price arbitrage, and the other is to participate in bidding in the electricity auxiliary market using remaining capacity to provide demand side response services. The income from peak valley price difference arbitrage is the largest portion of energy storage income in the industrial and commercial industry, accounting for over 80% of the income. We expect that with the tightening of power restrictions, the increase in distributed photovoltaic penetration rate, and the promotion of market-oriented electricity pricing reform, the development of domestic industrial and commercial energy storage is expected to enter a fast lane. According to GGII's prediction, the installed capacity of domestic industrial and commercial energy storage is expected to exceed 1GWh/5GWh respectively in 2022/25.
1.2.2 United States: With the passage of the IRA Act, the policy effect will gradually become apparent
Subsidy extension+credit increase, energy storage meets the marginal benefits of policy. In August 22, the United States passed the Inflation Reduction Act (IRA), providing new policy support for both photovoltaic and energy storage: 1) Photovoltaics: The passage of the bill provided a 10-year tax credit policy, and the tax credit ratio increased from 26% to 30%. If relevant conditions were met, the high tax credit could be increased to 70%; 2) Energy storage: Previously, photovoltaic distribution and storage were included in the subsidy scope, and for the first time, IRA included independent energy storage in the subsidy scope. In addition, for large storage projects that meet the conditions, the tax credit ratio has increased, and the development of pre balance sheet electricity energy storage has further received policy preferences.
1.3 Industry Trends: Upstream Volume and Price Bottlenecks Open, Accelerating Large Scale Construction of Energy Storage
1.3.1 Trend 1: China and the United States are expected to accelerate their photovoltaic installation
The release of silicon material production capacity opens up the elasticity of photovoltaic installation. In 2022, the demand for photovoltaic terminals grew vigorously, and the spot price of domestic polycrystalline silicon increased from 240000 yuan/ton at the beginning of the year to over 300000 yuan/ton in August. It is expected that the domestic supply of polycrystalline silicon in 2022 will be 920000 tons, which can support 240-250GW of AC side installed capacity. The installation growth of downstream ground power stations is still constrained by the bottleneck and price of silicon material supply. In 2023, the production capacity of silicon materials will be released. According to SolarZoom statistics, the nominal global production capacity of silicon materials will increase from 1.28 million tons at the end of 2022 to 2.4 million tons at the end of 2023. It is expected that the global supply of polycrystalline silicon in 2023 will be about 1.47 million tons, which can support over 400GW of AC side mounted machines. Starting from 23 years ago, the new production capacity of silicon materials began to be released in bulk, corresponding to the opening of a downward channel for silicon material prices, which also brought flexibility to the construction of centralized power plant projects with high sensitivity to group prices.
The construction of domestic large-scale scenic bases is expected to accelerate, and attention should be paid to the progress of large-scale base allocation and storage. According to documents from the National Energy Administration and the National Development and Reform Commission, the first batch of large-scale wind and solar power bases in China involves a total of 18 provinces, with a total scale of 97GW. Currently, more than 90% of them have started construction. The second batch of large-scale wind and solar bases is planned to have a total installed capacity of about 455GW by 2030, of which the total installed capacity of the wind and solar bases planned for the 14th Five Year Plan is about 200GW, and the total installed capacity of the wind and solar bases planned for the 15th Five Year Plan is about 255GW. At present, the wind and solar power base plans to use coal-fired power as a supporting power source, and its joint transmission with new energy can reduce the random fluctuations of new energy, playing a role in ensuring the basic power supply and system regulation. At the same time, due to the time required for the acceleration of thermal power, the response speed is not as fast as that of new energy storage. Supporting a certain proportion of new energy storage in new projects can further enhance the ability of stable power transmission. With the first batch of wind and solar power bases entering the installation and operation period in 23 years, the construction of distribution and storage projects is expected to accelerate accordingly.
1H22 US photovoltaics are subject to short-term supply chain disruptions, and energy storage is expected to erupt together with photovoltaics in 2023. The photovoltaic installation in the United States mainly consists of residential, non residential, and public utilities, with public utility installation being the main incremental demand. According to SEIA's estimate, the cumulative installed capacity of photovoltaics in the United States will increase from 129GW to 336GW by 2027, with 162GW of new installed capacity for utility photovoltaics expected to be added in the next five years. In the short term, the photovoltaic installation in the United States has been disrupted by the supply chain. According to SEIA data, the installed capacity of public utility photovoltaics in 1Q22/2Q22 in the United States has reached 2.2GW/2.7GW respectively, and the new installed capacity of 1H22 is at a low level since 2019. However, at the same time, the demand for orders continues to surge, with over 10GW of utility photovoltaic contracts signed in 1H22 in the United States, with orders reaching a new high since 2019. At present, the United States has granted specific tariff exemptions for solar modules to some Southeast Asian countries for 2 years. We expect that the installed capacity of public utility photovoltaics in the United States is expected to resume rapid growth in 23 years, while the proportion of public utility photovoltaics distribution and storage in the United States is relatively high, and future energy storage demand will erupt simultaneously.
1.3.2 Trend 2: Battery costs are expected to decline
The price of lithium carbonate significantly increased to 400000 to 500000 yuan/ton in the first half of 2022. Although the price increase has slowed down, it still maintains a high level of over 500000 yuan. The new supply of lithium resources will gradually be released in 2023. According to the H-share prospectus of Tianqi Lithium Industry, the supply of refined lithium will exceed demand in 2023, and the oversupply situation will continue to expand in the next five years. The spot price of lithium carbonate is expected to enter a downward channel, It is expected to fall back to around 400000 yuan/ton in 23 years.
