The energy storage market is ushering in the turning point of popularization

Energy storage system is a necessary condition to solve the instability of renewable energy. With the overall new energy industry chain entering the outbreak period, the energy storage market has become a very noteworthy link.

Core view:

For different scenarios, the demand for energy storage will be slightly different in terms of stability, cost, energy conversion efficiency, energy density, cycle life, etc. In general, energy storage requires low cost, but energy density can be relatively low.

The energy storage industry chain can be divided into terminal application - energy storage system-components - materials and other stages from bottom to top. In the terminal application scenario, the customers on the supply side (power generation side) are mainly power plants, power grids and independent energy storage plants, while the customers on the demand side include household users, industrial and commercial enterprises and 5G base stations. There are various forms of energy storage, and we think that hot melt salt energy storage in physical energy storage and lithium iron phosphate battery and vanadium flow battery in electrochemical energy storage are worthy of attention. The battery is mainly composed of battery cell, inverter (also called energy storage converter), power management system and energy management system, of which the battery cell and inverter account for 80% of the cost. The electric core is very sensitive to materials, mainly composed of positive, negative, electrolyte and diaphragm. The material determines the performance of the electric core.

It is estimated that the cost per kilowatt hour of mainstream electrochemical energy storage is 0.31-0.39 yuan/kilowatt hour, which is expected to continue to decline at an annual rate of about 7% in the next 5-10 years. With the decline of photovoltaic power generation cost, the demand side household optical storage system will achieve economic efficiency around 2023-2024, ushering in the turning point of popularization. It is estimated that by 2025 and 2030, the energy storage market will reach 170GWh and 260GWh respectively.

1、 Analysis of energy storage industry chain

Issues such as carbon emission reduction and energy have become the main recognized directions in the world, accompanied by more applications of renewable new energy such as wind energy and solar energy. At present, the related power generation costs have been significantly reduced, and it is expected that more fossil energy will be replaced as the main form of energy in the future. Global wind power generation will increase from 5.2% in 2016 to 9.6% in 2020, and is expected to reach 16.5% in 2025. However, because this kind of renewable energy often has the problem of unstable power generation, compared with thermal power generation, the pressure on the grid is greater, the energy utilization efficiency is lower, and the phenomenon of abandoning light and wind is very common. Therefore, the development of energy storage industry and the suppression of the volatility of new energy power generation have become the only way for social development.

(Data source: GWEC, IRENA, capital arrangement of this wing) Figure 2: Proportion of global wind power generation

(Data source: CNESA, capital arrangement of this wing) Figure 3: Cumulative installed capacity of global energy storage

With the development of energy storage industry, there have been many energy storage forms that can be applied, such as physical energy storage, chemical energy storage, and electrochemical energy storage. However, regardless of the form, the core of distinguishing energy storage products from other products, especially energy storage batteries and other batteries, is that the design and production of energy storage products are oriented to power/energy systems, It is necessary to absorb excess energy when there is too much energy and release it when the energy is too low.

For different scenarios, the demand for energy storage will be slightly different in terms of stability, cost, energy conversion efficiency, energy density, cycle life, etc. In general, energy storage requires low cost, so ternary lithium batteries widely used in power batteries are not suitable for energy storage. However, energy storage, especially large fixed energy storage, does not require high battery volume. Therefore, compared with the vehicle power car, the energy density can be relatively low, and the material performance requirements are slightly lower. For the daily peak shaving and frequency modulation scenario of the power grid, the battery needs to respond quickly and convert energy, so the conversion efficiency and reaction speed should be high, but the requirements for the depth of charging and discharging and long-term storage stability are not high. For long-term power transfer, especially when the time span is more than months, the stability of storage is more important. If you want to complete the off-site power allocation, it also needs to be convenient for transportation, and the transportation cost and loss are lower than the existing ultra-high voltage transmission. Energy storage batteries have low requirements for energy density. Energy storage batteries have high requirements for battery cycle life. If the energy storage power station and household energy storage are charged and discharged once a day, the cycle life shall be more than 3500 times, and it shall be more than 5000 times after the discharge frequency is increased.

The following will introduce the basic situation of the energy storage industry chain from downstream to upstream.

1.1 Application Scenarios

(Data source: public data, capital arrangement of this wing) Table 1: Classification of energy storage application scenarios

1.1.1 Supply side applications - power generation, grid, separate power stations

The so-called supply side here refers to energy storage customers who do not directly consume electricity, but provide electricity through production, distribution and other ways to achieve profits. It mainly includes power plant and grid system, which are generally divided into power generation side and grid side for analysis.

