Financial Services Association, December 27 (Reporter Wu Chao) As the installed scale of energy storage reached a new high in 2023, China's energy storage industry has begun to enter a critical adjustment period after experiencing unprecedented prosperity.

This year, after experiencing “barbaric growth” in the energy storage market, the price war raged. The Financial Services Association reporter learned from relevant energy storage companies that operating profits were inevitably affected; at the same time, the global layout was once again promoted, and the Ningde Era (300750.SZ) and Sunshine Power (300274.SZ) were all speeding up “going global”; in addition, emerging technologies began to emerge. Yongtai Energy (600157.SH), Xinzhu Co., Ltd. (002480.SZ), etc. recently added vanadium liquid flow batteries. They believe this route will explode or be obtained soon after. hair.

Industry insiders believe that in this era of change, how can enterprises maintain competitiveness while reducing costs, how to find their own position in the wave of globalization, and how to use emerging technologies to create new market space will be important issues facing the energy storage industry in the future.

The “year of expansion of production” triggered strong wait-and-see sentiment in the downstream of the price war

Towards the end of the year, the rapid decline in energy storage prices has become a prominent feature of the industry.

According to industry monitoring data, the price of energy storage cells dropped from 0.92 yuan/Wh in January to 0.42 yuan/Wh at present, a drop of more than 54%. Cell prices have also been transmitted to all parts of the industry chain. In December, Guangdong Energy Group's winning bid results showed that CRRC Zhuzhou Electric Locomotive Research Institute and Guangzhou Penghui had bid unit prices of 0.638 yuan/Wh and 0.66,401 yuan/Wh respectively, once again breaking the industry's low price record.

The formation of this trend is not only due to changes in market demand, but also affected by lower raw material costs and fierce industry competition. First, in particular, the spot price of battery-grade lithium carbonate dropped from nearly 600,000 yuan/ton at the beginning of the year to about 100,000 yuan/ton. The drop during the year was as high as 80%, further driving down product prices.

Second, increased competition in the market is also driving down the price of energy storage. More and more enterprises see the huge potential of the energy storage market and are pouring into this field one after another. If 2022 is the “first year of the energy storage industry,” 2023 can be said to be the “year of expansion of production,” and the scale of investment at the level of 10 billion yuan is endless.

According to incomplete statistics, in the field of upstream energy storage materials manufacturing, investments of nearly 10 billion dollars this year include cooperative projects such as Aoyama Industrial and Grimmie (002340.SZ), the Finnish project of Shanshan Co., Ltd. (600884.SH), and Binhai Energy (000695.SZ). Production expansion in the midstream energy storage battery manufacturing sector is more aggressive. Ruipu Lanjun (0666.HK), Penghui Energy (300438.SZ), Zhonghui Energy, Exxon New Energy, Everweft Lithium Energy (300014.SZ), China Pingmei Shenma Group, Jiangsu Hengan Energy Storage Technology, and Jiangsu Zhitai New Energy have all invested more than 10 billion dollars in production expansion projects.

In this fierce market competition, companies compete for market share through price cuts, leading to a compression of the profit margins of the entire industry. According to Wind data, out of 52 A-share listed energy storage companies, 30 had a month-on-month decline in Q3 net profit, accounting for about 58%, while Keliyuan (600478.SH) and Yihuatong (688339.SH) fell more than 200% month-on-month.

Nandu Power (300068.SZ), one of the leaders in lithium energy storage batteries, also experienced an increase in revenue and no increase in profit in the first three quarters, and net profit to mother fell by about 25% year on year. A company source told the Financial Federation reporter that recent energy storage order acceptance and delivery performance has been good, but since the market as a whole is showing a trend of price reduction, the company, as a part of the market, will definitely be affected accordingly.

Guoxuan Hi-Tech (002074.SZ) told the Financial Federation reporter that the company does not directly produce lithium batteries, but rather sells lithium battery systems and energy storage systems. Currently, prices in the industry chain are relatively transparent, and the company's profit margin remains relatively stable. “However, in the current stage of the market, downstream customers generally have a strong wait-and-see attitude, fearing that the price of energy storage will drop further, causing them to buy in the middle of the mountainside themselves, so the order situation is not as booming as anticipated earlier this year.”

