European and American residential energy storage is no longer a high-prosperity track?

On December 5th, the residential energy storage and inverter sector suffered a big adjustment after the opening of Chinese stocks today. On the news surface, an industry executive recently revealed in the communication that the residential energy storage shipment this year has been reduced from 100,000 sets to 60,000 sets. hybrid energy storage inverters will be reduced from 200,000 to 120,000, next year residential energy storage will be reduced from 500,000 to 300,000 to 350,000 sets, and energy storage inverters were cut to more than 700,000 units from 1 million. The Chinese company said that the reduction in shipment guidance was mainly due to the economic downturn in Europe and the shortage of installation workers. The market has also expressed concerns about the industry leader's lowered shipment expectations . In this regard, Goodwe Technologies stated that company has not adjusted the relevant production and  shipment expectations. A person from the securities department of Ginlong Technologies also said that the company (shipment) has not changed and everything is normal.

The market rumors amplified the expectation of a decline in demand for residential energy storage. After research by a large domestic securities company, it was pointed out that the market reported that overseas demand continued to be strong, and the current situation of customers urging goods is still obvious, and the supply of inverters and batteries is still in a tight state. Taking Germany as an example, the installed capacity of residential energy storage this year is about 400,000. Many companies predict that the demand for next year will be 800,000 to 1 million sets. Therefore, the development space of residential energy storage is still huge.

Since 2021, the European market has been affected by rising energy prices, the price of residential electricity has risen rapidly, and the economy of energy storage has been emerged, and the market is booming.  Looking back to 2022, the Russia-Ukraine conflict intensified energy anxiety, Driven by the sense of crisis, the demand for residential energy storage will continue to grow. Looking forward to 2023, the global energy transition is the general trend, and residential energy self-use is the main way. The global electricity price has entered a rising channel, the economy of residential energy storage has been realized, and the market space will continue to grow in the future.

Looking back to 2022: European energy crisis, rapid growth of residential energy storage

The vast majority of residential energy storage is used in conjunction with household distributed photovoltaics. In 2015, the annual newly installed capacity of residential energy storage in the world was only about 200MW. By 2020, the global new installed capacity will reach 1.2GW, a year-on-year increase of 30%.

In 2021, the European market will be affected by the rise in energy prices, and the price of electricity for residents will rise rapidly. The economics of energy storage will be reflected, and the market will be booming. Taking Germany as an example, 145,000 sets of household photovoltaics will be added in 2021, with an installed capacity of 1.268GWh, a year-on-year increase of +49%.

Figure: New installed capacity of residential energy storage in Germany (MWh)

Figure: New additions of residential energy storage systems in Germany (10,000 households)

The reason for the rapid growth of residential energy storage in Europe in 2022 comes from the demand for energy independence under the influence of the Russia-Ukraine conflict and the rise in electricity prices has improved the economics of residential energy storage.

Excessive dependence on foreign energy has brought about an energy crisis, and the conflict between Russia and Ukraine has exacerbated energy anxiety. According to the "BP World Energy Statistical Yearbook", fossil energy accounts for a high proportion of European energy structure, and natural gas accounts for about 25%. Moreover, natural gas is highly dependent on foreign countries, and about 80% comes from imported pipelines and liquefied natural gas, of which imported pipelines from Russia Natural gas has 13 billion cubic feet per day, accounting for 29% of the total supply.

Due to geopolitical conflicts, Russia has stopped supplying natural gas to Europe, threatening energy supply in Europe. In order to reduce energy dependence on Russia and maintain energy security, European governments have introduced policies to develop clean energy and accelerate the pace of energy transformation to ensure energy supply.

Chart: European Energy Consumption Structure

Figure: European natural gas supply structure (billion cubic feet per day)

Data source: BP, EIA, Orient Securities

Policy side accelerates energy transition and raises PV installation forecast

On May 18, the European Commission passed the REPowerEU proposal, raising the renewable energy target from the previous 40% to 45% in 2030. At the same time, the photovoltaic installation target was raised again. The installed capacity has doubled, and the cumulative installed capacity target is about 600GW by the end of 2030, which is twice the current installed capacity. In addition, the document also proposes to gradually mandate the installation of photovoltaics on new residential and industrial and commercial buildings.

