The emergence of the COVID-19 epidemic at the beginning of 2020 has affected the production and operation of many companies and industries. Like many industries, energy storage is now confronting challenges in manufacturing, promotion of projects, market development, and R&D. Upstream and downstream sectors are both being tested. In general, because the energy storage industry is still in an early stage of rapid development, the epidemic is likely to have a limited impact on the overall market development for the year. More important factors to energy storage development are the macro-level policies and market environment. However, there are many small and medium-sized companies in the middle and lower portions of the energy storage industry chain who focus on energy storage system integration, project development, and/or operation. Many of these companies rely entirely on revenue from energy storage business, and are therefore the most vulnerable and likely to be severely affected in the short term.
Over the past ten years, energy storage has always been waiting for its spring to arrive. Although the energy storage industry development path has always been unclear, industry stakeholders have still been determined to make progress, dedicating themselves to technological innovations and advancing the energy revolution. Facing the new challenge brought on by the epidemic, CNESA member companies including CATL, CRRC, Sungrow, BYD, Narada, State Grid Investment Co., Huawei, ENN Group, VYCON, Sunwoda, Hyperstrong, Zephyr, Shanghai Electric, Risen Energy, Desay Battery, NIO, Yankai Energy, Hengtong Group, Chint Group, Chungway, EDF, and many others have donated funds, medical equipment, emergency power supplies, vehicles services, and other support to help those at the frontline of the epidemic. As we wait for energy storage’s spring to arrive, we also share the concerns of others around the country and the globe as we all work together to get through this difficult time.
On February 5, CNESA began surveys of key member companies to understand their needs and concerns. Their responses are summarized below.
Delays in Production and Business Recovery
Following the spring festival, resumption of work was managed by assessing how well the epidemic had been controlled and the needs of each individual company’s production and operation. Prior to February 14, only 60% of companies had returned to work. 35% of companies returned to work by the end of March, and the remaining 5% of companies are anticipated to return to work after March. In addition, approximately 40% of companies plan to return to full pre-epidemic productivity within 2 months of returning to work. Affected by the current restrictions on mobility and isolation requirements across many regions, the production and operation of many companies has lagged significantly, and it will take at least 2 months to return to pre-holiday working status.
Delayed Launch of Established Projects
Large-scale energy storage projects set to go operational in the first half of 2020 now face the risk of delayed commissioning, and the total amount of installed domestic capacity in the first half of the year is likely to decline. Bidding for some power grid and power generation company projects has been delayed, which will directly affect the development of these projects. However, project delays should not affect the general yearly trend of energy storage applications. 2019 saw a number of large-scale projects put into reserve. Most likely we will see a rebound of new project capacity through new projects launched in the second half of the year. However, the original plan to accelerate the grid connection of solar PV and wind projects this year is likely to see such projects exceeding their deadlines for grid connection, which will also indirectly delay the launch of energy storage projects supporting renewables in many regions.
Difficulty in Developing New Projects Quickly
During the epidemic period, it has been difficult for companies to engage in business development activities due to changes in company operations and the inability to conduct business meetings. Because energy storage project development is closely related to a customer’s electricity use load and power price sensitivity, customer companies that cannot operate normally or that are unable to return to work do not have any need to install energy storage projects. In addition, the government and the power grid have both released policies aimed at lowering the burden for companies, both by relaxing capacity changes and power tariffs, as well as implementing measures for periodic lowering of power costs. In the first half of this year, the revenue for domestic energy storage projects (particularly behind-the-meter projects) has been impaired, and it will likely be difficult to launch new projects.
International Business May Also Suffer Short-term Constraints
During the PHEIC period, exchange between domestic and international markets has suffered from physical barriers and regulatory restrictions. International and domestic transportation has been reduced, while inspections and quarantines have lengthened market transaction times. These measures have impacted the development and construction of energy storage projects in the international market, as well as the export of products at all levels of the value chain. Problems such as delayed resumption of work, logistics challenges, and other issues signal that the export growth rate of the energy storage industry is likely to slow in the first half of the year. However, some large companies maintain factories overseas that may be able to contain operations in areas that have not been significantly impacted by the epidemic, and can take on some of the burden of international business development and production.
