Enough with the warm fuzzies around deployment records; let's get granular on the state of global energy storage market.
The U.S. storage industry built its way to 777 gigawatt-hours of storage last year. Not enough to beat South Korea, but easily sufficient for a personal best.
Those two nations are inextricably linked via global energy storage trade. South Korea's generous incentives sparked a feeding frenzy to the tune of more than 1 gigawatt-hour installed in a year. Top-tier cell manufacturers like Samsung SDI and LG Chem, used to seeking out customers overseas, suddenly had a bevy of eager customers to serve on the home front.
The effect of this policy development was to divert cell supply out of the international market, even as the U.S. geared up for its biggest year yet.
"Because of what was happening in South Korea, a lot of the Tier 1 manufacturers were just supplying the domestic market," said Mitalee Gupta, an energy storage supply chain analyst at Wood Mackenzie Power & Renewables. "U.S. developers who didn’t have long-term contracts in place had a very hard time obtaining batteries."
And given how young the industry is, few firms besides the big players had long-term supply contracts locked down.
This week on Storage Plus, we're examining the immediate and long-term impacts of this perturbation of the market equilibrium. The setbacks to individual projects will prove temporary, but the heady days of 2018 have already elevated certain players in the market and reoriented attitudes around supply chains.
The myth of guaranteed cost declines, exposed!
It's spoken so regularly at industry keynotes, it could be a mantra: Lithium-ion batteries, by piggybacking on the electric vehicle supply chain and the wonders of technological advancement, are destined for inexorable cost declines from here to eternity.
This past year exposed some limitations to that rosy narrative.
That supply-side account fails to recognize the demand side of the equation, which raced ahead like a motorcyclist lane-splitting through a congested Golden Gate Bridge. The manufacturing base, still concentrated among a handful of companies trusted for high-profile contracts, simply couldn't handle the surge in both Korea and the U.S.
The ability to tap cell lines built to supply electric car batteries remains an asset, but that relationship can backfire, too. EV automakers have much greater buying power than one-off stationary grid battery projects, so in this constrained market, EVs got first dibs.
Some manufacturers had to impose minimum purchase thresholds that ruled out all but particularly large grid storage projects.
Overall, it should be said, battery prices still declined for the year. They just did so to a much smaller degree than they were supposed to.
The analysts at WoodMac had projected a year-over-year battery rack price decline in the range of 14 percent. Instead, they tracked 6 percent declines in the year-end review edition of the Energy Storage Monitor. The supply crunch was sufficient to offset about half the improvements that all the other macro factors were pushing toward.
The crunch did, however, materialize as an increase in system pricing during the year.
Median prices rose in the third and fourth quarter for fully installed front-of-the-meter systems of 2- and 4-hour durations. Residential and commercial systems followed the same pattern, according to the ESM. They have all declined so far in 2019.
Going forward, the industry should set its sights on more modest price improvements.
"The era of 20 percent year-over-year battery price declines is gone; that’s not going to come back," Gupta said.
As manufacturers continue to scale up, annual declines in the range of 8 to 10 percent should be achievable, she added. Improving energy density and minimizing the need for expensive raw materials like cobalt will also help. On the behind-the-meter side, there's plenty of fat to trim out of soft costs.
Chinese manufacturers made inroads
The Korean battery companies have tended to dominate in prestige, along with some Japanese players like Panasonic. Meanwhile, China has built up the world's leading EV industry and a battery supply chain to serve it, and those companies saw an opening.
"Because of the supply shortages, Chinese vendors were able to get their foot in the door, which they’ve been trying to do for some time," Gupta said.
Developers were more willing to try a new supplier, when the alternative was pushing back a project delivery date. As it turns out, Korea doesn't have a monopoly on quality batteries from state-of-the-art fabs.
Chinese battery leaders like BYD and CATL were well positioned to make headway in those circumstances.
LFP gained traction
When we talk about lithium-ion batteries, that usually means the nickel-manganese-cobalt chemistry known as NMC. This is favored by electric vehicle makers, and gained prominence in the grid storage space as a kind of industrial hand-me-down.
For a long time, conversely, storage vendors who used lithium-ferrous-phosphate (LFP) had to explain themselves. "It's a little more expensive, and a little less energy-dense, but it's safer and more dependable, so we think it's a better choice for putting in your home," or something to that effect.
Two things changed last year. One was the supply crunch for South Korean NMC cells. The other was a change in China's EV subsidies to prioritize higher energy density, effectively ruling out a chunk of LFP supply and forcing it to look elsewhere for a buyer.
These market forces pushed LFP prices lower than NMC prices in some cases, Gupta said. The chemistry that used to come at a premium instead became the better deal.
Looking ahead to 2019, Gupta wants to see if this competition continues, or if it proves to be short-lived.
The worst is over...or is it?
The supply constraint is still present, but it has eased so far in 2019, and should disappear by the end of the first half, Gupta said.
"Vendors are already heavily investing in building more cell capacity," she noted. "New cell lines are coming over the next few months."
Just how many new lines will it take to bring balance back to the global battery market?
Based on current commitments, the world's cell production capacity is set to grow by more than 50 percent this year, Gupta said.
That should build in some padding, but then again, the U.S. market is set to double, according to WoodMac projections, and somewhere on the planet there could be another dark horse ready to gallop.