The Zhitong Finance App learned that CITIC Securities released research stating that the slowdown in installed capacity growth and the decline in industrial chain prices have had an impact on the energy storage industry in the short term, but variables in the long-term development of the industry continue to improve, including the increase in the scale of installed renewable energy, the advancement of electricity prices and power system reforms, the decline in battery costs and capital costs, and continuous policy support. Multiple variables continue to improve, and the development of the energy storage industry is also nurturing vitality. On the one hand, the world's new energy storage installations will continue to grow. On the other hand, continuous improvements in variables such as policies, costs, and interest rates are expected to drive the formation of business models. At the same time, the bank also sees that policies encourage the development of various forms of energy storage, especially long-term energy storage.

It is recommended to focus on energy storage companies that continue to break through in specific markets, including key component companies, related materials companies, and energy storage system integrators.

The views of CITIC Securities are as follows:

Multiple variables continue to evolve to promote the development of the energy storage industry.

Maintaining continuous and steady growth of new energy installations places higher demands on power grids to regulate energy. Energy storage is one way to effectively improve grid regulation capacity. The reform of the electricity system and electricity price continues to advance. Among them, peak and valley electricity price differences continue to rise, and many provinces have also announced time-sharing electricity price policies. These are all conducive to the formation of energy storage, especially industrial and commercial energy storage business models; the introduction of capacity electricity prices and the continuous development of the auxiliary service market also provide continuous possibilities for the development of grid-side and power-side energy storage. Falling battery prices and lower capital costs will also drive the development of energy storage. According to Xinyi Lithium Battery data, in November 2023, the price of battery-grade lithium carbonate decreased by more than 70% compared to the same period last year, and power batteries also fell by more than 70% year over year, thus driving the continuous decline in energy storage system costs. Furthermore, interest rates on US bonds are expected to continue to fall, driving down overseas capital costs, and also boosting the growth of overseas installed capacity. The policy also actively supports the development of the energy storage industry and actively encourages the development of various forms of energy storage, especially long-term energy storage. The continuous evolution of multiple internal and external variables will drive the continuous development of the energy storage industry.

Lithium battery energy storage installations will continue to grow, structural opportunities will emerge under pressure from industrial chain prices, and domestic and foreign markets are worth looking forward to.

The world's new energy storage installations are growing rapidly. According to data from the Zhongguancun Energy Storage Industry Technology Alliance (CNESA), China, the US, and Europe are global leaders, accounting for 86% of the total share.

In terms of domestic energy storage, power generation side allocation and storage is an important pillar of incremental energy storage. Actual demand and policy promotion are the main driving factors for domestic front-meter energy storage installations in the next few years. Policy incentives and industrial chain cost reduction will drive higher pre-meter energy storage tenders to provide project reserves for subsequent installations; the widening of peak and valley price differences will increase the penetration rate of “two charges and two emissions”, and domestic industrial and commercial energy storage yields will continue to rise, driving the domestic industrial and commercial energy storage market to flourish. The bank expects the annual installed capacity to reach 60 GWh in 2024, with a year-on-year increase of 71% of the new installed capacity.

In terms of overseas energy storage, the growth of new energy installations, weak grid infrastructure, and mature electricity market mechanisms are important driving factors driving the development of large-scale energy storage in the US. According to WoodMackenzie data, the compound growth rate of the US energy storage market may have reached 57% in the past three years. Although affected by capital costs in the short term, as interest rates on US bonds peak and fall, it is expected that the reduction in capital costs will drive energy storage installations to continue to grow, and domestic companies with strong capacity to participate in its supply chain will benefit. European household storage has maintained steady growth. The industrial chain has been disrupted by inventory factors in the short term, but after inventories return to normal levels, it is expected that the European household storage market will usher in a clear recovery in prosperity.

Diversify demand scenarios and adjust resource demand growth to promote the development of various forms of energy storage.

In order to consume a high proportion of renewable energy and meet user load requirements, power system energy storage applications have various time-scale requirements, including short-, medium-, and long-term energy storage. Short-term energy storage generally focuses on power grid safety issues such as ensuring that the power system maintains balance under instantaneous disturbances, while long-term energy storage generally focuses on economic issues such as matching supply and demand during peak and valley periods. Among them, supercapacitors have advantages in short-term high-power scenarios, and hybrid frequency modulation projects may become future emission paths; the initial investment cost of all-vanadium liquid flow batteries has improved markedly, and many domestic companies are actively promoting their commercialization process; compressed air energy storage planning and construction are expected to accelerate, and 100-megawatt commercial projects are expected to gradually be implemented; molten salt energy storage is diversified, and commercialization is on the rise; hydrogen energy storage is a long-term solution, and industrial projects are progressing at an accelerated pace in 2023. In addition, thermal power is still the largest energy resource with installed capacity in China. Stimulated by various aspects such as abundant stock transformation resources, low investment costs for transformation, and profit support from capacity electricity prices, the bank expects the flexible transformation market space to be 15.8 billion yuan during the 14th Five-Year Plan period, which has a large market space; pumped energy storage technology is highly mature, and industry demand may accelerate under the stimulus of capacity electricity price policies.

Investment Strategy:

Although the energy storage industry was impacted by a sharp drop in raw material prices and high overseas capital costs in 2023, the sharp connection of new energy sources brought about a rigid demand for global energy storage allocation. At the same time, considering the advancement of electricity price mechanisms and power system reforms, the decline in overseas capital costs and strong support from the policy side, the bank expects the global energy storage industry to flourish in 2024.

Based on this, the bank believes that in the domestic market, industrial and commercial energy storage is expected to usher in rapid growth against the backdrop of rising peak and valley price differentials and rising penetration rates of “two charges and two releases”; recent positive signals of peak electricity prices, capacity electricity prices, and cost sharing on the user side have been frequent, and domestic storage is expected to accelerate the closure of the business model in 2024, and profits will bottom up. In overseas markets, China has a complete energy storage industry chain. In the context of the risk of oversupply in the internal environment, seeking incremental markets through exports is a future industry trend. Among them, the US is a large front-side storage market with both growth and high certainty. European household storage inventories are expected to bottom out in mid-2024. It is expected that the household storage market will usher in a clear recovery in prosperity at that time.

Scenario-based demand promotes multiple flexibility to regulate resource development. In 2023, various other new types of energy storage will also usher in accelerated industrialization, and technologies such as all-vanadium liquid flow batteries have made great strides in reducing costs. At the same time, the introduction of the capacitive electricity price policy supports the profit level of thermal power, improves the operating situation, and helps to gradually release subsequent flexibility reforms.

In line with the above industry trends, the bank proposes to seize the opportunities for rapid growth in the energy storage industry around five main lines: 1) domestic and foreign energy storage systems and EPC links; 2) energy storage inverters:; 3) energy storage temperature control and fire protection; 4) segment leaders with energy management and microgrid service capabilities; 5) other new energy storage and flexibility transformation:

Risk factors: Construction of new power systems fell short of expectations; price fluctuations in the industrial chain; promotion of digital energy platforms fell short of expectations; electricity market reforms fell short of expectations; early withdrawal of related industry subsidies; restrictions on overseas exhibitions; risk of shrinking the air energy storage industry falling short of expectations; cost reduction in the molten salt energy storage industry falling short of expectations.