Figure: European countries accelerate renewable energy policies

Rising electricity prices, improving residential energy storage economics, and rapid growth in demand

The Russian-Ukrainian conflict has further exacerbated the rise in commodity prices, which has greatly increased the cost of electricity generated by gas-fired and coal-fired power plants, which account for about 40% of Germany's electricity production. Residential contract electricity prices rose by 48%. Rising electricity costs will create demand for residential energy storage.

Figure: German residential electricity price (cent/kWh) 

Taking Germany as an example, it is assumed that the annual household electricity consumption is 4000kwh, and the electricity consumption at night is 60%. The annual photovoltaic power generation hours are 1000 hours, the photovoltaic investment cost is 1.3 euros/w (equivalent to RMB 9.1/w), the energy storage investment cost is 0.8 euros/wh (equivalent to RMB 5.6/wh), and the residential electricity price is 0.3464 euros/kwh. Assuming that a 4kw/8kwh energy storage system is installed, according to our calculations, the higher the electricity price, the shorter the payback period. If the electricity price is increased by 50%, the payback period will be shortened to 5 years.

Looking forward to 2023: demand growth under the sense of crisis & economic stimulus

The global energy transition is the general trend, and household energy self-use will be the main way. The excessive dependence on fossil energy in the energy structure has caused the energy crisis in Europe. In order to maintain national security, Europe has accelerated the process of energy transformation. The best way is to replace energy supply with renewable energy power generation. From the perspective of grid stability, the pressure on the grid brought about by the large-scale new energy grid connection is the cause. The government guides power generation/users to configure energy storage through subsidies and other policies. The subsidy for distributed photovoltaic + energy storage in European countries is the underlying logic. Reduce the pressure of grid distribution and distribution through distributed systems. Therefore, the European residential photovoltaic energy storage market will maintain a high growth rate.

 Figure: European Household Photovoltaic Installed Capacity and Total Installed Capacity (GW)

Data Source: IEA, Orient Securities

Global public electricity prices have entered a rising channel, and the economics of residential energy storage are clear

Residential electricity prices are mainly composed of energy costs, grid access fees, and related taxes and fees, of which energy costs (that is, the on-grid electricity prices of power plants) only account for 1/3 of the terminal electricity cost. Energy prices have risen this year, leading to an increase in electricity prices. Residential electricity prices adopt the annual package method, and there is a certain lag in the transmission of electricity price increases, but the trend of electricity price increases is obvious. Currently, the unit price of one-year electricity package for residents in the German market has risen to about 0.7 euros/kwh. The high cost of electricity has stimulated the demand of residents to achieve energy independence and save electricity bills by installing residential photovoltaic + energy storage systems.

Picture: EnBW annual electricity package for a family of 3 in Germany.

Data source: EnBW, Orient Securities

Calculate the installed capacity of distributed photovoltaics based on the number of households, consider the penetration rate of residential energy storage to obtain the number of installed residential energy storage, and assume the average installed capacity per household to obtain the installed capacity of residential energy storage in the world and in various markets. We predict that the global residential energy storage capacity space will reach 57.66GWh in 2025, with a compound growth rate of 91% from 2021 to 2025. Among them, the European market is the largest, with a new installed capacity of 41.09GWh in 2025, with a compound growth rate of 112%; The additional installed capacity was 7.90GWh, with a compound growth rate of 71%.

Figure: residential energy storage installed capacity calculation (GWh)

The residential energy storage track has been called the golden track by the industry. The core driving force for the rapid growth of residential energy storage comes from the fact that residential energy storage can improve the efficiency of self-generated electricity and reduce economic costs. Driven by global energy inflation and geopolitical conflicts in some regions, global residential energy storage has pressed the fast-forward button for development. Driven by the high boom in European residential energy storage, many manufacturers have poured into the residential energy storage industry, and some companies have fully benefited from the rise of the residential energy storage industry. Those who have benefited the most are enterprises that have entered into residential energy storage systems, batteries, and inverters earlier, and have achieved geometric growth in performance.