The intensification of homogenous competition has gradually brought internal problems within the industry to light. At a recent energy forum, Cao Renxian, Chairman of Sunshine Power, said, “Competition in the industry is gradually intensifying, especially in the energy storage industry. Product homogenization is severe, quality is uneven, investment costs are high, and return cycles are very long. The business model lacks uniform standards and regulations, and safety issues are evident from time to time.”

Accelerating “going global”, but multinational operations are also facing tests

With the internal volume of the domestic energy storage market, and driven by market demand and high profits, more and more Chinese companies in the past focused more on the domestic market or a single overseas market, choosing to “go global” and set their sights on the global market.

In terms of overseas orders, in March of this year, Ningde Times announced that it had reached a 450 MWh battery energy storage project supply agreement with battery energy storage project development company HGP; in April and May, Ruipu Lanjun reached strategic cooperation agreements with US Powin and Energy Vault respectively; in June, Powin also introduced Haichen Energy Storage and Everweft Lithium Energy as partners; in August, Envision Power also reached a battery procurement agreement with Fluence, one of the world's largest energy storage system integrators.

Environmental protection and utilities analyst Xu Jie told the Financial Federation reporter that domestic enterprises have achieved tremendous growth in the development of the energy storage industry and have strong production capacity and cost control capabilities. The mature market model of the European and American markets, clear demand for new energy, and incentive policies can accommodate more Chinese energy storage companies that want to gain market share.

It also suggested that despite the huge potential of overseas markets, it is not always easy for domestic energy storage companies to go overseas. Just like the domestic market, overseas markets may also face the risk of increased price competition. At the same time, the relative fragmentation of foreign markets and the regulations and market characteristics of different countries have brought new challenges to Chinese enterprises.

Furthermore, the imperfection of the local supply chain places higher demands on overseas companies. For example, electricity market access and grid transformation are expensive, and unified operation is difficult to achieve, all of which may hinder enterprise development.

According to reports, energy prices soared due to the Russian-Ukrainian conflict last year. To ease energy anxiety, the European government also continued to give policy preferences, such as capacity subsidies, tax relief, low-interest loans, etc., and adopted mechanisms such as timeshare electricity prices and virtual power plants to improve the economy of energy storage. However, electricity prices have now dropped drastically, and government subsidy policies have begun to be tightened. For example, Italy will reduce the subsidy margin for total investment in photovoltaic energy storage from 110% to 90% in 2023, then to 70% and 65% in 2024 and 2025.

As reflected in the performance of related companies, the sales market mainly targets overseas household storage leaders Paineng Technology (688063.SH), Penghui Energy, etc., all experienced a double decline in revenue and profit in Q3 this year after achieving high growth last year.

Compared with small storage (household storage, portable storage), the current performance of large storage (power generation side, power grid side) is relatively strong in overseas markets. Sunshine Power is a representative domestic enterprise with overseas large-scale storage business, accounting for more than 80% of the overseas energy storage business. In the first half of this year, the gross margin of Sunshine Power's energy storage system business reached 30.66%, and this portion of revenue increased by 257.2% year-on-year.

People from Sunshine Power Company told the Financial Federation reporter that in order to guarantee high gross profit in overseas markets, the company has advanced a lot of work this year, including improving product technology, improving sales channels, and optimizing supply and delivery systems. “Even if there is a possibility that demand will slow down and competition intensify in overseas markets, the company has always focused on gross profit, and it will definitely not engage in vicious competition or loss-making business.”

Furthermore, in its recent investor relations activities, Sunshine Power's judgment on the European and American energy storage markets is that the prices of lithium carbonate and lithium batteries have been declining this year, and customers have gradually recovered from a state of wait-and-see. Although demand for the whole year falls short of expectations at the beginning of the year, overall it is still good.

Will the advent of liquid flow batteries and energy storage welcome “full bloom”?

