Three market segments for energy storage products
112 2023-06-26

Three market segments: source grid-side energy storage, commercial and industrial energy storage, and household energy storage.


In fact, the PV industry has long been subdivided into three markets: source-side PV (centralized PV), commercial and industrial distributed PV and household distributed PV, presenting different market patterns and investment logic.The various differences between the energy storage market segments to be much greater than even the three PV market segments.


1.Source-side energy storage—entering a red sea of competition

Investors in source-grid-side energy storage are mainly the original construction and operation companies on the source-grid side, such as power grid companies (like State Grid‘s State Grid Xinyuan, which is mainly engaged in the investment and operation of grid-side pumped storage power plants) and traditional large power generation enterprises (the five largest and four smallest). Source-grid side energy storage is a highly buyer‘s market, i.e. a relationship between a small number of investors and a large number of sellers, where the investors have extremely high bargaining power and the profit level of sellers is always suppressed.

From a downstream buyer‘s perspective, the only reali
zation channel for source-grid-side energy storage is through the provincial ancillary services market, where the storage service products are sold to grid dispatch, which is almost a single buyer‘s market.

From a substitutable product perspective, grid-side energy storage is a provider in the "centralized ancillary services market", offering related services including standby, frequency regulation and peak regulation. However, there are many competitors who can provide similar services, notably marketed flexible thermal units, marketed hydro units, combustion turbines, even large commercial and industrial storage, and large regulated loads, which may also participate in some form as virtual power plants.


In terms of product technology form, source-grid-side energy storage is closer to traditional centralized power products: large units (containers), high performance (power-based devices, fast climbing-returning), centralized control mode, high redundancy design, standard plant and station automation protocols, high real-time and reliability, and provision of dispatching interfaces.

Thus, in a landscape of a few investors (competitors), a sole downstream buyer, and a large number of substitutable products, and with the strong allocation of energy storage policies to centralized scenic projects as a driver, source-grid-side energy storage has entered an era of red sea competition.


This red sea competition is, on the one hand, a strong bargaining power of buyers over sellers.On the other hand, is it possible that in a more hostile competitive environment, energy storage products on the source network side may be "substandard, falsely marked capacity", resulting in a situation where "the market is captured and good money is driven out by bad money"?

One can only let time tell.


2.Commercial and industrial energy storagea blue ocean market with unlimited innovation

A.In terms of investors, all parties are currently focusing on and actively entering the commercial and industrial energy storage sector.In addition to traditional power generation and grid companies, there are also various types of end-users, distributed investors, energy efficiency service providers, virtual power plant investors, charging pile investors, and even distribution network companies and power sales companies investing in commercial and industrial energy storage.


B.In terms of buyers, the most important buyers of commercial and industrial energy storage are commercial and industrial enterprises, through the arbitrage model of peak-to-valley price difference to reduce the cost of electricity for enterprises, followed by participation in transactions related to virtual power plant products, or participation in demand response events, when the buyers are grid enterprises.It should be noted that most commercial and industrial energy storage projects are connected to the grid at voltage levels of 10kV and below, so in terms of dispatch jurisdiction, they are not within the provincial grid dispatch (provincial dispatch is responsible for the operation and management of the power network at voltage levels of 220kV and above), but in the distribution network dispatch (municipal dispatch and county and district dispatch), so commercial and industrial energy storage, even if encapsulated as a virtual power plant product, will be traded in a secondary (instead of the primary auxiliary services market under the jurisdiction of the provincial regulator), or a secondary electricity trading market (or over-the-counter retail side market), where the market is more active.


So strictly speaking, buyers of industrial and commercial virtual power plants are allotted transfers, not provincial transfers.

In terms of substitutable products, the competitors for commercial and industrial energy storage products are mainly adjustable loads (which also play a role in peak and valley reduction), and power products in the secondary market (where electricity sales companies can offer cheaper selling prices), but this competition and substitutability is very weak and more of a collaborative relationship.


With a large number of new energy sources on the grid, the progress of the electricity market has accelerated, the wholesale - retail two-level market price transmission mechanism continues to open up, the retail side of the price in the peak-to-valley ratio, the rate of change in both aspects continue to increase, commercial and industrial energy storage will be a huge market.


On the basis of strong demand, the market forces are highly fragmented due to the large number of buyers and numerous product suppliers, so it will be a blue ocean competitive landscape in the foreseeable future, even forming a large number of more segmented industry energy storage markets.


In terms of product form, commercial and industrial energy storage and source-side energy storage also show significant differences:


One is the high degree of integration, energy storage cabinets are more recognized than energy storage containers, with single cabinet independent grid connection and cascadable expansion characteristics;


Secondly, high integration, whether it is the integration of light and storage, or the overall solution of industrial and commercial microgrid, energy storage is integrated into the enterprise microgrid system as a flexibility element; at the same time, the business model of energy storage, instead of selling cabinets alone, is integrated into the integrated service solution in a way that reduces the overall cost of electricity for users, and gains from many aspects: for example, it not only realises peak and valley arbitrage, but also reduces the basic The sales model is not product-based.


Third, high intelligence, as industrial and commercial energy storage products need to be coupled to industrial and commercial microgrids, and in complex multi-target, multi-scenario regulation in order to achieve the best operational results, so the future level of intelligence needs to be significantly improved. If we look at Tesla‘s "cloud-domain controller" digital architecture, the current level of control, arithmetic and integration of commercial and industrial energy storage projects is still at the level of decentralized electronic and electrical architecture of traditional fuel cars 20 years ago.


In this area of commercial and industrial energy storage, there will be a blue ocean of competition in the market and a pattern of rapid technological innovation.

The energy storage product companies with higher integration and intelligent progress can get a huge valuation level increase in the primary capital market.


3.Household energy storage

If the commercial and industrial energy storage and commercial energy management services market, as a "behind-the-meter market", has been neglected by power generators and grid companies, resulting in a long-term market gap, it has exploded into a high level of vitality after the marketisation of electricity.

China‘s household energy storage market, however, is due to the fact that Chinese grid companies, out of a high degree of social responsibility, provide universal services in the form of "industrial and commercial subsidies for residents", and have invested heavily in the renovation of urban and rural networks, making the overall reliability of residential electricity services among the highest in the world for a long time, which precisely inhibits the development prospects of household energy storage. This is precisely what has inhibited the prospects for household energy storage.

In addition, due to the great development of household PV in rural China, the PV penetration rate in certain rural network areas has exceeded the alarming value, which will lead to increased safety risks, reduced reliability and lower power quality in the distribution network in the long run.


However, based on the economics of household use, the return on investment in energy storage is very low, so I personally think that the rural household PV supporting energy storage mode, may be closer to "industrial and commercial energy storage", in the way of "shared energy storage", in the agricultural network of the public line side of the grid, and "secondary auxiliary services" product form, to solve the problem of PV consumption and distribution network safety and reliability. The product form of "secondary auxiliary services" will solve the problems of PV consumption and distribution network safety and reliability.


It could be another market segment with an alternative product format and business model, which is also inconclusive.


In summary, three markets, each with its own characteristics

Due to the differences in the elements of the five forces model, the level of marketization, policies, and customer demand, energy storage products will gradually differentiate into three types of market segments: source network side, commercial and industrial, and household, where differences in technology, products, business models, and business models may exist, and the closer to the operational side, the greater the differences.

There is huge room for the development of commercial and industrial energy storage. Driven by the factors of electricity marketization, combined with digital technology innovation and operational model innovation, it will present a situation of blue ocean competition and rapid product iteration, and will be the market with the greatest opportunities in China.

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