(Source: CNESA, Capital Arrangement of the Headquarters) Figure 4: Application Scenarios of New Domestic Electrochemical Energy Storage Projects in 2020

For new energy power plants, especially wind power plants, the power production is very unstable. Not only is the output different every day, but also the output at different times of the day will fluctuate greatly. The on grid quota of the power grid is not unadjustable, but it is also impossible to adjust with this almost random output mode. On the one hand, this will lead to a large number of power can not be connected to the grid during the peak output period, and can only be abandoned, resulting in a long-term high rate of light and wind abandonment of new energy power generation, which seriously affects the efficiency of power plants; On the other hand, in the low output period, it is often unable to meet the demand of the power grid and has to seek more stable and easy to adjust thermal power generation to supplement, which also makes the cost of the power grid to accept new energy power rise. Under the market-oriented conditions, the power grid prefers thermal power, which hinders the promotion of new energy and limits the market scale of new energy power plants. Moreover, the switch between the low and peak periods is often very fast, which is easy to cause a lot of pressure in a short time. After the cost of electricity per kilowatt hour of photovoltaic and wind power generation continues to decline, the volatility of power supply has become the main factor restricting the development of new energy power generation.

Therefore, for wind power plants, it is necessary to equip corresponding energy storage equipment to absorb excess electric energy during peak output periods, reduce the rate of light and wind abandonment, and release stored electric energy during low output periods to meet the demand of the grid. In addition, the effect of smooth output power can also be achieved through appropriate charge and discharge control.

(Source: QE Energy Network, Capital Arrangement of Home Wing) Figure 5: Schematic Diagram of Smooth Output

For the power grid, with the long-term increase of the proportion of new energy power, the stability of the power grid is increasingly challenged. The power grid system, as the hub of the transfer, transmission and distribution of power production and power consumption, needs to take into account the needs of both the power generation end and the consumer end. Generally speaking, the terminal power demand will fluctuate greatly with time. For example, in a year, the power demand in summer is generally much higher than that in other seasons. In a day, the power demand in daytime is much higher than that in night. In the era of thermal power generation, in order to ensure the stable power supply of terminals, the power grid should not only encourage users to use electricity in a balanced manner by means of market-oriented pricing and peak valley electricity prices, but also cooperate with thermal power plants to timely adjust the power on grid and reduce the grid load. However, the new energy power lacks the flexibility of thermal power, and it is difficult to adjust the power generation at any time according to the grid feedback. Moreover, the output state of itself is also very unstable, and the output mode with strong randomness can not match with the consumer, which makes the pressure of peak regulation and frequency regulation of the grid increase sharply. When the demand is low and the output is high, it is easy to cause power waste. When the output is low and the output is high, it is difficult to make up the electricity gap, or even cause a large area of power outages. In addition, the high volatility will also harm the infrastructure of the power grid, increase the operation difficulty and increase the operation cost.

Therefore, under the general trend of the rising proportion of new energy power generation, the grid system must have sufficient energy storage capacity to reduce its own load and meet consumer demand. The main application of energy storage on the grid side is peak regulation and frequency modulation. Peak shaving refers to the service provided by grid connected entities to adjust power generation and consumption or start and stop equipment according to dispatching instructions in order to track the peak valley change of system load and the change of renewable energy output. Frequency modulation refers to the service provided by grid connected entities to adjust active power output to reduce frequency deviation through speed regulation system, automatic generation control and other methods when the frequency of power system deviates from the target frequency. The rated frequency of the power grid in China is 50Hz. When the power generated by the power grid does not match the load power, the frequency of the power grid will change. In order to stabilize the frequency near 50Hz, frequency modulation is required.

(Data source: Kelu Electronics, Capital Arrangement of Benyi) Figure 6: FM Diagram

However, although both the generation side and the grid side have a strong demand for supporting the energy storage system, the development of the supply side energy storage business model in reality still faces many problems. The core is the mismatch between costs and benefits. At present, the cost of large-scale energy storage projects is still not low, which requires a large amount of capital investment in the early stage and continuous operation and maintenance later. However, once the project is completed, it will benefit the entire power industry chain. Any party on the generation side or the grid side will undertake the project construction alone, which will result in a large part of the investment income being obtained by the upstream and downstream of the industry chain, and they will suffer losses. Therefore, if there is no well-designed income distribution mechanism, there will be a prisoner's dilemma, making neither party willing to invest heavily in energy storage.

