From Boom to Bust: The Price War Crushing China’s Energy Storage Dream

The price-reduction strategy that Chinese enterprises excel at is faltering in the energy storage sector. This stark reality is echoed by Hong Lin, a salesman in the energy storage domain. In May of this year, the 16th iteration of the SNEC International Solar Photovoltaic and Smart Energy Conference commenced in Shanghai. Within a mere three days, over 500,000 individuals thronged to the event, with even the lunch provisions within the exhibition hall selling out swiftly. This event, both preceding and succeeding it, marked the zenith of fervor within the energy storage market.

Subsequent to Hong Lin’s negotiations for overseas sales orders in Shanghai, he intended to reserve them for presentation at the Munich Solar Energy Show in Germany come June. Nevertheless, upon venturing into this preeminent European household storage market, the sales team encountered a downturn. German clientele at the site candidly articulated that the energy storage products from Chinese manufacturers are excessively economical, with some firms slashing prices by up to 40% from their initial quotations at the onset of the year. The inventory amassed by these major dealerships from the previous year remains uncleared, with warehouses still brimming with thousands of energy storage systems.

The surplus inventory persists, and the downward trajectory of prices shows no signs of abating. By the midpoint of October, during the British Solar Energy and New Energy Show, “these dealers found themselves exploited and consequently opted to escalate prices rather than lower them. In fact, it has evolved into a prevalent trend for international patrons to harbor skepticism toward domestic manufacturers,” as per Hong Lin.

Both the British Solar and New Energy Show and the Munich Solar Show in Germany serve as the foremost “photovoltaic + energy storage” exhibitions in Europe and set the benchmark for energy storage transactions. However, despite the fervent atmosphere at these exhibitions, the actual order placement remains notably subdued. Cost efficiency has perennially stood as the crux of Chinese manufacturing prowess, particularly within burgeoning sectors. An influx of participants from diverse sectors has inundated the energy storage industry. In the past six months alone, close to 40,000 enterprises specializing in new energy storage have been newly registered nationwide, surpassing last year’s total registrations of 36,000. The collective convergence within the industrial chain has precipitated a precipitous drop in energy storage product prices. “This overcapacity cycle in energy storage is poised to be even more severe than that witnessed in photovoltaics in preceding years, and the consolidation has already commenced,” remarked numerous industry insiders.

On one front, there exists a rapid proliferation of production capacity, while on the other, a market slowly grinds to a halt. Is the frigid winter of energy storage looming on the horizon?

How did the orders dissipate?

It is now widely acknowledged that energy storage has plunged into a challenging downward spiral. Taking household storage as a case in point, the foremost upstream household storage batteries have borne the brunt of this crisis. Throughout 2022, the utilization rate of household storage batteries soared to 85%. It’s safe to assert that all battery production lines in China were toiling round the clock to churn out household storage products. By year’s end, the aggregate European household storage product reached 5.2GWh. However, in the initial half of 2023, production line output took a nosedive, plummeting the capacity utilization rate of household storage batteries to below 30%.

The burden of overproduction now burdens dealerships.

“Based on the fundamental inventory levels across Europe, it is envisaged that destocking will persist through the upcoming year,” disclosed Hong Lin. Betasolar of Spain emerges as the premier local energy storage dealership, having stockpiled this year’s volume directly from the preceding year. Meanwhile, Givenergy, the UK’s leading distributor, persists in arduous stocking efforts.

It’s no hyperbole to suggest that household storage products from a myriad of manufacturers are inundating the European market. In a bid to liquidate inventory and initiate the hypermarket promotional model, a price war has emerged as the most direct recourse. Since the advent of the year, a household storage unicorn has implemented a “buy two, get one free” initiative in the UK. Customers purchasing two batteries with a capacity of 5 kilowatt-hours are entitled to an additional battery of identical specifications for free. In June, Huawei spearheaded a “buy six, get two free” campaign tailored for installers, spanning over a month. The purchase of six inverters entitles one to two additional inverters of the same variant, effectively constituting a 25% price reduction.

However, the efficacy of price reductions employed by Chinese manufacturers is diminishing. Confronted with the prevailing industrial cycle, the more Chinese enterprises resort to price reductions to entice consumers, the more they jeopardize the established dealer-installer system abroad. “Because, in the European market, the dominant entities in photovoltaic + energy storage are dealers and installers, tasked with localized product operation and maintenance, thereby necessitating a portion of the profits,” elucidated Hong Lin. The conventional equation of “sales unit price – production cost = profit” no longer aligns with the local market dynamics.

Moreover, overseas consumer demand for solar energy is waning as alternative energy sources become increasingly affordable. In the initial half of this year, natural gas prices in the UK plummeted, with the average price dwindling by 66% month-on-month to 108 pence per therm. The government has also veered toward subsidizing natural gas to safeguard energy provision. As natural gas prices inch back to conventional levels, the allure of the corresponding “photovoltaic + energy storage” model diminishes. Numerous local energy storage installers have been compelled to transition careers, severing the vital link to fulfill the “last mile” delivery. The evaporation of energy storage orders appears inexorable.

Faced with the price reductions from domestic enterprises, overseas dealerships are now tightening their purse strings. A German energy storage salesperson remarked, “Presently, customers exhibit minimal interest in new products. They’ve abstained from placing orders for several months, yet continue to haggle. Certain firms have explicitly stated their abstention from short-term orders.”