Cost Reduction Rates Have Slowed
Over the past ten years, technological maturity and the increasingly large scale of the downstream applications market have driven the rapid decline of battery costs. The future expansion of energy storage in the energy system is the key to accelerating the advancement of energy storage technology and reducing energy storage costs. At present, the prices of upstream raw and auxiliary materials have risen, the prices for domestic and international logistics and transportation have risen, and the costs of labor have risen, leading to increased production and operating costs for companies. In addition, expansion of the downstream applications market is unachievable in the short term, with electrical vehicle demand now limited and the decline of energy storage costs beginning to slow. Investment returns on energy storage projects are also certain to be affected. Nearly 80% of companies surveyed are worried about reduced operating income and tightening of liquidity. More than 30% of companies expect that revenue in the first half of the year will decrease by more than 20% in comparison to the same period in 2019.
Related Policy Recommendations
Small and medium-sized energy storage companies have relatively weak capabilities to tolerate risk. During the epidemic period, we hope the government will provide targeted support including tax relief and social insurance support, reducing business operating costs by exempting or reducing corporate tax rates and delaying social insurance payments. To assist with the difficulty of project financing and fund repayment, we hope to see an increase in financial support from the government that will help reduce pressure on companies and projects. Once it is certain that the epidemic has been contained, we hope to see a resumption and acceleration of the construction of large energy storage projects, paving the way for the smooth commissioning of projects in the second half of the year. We also hope that government investments in energy will increase in the energy storage category, and that preferential funding will be provided for such projects. At the same time, as we face both challenges and opportunities brought by the current environment, we hope that China’s energy storage product manufacturers can maintain their role in the global market, improve the value of core energy storage companies through international cooperation, and support energy storage technologies and industry as a quality growth point for China’s economy. In the long term, as part of the development of the “Fourteenth Five-year Plan,” we hope that the development needs of energy storage can be considered as part of the development of the national economy, and that planning for the development of the energy sector, power sector, and renewable energy sector will all incorporate energy storage. Special development planning should also be included for energy storage itself, guiding the industry’s development and applications, strengthening energy storage’s strategic role in the energy transition, and showcasing energy storage’s value in contributing to the social economy. In addition, we must also see timely and substantial breakthroughs in the policy and market environment related to energy storage industry development and technological applications. While ensuring China’s energy storage industry is both of high quality and technologically advanced, we must also work to stimulate a vibrant market, expand the scale of the market, and use the large domestic demand for storage which has driven industry development thus far to help drive global technological development and market compatibility. We welcome energy storage industry colleagues to provide feedback on these ideas. CNESA will communicate industry difficulties and private industry needs to government energy agencies, and make suggestions that will support positive industry growth.
Conclusion
Following the release of the “Guiding Opinions” policy in 2016, China’s energy storage technology and applications growth saw a gradual acceleration. Energy storage in all of its applications saw the beginnings of commercialization, though a supporting policy structure and market environment has still yet to appear. The COVID-19 epidemic is not likely to affect the overall trend of energy storage industry growth. As our industry survey shows, 64% of companies strongly believe that new opportunities will emerge after the outbreak is contained, and will make such opportunities the focus of business development. Most companies also believe that the energy storage market can still achieve its predicted growth rate in 2020. We hope that the government and power companies will implement policies which will help to guide the energy storage industry forward. We also hope that energy storage system suppliers and product manufacturers will remain devoted to technological innovation. We look forward to a fully-realized commercial energy storage market and large-scale industry development in the post- “Guiding Opinions” period. Finally, we look forward to energy storage becoming a major contributor to the construction of China’s future energy system and an industry which supports overall economic growth.
Author: Wang Si, China Energy Storage Alliance Translation: George Dudley