(Source: Northeast Securities Research Institute, Capital Arrangement of Home Wing) Figure 7: Comparison of transmission mechanism of energy storage cost at home and abroad

At present, as no mature distribution mechanism has been designed, the mainstream solution is to force a party, generally a power plant, to actively configure energy storage equipment through laws, so as to forcibly open the energy storage market and promote the development of new energy. In July 2021, the National Development and Reform Commission and the Energy Administration issued the Guiding Opinions on Accelerating the Development of New Energy Storage, pointing out that by 2025, the installed capacity will reach 30GW, and the new energy storage will change from the initial stage of commercialization to large-scale development. By the end of 2021, 21 provincial-level administrative regions have defined the proportion and duration of regulatory energy allocation and storage of new energy power generation projects in the whole province or some regions. Three provinces issued policies to encourage reserve allocation. To sum up, the average storage allocation ratio is about 10%, and the storage allocation duration is about 2h. Among them, in 2021, the installed capacity of wind power photovoltaic in provinces or some regions requiring storage will reach 81% of the installed capacity of national scenery, which is the main source of the increase in installed capacity of energy storage.

However, the prospect of this model of growth is not bright. On the one hand, it is difficult to ensure the construction quality of energy storage only by taking the installed capacity quota of energy storage as the grid connection condition of new energy power generation projects. As the allocation and construction of energy storage will lead to a significant increase in the initial investment cost of projects, new energy enterprises may prefer to choose energy storage products with poor performance and low initial cost, and only use energy storage as a tool for the priority grid connection of renewable energy; On the other hand, due to the limitation of storage capacity and duration, it plays a limited role in the absorption problem of enterprises on the power side. Therefore, enterprises may choose lower cost solutions in the actual operation process, such as power outage in some periods. According to the power grid of China, the wind power supporting energy storage station in a region with serious wind abandonment has a wind abandonment rate of 20.6% and 19.7% respectively before and after the configuration of 10% and 4 hours of energy storage with rated power. The difference is small. Under the above circumstances, the traditional "new energy+energy storage" mode is not only difficult to achieve the purpose of promoting wind and solar energy consumption and peak regulation, but also will significantly increase the initial investment cost of renewable energy projects. According to the Chinese power grid, the initial investment of a 20% installed capacity and 2-hour energy storage project for a photovoltaic power station will increase by 8% to 10%; The initial investment cost of energy storage projects with the same capacity will increase by 15% to 20%. Therefore, the current policy driven model is facing certain difficulties and great development pressure.

(Source: website, capital arrangement of the headquarters) Table 2: Power generation allocation and storage policies of provinces and cities in 2021

At present, as no mature distribution mechanism has been designed, the mainstream solution is to force a party, generally a power plant, to actively configure energy storage equipment through laws, so as to forcibly open the energy storage market and promote the development of new energy. In July 2021, the National Development and Reform Commission and the Energy Administration issued the Guiding Opinions on Accelerating the Development of New Energy Storage, pointing out that by 2025, the installed capacity will reach 30GW, and the new energy storage will change from the initial stage of commercialization to large-scale development. By the end of 2021, 21 provincial-level administrative regions have defined the proportion and duration of regulatory energy allocation and storage of new energy power generation projects in the whole province or some regions. Three provinces issued policies to encourage reserve allocation. To sum up, the average storage allocation ratio is about 10%, and the storage allocation duration is about 2h. Among them, in 2021, the installed capacity of wind power photovoltaic in provinces or some regions requiring storage will reach 81% of the installed capacity of national scenery, which is the main source of the increase in installed capacity of energy storage.

