China’s energy storage bloom is unlikely to be disturbed in the long run, but the explosion in Apr. 16 brought clear short-term negative impacts on the nascent battery storage sector.
Investment opportunities lie in safer energy storage technology or alternatives, especially those suitable to utility scale and long-form storage.
Also, technical providers for safer storage plant design and operation face improved market condition after the deadly accident.
Renewable, Storage and Charging Integration: the Investment Trend
The Apr 16 explosion of a lithium battery station in Beijing—resulting in at least two deaths—is the worst accident in China’s battery storage sector in recent years. [News report details of the accident]
The cause of the explosion is still under investigation.
The station is a flagship “solar-storage-charging integrated” project against the recent trend of investing in EV stations incorporating rooftop solar and battery storage units.
Since last year, dozens of such “integrated” stations have been operational. More are off the ground.
The investment trend is fueled by energy players from four different fields—the solar PV producer, battery producers, EV charging companies, and the grids. Many find that the micro-grid projects that combined distributed renewable, BESS and EV charging a promising investment opportunity and a natural expansion from their existing business.
The station where the explosion occurred, for instance, is in part invested by Gotion High-Tech with 55% direct and indirect shares altogether. Gotion is a key LFP battery producer in China.
The grid companies, especially State Grid, is also a keen investor in the field. Several household names in the solar industry are growingly interested in the area as well.
China Battery Storage Investment after Explosion: Significances
While further investigation will determine the rooted cause of the accident, the incident once again put the safety issue of battery storage under the spotlight. Notably, the accident took place just two weeks after a fire broke out in an LG Chem battery unit in S. Korea.
Safety is one of the chokepoints of the global development of battery storage. In China, the investment hype on electrochemical energy storage in recent years might have clouded the issue.
The safety challenge facing China’s battery energy storage sector relates to two issues:
- The lagging industry standards and safety regulation for storage: While last year the industry added over 1GW new battery storage capacity for the first time, there are just 31 standards already in place or under development regarding the energy storage industry. Compared to over 100 industry standards in place for EVs, the amount of storage regulations is way too small.
- Policy push for storage development without concrete pricing incentive in place: Several underlying energy policy changes have spurred investment in generation-side and demand-side battery storage. The sudden demand increase provided market space for low-quality products. [READ MORE: the 2020 regional policy push for energy storage construction for renewable new builds]
- Most noticeably, various regional policies have been put in place last year that require power developers to set up energy storage units—a move to ease the power curtailment pressure. However, the storage market is still without clear pricing incentives or subsidy in place. The policy order to add storage capacity could lead to low-quality construction.
Certainly, safety issue could also relate to the technology of lithium battery for storage. Notably, the station embarked on LFP battery—a more common option in China’s BESS projects and was considered safer than NCM. After the accident, concerns and discussion over the safety of lithium battery will continue.
Impacts on China’s Battery Storage Investment
We expect that the explosion to have significant influences on the nascent sector in the short term. However, in the longer run, energy storage and electrochemical storage remain critical for China’s energy transition. Energy storage remains a promising area for new investment in the next two decades.
Construction Halts & Delays
Beijing already announced to halt storage projects that are under construction. We expect that project delays will occur in some generation-side projects and many demand-side projects. However, demand-side projects may face more substantial impacts.
Safety Standards Should Speed up
The accident will hopefully speed up China’s developing safety regulations for the nascent industry. More industry standards should be in place not only on battery/storage but also on the design of such integrated projects.
Battery Market Consolidation
Whether or not the battery is the root cause of the accident, the explosion heralds the inevitable increased competition among Chinese battery manufacturers in the coming years.
The recent demand increase for battery—supported by policy requirements—may have provided surviving (& striving) chances to many manufacturers, even those with less technical and safety track records.
But the increased industry standards could quickly shake up the scene. Players with higher technology standards could take a bigger stake, phasing out those with a lesser reputation.
Battery Storage Investment Remain Critical
However, the long-term perspective of energy storage investment remains unchanged. The industry remains one of the most critical parts of China’s carbon neutrality plan. [READ MORE: our previous analysis on China’s demand for energy storage and BESS]
To move ahead to the 30/60 target, China needs to build up at least 1.2 TW wind and solar power capacity. The amount suggests energy storage capacity shall rise to 220GW in ten years.
Currently, China has an installed capacity of 35.6GW, of which 31.79 GW is pumped hydro, and 3.269 GW is electrochemical storage. Lithium battery contributed 2.9GW, over 90% of the electrochemical capacity.
It means that storage—regardless of the technology types—face a significant market space.
Previously, the industry association cited 30GW as their projection of electrochemical storage capacity by 2025—ten times the current size.
Technology Roadmap for Storage & Lithium Battery Revisited
Nevertheless, the accident may prompt rethinking into China’s utility-scale storage options.
Pumped hydro will remain a majority. Out of the 220GW estimated storage capacity, the conventional sector is expected to contribute at least half by 2030.
As of the remaining, a national plan or technology roadmap is yet to be conclusive.
While lithium battery would certainly secure a pace in the blue ocean, its share in the market may be far from conclusive.
A few other technical solutions as utility-scale or long-form storage alternatives:
- Vanadium redox battery: is poised to be a competitor to lithium battery solution in utility-scale project.
- Mechanical: the 14th Five-Year Plan has mentioned flywheel storage as a key technology R&D emphasis in the next five years.
- Chemical Storage: the heated power-to-gas (hydrogen storage) investment may provide a better option for long-form and seasonable energy storage. [READ More: our review of green hydrogen power-to-gas investment]
Following the explosion and likely safety standard increase, the opportunities emerge for those “safer but relatively more expansive” storage technology and those technical solutions to ensure the safety operation in storage plants.