To gauge the extent of involution within an industry, one must scrutinize not solely the largest market but also the smallest. Markets in Asia, Africa, and Latin America constitute the “leftover markets” of the energy storage domain, with their scale and pricing significantly trailing behind those in Europe and the United States. Nevertheless, even within these realms, fifty to sixty energy storage brands have mushroomed within a year, inclusive of numerous Yiwu white-label energy storage products. These entities inundated the market with capital, embroiling themselves in cutthroat price competition. Within half a year, battery prices plummeted by fifty percent.

Lin He, entrusted with energy storage sales in South Africa, disclosed that an installer collaborating with a particular household storage brand is grappling with an inventory of 2 million units, yet struggles to install 10,000 units per month. “Even Huawei has withdrawn from the South African market, suspending household savings sales. South African products don’t necessitate integration into the power grid and lack stringent technical prerequisites for core components. They’re solely utilized for backup power and emergency loads. Consequently, Huawei products, lacking localized design, offer no advantages in South Africa. Their exorbitant prices coupled with poor acceptance render them futile,” as per Lin He.

In contrast, the sales price of DY, the leading domestic household savings brand in South Africa, stands at 15,000 yuan (an outcome of price reductions), while Huawei’s pricing soars to 28,000 yuan. “Huawei’s local promotional expenditures may surpass the sales performance of certain small-scale brands, yet still falter,” noted Lin He.

The shopping frenzy among leading enterprises, alterations in energy storage sales paradigms, and the accumulation of surplus inventory collectively cast a chill over the entire industry chain.

Giants vie while second- and third-tier manufacturers are coerced into compliance.

The apathy toward energy storage is not confined solely to the household storage sector. The once-sizzling industrial and commercial energy storage domain appears to be bursting the bubble, transitioning to a state of “priced but unsalable.” The energy storage market delineates into overseas and domestic sectors. The overseas arena primarily encompasses household energy storage for residential use, while the domestic arena predominantly features large-scale energy storage and industrial and commercial energy storage for integration with new energy power stations and factories. While the clientele and stages diverge, the market’s growth trajectory has shifted from rapid ascension to swift descent. The accelerated pace of this cycle renders energy storage companies with diversified portfolios susceptible.

Chen Shu, hitherto employed as a salesperson for a Weifang diesel engine company, pivoted to sales in industrial and commercial energy storage midway through the year. Following his induction into the new role, he found himself predominantly assigned to various exhibitions and promotional endeavors. Actual order transactions were few and far between. Chen Shu remarked, “Standing at the threshold, the ambiance appears vibrant, yet it’s predominantly spectators.”

Slightly divergent from household storage, the industrial and commercial energy storage market remains in its nascent stages. Investors transitioning from the photovoltaic industry to energy storage assert that the current competition in industrial and commercial energy storage mirrors the intense investment fervor witnessed in distributed photovoltaics in 2016. The share of distributed photovoltaics within the overall market surged from approximately 12% in 2016 to 58% in 2022, transitioning from a “peripheral role” to a “central stage” within the industry. Analogous expectations have been bestowed upon industrial and commercial energy storage. Nonetheless, owing to the revenue constraints inherent in energy storage, few projects have materialized.

A substantial factor contributing to this scenario is the influx of large enterprises into the domestic energy storage market, exponentially intensifying market competition. Various large-scale power generation conglomerates and municipal investment firms across all echelons have commenced obtaining licenses to venture into the energy storage sector, with some even investing in factory construction endeavors. The “Five Big, Six Small, and Two Constructions” (referring to China’s major power generation groups and large power investment companies) not only possess vast resources but also wield considerable competitive prowess within the market.

During a bidding process attended by an individual from an energy storage company, it was observed that only one energy storage EPC project was available, yet five companies vied for it, with all four of them being subsidiaries of Power Construction Corporation of China. Expressing his sentiments, he exclaimed, “You must comprehend that the ‘Five Big, Six Small, and Two Constructions’ represent the foremost builders of new energy power stations and harbor natural advantages in the deployment and storage of new energy power stations or the construction of energy storage in industrial parks.” Consequently, funds from myriad sources have inundated the nascent industrial and commercial energy storage market, swiftly exhausting the “low-hanging fruits” and leaving scant opportunities for second- and third-tier manufacturers.

The prevalence of high inventory levels portends a grim outlook. “Batteries languish in warehouses, requiring recharging every six months, thus incurring additional costs.” “Numerous companies are still shipping inventory, with a shipping cycle spanning 30 days, or approximately four weeks. As the vessel traverses the seas, prices plummet with each passing day.” These concerns plague every practitioner within the energy storage domain.

Adopting a broader perspective, this predicament emerges as a repercussion of the tumultuous fluctuations in lithium carbonate prices. Whether in industrial and commercial energy storage or household energy storage, batteries constitute the costliest component. “Initially, stakeholders across the upstream and downstream sectors anticipated a surge in lithium carbonate prices, yet they plummeted unexpectedly,” remarked Hong Lin.

Many manufacturers pin their hopes on the remote possibility of survival and anticipate another surge in energy prices. However, business endeavors thrive on stable expectations rather than low-probability “black swan” events. Consequently, as the industry grapples with an imbalance between supply and demand, a restructuring appears inevitable.