The Zhitong Finance App learned that Guolian Securities released a research report saying that the current market may have fully responded to various pessimistic expectations about the energy storage industry. Domestic and foreign demand is expected to continue to improve in 2024, and the impact of the price war on manufacturers' profits is expected to rebound. As long-tail manufacturers clear up, industry concentration is expected to increase. At the end of November '23, the total scale of US major storage projects under construction reached 9.3GW, an increase of 53.3% over the previous year. Combined, lithium prices are expected to bottom out, interest rates are expected to peak, and US energy storage demand may be further sharply released in '24. Furthermore, the installed base load power supply may not meet the maximum load gap, which is an important driving force for the high growth rate of domestic energy storage installations. Since November 23, domestic tenders have clearly recovered, and the installed capacity is expected to achieve rapid growth in 24 years.

The views of Guolian Securities are as follows:

Pessimistic expectations may have been fully interpreted

Throughout 2023, the energy storage index fell 29.75%, outperforming the new transmission index by 5.1 pct and outperforming the Shanghai and Shenzhen 300 index by 18.4 pcts. The bank believes that the current market may have fully responded to the pessimistic expectations of the energy storage industry. Domestic and overseas demand is expected to continue to improve in 2024, the impact of the price war on manufacturers' profits is expected to bottom out, and industry concentration is expected to increase as long-tail manufacturers clear up.

Volume: Optimistic about US demand release and domestic shortfall correction

At the end of November '23, the total scale of US major storage projects under construction reached 9.3GW, an increase of 53.3% over the previous year. Combined, lithium prices are expected to bottom out, interest rates are expected to peak, and US energy storage demand may be further sharply released in '24. The installed base load power supply may not meet the maximum load gap, which is an important driving force for the high growth rate of domestic energy storage installations; since November 23, domestic tenders have clearly recovered, and installed capacity is expected to achieve rapid growth in 24 years.

Price: The economic efficiency of the project has improved, and equipment companies' profits are expected to bottom out, and the reduction in battery costs has driven the continued price reduction of energy storage systems. Currently, there is a steady trend, and manufacturers' profitability is expected to rebound from bottom. Multiple marginal improvements, such as a significant reduction in initial investment, promotion of capacity compensation in multiple regions, and an increase in the number of calls due to increased spot trading capacity, can increase the IRR of the total investment in independent energy storage projects from 0.36%-2.81% at the beginning of 23 to 4.88% in 24; if the economy of the entire life cycle of more than 20 years after battery replacement is taken into account, the IRR is conservatively estimated to be 6.99%.

Pattern: In the clean-up phase of the industry, the concentration of leaders is expected to increase

Judging from the shortlisted situation of large central and state-owned enterprises, the number of shortlisted bids in '22 and 23 was 26% CR3, 40%/38% for CR5, and 68%/61% for CR10, respectively; despite the influx of new entrants, the leading advantage was still quite obvious. Looking ahead to 2024, long-tail manufacturers are affected by factors such as cost pressure, after-sales warranty pressure, and transaction algorithm gaps, and the industry is expected to enter a clearance cycle to drive pattern improvement.

New technology: cost reduction drives new energy storage technology to accelerate release

Process optimization and equipment cost reduction have significantly reduced the cost of compressed air energy storage, from 8-10 yuan/W for grid-connected projects in '21 to the level of 5 yuan/W. The decline in vanadium prices is driving up the energy storage economy of vanadium batteries. CNNC Energy won the average bid price of 2.65 yuan/Wh in '23, down 14.5% from '22; the advent of the electrolyte leasing model is expected to further reduce initial investment costs, and new energy storage technologies are expected to accelerate deployment.

Investment advice

The bank believes that it should grasp the links with a good pattern and a strong advantage in going abroad. It is mainly optimistic about 4 directions:

1) Customers are highly sticky in the temperature control sector, and at the same time benefit from the increase in various types of downstream demand. It is recommended to focus on Invec (002837.SZ), Tongfei Co., Ltd. (300990.SZ), and Gaolan (300499.SZ).

2) The PCS link has excellent profitability and pattern. Dynamic technical barriers create a moat. It is recommended to focus on Shangneng Electric (300827.SZ) and Shenghong Co., Ltd. (300693.SZ).

3) System integrators with high-quality overseas orders are recommended to pay attention to Sunshine Power (300274.SZ), Jinpan Technology (688676.SH), Nandu Power (300068.SZ), etc.

4) New technologies such as liquid flow batteries, compressed air, gravity energy storage, and heat storage are being promoted from demonstration projects to industrialization.

Risk warning: Policy implementation falls short of expectations; the process of manufacturers going overseas falls short of expectations; industry competition intensifies.