At a time when the energy storage lithium battery technology route is mired in a fierce price war due to overcapacity, liquid flow batteries are quietly emerging as an emerging force. Vanadium liquid flow batteries, in particular, are still in the early stages of commercialization this year, but judging from the fact that many companies have increased their layout at the end of the year, they may explode next year, and energy storage routes may also change from “being outstanding in one lithium” to “all flowers flourish.”

Yongtai Energy recently stated on the investor interactive platform that the company is speeding up the implementation and implementation of various energy storage projects in the entire vanadium liquid flow battery industry chain, and it is expected that production will be effective one after another in the second half of 2024. Among them, construction of the 6000 tons/year high-purity vanadium pentoxide metallurgical production line (the first phase of 3,000 tons/year) began as scheduled at the end of June 2023, and will occupy about 20% of the current domestic market share of coal and vanadium extraction after delivery; the 1000MW/year full vanadium liquid flow battery energy storage equipment manufacturing base (phase I, 300 MW/year) began construction as scheduled at the end of June 2023, and will occupy about 10% of the current domestic market share after delivery.

People from Yongtai Energy Company told the Financial Federation reporter that currently there is intense competition for lithium batteries in the energy storage market. The company chose vanadium batteries, and the usage scenarios are different from lithium batteries. “It's not easy to say how high the profit margin after production is put into operation, but the company's strategy is that the entire industry chain has vanadium smelting resources upstream, production technology in the midstream, and we have our own power plants and coal mines. Some of them can be produced and used ourselves, so there is a certain competitive advantage.”

The strategic layout of Xinzhu Co., Ltd. has also received much attention. Recently, the company signed a five-year “Strategic Cooperation Framework Agreement” with partners such as Sichuan Xingxin Vanadium Technology Co., Ltd., to deepen cooperation in the construction of a vanadium liquid flow battery energy storage industry cluster, and set up a subsidiary specializing in vanadium battery energy storage, Sichuan Development Xingxin Vanadium Energy Technology Co., Ltd.

A person from Xinzhu Co., Ltd. told the Financial Federation reporter that the company believes that the next 5 years are expected to be the first stage of the explosion of vanadium liquid flow batteries in the field of large-scale long-term energy storage. This stage is a good time to enter the vanadium liquid flow battery business. “However, market risks cannot be completely ruled out. Our target customers are mainly all-vanadium liquid flow battery system integrators, and product demand and prospects need to be further developed.”

Xu Jie said that the reason liquid flow batteries are receiving market attention stems from the increase in demand for long-term energy storage in power systems. This technical path is highly competitive in the field of long-term energy storage due to its high safety and stability, energy storage time of more than 4 hours, and low electricity cost. “Currently, in addition to vanadium batteries, liquid flow batteries also include iron-chromium, zinc-bromine, etc., but vanadium batteries are liquid flow batteries with the fastest commercialization process, and on the vanadium resource side, China has the largest reserves of vanadium resources in the world and is also the world's largest producer of vanadium metal, which is conducive to the promotion of vanadium batteries.”

A number of other companies are also actively developing the field of vanadium liquid flow battery energy storage. Earlier, in April of this year, Linyuan Group announced a total investment of over 30 billion yuan and a major layout of all-vanadium liquid flow batteries, and successively signed development and investment agreements with Chaoyang, Liaoning, Jinchang, Gansu, and Ulanqab in Inner Mongolia; Shanghai Electric (601727.SH) released a 500kW/3000kwh liquid flow energy storage system this year, and a customized all-vanadium liquid flow battery was shipped to Spain in July, achieving the first batch product export in the European market; the 1MW/4MWh all-vanadium liquid flow battery energy storage project built by Dehai Eco for Xizi Energy has been successfully put into operation.

Xu Jie suggested that although vanadium liquid flow battery technology brings many opportunities, it still needs to overcome some challenges to occupy a place in the energy storage market. “Currently, the main obstacle to the widespread promotion of vanadium liquid flow batteries is the high initial investment cost and insufficient awareness among users. It can be expected that costs can be gradually reduced through large-scale production and technological progress, and as market education and case studies increase, the advantages of vanadium liquid flow batteries will be recognized by more and more stakeholders.”