Guangdong competes for the trillion-yuan energy storage market: focusing on output value instead of production capacity, launching the "strongest user-side energy storage policy"

The release of the policy has invigorated the new energy storage industry.

Recently issued "Several Measures of Guangdong Province to Promote the Development of New Energy Storage Power Stations" (referred to as "Several Measures") proposes that new planned offshore wind power projects after 2022 and newly grid-connected centralized photovoltaic power stations and onshore centralized wind power projects after July 1, 2023, shall be configured with new energy storage no less than 10% of the installed power generation capacity for a duration of 1 hour. Subsequently, the configuration capacity of new energy storage will be adjusted according to the requirements of relevant power system safety and stability standards and the actual grid-connected scale of new energy; encouraging existing new energy power generation projects to configure new energy storage according to the above principles.

The "Several Measures" also proposes that "for user-side energy storage projects using products that have been certified as meeting advanced and high-quality product standards, the electricity consumption of their energy storage facilities will be separately metered, and the electricity price will be implemented in accordance with the provincial cold storage electricity price policy." The industry calls it the "strongest user-side energy storage support policy".

Currently, the energy storage industry has become the key to a new round of industrial competition. More than 20 provinces and cities across the country have issued policies requiring new energy to be configured with energy storage. Industry insiders believe that Guangdong's follow-up move is in line with the trend of "explosive" development of new energy and is expected to further improve the business model of energy storage.

It is worth noting that although by the end of 2022, Guangdong's cumulative installed capacity of new energy storage ranked third in the country, during the "14th Five-Year Plan" period, Qinghai, Gansu, and Shanxi, as resource-rich provinces, have also made large-scale layouts of new energy projects, and the planned installed capacity of new energy storage will rank among the top three in the country.

"The layout of the energy storage industry is an important step for Guangdong's new energy industry to compete for a trillion-level industrial cluster. In this round of industrial competition, production capacity is not the core, but the value should be kept in Guangdong." A senior energy storage investor in Guangdong analyzed to the Southern Finance All-Media reporter, this is Guangdong's approach in the current situation where various provinces are vying to seize the energy storage industry. "Guangdong's introduction of energy storage policies hopes to cultivate more energy storage enterprises to keep the value here and help enterprises to seize the market outside."

It is not difficult to see from the recently intensively issued policies that Guangdong is more encouraging the development of user-side energy storage. This is due to Guangdong's abundant industrial and commercial resources, and also because Guangdong's power market-oriented reform is at the forefront of the country, and the economic benefits of energy storage have become apparent. This also tests how broad the future application scenarios of Guangdong's energy storage industry will be and how the business model should be innovated.

——The start of a 10 trillion-level energy storage market

"From 2015 to 2018, we also experienced the take-off stage of the power battery industry, and then from 2018 to 2020, the industry entered a relatively low period." With the cooling down of the power battery track, electrochemical energy storage has become a hot spot, and Hu Feng, vice president of Gao Gong Industry Research Institute, estimates that judging from the secondary market this year, although the market for energy storage has fallen somewhat, it still maintains rapid growth compared to two years ago.

In the long run, Hu Feng optimistically predicts that energy storage will be a market with a volume of 10 trillion yuan, and it is now in its infancy.

In simple terms, in a power grid system where the proportion of new energy is increasing, energy storage acts as a huge "power bank", providing auxiliary services such as peak regulation and frequency regulation for the operation of the power system. In the past two years, the energy storage industry has continued to heat up with the support of policies successively introduced by local governments.

In 2022, at least 29 policy documents at the national level involved energy storage. Up to now, more than 23 provinces and regions, including Guizhou, Guangdong, Henan, and Shanxi, have followed up and implemented, further clarifying the installed capacity of new energy storage during the "14th Five-Year Plan" period.

Issuing industrial policies has become the "frontline battle" for various places to compete for the energy storage industry. Whether it is the industry's commonly known "new energy matching storage" or subsidies for energy storage electricity prices, policies have worked from both the demand and cost sides to open up space for energy storage.

Currently, more than 20 provinces and regions across the country have issued policies requiring new energy to be configured with energy storage, making it clear that the construction of independent and shared energy storage can obtain capacity rental fees paid by new energy enterprises, which is currently an important guaranteed income for many large-scale energy storage power stations.

At the same time, 19 provinces (cities) across the country, including Guangdong, Beijing, Tianjin, and Hebei, have also introduced specific energy storage subsidy policies. For example, the "Changzhou Policies and Measures to Promote the Construction of a New Energy Capital" clearly states that for new energy storage power stations with an installed capacity of 1 MW or more, from the second month after grid connection and operation, investment entities will be given a reward of no more than 0.3 yuan/kWh based on the discharge volume, with continuous rewards for no more than 2 years.

Hu Feng observed that Shandong, Guangdong, Xinjiang, and Hubei are among the cities that have relatively early layouts in the energy storage industry nationwide. Many industry insiders interviewed have told the Southern Finance All-Media reporter that compared to the origin grid-side large-scale energy storage power stations, Guangdong, as a province with a high concentration of industrial and commercial enterprises, has more market space for developing user-side industrial and commercial energy storage.

