CITIC Securities: Overseas strong demand will drive rapid growth in domestic enterprise shipments

According to the information from Zhitong Finance APP, CITIC Securities released a research report stating that the overseas large-scale energy storage market is relatively high, which will drive the rapid growth of domestic enterprise shipments. Globally, the high prosperity of overseas large-scale energy storage is mainly due to various factors such as the growth of global electricity consumption, the increase in the penetration rate of renewable energy, the transformation and expansion of the grid, and the decrease in the price of energy storage systems. At the same time, the development of energy storage markets in different countries shows different characteristics, with a high proportion of large-scale energy storage in the U.S. market, rapid development of household energy storage in the European market in the past, and a fast-growing trend in the Asian, African, and Latin American markets. At present, domestic enterprises have a significant competitive advantage in the global energy storage market, and leading enterprises are deepening cooperation with overseas energy storage leaders. It is recommended to pay attention to energy storage companies that have already established a deep layout overseas and have confirmed orders in hand.

CITIC Securities' views are as follows:

The penetration of new energy is increasing, strong demand for grid support, and various factors are driving the rapid development of overseas front-end energy storage.

The continuous and stable growth of global electricity consumption brought about by the development of emerging economies and the AI industry requires the increase in clean energy and penetration rate to help achieve stable power supply. This provides a broad background for the development of energy storage. Meanwhile, in the process of increasing electricity consumption and the installation of new energy power generation capacity, developed economies are facing challenges such as aging and congested grids, while emerging economies urgently need to increase grid construction. The development of energy storage can effectively solve the aforementioned grid-related problems. In recent years, the decline in the prices of energy storage batteries and systems has significantly reduced the investment cost of energy storage. Coupled with the support of policies in different regions and countries, the business model of energy storage is gradually becoming clearer. Driven by various factors, overseas front-end energy storage is showing a vigorous development trend.

U.S. Market: Large space and good models, grid pressure brings demand release.

Due to reasons such as geography, market, and political structure, the U.S. grid is relatively decentralized, with limited cross-regional power transmission capacity. The increase in the proportion of renewable energy impacts the grid and the aging infrastructure of the grid, which is the source of demand for energy storage in the U.S. Based on this, the FERC 841 regulation in 2018 cleared the obstacles for energy storage to enter the ancillary services market, and the IRA Act in 2022 opened up a key link in independent energy storage subsidies. A combination of policies promotes the maturity of the business model of front-end energy storage in the U.S., ensuring substantial returns. According to the bank's calculations, the internal rate of return of energy storage projects in Texas is basically above 10%. Diverse business models and high returns are the guarantee of endogenous growth of front-end energy storage in the U.S. Under the bottleneck effect, whether the grid connection blockage in the U.S. is resolved is crucial. Starting from the second half of 2023, FERC and the federal government successively introduced policies and provided funding to solve the grid connection blockage issue. The bank expects that the energy storage queue time will gradually improve in the future. In terms of space, according to LBNL data, there are currently 1028GW of energy storage projects in the queue, and based on demand visibility calculations, the bank estimates that the project volume in this queue from 2024 to 2028 will release at least an additional installed capacity of 61GW/183GWh. Additionally, according to WoodMackenzie's forecast, the total installed capacity of energy storage in the U.S. from 2024 to 2028 will be 276GWh, with a CAGR of 59%, of which approximately 90% will be front-end energy storage European Market: Front-end energy storage takes over, unleashing growth potential.

The REPowerEU plan announced by the EU in 2022 sets high targets for clean energy, which will drive energy storage as a flexible power source to meet demand. Meanwhile, against the backdrop of the Russia-Ukraine conflict, the push for clean energy and energy independence is driving the process of replacing natural gas power generation with energy storage in Europe. In addition, due to the cumbersome investment approval process of European power grids, as well as capital expenditures and public permit issues involved, energy storage is one of the economical and convenient grid expansion solutions, capable of reducing grid expansion costs, making it more cost-effective for transmission and distribution operators. The revenue levels are the intrinsic driving force behind the demand for front-end energy storage in Europe, with major countries showing excellent returns: according to BNEF calculations, countries like the UK, Belgium, Germany, etc., have annual returns of 150,000 euros/MW, significantly higher than the breakeven point for energy storage investments at 80,000 euros/MW. LCP Delta forecasts that European energy storage will add 27GW/68GW by 2025/2028, corresponding to a cumulative installed capacity CAGR of 51%/33% from 2024-2025 to 2028, with over 65% being front-end energy storage.

Emerging Markets: Weakness in power infrastructure drives energy storage demand.

In some regions of emerging economies, the construction of power grids lags behind, leading to a higher frequency of power security incidents. Energy storage supports and expands the grid, addressing off-grid demand in scenarios with frequent power outages, making it widely applicable in emerging markets with weak power infrastructure. The global surge in photovoltaic installations is driving the release of energy storage demand, with emerging markets outside mainstream markets also showing great potential. Brazil, dominated by hydropower, faces power shortage risks, with policies supporting the development of solar and storage; Southeast Asia has weak power infrastructure, limiting the growth of traditional energy sources. Against the backdrop of cost-competitive wind and solar energy, new energy sources are becoming crucial support for future power supply in Southeast Asia; the increasing penetration of new energy sources combined with off-grid scenarios is driving energy storage demand in Africa.

Industry Chain: Domestic industry chain holds a significant competitive advantage in the global energy storage market.

Domestic energy storage technology is mature, with a complete industry chain, establishing strong competitiveness globally based on supply-side advantages. The front-end energy storage market in the United States has been dominated by local integrators in the past, but in recent years, Chinese companies have gradually seized market share. Leading front-end energy storage integrators in the United States have deep ties with large project developers to create a first-mover advantage. As new players such as battery manufacturers and software developers enter the market, the concentration of leading players has loosened. Domestic enterprises have a clear first-mover advantage in the European market, with industry leaders maintaining their strength. From 2018 to June 2024, CATL and GCL secured significant front-end energy storage orders in Europe, ranking among the top Chinese manufacturers, with other companies like BYD and Farasis also receiving large orders. The bank predicts that Chinese companies will be able to leverage their strong cost control capabilities in battery production and their expertise in AC/DC grid control technology in overseas markets to expand their presence and share the dividends of global energy storage development.

Investment Strategy:

The growth in global electricity consumption and the significant integration of new energy sources bring about a rigid demand for global energy storage allocation, offering vast long-term opportunities for the industry. Developed economies face challenges of aging and congested power grids, while emerging economies require support for electricity and grid development, with energy storage being a crucial tool for supporting the grids of both developed and emerging economies. Among them, the United States has a weak power grid infrastructure, mature electricity market mechanisms, and high market barriers, making it a front-end large storage market with both growth potential and high certainty; Europe remains one of the most promising markets for new energy globally. By 2024, front-end energy storage will take over household storage, unleashing new growth momentum. In emerging markets, the power infrastructure is weak, and energy storage is widely used as an important means for grid parity expansion and off-grid power supply scenarios. China has a complete energy storage industry chain from inverters, lithium batteries, temperature control systems to integrated ends, with some companies being the most important suppliers in the global energy storage market.

In light of the above industry trends, the bank recommends focusing on three main lines to seize the opportunities for high-speed growth in the energy storage industry: 1) domestic and foreign energy storage systems and EPC links; 2) energy storage inverter links; 3) energy storage temperature control and fire protection links.

Risk Factors: Fluctuations in the industrial chain prices, early exit of related industry subsidies, restrictions on overseas expansion, lower-than-expected overseas market demand, impact of the U.S. presidential election results on trade policy changes, and the risk of demand slowdown due to dilution of power market returns