Uncertain Future for Energy Storage Amidst Price Wars and Overcapacity in China
In a rapidly evolving landscape marked by plummeting prices and surplus production, the energy storage sector finds itself at a crossroads, grappling with challenges and seeking opportunities for sustainable growth. According to a recent industry study jointly conducted by China Electricity Council and KPMG, the domestic energy storage market witnessed an explosive surge, with the number of related enterprises increasing from 5,800 in 2021 to a staggering 38,000 in 2022. Among these, there were thousands of registered energy storage system integrators, while the actual energy storage manufacturers numbered around 120.
The abundance of players in this space, though indicative of a vast market potential, has inevitably led to fierce competition, resulting in a race to the bottom in terms of pricing. This phenomenon has plunged the nascent industry, which has yet to fully explore blue oceans of opportunities, into the red ocean of ruthless competition and severe overcapacity, even before experiencing a comprehensive market boom.
A mere two months ago, media reports highlighted energy storage system prices plummeting to 1 yuan per watt-hour (Wh), and now, another stride has been made as some suppliers proclaim the arrival of the era of 0.5 yuan per Wh.
Recently, at a public conference, the Chairman of Chunan New Energy, a leading energy storage battery manufacturer, announced that by the end of this year, 280Ah energy storage lithium batteries would be available for sale at a price not exceeding 0.5 yuan per Wh (excluding taxes), and this price would remain unaffected by fluctuations in upstream lithium carbonate prices.
The price wars have inevitably ushered in a period of overcapacity. Data from GGII, a research institution, reveals that due to active industry expansion, China’s energy storage battery production capacity has exceeded 200 gigawatt-hours (GWh), with overall capacity utilization dropping from 87% in 2022 to under 50% in the first half of this year. Among these, the utilization rate of residential energy storage battery capacity is even lower, hovering around 30%.
The expansion of the market, a decline in raw material prices (such as lithium carbonate), subsidies from energy storage policies across regions, cost reduction efforts, and technological innovation have collectively contributed to the downward pressure on energy storage prices. While this trend could lead to the overall reduction of costs within the new energy system, it raises concerns regarding the premature pressure on industry innovation and long-term development, especially when many established energy storage stations are still struggling to turn a profit.
For the energy storage sector, price is just one dimension; comprehensive performance factors, including safety, product efficiency, cycle lifespan, conversion efficiency, maintenance, and operational longevity, are equally vital. Developing and implementing energy storage solutions constitute a long-term endeavor, requiring a consideration of over a decade or two of service life. The calculation of levelized cost of electricity (LCOE) and future profitability must take into account the entire lifecycle.
Learning from the experiences of solar panels, lithium-ion batteries, and new energy vehicles, the energy storage industry aims to avoid the pitfalls of repeating price wars, market reshuffling, and the closure of numerous companies. The sector’s focus rests on striking a balance between market access, profitability, and long-term sustainability.
The most recent data released by the National Energy Administration reveals that by the end of June this year, the cumulative installed capacity of new energy storage projects across China surpassed 17.33 million kilowatts/35.8 million kilowatt-hours. Notably, the installed capacity for the first half of this year alone, approximately 8.63 million kilowatts/17.72 million kilowatt-hours, doubled the cumulative installed capacity achieved in previous years. This surge underscores the rapid growth trajectory of the new energy storage sector.
Experts in the field project that energy storage market tenders in 2023 will exceed 60 GWh, with an anticipated installation volume surpassing 30 GWh.
Contrasting with the broader trend of falling prices, Tesla’s Megapack energy storage solutions have seen their price increase, with orders extending into 2025. The key to Tesla’s success lies not only in hardware but also in its strategic shift towards artificial intelligence (AI) technology. Integrating AI technology into energy products enables real-time supervision, management, and monetization of battery usage, establishing innovative energy products and technological barriers. Advanced applications provide customers with personalized services and real-time energy management rights.
Tesla has cultivated a robust energy software ecosystem, featuring real-time transaction management platform Autobidder, Opticaster for predicting and optimizing energy usage, and Microgrid Controller to maintain grid stability, all contributing to revenue enhancement for operators.
As the energy storage industry navigates the challenging terrain of price competition, overcapacity, and innovation, the quest for a sustainable and profitable future continues. Striking the delicate balance between accessibility, profitability, and technological advancement remains the defining challenge for this dynamic sector.