The development of energy storage in China cannot be separated from the push of policy. Energy storage was first mentioned in the "Twelfth Five-Year" plan, where it was set as a development goal. During the "Thirteenth Five-Year" plan period, energy storage was identified as a strategic emerging industry that China focused on developing. During the "Fourteenth Five-Year" period, various provinces in China have successively introduced "new energy + storage" policy targets, clarifying the ratio and duration of storage deployment for photovoltaic and wind power installations. Under the mandatory storage policies, the power generation side of energy storage has experienced rapid development in the past two years. SMM forecasts that, in this year, the demand from the power generation and grid side will account for 82%, contributing to the main incremental growth.
In terms of user-side energy storage, China achieved a breakthrough from 0 to 1 in the industrial and commercial energy storage field last year. It is expected to continue growing in the future.
In the long term, as solar and wind power generation increase year by year, the need to accommodate unstable electricity will also rise. Therefore, it is expected that the share of long-duration energy storage will increase. In emerging growth areas, as the reform of the electricity market goes deeper, industrial and commercial enterprises will not only meet their own production electricity needs by deploying energy storage, but diversified business models will also boost the rapid growth of user-side industrial and commercial energy storage demand.
We estimate that by 2030, China‘s energy storage market demand will be 321GWh, with a CAGR of 25% from 2024 to 2030.
Now, let’s take a deep look on the generation side of ESS in china.
Currently, energy storage on the power generation side in China is mainly used for Joint Frequency Regulation of Thermal Storage and Energy Storage Allocation for New Energy. The market size for joint frequency regulation with thermal storage is limited, and energy storage allocation for new energy has become the primary application scenario for the power generation side.
The left figure shows the current duration and proportion of energy storage allocation by provinces in china. We can see that, at present, a higher proportion of provinces set a combination of "new energy + storage" within the 10%-20% range, and the dominant energy allocation duration is currently 2 hours. In the future, this proportion will increase.
China has currently introduced a series of policies to push the development of energy storage on the power generation side from the initial stage of commercialization towards full market-oriented development. During the 14th Five-Year Plan, some areas have also clarified energy storage installation plans, as you guys can see at right diagram. It will drive rapid growth in energy storage.
Since the beginning of last year, one of the most significant changes we have observed is the wider disparity in electricity prices depending on the time of use across different provinces. According to SMM statistics, in 2023, over 19 provinces, cities, and regions in China had an average peak-to-valley electricity price difference exceeding 0.7 yuan/KWh.
This creates the fundamental condition for arbitrage based on the peak-valley price difference. They also help balance peak loads in the power grid and delay the investment needed for power line expansion.
Furthermore, the overall price reduction across the lithium battery industry chain last year has led to lower costs for energy storage systems, significantly improving the cost efficiency for commercial and industrial energy storage.
SMM forecasts that by 2030, the demand for commercial and industrial energy storage in china will reach about 26GWh.
As the second-largest market in the world, the United States has a mature electricity market。
Although last year, the growth of energy storage in the U.S. has slowed down due to factors such as federal interest rate increase, supply chain shortage like transformers, the long-term outlook remains positive.
On the policy side. Last year, we also witness the issued of the ITC policy. Under the longer duration of the law and more subsidy investment, it will stimulate the deployment of energy storage.
By 2030, the total market demand is anticipated to exceed 200GWh, still ranking as the second-largest energy storage market in the world.
The development of the us energy storage market is highly related to its electricity structure.
The Rocky Mountain separate the East and west of the united states. So the power systems across different states is isolated. Each states need its own energy storage.
Meanwhile, the US's energy structure is undergoing a rapid transformation. We can see from the left diagram. In 2022, new energy like wind and solar only account for 13%. We expect that, by 2030, wind and solar power will provide 33% of the country's electricity.
We can see from the middle diagram, it shows that different states in the US have set mandatory energy storage targets in the next 10 years. It’s a clear planning direction.
Given the outdated grid and the evolving energy structure, energy storage have become critical for both power generation and grid support in the US.
Household energy storage is also what we need to focus on . We can find from the diagram on top left corner that residential electricity prices is the highest across other sectors, rising from 12.55 cents/kWh in 2016 to 15.91 cents/kWh in the first half of 2023, increase by 16.5%.