However, the prospect of this model of growth is not bright. On the one hand, it is difficult to ensure the construction quality of energy storage only by taking the installed capacity quota of energy storage as the grid connection condition of new energy power generation projects. As the allocation and construction of energy storage will lead to a significant increase in the initial investment cost of projects, new energy enterprises may prefer to choose energy storage products with poor performance and low initial cost, and only use energy storage as a tool for the priority grid connection of renewable energy; On the other hand, due to the limitation of storage capacity and duration, it plays a limited role in the absorption problem of enterprises on the power side. Therefore, enterprises may choose lower cost solutions in the actual operation process, such as power outage in some periods. According to the power grid of China, the wind power supporting energy storage station in a region with serious wind abandonment has a wind abandonment rate of 20.6% and 19.7% respectively before and after the configuration of 10% and 4 hours of energy storage with rated power. The difference is small. Under the above circumstances, the traditional "new energy+energy storage" mode is not only difficult to achieve the purpose of promoting wind and solar energy consumption and peak regulation, but also will significantly increase the initial investment cost of renewable energy projects. According to the Chinese power grid, the initial investment of a 20% installed capacity and 2-hour energy storage project for a photovoltaic power station will increase by 8% to 10%; The initial investment cost of energy storage projects with the same capacity will increase by 15% to 20%. Therefore, the current policy driven model is facing certain difficulties and great development pressure.

(Source: Polaris Energy Storage Network, Power Innovation Society, Energy Storage and Power Market, Capital Arrangement of the Home Wing) Table 3: Income Levels of Independent Energy Storage Power Plants under Different Modes

1.1.2 Demand side - household, industrial and commercial, 5G

The demand side here refers to customers who purchase electricity from the grid and use it for their own consumption. It mainly includes household energy storage based on households and industrial and commercial energy storage based on enterprises. Different from the supply side enterprises, if they are traditional demand side customers who completely rely on the grid power, they do not need to take the task of stabilizing the grid load. They are totally output oriented and do not aim at peak shaving and frequency modulation. Their main goal is to save electricity costs and prevent sudden power outages as a backup power supply. Their market is relatively small, and they are mainly traditional lead batteries.

However, the great development of the photovoltaic industry has brought new opportunities. Low cost small-scale photovoltaic power generation systems can be directly installed on the roofs of household or enterprise plants, and power can be obtained from the grid through independent power generation, thus reducing long-term power consumption costs. The beginning of household/industrial and commercial photovoltaic is an important scenario for countries to promote the application of new energy. When the cost of photovoltaic kilowatt hour is not low enough, households are attracted to install photovoltaic through the policy subsidy of high price and full access to the grid. At this time, the grid electricity price is higher than the grid electricity price, so everyone mainly makes profits by selling electricity. However, with the ebb of subsidies, household PV will be more used for household/enterprise self use, and the cost will be reduced by reducing power purchase. Once photovoltaic power generation is used for self use, the instability of photovoltaic power becomes a problem that needs to be solved, and the demand for energy storage will be opened accordingly.

(Data source: Sunnova, capital arrangement of Benyi) Figure 8: Replacement process of household optical storage system for traditional grid power supply

The business model of optical storage equipment has obvious regional characteristics. Europe, America and Japan are expected to be the main markets for household light storage. On the one hand, this is because a large number of local middle-class residents live in independent apartments with separate roofs, providing a prerequisite for installing light storage systems, while most of the relevant conditions in China only exist in rural areas; On the other hand, unlike China, most of the power infrastructure in Europe, the United States and Japan was completed in the 1960s and 1970s. It has been half a century since then. Due to the long-term lack of investment in infrastructure improvement, severe aging, power outages and other phenomena have become more frequent, and the degree of electricity marketization is very high. The price of electricity is generally higher than that in China. Civil electricity is particularly expensive, which makes local families have a strong need to install independent optical storage to prevent power outages Demand motivation to cut electricity prices. However, in the Chinese market, due to the mechanism of industrial and commercial electricity cross subsidizing residents' electricity use, the cost of industrial and commercial electricity use is higher than that of residents, making the prospect of industrial and commercial optical storage even broader.

(Data source: IEA, World Bank, capital consolidation of the local government) Figure 9: Per capita residential power consumption in each region in 2018 (kwh)

A major feature of demand side energy storage is the dispersion of the competition pattern. The demand for energy storage on the supply side is relatively single, and the cost performance ratio pursued is easy to form a high market concentration. However, the demand side market has more attributes of consumer goods. In addition to cost performance, appearance, service, brand, and intelligence will affect product competitiveness. Therefore, there is room for differentiated competition, and the market pattern is relatively dispersed. As the demand side energy storage products are close to consumers, they often need to be distributed to regional dealers/installers to reach every consumer, thus bringing new market links. Its final business model is expected to be similar to that of general furniture and household appliances. Also based on the attributes of consumer goods, another major feature of demand side energy storage is the relatively high gross profit margin, which does not need to maintain the price war like industrial energy storage. According to the 2019 Global Photovoltaic Inverter Market Share and Shipping Volume Trend Report released by WoodMackenzie, the market share of household energy storage converters exceeds 15%. The global ranking of Goodway, the company's energy storage products are sold abroad, and its gross profit margin is significantly better than that of the industry by about 10-30 pct.