Statistics from the China Electricity Council show that in 2022, the total newly added energy of industrial and commercial energy storage nationwide reached 0.76 GWh, a year-on-year increase of 106.29%, of which provinces with large industrial and commercial enterprises such as Guangdong, Jiangsu, and Zhejiang accounted for more than 80%.

An important favorable factor is that Guangdong's power market-oriented reform is at the forefront of the country. Industrial and commercial users can charge the energy storage system at low electricity prices and discharge through the energy storage system at high electricity prices, using the peak-valley electricity price difference for arbitrage.

Guangdong also strongly encourages the development of user-side energy storage. The "Several Measures" proposes to support the construction of new energy storage power stations by industrial and commercial enterprises and industrial parks; electricity users with large electricity consumption and high requirements for power supply reliability and power quality, such as precision manufacturing, communications, and finance, should configure new energy storage power stations as needed.

Data released by the Zhongguancun Energy Storage Industry Technology Alliance shows that in June this year, the grid-side electricity purchase price (general industrial and commercial 10KV) had the largest peak-valley price difference in Guangdong Province (five cities in the Pearl River Delta) at 1.347 yuan/kWh, far exceeding the 0.63 yuan/kWh energy storage LCOE cost line, and the economic benefits of industrial and commercial energy storage in Guangdong are also guaranteed.

On June 5, Guangdong's further announced "Several Measures" proposed that for user-side energy storage projects using products that have been certified as meeting advanced and high-quality product standards, the electricity consumption of their energy storage facilities will be separately metered, and the electricity price will be implemented in accordance with the provincial cold storage electricity price policy.

Industry insiders told the Southern Finance All-Media reporter that because user-side energy storage itself consumes some electricity, Guangdong's cold storage electricity price adopts a peak-flat-valley method, with the lowest off-peak electricity price in the country and the largest peak-valley difference. Using the cold storage electricity price standard for separate metering is more favorable and will also increase the enthusiasm for industrial and commercial energy storage.

——Guangdong has obvious advantages in developing the energy storage industry

"We must enhance the sense of urgency to seize the commanding heights of the new energy storage industry, give full play to Guangdong's advantages in a relatively good energy storage industry foundation, strong leading enterprises, and relatively rich technological achievements reserves, and seize the opportunity to promote the accelerated development of the new energy storage industry." On the morning of April 25, the Guangdong Provincial Committee of the Financial Committee meeting specifically proposed this.

Guangdong's advantages are indeed obvious. Taking batteries, the core of electrochemical energy storage, as an example, Guangdong has gathered a group of leading battery companies, including BYD (002594), Sunwoda (300207), and EVE Energy (300014). These companies started with consumer batteries and have switched from power batteries to energy storage batteries, seizing the dividends of industry development time and again.

In the field of materials, Guangdong has gathered leading companies in key battery materials, such as Tianci Materials (002709), Xinzhoubang (300037), Betterie, and Xingyuan Materials (300568), forming a full industrial chain competitive advantage.

Judging from the market trend this year, the energy storage industry has not yet reached its peak, but the cost price has taken a sharp turn, greatly increasing the enthusiasm for energy storage projects.

Battery cells account for nearly 60% of the cost of energy storage systems. As an important raw material, the price of lithium carbonate has fluctuated like a roller coaster this year. According to data from multiple third-party platforms, the average price of battery-grade lithium carbonate was around 300,000 yuan/ton on June 5, 170,000 yuan/ton a month ago, and once exceeded 600,000 yuan/ton six months ago.

Wang Yu, chairman of Shenzhen Yuanxin Energy Storage Technology Co., Ltd., said in an interview with Southern Finance All Media reporters that last year, many new energy storage projects had excessively low prices, limiting the profit margins of enterprises and reducing their enthusiasm for bidding.

“Thanks to the decline in lithium carbonate prices, energy storage projects of the same size have seen a decrease in single-unit revenue, but at the same time, the project's gross profit margin will also increase. In short, the decline in lithium carbonate prices has boosted the enthusiasm and construction progress of energy storage projects,” Wang Yu added.

Although lithium-ion batteries are the most mainstream technology at present, accounting for more than 90% of the national new energy storage installed capacity, the industry has been exploring other technological routes such as sodium-ion batteries and hydrogen energy storage. Hu Feng believes that the core of energy storage is cost and safety. Any technology that can achieve large-scale commercialization and has absolute advantages in cost and safety will crush other technological routes.

Taking Guangdong Province as an example, the Shaoguan data center cluster plan promotes cooperation on sodium-ion battery energy storage projects; Foshan continues to increase its investment in the hydrogen energy industry, covering the upstream, midstream, and downstream of the hydrogen energy industry chain, forming a full industrial chain including core components and equipment testing such as proton exchange membranes, carbon paper, catalysts, and membrane electrodes for fuel cells.

“Since Guangdong has such a good foundation in the new energy industry, it should also allocate more resources to seize the layout of multiple technological routes. If we haven't caught up by the time the technological route is iterated, it may impact the existing industry,” Hu Feng said.

