Presently, the installed capacity of energy storage is on the rise, and its prices continue to plummet, making it challenging for the market to gauge the shifts in industry profits. From the perspective of installed demand, there is apprehension in the market about a potential slowdown in energy storage installed capacity if the growth rate of photovoltaic (PV) installations diminishes next year.
Looking forward to the coming year, will the energy storage market maintain its robust development seen this year? With the ongoing acceleration of the energy transition, there is a positive outlook for sustained long-term growth in the energy storage industry. Concerning large-scale domestic energy storage, the anticipated growth rate in installed capacity for next year remains significant. Simultaneously, the potential for further decline in industrial chain prices is becoming more limited, with expectations for increased profits to be allocated.
The domestic market holds an optimistic outlook for large-scale energy storage, anticipating a substantial growth in installed capacity next year.
Currently, the prevailing market sentiment suggests that this year's photovoltaic (PV) installations have surpassed expectations. However, under the strain of high demand, the market perceives the excess portion as an advance draw on next year's capacity.
On November 3rd, 2023, the National Energy Administration (NEA) disclosed detailed data on new PV installations from January to September. During this period, ground-based PV installed capacity for the first three quarters skyrocketed to 61.79 GW, marking a remarkable 258% year-on-year increase. Household PV installations reached 32.98 GW, witnessing a substantial 99% year-on-year growth, while industrial and commercial distributed PV hit 34.16 GW, reflecting an 82% year-on-year increase. Despite the exceptional growth in photovoltaic capacity, concerns linger in the market regarding the limited consumption capacity of the grid.
Hence, predicting next year's photovoltaic growth rate accurately proves challenging for the market. Energy storage has often been viewed as the shadowy counterpart to the PV industry. Historically, the market assumed that energy storage installed capacity equaled the centralized photovoltaic installed capacity multiplied by the storage ratio and storage time, along with the onshore wind power installed capacity multiplied by the storage ratio and storage time (given the smaller allocated capacity for wind power storage). In this context, there is apprehension in the market that a potential slowdown in next year's PV installed capacity could lead to a corresponding deceleration in energy storage capacity.
However, the reality contradicts these concerns—the growth rate in installed energy storage capacity far surpasses that of PV installations.
According to statistics from the National Energy Administration (NEA), China’s cumulative installed capacity for new energy storage projects exceeded 17.33 GW/35.80 GWh in the first half of this year. Notably, the new installed capacity from January to June reached approximately 8.63 GW/17.72 GWh, matching the cumulative installations of previous years combined. The data further reveals that China's new centralized photovoltaic (PV) installed capacity hit 37 GW in the first half of this year. Considering the allocated installation policies implemented from 2021 to the end of 2022, China's centralized PV installed capacity reached 53 GW. This implies that between Q3 of 2021 and Q4 of 2022, China achieved a centralized PV installed capacity of 53 GW, accompanied by a corresponding energy storage installed capacity of 8.7 GW. Moving into Q1 and Q2 of 2023, China's centralized PV installed capacity remained steady at around 37 GW, with a corresponding energy storage installation of 8.7 GW. While the installed capacity in the first half of this year is notably lower than in the past, the energy storage installed capacity remains comparable to previous years.
Reasons Behind the Optimistic Outlook for Domestic Energy Storage Installations
What factors contribute to the positive forecasts for domestic energy storage installations, making next year's outlook even more promising?
To start, the landscape of energy storage installations is undergoing a significant shift, with independent installations unrelated to wind power emerging as the primary driver of installed capacity. According to publicly available project information and statistics, the first half of 2023 revealed that 64% of domestic energy storage installed capacity is attributed to independent energy storage. Notably, Hunan and Shandong played pivotal roles in driving the highest installations during this period.
In September 22, the Notice on the Pilot Work of Configuring New Energy Storage for New Energy Power Generation Projects in 2022 was issued in Hunan province. This notice stipulated that for new energy storage projects achieving full-capacity grid-connected operation by the end of December 2022 and June 2023, their capacity could be calculated at 1.5 and 1.3 times, respectively, the installed capacity when determining their allocated capacity as new energy power generation projects. This policy significantly fueled the rapid surge in energy storage installed capacity in Hunan.
