December 26, 2023 Experts explain 14 key issues in energy storage industry

1. Since 2023, due to the overcapacity of the battery cell industry chain and the price reduction of lithium carbonate, the price of battery cells has continued to decline, driving the price of energy storage systems down. In my opinion, the current prices of battery cells and energy storage systems are at historical lows, with limited downward space, but it is also difficult to rise in the short term, mainly considering:

--There is limited room for lithium carbonate prices to fall;

--Neither energy storage system integration manufacturers nor owners have the motivation to lower prices in the short term;

--It takes time to clear the capacity of the battery cell industry chain;

--Energy storage integration manufacturers are highly homogeneous, and it takes time to differentiate.

2. Transforming from an inverter or battery cell company to an energy storage integrator will have certain technical advantages or cost advantages. In the long run, the core competitiveness of energy storage integration manufacturers lies in the barriers in the underlying R&D field, the basic integration theory field, the electrical theory field, and the component R&D field.

Q1: Reviewing the price trend of energy storage cells in 2023, what is your opinion on the future price of energy storage cells?

A1: Compared with the price of 0.9 yuan to 1.0 yuan/Wh of energy storage cells at the end of 2022, the price of energy storage cells at the end of 2023 fell by 40%-50%, and the market quotation was about 0.4 yuan to 0.5 yuan/Wh. There are two main reasons for the continuous decline in the price of energy storage cells in 2023. On the one hand, it is the overall overcapacity of the battery industry chain, and on the other hand, it is the cost reduction brought about by the downward trend of lithium carbonate prices.

In terms of production capacity: including upstream links such as positive electrode, negative electrode, seperator, electrolyte, and the battery itself, in 2023, they all faced the problem of oversupply and overcapacity, which led to weak bargaining power in each link. In order to ensure the utilization rate of production line capacity, manufacturers took the initiative to reduce prices to seize market share. In 2023, the new production capacity of the battery industry chain was not fully built and released. It will take time to clear the capacity and improve the supply and demand pattern. It is expected that in the short term, the situation of energy storage cells grabbing market share at low prices and internal circulation will be difficult to improve. Even some manufacturers on the verge of life and death will sell cells at extremely low prices.

In terms of raw materials: the price of lithium carbonate has dropped from 600,000 yuan/ton at the end of 2022 to about 100,000 yuan/ton. For every 100,000 yuan drop in the price of lithium carbonate per ton, the corresponding cost of battery cell materials will drop by about 0.07 yuan-0.08 yuan/Wh. There is also limited room for lithium carbonate to fall in the short term.

At present, the price of battery cells is low, and there is limited room for further decline. However, due to the supply and demand pattern, it is difficult to rise in the short term. It is expected that in 2024 and 2025, with the clearing of capacity, the price of high-quality battery cells will continue to be strong, and the gross profit will gradually rise. Referring to China's white goods industry, the steady increase in gross profit margins in the white goods industry in recent years has also benefited from the clearing of small manufacturers and low-quality production capacity.

Q2: What is the impact of the decline in battery cell prices in 2023 on system integrators?

A2: Some system integrators who locked in the production capacity of battery cells in advance have borne the losses of the downward trend of battery cell prices. In 2022, especially in the fourth quarter of 2022, the entire market demand was relatively strong, and there was a sign of battery cells being in short supply. In addition, some energy storage integrators were optimistic about the demand in 2023 at that time. In order to get a better price for battery cells, they even signed an agreement with battery cell manufacturers to contract production line capacity.

At that time, it seemed that being able to get the battery cells of first-tier companies at a price of 0.7 yuan/Wh was already a very good price, but looking at it today, the battery cells of the top companies may not be sold at 0.7 yuan/Wh, but only at about 0.5 yuan/Wh.

Q3: What is the standard for dividing first-tier and second-tier battery cell companies? What is the price difference between first-tier and second-tier battery cells?

A3: At present, the price difference between first-tier and second-tier battery cells in the market is around 0.05 yuan/Wh, or even higher. The larger the energy storage project and the regional benchmark project, the easier it is to accept or prefer the cells of first-tier enterprises, because it can effectively reduce quality problems and avoid compliance problems.

In the industrial and commercial field, people are more sensitive to the price of cells, mainly considering: 1) The project is relatively small and the control requirements are relatively low: the mainstream energy storage projects in the industrial and commercial field are within 10MWh, which can be more finely controlled at a relatively low cost; 2) The number of cells required for a single project is small, and the consistency requirements are not so high. The consistency is slightly worse, and the impact on safe operation is not so sensitive. In the industrial and commercial field, if the owner does not make clear requirements, the integrator may tend to use the cells of second-tier or even third-tier enterprises.

Personally, the first-tier and second-tier enterprises are mainly divided by two factors: product richness (technology) and shipment volume (application experience).