Qu Xiaojie, member of the Party group and vice director of the Guangdong Provincial Department of Industry and Information Technology, also revealed that Guangdong will further increase financial support for the research and development and industrialization of key technologies such as lithium-ion energy storage battery materials, units, systems, processes, equipment, and core chips, strengthen the development and application of key safety technologies, make up for shortcomings in the industrial chain, and simultaneously carry out industrial layout in new directions such as sodium-ion batteries, hydrogen energy storage, flow batteries, and supercapacitors.

Currently, the enthusiasm of enterprises for energy storage has far exceeded government planning. According to the "Guangdong Province 2023 Key Construction Preliminary Project Plan," the planned electrochemical energy storage projects have reached 7.15 million kilowatts.

——"Exporting production capacity, keeping the value added in Guangdong"

Guangdong's development of energy storage is not without shortcomings.

The "Guangdong Provincial Guiding Opinions on Promoting the High-Quality Development of the New Energy Storage Industry" frankly states that Guangdong's installed capacity of wind and solar power generation is significantly lower than that of provinces such as Jiangsu, Zhejiang, and Shandong, and the level of natural gas development and utilization needs to be improved.

In addition, compared with other cities in the west, Guangdong's land cost does not allow for large-scale expansion of production capacity. Therefore, many industry insiders agree that the core idea of Guangdong's layout of the energy storage industry is not the scale of Guangdong's energy storage production capacity, but the ability of enterprises to seize the international market through Guangdong and keep the value added in Guangdong.

CICC predicts that global energy storage installations will reach 300 GWh in 2025, an increase of nearly ten times compared to 2021.

“The overseas market has no ceiling.” Hu Feng believes that going overseas is undoubtedly a direction with certainty. He cited examples such as Shouneng New Energy and Growatt, which are engaged in energy storage inverters and have already deployed most of their products in overseas markets. “No matter how energy storage develops, enterprises must consider both domestic and overseas markets. The maturity of the industrial chain and the perfection of infrastructure in overseas markets are far inferior to those in China.”

From recent years, Guangdong's strategy for attracting investment in the energy storage industry has focused on leading enterprises, which also reflects this point.

After sorting out lithium battery industry chain companies with a market value of over 10 billion yuan, an institution found that Guangdong Province currently has 36 listed companies in the lithium battery industry chain with a market value of over 10 billion yuan, accounting for about 28% of the national total, ranking first among provinces.

In addition to China Innovation Aviation and CATL, Rongjie Group will also complete the construction of a 9GWh fully automated cell production line and a 4.5GWh module and battery pack production line in Nansha Phase I this year. As the fifth largest shareholder of BYD Company Limited, Rongjie Group plans to land its core industries in Guangzhou, and plans to reach a total cell production capacity of 30+ GWh and a module and battery pack production capacity of 20+ GWh by 2028.

“Leading companies going global” is a key step for Guangdong's energy storage, which is why the "Guangdong Provincial Guiding Opinions on Promoting the High-Quality Development of the New Energy Storage Industry" (hereinafter referred to as the "Guiding Opinions") issued in March this year explicitly proposed measures such as actively developing overseas energy storage markets and building an international market service support system. This is also the most eye-catching point in the planning compared with Shandong and Jiangsu, which are also vigorously promoting new energy storage.

It clearly states that Guangdong supports leading enterprises in leading upstream and downstream enterprises in the industrial chain to go global together, promoting the export of Guangdong's energy storage products, technologies, standards, brands, and services, and forming a business model of "Guangdong headquarters + overseas bases + global network".

For other domestic markets, Guangdong also proposes to support new energy storage enterprises to actively participate in the construction of new energy storage power plants in regions with high penetration rates of new energy sources such as Tibet, Xinjiang, Inner Mongolia, Gansu, and Qinghai.

However, like many industries in their early stages of development, the current business model of energy storage still needs to be explored. Under China's existing electricity pricing system, in the era of grid parity, relying solely on the grid-connected income of the power generation side cannot cover the cost of electrochemical energy storage. The improvement and maturity of the auxiliary service market will be the driving force for the development of large-scale energy storage.

The investor introduced that, taking foreign electricity markets as an example, grid-side energy storage can transfer costs to user electricity prices through the electricity market, users can also participate in electricity energy and auxiliary services through distributed energy, and high-electricity-price areas can also use energy storage to save electricity costs.

In this regard, Guangdong also explicitly encourages innovation in the overseas expansion models of energy storage enterprises. For example, it supports the establishment of consortia by new energy storage enterprises to actively participate in the construction of large-scale integrated photovoltaic and energy storage projects, independent energy storage power plants, and grid-connected energy storage projects abroad. It particularly encourages enterprises to adapt to the energy needs of markets in Europe, North America, Southeast Asia, and Africa, improving the design compatibility and economic efficiency of "household photovoltaic + energy storage" and portable energy storage products, and continuously expanding international market share.

Hu Feng stated that, considering the upcoming carbon tariffs, the energy storage industry may give rise to new overseas expansion models, such as undertaking system integration overseas or establishing battery cell factories.

Source: Southern Finance