Bottlenecks and Pain Points of Energy Storage Industry

Understanding the energy storage industry can be compared with the solar photovoltaic (PV) industry, which is quite intriguing. In the solar PV industry, there are assets worth 10 trillion RMB, with existing solar power plants totaling assets of 100 billion RMB. The annual cash flow from electricity bills reaches 100 billion RMB, and the annual addition of assets exceeds 100 billion RMB, possibly reaching 40 to 50 gigawatts (GW) this year, with incremental assets totaling over 200 billion RMB. There have been over 70 private placements in the stock market, raising around 100 billion RMB.

What are similarities and differences between PV and ESS?

In terms of policy, PV is a typical industry driven by policy. Each round of policy adjustments brings about typical short-term phenomena in specific segments of the PV industry. Initially, it was driven by foreign PV subsidy policies, followed by the introduction of initial construction cost subsidies in our country, and later, grid electricity price subsidies. The first round stimulated equipment exports, giving rise to China's richest person in the PV industry at that time, leading to poverty alleviation initiatives, and then distributed PV. However, misjudgments by industry players in segment selection often lead to issues such as problematic assets or projects left behind during market transitions. It's difficult for a single company to lead throughout a specific segment.

The trillion-dollar PV industry is now at a crossroads again. It remains to be seen whether the dominant model in subsequent distributed projects will be the self-owned model represented by the United States or the third-party investment model dominant in China. It is anticipated that next year, PV module prices may drop below 2.5 RMB/watt, and system costs may drop below 5 RMB/watt or even lower. Further transformation and segmentation of the PV market and leading companies are expected. More one-stop service companies will emerge, integrating technology with energy storage and providing services ranging from registration and grid connection to financing.

When designing the top-level policy framework for the energy storage industry, there is a strong emphasis on nurturing and promoting market-oriented long-term industry development, ensuring that energy storage companies can objectively and sustainably develop their strategic planning, judgments, and layouts in the market. After the release of the "Guiding Opinions," several regions have already begun to introduce regional subsidy policies at the provincial and municipal levels, which is very favorable news.

State Grid Corporation and China Southern Power Grid Corporation have shown high enthusiasm for the application of energy storage, especially after the release of the "Guiding Opinions," through demonstration and pilot projects. It can be predicted that with the introduction of policies, the first major outbreak of the energy storage market will be self-investment projects by power companies and grid companies, which may introduce a large number of energy-saving technology transformation and pilot demonstration projects. This will provide a brand-new market for the energy storage industry in terms of equipment sales and engineering services.

In specific segments, regions with high peak-to-valley price differentials are worth noting, as they will witness the application of energy storage on both the demand side and the grid side. These projects will require third-party investments from battery manufacturers, EPC integrators, and other third parties, rather than self-owned investments by power companies and grid companies.

When discussing the bottlenecks and pain points of the energy storage industry, we can primarily focus on three aspects: cost, technology, and investment financing.

1. Cost: Cost considerations encompass development costs, construction costs, financing costs, and operational costs. Development costs require attention to the implicit costs incurred during the energy storage project development process, including time and expenses. There are still many misconceptions in society and among businesses regarding energy storage. For example, in the case of high-speed rail, there may be exaggerated risk warnings regarding lithium batteries and power banks in the broadcast announcements. Thus, social promotion and corporate education are necessary to advance projects. Battery manufacturers are now starting to engage in resource recycling and invest in lithium mines, which mitigates the previously open-ended industry chain and the volatility of raw material prices such as lead and lithium.

2. Technology: Although battery technology in energy storage has made significant advancements, there may still be shortcomings in system integration and control. For instance, innovations in photovoltaic technology, such as the promotion of diamond wire technology, have had a profound impact on the entire PV industry. A seemingly minor technological breakthrough can lead to revolutionary changes in the industry, affecting equipment, capacity, and core equipment costs. This example illustrates the immense potential for progress and innovation in energy storage technology and integration techniques.

3. Investment Financing:In terms of investment financing, attention should be paid to business models that establish clear contract structures. In the PV sector, common practices include defining key cooperation terms through tripartite contracts, especially in areas such as frequency regulation and demand-side management. Standard contracts, which are prevalent in the PV sector, facilitate subsequent financing processes. In the energy storage sector, leasing companies and industrial funds play significant roles, particularly for large-scale projects. For example, in the PV sector, projects with sufficient scale and compliance, such as a 20-megawatt distributed PV power station, are readily marketable. However, financing during the construction period remains a challenge, especially for smaller-scale distributed projects. Therefore, there is a need to actively promote the establishment of construction period funds in the PV sector and explore similar financing models in the energy storage sector, particularly for frequency regulation projects on the generation side.

Looking ahead:

1. There is strong optimism for energy storage projects that promote the integration of large-scale photovoltaic and wind power with the aim of facilitating the consumption of new energy. However, the economic feasibility of these projects largely depends on power companies, and the model for third-party investment is not yet clear.

2. From the perspective of third-party investment, energy storage frequency regulation on the generation side is particularly promising. Over the past few years, both the technical and business model validations for this application have matured significantly.

3. Peak shaving and valley filling on the demand side also hold promise, especially when implemented using container-based solutions. This approach not only facilitates temporal energy transfer but also spatial deployment. For example, during research, a municipal investment company managing construction projects across multiple industrial parks expressed interest in deploying container-based energy storage solutions to address temporary transformer, capacity augmentation, and temporary power needs, which often incur significant costs. Economic feasibility assessments for both lead-acid and lithium batteries have been conducted, along with estimations of boundary conditions, indicating that they have reached the break-even point.

4. Thermal energy storage and cooling projects are promising, particularly in the Beijing-Tianjin-Hebei region, given the focus on environmental remediation and haze control. There is a significant number of gas projects, including electrode boiler projects, with excellent profitability, making this area a potential hotspot in the near future.

5. Electric vehicles (EVs) present a significant opportunity, particularly in the realm of power batteries. Some companies have begun exploring EV financing for operational purposes. The application of retired EV batteries for energy storage after their use in EVs forms a closed-loop system, offering further potential in this area.