Product richness (technology) area: It is best to walk on two or more legs. Battery manufacturers are not simply researching energy storage batteries, but are involved in energy storage, power, and consumer fields. In this way, they can accumulate and precipitate in the know-how, quality control, advanced manufacturing, and digital manufacturing of battery research and development, application, and manufacturing links. Different fields can learn from each other and promote common development. For example, in the field of power batteries, there is a need to have mature products to supply car companies, or to rank in the top ten in the field of power batteries.

Shipment volume (application experience) area: I personally think that this manufacturer needs to have a relatively long experience (more than five years) in the field of energy storage.

Q4: What do you think of the future competitive landscape of battery cells in the field of energy storage?

A4: The existing typical energy storage integration manufacturers do not have the production capacity of battery cells. Considering the high investment and overcapacity of battery cells themselves, I personally judge that there will be relatively few energy storage integrators who will enter the field of battery cells in the future. If companies in the field of battery cells hope to get out of the second growth curve through energy storage integration, there will be relatively more cases of transformation and increase of energy storage integration. At present, some battery manufacturers have begun to gradually get involved in the integration business. In the future, the leading battery cell manufacturers will most likely integrate the DC side, and it is entirely possible to integrate the AC side. If the battery cell manufacturers transform into full system integration and typical integration manufacturers, they may compete with existing customers and will conduct comprehensive games in all aspects.

At present, the threshold for energy storage integration is not high, especially for some traditional integration solutions of common goods. As long as the team has worked in large-scale photovoltaics before, as long as some capable people in the industry are recruited, a team of 20 to 30 people can make traditional integration solutions, because there are too many supporting resources in the industry and the maturity of the entire industrial chain is relatively high. Just like it is much easier for Chinese people to start a business to make electric cars than other countries.

Q5: What is the cost composition of the current energy storage system?

A5: At present, the price of the entire system integration in the market is about 0.8 yuan/Wh, of which the cost of the battery cell is about 0.4-0.5 yuan/Wh, the integrated inverter and boost is about 0.23 yuan-0.24 yuan/W, the BMS is about 0.04 yuan-0.05 yuan/Wh (if it is active balancing, it is 0.07 yuan-0.08 yuan/Wh), the temperature control is about 0.02 yuan-0.03 yuan/Wh, the fire protection is about 0.04 yuan-0.05 yuan/Wh (if it is PACK level, it will be more expensive), and other structures, boxes, etc. are about 0.1 yuan/Wh.

Q6: What is the price trend of energy storage systems in the future?

A6: Personally, I think the prices of battery cells and energy storage systems are at a historical low, with limited room for decline, mainly considering:

1) Low concentration and weak bargaining power of integrated manufacturers: Due to the low threshold for energy storage system integration, the current scattered market structure and low market concentration, energy storage system integrators themselves have weak bargaining power with inverters, BMS, EMS and other manufacturers. This round of price cuts is mainly due to the supply and demand of battery cells and the price of raw materials, which led to the active price cuts by battery cell manufacturers to grab the market;

2) The current energy storage integration technology threshold is low and homogeneity is serious: The integration of energy storage systems does not have a very high technical content like the integration of aircraft, thermal power plants or nuclear power plants. There are many untold secrets, and there are not many secrets in traditional integration solutions.

If the price of energy storage systems is reduced again, it is likely that integrated manufacturers have sacrificed their gross profit. In the future, they can reduce costs by optimizing integration solutions. For example, before 2020, there were only two integration methods: centralized and high-voltage cascade. After 2020, a variety of integration solutions such as distributed, large strings, and intelligent strings have been added. Many integrated solutions quickly became mainstream solutions after they were launched. For example, the large string form accounted for a very high proportion in 2023, and it was even listed separately during the bidding.

The emergence of new integrated solutions has brought about the optimization of integrated technical solutions and even cost optimization. In the future, integrated solutions may change with the iteration of electronic components (more powerful functions and cheaper prices), and even new integrated forms may appear. New integrated forms may lead to reductions at the hardware level. It is expected that the integrated hardware cost may be reduced by 15%-20% in the next three years.

Q7: What do you think about the core competitiveness of energy storage integrators?

A7: I personally think that most system integrators currently do not have core competitiveness. Core competitiveness is not achieved by integration, but by underlying research and development. At present, there are very few companies that have truly invested on a large scale in the fields of underlying research and development, basic integration theory, electrical theory, and component research and development. There are no more than 10 integrated manufacturers with core competitiveness in China.

Inverter manufacturers have a natural advantage in expanding into the integration field, because inverters are a very core link in integration. Transforming from inverter manufacturers to integration often does better. Inverter transformation in the market, especially the transformation of large-capacity inverter manufacturers to integration, will have certain technical barriers, but this barrier is not absolute and requires continuous investment.

Battery cell manufacturers also have a relatively good cost advantage in the field of integration. The cost of the battery cell is completely controlled by themselves. This barrier is actually a higher barrier. The battery cell itself has many thresholds and barriers in terms of investment amount, manufacturing process, quality control, consistency, etc. The ability to manufacture battery cells at a lower cost under the same performance is also a manifestation of advanced technology.

