Lithium Carbonate Prices on the Wane, Will it Contribute to Another Wave of Explosive Growth in Energy Storage Sector in 2023?

SHANGHAI, Mar 29 (SMM) - Since March 20, the energy storage sector has been flourishing, and the energy storage index has posted six-day winning streak as of March 27. As the prices of raw materials for lithium battery keep falling, the voices have prevailed that this will ramp up the profits of energy storage enterprises. 

At present, the markets generally believe that the lower prices of lithium carbonate will reduce the costs of downstream enterprises engaging in energy storage and new energy vehicles, who may be willing to cut the prices to win more sales. In the midst of such speculation, central and local governments have rolled out a slew of policies to promote energy storage consumption. As such, will energy storage sector really take advantage of the falling lithium carbonate prices to thrive?

Profits of energy storage companies on the rise

According to SMM spot prices, the domestic average spot price of lithium carbonate was only around 53,000 yuan/mt at the beginning of 2021, but since 2022, the price skyrocketed by almost tenfold to as high as 567,500 yuan/mt. SMM learned that the cost of lithium carbonate accounts for about 30-40% of total cost of energy storage cells, so the upward trend of lithium carbonate prices also lifted the costs of energy storage cells. Some industrial insiders even said the tenfold rise in lithium carbonate prices had resulted in 30-50% expansion in the prices of energy storage systems. It is also reported that the initial investment of energy storage projects at that time was raised accompanied with a decline in investment returns, and many projects were suspended due to lack of commercial feasibility.

However, the lithium carbonate prices took a sharp U-turn since 2023. As of March 28, the SMM spot average quotation of battery-grade lithium carbonate tumbled to as low as 263,000 yuan/mt, 249,000 yuan/mt or 96.48% lower than the 512,000 yuan/mt on December 30, 2022.

The constant fall in the prices of lithium carbonate also contributed to a sharp reduction in the cost of energy storage enterprises. According to the feedback from several listed energy storage companies, their gross profit rate and profitability both improved on lower raw material prices as no price cuts for their products are to be launched in the foreseeable future. Some energy storage companies already ran at full capacity without changing the prices of their products.

Zhejiang Wanliyang Co., Ltd., whose energy storage stations depend on LFP batteries, also revealed that the slumping raw material prices helped improved its profits.

In the long run, the lower costs of energy storage systems induced by dropping prices of upstream materials will also stimulate the demand in the energy storage market.

There is no doubt that the eased cost will promote the energy storage industry in China to develop rapidly. According to the goal set in the "14th Five-Year Plan" for the development and implementation of new energy storage, the performance of electrochemical energy storage technology is designed to be further improved by 2025, and the system cost will be reduced by more than 30%.

AVIC Securities previously forecast that the cumulative volume of China's energy storage bids in the first two months of 2023 was 3.04 GWh, an increase of 213% year-on-year. In the context of the energy storage boom, enhanced expectations for falling lithium salt prices will further ramp up the downstream demand in the energy storage market.

Explosive growth in the lithium battery energy storage sector has extended in 2023

In retrospect, SMM survey showed that the global energy storage market witnessed an unprecedented surge in 2022. The growth in the overseas market was driven by the spike in fossil fuels under the impact of geopolitical conflict and the upsurge in electricity prices amid unstable energy supply. In China, the energy storage development was mainly boosted by favourable policies. SMM previously predicted that the energy storage market will have enormous potential for further development in the future, driven by favourable policies, robust demand, the advantages of high flexibility of energy storage equipment, the cost reduction of energy storage systems, as well as the diversified downstream application scenarios. The compound annual growth rate (CAGR) is estimated at 40% in 2022-2026.

In reality, the energy storage industry indeed sustains the previous boom in 2023, and during China’s Two Sessions, numerous suggestions to promote energy storage sector development were put forward. On the policy front, more than 205 standards for new energy storage was released last month to facilitate the establishment of a standard system for new energy storage based on the needs of constructing new power systems. The aim is to support the commercial development of the new energy sector.

In addition, energy storage-related subsidies are introduced across the country in terms of capacity, power discharge and investment. Distributed photovoltaics sector also received a lot of attention.

Apart from government's support, enterprises are also passionate about investing in energy storage. For example, more than 120 companies, including SVOLT Energy and CALB, have announced their plans to expand energy storage business since 2022. And entering 2023, the amount of domestic and overseas orders signed by major domestic energy storage companies has exceeded 10 billion yuan. Companies such as Pulitzer, Narada Power, and Trina Energy Storage all got off to a good start in 2023 with large-sum energy storage bids.

According to data from the National Bureau of Statistics, by the end of 2022, the installed capacity of new energy storage projects that have been put into operation across China reached 8.7 million kilowatts with an average duration of about 2.1 hours, an increase of more than 110% compared to the end of 2021. In view of the rapid development of the energy storage industry, the markets generally expects that China's installed capacity of energy storage will maintain a high growth rate.

AVIC Securities estimates that the world's new electrochemical energy storage will reach 46 GW in 2023, a year-on-year increase of 112.1%; China's newly installed capacity will stand at 13.8GW, a year-on-year increase of 119.7%.

Chen Xiuzhu, the fund manager of Morgan Stanley Huaxin Fund, also said that 2023 will be a bumper year for the energy storage industry. The boom in energy storage sector will primarily be driven by the high demand and falling costs.

EVTank predicts that before 2030, the cumulative market demand for energy storage batteries for China's communication base stations will reach 142.7 GWh, with a market value of 84 billion yuan.