Secondly, this year has seen a notable increase in the proportion of allocated energy storage among provinces, with a growing number of them now mandating energy storage as a requirement. In August and September, the Ministry of Industry and Information Technology (MIIT) in Gansu, Zhejiang, and Jiangsu Provinces, along with the National Energy Administration (NEA), issued documents to enhance the requirements for new energy storage. The introduction of new energy storage policies by numerous provinces, coupled with the dissemination of public information, has prompted 21 provinces, cities, and autonomous regions across the country to revise their allocated energy storage proportions for new energy projects. Based on incomplete statistics, the current guidelines for allocated energy storage in photovoltaic projects are relatively clear: in 18 provinces and autonomous regions, the allocated proportion for energy storage in new energy projects exceeds 10% (2 hours).
In summary, we anticipate that next year, even if the growth rate of photovoltaic installed capacity slows down, the optimistic outlook for domestic energy storage remains. This is attributed to the increased allocated proportion of energy storage, the growing trend of provinces mandating energy storage, and the vigorous development of independent storage initiatives.
The pricing across the industry chain is expected to find stability in the coming year.
Anticipating from a pricing perspective, the gradual stabilization of bidding prices is likely to emerge as a prevailing trend in the industry next year. This year has witnessed a rapid decline in bidding prices, primarily attributed to the plummeting prices of batteries. However, the forecast for next year suggests a stabilization in battery prices. As of January this year, the lowest recorded battery price held steady at 0.92 yuan/Wh. Currently, the market's lowest price for energy storage battery cells has plummeted to 0.42 yuan/Wh, indicating a decline exceeding 54%. Although the battery price has dropped by 0.5 yuan/Wh, this year's average energy storage system price has seen a steeper decline of 0.6 yuan/Wh. According to industry data from August 2023, the average production cost of LFP batteries stands at around 0.44 yuan/Wh (excluding taxes), closely approaching the marginal production cost for enterprises. Consequently, only manufacturers proficient in cost control and capacity utilization are poised for profitability.
However, with the gradual stabilization of LFP battery prices, the scope for further price declines next year will be limited.
The pricing across the industry chain is expected to find stability in the coming year.
Anticipating from a pricing perspective, the gradual stabilization of bidding prices is likely to emerge as a prevailing trend in the industry next year. This year has witnessed a rapid decline in bidding prices, primarily attributed to the plummeting prices of batteries. However, the forecast for next year suggests a stabilization in battery prices. As of January this year, the lowest recorded battery price held steady at 0.92 yuan/Wh. Currently, the market's lowest price for energy storage battery cells has plummeted to 0.42 yuan/Wh, indicating a decline exceeding 54%. Although the battery price has dropped by 0.5 yuan/Wh, this year's average energy storage system price has seen a steeper decline of 0.6 yuan/Wh. According to industry data from August 2023, the average production cost of LFP batteries stands at around 0.44 yuan/Wh (excluding taxes), closely approaching the marginal production cost for enterprises. Consequently, only manufacturers proficient in cost control and capacity utilization are poised for profitability.
However, with the gradual stabilization of LFP battery prices, the scope for further price declines next year will be limited.
Currently, many domestic energy storage enterprises are grappling with slim profit margins, limiting their ability to gain market share through price reductions. The prevailing sentiment among integrated enterprises and EPC firms is that the energy storage market is still in an investment phase, with profitability yet to materialize.
Despite the current challenges, the outlook for energy storage is positive and expansive, making it one of the rapidly growing segments in the new energy industry. Therefore, as the industry matures, enterprises' leaders are poised to reap excess profits. Consequently, the pressing task for industry players is to establish a foothold in the market swiftly. This year, the primary objective for most energy storage companies is to capture market share. However, in their pursuit of this goal, some companies face low profit margins, with net interest rates persistently lower than bank loans. In this context, only companies with robust capital support are likely to endure.
To summarize, this year has witnessed a more substantial growth rate in domestic energy storage installations compared to photovoltaic installations. Two significant shifts are evident: firstly, independent energy storage installations, divorced from wind and solar energy, are emerging as the driving force behind new installations. Secondly, there is an upswing in allocated energy storage across provinces, with an increasing number of provinces mandating energy storage configurations. Consequently, we anticipate that next year, despite a potential slowdown in the growth rate of photovoltaic installed capacity, the optimistic outlook for domestic energy storage remains intact. As for prices, bidding prices are expected to gradually stabilize next year, marking a significant industry trend. Domestic energy storage is poised for higher capacity development and stable pricing in the coming year.