Besides costly electricity, Americans face power outage risks. The diagram on the Left lower corner. It shows the that during last year’s summer's heatwaves, nearly two-thirds of the us was threatened by energy deficits. Facing these problem, the demand for pv systems with energy storage has risen.
Also on the policy side ,the ITC Policy first includes household energy storage in tax deduction benefits and enhances the base rate to 30%。 That will improve the economic framework of U.S. household energy storage.
Europe is the largest household energy storage market in the world.
In 2022, the outbreak of the Russia-Ukraine conflict drove up electricity prices in the short term and also resulted in power outages due to energy shortages.
Under the impact of high electricity prices and unstable power supply, the household energy storage market in Europe developed rapidly and has become the largest household energy storage market in the world.
For the energy structure, Europe is undergoing an energy transition. We expect that although the demand for new energy construction and energy storage facilities might slow down this year, it will continue to grow in the long term.
SMM predicts that by 2030, Europe's demand for storage will exceed 160 GWh, maintaining its position as the third-largest energy storage market in the world.
Let’s look at the energy structure of Europe. Over the past five years, nearly 50% to 60% of Europe's energy consumption has depended on the importation of fossil fuels.
The Europe’s dependence on external natural gas remains as high as 90% and its dependency on external oil reaches 97%.
From the Russia-Ukraine conflict, European realized that it should accelerate the proportion of electricity generated from its own renewable resources.
At the bottom of this side, we can also find that Countries such as the UK、Spain have successively released policies related to energy storage, stimulating the development of energy storage.
Let’s move to the BTM energy storage, after the Russia-Ukraine conflict in 2022 led to a sharp rise in natural gas prices and it lead to the increase of the electricity prices for residents in Europe.
last year, as the conflict mitigation , electricity prices for European residents have temporarily fallen.
However, the supply and demand balance is unable to keep natural gas prices low over the long term, and we can see from the left diagram, the current average electricity prices for residents in Europe remain more than three times higher than in other regions. The essential demand for household energy storage still here.
Amidst the high levels of enthusiasm within the energy storage industry, related production capacity has been expanding rapidly. Meanwhile, looking at the global distribution of various links in energy storage, there is actually an evident trend of progressive concentration. The first segment is the energy storage cell production, where China's capacity currently accounts for 80% of the world's total. The next level is the integration segment, where Chinese production capacity makes up 66% of the world total. At the same time, US and Europe also contribute 19% and 14%. Finally, we have the demand segment. China contributes the largest production capacity in each segment, yet when it comes to global demand, its share only accounts for 37%. The remaining demand from US and Europe combined accounts for 47%. As production capacity rapidly expands, technological iterations are continuously underway. From battery cells to energy storage systems, the pace of iteration has never ceased.
we observe that the demand for energy storage is global. However, US and Europe, as the second and third largest markets, have successively introduced the IRA and the EU Battery Act. with the aim of accelerating the construction of their own industrial chains. Let's first look at the IRA. An important element of the IRA is the ITC: this year the ITC subsidy announced an increase in the proportion of storage subsidies, as well as an extension of the duration of the subsidy.
Next, is New EU Battery Law. The new battery regulations will cover every lifecycle of a battery: from design, manufacturing, application, to its recycling and disposal, aiming to deepen the practice and concept of the circular economy. It will focus on carbon footprint and battery passport. As time goes on, details about the law will be announced successively. Relevant enterprises still need to be well-prepared to respond.
In last year, with the decline in the price of the major raw material and intensified market competition . the prices of the whole battery energy storage system chain, have decreased over the past year.
The sharp decline in the price of lithium carbonate has directly led to a rapid decrease in the cost and price of energy storage cells.
As shown in the left diagram, the price of LFP energy storage battery cells has declined by more than 50% since the beginning of 2023, and the price of lithium carbonate has declined by more than 80%.
As of January 2024, the cost proportion of the LFP cathode within the materials of an LFP battery has decreased to 42%, compared with 61% in January 2023.
In the main raw material costs of the LFP cathode, the cost of lithium carbonate has dropped from 83% in January 2023 to 56% in January this year.
Overall, within the battery raw materials, the cost proportion of lithium carbonate has decreased from 52% to 28%!Coupled with the price drops of other raw materials, the price of LFP battery cells has been reduced by 50%!
Despite the reduction in cost proportion, lithium carbonate still matters!