(Source: Wind, Capital Arrangement of the Headquarter) Figure 10: The gross profit rate of Goodway Energy Storage Converter is significantly better than that of peers

In addition to optical storage, another explosive point worthy of attention is 5G communication. In terms of energy consumption, the peak power of a 5G base station is 3-4 times that of a 4G base station, and the demand for power has increased significantly. On the other hand, in the 2G, 3G and 4G era, the site power supply is mainly passive response, lacking active planning, which is easy to lead to resource waste. Under the higher power demand, how to improve the system operation efficiency of 5G base stations and reduce resource waste has become an important part of 5G construction. It is economical to install energy storage equipment in 5G base stations. With the arrival of the 5G era, this demand will also help the development of the energy storage market. Assuming that the charging time is 4 hours, the energy storage power station often needs to ensure 4 hours of emergency energy supply. 5G peak power consumption decreases at the rate of 0.3KW per year. According to the statistics of the project data, although the energy consumption ratio is higher, the peak power of 5G base stations is often greater than 4KW. It is expected that with the increase of the number of base stations in the future and the technical iteration, the energy consumption of a single base station is expected to be reduced to about 2KW. Correspondingly, the capacity of a single base station decreases proportionally. In 2023, 18 5G base stations will be available for every 10000 people, and in 2025, 26 will be available for every 10000 people (expected data from the Ministry of Industry and Information Technology). Under the above assumptions, it is estimated that the installed capacity in 2022-2025 will be 8.84, 8.93, 6.27 and 5.60GWh respectively.

(Source: Ministry of Industry and Information Technology, Local Capital Arrangement) Table 4: Comparison of power consumption of base stations

1.2 Energy storage form

(Data source: public data, capital arrangement of this wing) Table 5: Summary of parameters of different energy storage forms

(Source: Chinese Academy of Electric Power Sciences, capital arrangement of the headquarters) Figure 11: Technical maturity of different energy storage forms

1.2.1 Physical energy storage

Physical energy storage refers to converting electric energy into gravitational potential energy, kinetic energy, internal energy, electromagnetic energy and other energy forms that are easy to store, including pumped storage, flywheel energy storage, compressed air energy storage, capacitive energy storage, superconducting energy storage, molten salt energy storage, etc. Physical energy storage has a variety of patterns, but its application is generally limited. Although it can have huge advantages in a specific niche, it is difficult to become a trendsetter in the energy storage industry because of its poor universality.

Pumped storage is a mature physical energy storage technology at present, which drives the motor to lift the water to a high place when the power is abundant, and stores it in the form of gravitational potential energy. When it needs to discharge, it releases water for power generation. The principle of pumped storage technology is simple and the cost is very low. It is the mainstream form of energy storage at present. As of the end of 2020, the cumulative installed capacity of pumped storage is 31.8GW, accounting for about 90% of the installed storage capacity. However, pumped storage is very dependent on the appropriate terrain, and its development potential is small. With the rise of lithium battery energy storage in recent years, the market share of pumped storage continues to decline. It is expected that it will continue to maintain a downward trend in the coming years, giving the throne to electrochemical energy storage.

(Data source: CNESA, capital arrangement of this wing) Figure 12: Global energy storage market by power in 2020

Except for pumped storage, most physical energy storage systems have serious application problems, such as immature technology, high cost, or limited application scenarios. The following is a brief introduction. Mechanical energy storage also includes flywheel energy storage through kinetic energy of high-speed rotating flywheel (long life, high efficiency, but energy density is too low, which can only last a few seconds and minutes), compressed air energy storage through compressed air storage and expansion combustion to release energy (suitable for wind fields, peak shaving and valley filling, but the suitable places to choose are very limited); Electromagnetic energy storage includes capacitor energy storage using special capacitors to directly store electric energy (long life, many cycles, fast response, but low dielectric withstand voltage, less stored energy, and high investment cost), superconducting storage using magnetic field superconducting coils to directly circulate and store electric energy (high power density, fast response, but expensive raw materials, and a lot of energy is required to maintain low-temperature refrigeration operation), etc. In the long run, there are many potential stocks, but most of them are expected to be difficult to achieve significant development in the next five years.