In recent years, the overall price of lithium batteries has shown a downward trend, with an annual decrease of nearly 15%. In the 21st year, the price of energy storage cells has dropped to nearly 0.7 yuan/wh, and the system cost has decreased to 1.5 yuan/wh. The decrease in cost has boosted the enthusiasm of more investors to participate. Against the backdrop of a significant increase in upstream raw material prices in 2022, battery prices followed suit; In 23 years, with the decline in the prices of the main raw material lithium carbonate, battery prices will also return to the downward channel, which will effectively promote the construction process of large storage projects.
1.3.3 Trend 3: The development of energy storage projects in China and the United States reaches 100 GWh level
Multiple provinces in China have launched energy storage demonstration projects, welcoming the peak of grid connection in the past 23 years. According to energy storage and electricity market statistics, the total scale of independent energy storage projects that have been launched since 2022 has reached 34GW/70GWh, with over 30% of these projects entering the EPC/equipment bidding and construction stage. Since 2021, multiple provinces have introduced multiple batches of energy storage demonstration projects, and the demonstration projects have clear goals for grid connection and operation by the end of 2022 and the middle of 2023. In the future, the scale of energy storage projects entering substantive construction will continue to expand. The 22 year centralized procurement method has become an important procurement method for domestic energy storage developers. According to energy storage and electricity market statistics, as of November 22, the scale of the energy storage system+EPC that has completed centralized procurement bidding is 15GWh. Some central enterprises have integrated energy storage systems, significantly increasing the scale of centralized procurement of battery clusters and PCS. The scale of centralized procurement of battery cells and battery clusters has reached 6GWh, while the scale of centralized procurement of PCS is about 4GW. We expect that the period from winning the bid for the energy storage project to the completion of the project construction will be about 3-6 months, and the scale of China's energy storage installation and grid connection will reach its peak in 23 years. The performance of the winning enterprise will move from the expected stage to the realization stage.
As of 3Q22, approximately 14GW/37GWh of energy storage projects in the United States are under development. According to the Clean Energy Association of the United States, as of 3Q22, a total of 132GW of clean power projects are being developed in the United States (equivalent to supporting the electricity demand of 34 million American households), with photovoltaic/landwind/sea wind/battery energy storage accounting for 59%/17%/13%/11%, respectively. In terms of the regional distribution of the 14GW/37GWh energy storage projects being developed in the United States, approximately 5.5GW are located in California, while over 2.7GW are located in Texas, Nevada, and Arizona, both of which are around 1.4GW.
1.4 Technological Progress: Large Capacity/Long Cycle/Sodium Battery
1.4.1 Specialization of electric energy storage batteries and recognition of large capacity battery cells
In response to the requirements of large storage scenarios, the development of large capacity energy storage cells in the industry is constantly maturing. Large storage projects have the characteristics of pursuing low cost, large capacity, and security. Compared to 50/100Ah cells, large cells with a capacity of 280Ah and above have significant advantages in adapting to power energy storage: 1) the use of pack end components is reduced, resulting in a natural cost advantage; 2) High integration makes the volume energy density higher; 3) Simplify backend integration and EPC assembly process, significantly saving cost investment in land infrastructure, containers, and other aspects; 4) Under the same capacity, there are fewer parallel batteries, which facilitates the safe management of BMS. Taking a 40 foot 2.5MWh air-cooled energy storage container as an example, a single container requires approximately 6510 120Ah battery cells and 2790 280Ah battery cells, reducing the number of parallel connections by more than half. Since the mass production and launch of 280Ah lithium iron phosphate battery cells in 2020, Ningde Times has sold more than 10 domestic home appliance cell companies their 280Ah lithium iron phosphate battery products to the outside world. Some manufacturers have started to produce larger capacity energy storage cells such as 300Ah on a large scale, and large capacity energy storage cell products are gradually becoming mature in the industry.
Large capacity battery cells are increasingly favored by downstream project builders and investors, and are expected to catalyze an increase in the permeability of large storage. One of the directions for battery technology evolution is the continuous improvement of single cell capacity, and the upgrading of square cells from 50/100Ah to 280Ah has become an important development direction for the specialization of energy storage batteries. At present, government policies and bidding for energy storage projects are beginning to tilt towards large capacity battery cells, and some project bidding explicitly requires the use of battery cells with a capacity of no less than 280Ah. In February 2021, the Datong Municipal Government issued the "Implementation Opinions of Datong City on Supporting and Promoting the High Quality Development of the Energy Storage Industry", specifying that the starting point standard for energy storage products should reach a single cell capacity of 280Ah or above. In 2022, multiple centralized procurement and energy storage projects require that the energy storage cell should not be less than 200 or 280Ah. In the future, with the follow-up and layout of more enterprises in the industry, large capacity battery cells are expected to become the mainstream solution in the large ESS market.
1.4.2 The cycle life of energy storage cells has significantly improved, and it is expected to significantly improve the cost of electricity consumption
Power batteries focus on improving energy density, while energy storage batteries focus more on improving cycle life. The investment focus of electric energy storage projects is mainly on initial investment costs in the short term, and in the medium to long term, it will be more focused on full lifecycle costs. Electric energy storage has higher requirements for the cycle life and rate performance of energy storage systems, and electric energy storage applications are divided into capacity type and power type. Capacity type applications focus on the economy of battery charging and discharging, requiring cells and systems to have high cycle life and a wide operating temperature range. Power based applications focus on real-time response to short-term frequency modulation, requiring batteries to be able to charge and discharge at high rates in a short period of time. At present, capacity based applications are the mainstream of electric energy storage. In the face of high initial investment cost pressure for electric energy storage, higher cycle life of battery cells means a reduction in the cost of electricity throughout the entire life cycle. We believe that as the driving factors for large-scale energy storage construction in China gradually shift from policy driven to policy+economic driven, project investors will be more favored