Q8: What do you think of large-capacity battery cells?

A8: I personally think that battery cells will not be infinitely large. One of the difficulties faced in the process of increasing battery cells is thermal management. At present, in the size of 280Ah battery cells, the thermal management and temperature control of the newly designed 314Ah and even higher-capacity battery cells in the future are not done well.

In particular, many cold plates of current battery cells are cooled at the vertical height interface. The vertical height of 280Ah battery cells exceeds 10 cm. The existing cooling solution will cause a certain temperature difference in the battery cells during operation. Long-term use will cause battery cell consistency problems, which will in turn affect the decline in the efficiency of the entire system, and even cause overcharge and over-discharge of some battery clusters, bringing operational risks.

The improvement of battery consistency is the result of gradual improvement based on feedback after a certain type of battery has been used in a very large number of applications. If you ignore the feedback and excessively pursue large capacity and new technologies, the battery cells will not be tested and fed back in sufficient quantity and time, and the consistency of the battery cells will be difficult to guarantee.

The advantage of 314Ah battery cells is that they can improve integration and space utilization. In essence, the reduction of material costs is limited, so 314Ah battery cells are more suitable for household storage or industrial and commercial energy storage, for scenarios with high space requirements and energy density. In the field of large storage, for safety and maturity considerations, 280Ah will still be the main focus in the short term.

Q9: What is your opinion on the competitive landscape of energy storage integrators?

A9: According to the statistics of market share in the past few years, even the market share of the industry's top energy storage integrator does not exceed 20%. This is different from the more mature links such as battery cells, inverters, and BMS. The market share of a certain manufacturer of battery cells is close to 40%, the CR3 of inverters is 70%-80%, and the CR2 of BMS is 60%-70%.

In the long run, the integration field will also form an oligopoly competition situation. It can be compared with the American automobile industry. The whole vehicle is also a kind of integration. After hundreds of years of development, there are only 3-5 giants left in the United States. In the short term, it is still in the early stages of the market. As long as the market has incremental growth, new participants will continue to be cultivated.

Q10: What do you think of active balancing?

A10: I personally think that active balancing will be a trend. Active balancing can provide some additional value-added services if it is done well. The main reasons for the low acceptance of active balancing at this stage are: 1) When the consistency of battery cells is getting higher and higher, the dependence on active balancing will be reduced; 2) The current price of active balancing is still relatively expensive, and it is impossible to judge the contribution of active balancing to future long-term benefits. The cost-effectiveness of active balancing will be a dynamic comparison of the price difference between active balancing and passive balancing and the contribution of active balancing to long-term returns.

Q11: What do you think of high-temperature batteries?

A11: The optimal operating temperature of most large storage systems is 25 to 30°C, which requires a relatively sophisticated and expensive air-conditioning system to support it. High-temperature batteries will definitely involve changes in the material system, which can allow the battery to operate stably at 70 to 80°C, which can effectively reduce the cost of the temperature control system and the cost of electricity occupied by the energy storage system. At present, high-temperature battery technology is still immature, and most of them are in the laboratory or small-scale trial stage.

Q12: What do you think of the EPC winning bid price lower than 1 yuan/Wh?

A12: I personally think that this price is abnormal, and this price will make all participants, including the owner, very painful. Whether the owner really dares to trust the products delivered by the EPC manufacturer with a quotation of 1 yuan/Wh is also worth discussing. If there is a problem and accountability is pursued, the entire bidding process and all procurement links may need to be audited.

At present, integrators with strong strength and high brand awareness are not willing to participate in price wars. However, for some battery cell manufacturers on the brink of life and death, they are willing to process their own battery cells at a price of 0.2 yuan/Wh. There are also some integrators in the market who are willing to use such battery cells to make products for bidding, but from the perspective of the owner, they are very worried about the quality and after-sales operation and maintenance of such products.

Q13: How do you view the competition between container energy storage and small cabinets and cabinets?

A13: Containers are usually 20-foot or 40-foot containers, which are usually used in large storage fields. Small cabinets are usually used for distributed energy storage systems, which are more suitable for small and medium-sized industrial and commercial fields. The two penetrate each other in some fields. Containers are also used in 2MW-3MW industrial and commercial energy storage projects, and small cabinets and cabinets are also used in large energy storage projects. Overall, container energy storage has more scale advantages and cost advantages, and is suitable for large energy storage; small cabinets are relatively flexible and have more advantages in the industrial and commercial fields.

Q14: How do you view the application of string and centralized energy storage in the field of large storage?

A14: I personally think that the two technical routes will coexist for a long time and will continue to iterate and upgrade. At present, the string type is an emerging technology route with a very fast growth rate, but the centralized type itself is also constantly iterating and will not lose its mainstream status all of a sudden. At present, there are also some centralized solutions that are in iterative research and development and have not yet been launched on the market.