Soochow: National energy storage capacity electricity price introduced, independent energy storage profit model restructured.

Soochow released a research report stating that the country has for the first time clarified the pricing mechanism for independent new energy storage capacity on the grid at the national level, implementing a list-based management system to accelerate the construction progress of energy storage projects. The bank predicts that many provinces will introduce relevant subsidies in the future, with 183GWh of new energy storage capacity being connected to the grid in 25 years, and the bank expects a 50% growth to 275GWh by 2026. The introduction of a national energy storage capacity pricing mechanism, coupled with a decline in lithium carbonate prices, is expected to boost energy storage demand, with a favorable outlook for midstream materials such as separators, electrolytes, negative electrodes, positive electrodes, aluminum foils, copper foils, and other related industries. Soochow's main points are as follows: The national-level clarification of the independent new energy storage capacity pricing mechanism has great strategic significance. 1) Calculation rules for capacity pricing: based on the local coal-fired power capacity pricing standards (165-330 RMB/kw*year), converted according to a certain ratio based on peak capacity (the conversion ratio is the full power continuous discharge duration divided by the longest peak net load duration of the year, with a maximum of 1), and taking into account factors such as the progress of the electricity market construction and the demand of the power system. Implementation of a list-based management system to accelerate the construction progress of energy storage projects The specific list of projects is formulated by the provincial energy regulatory department in conjunction with the price regulatory department, with management requirements to be further clarified by the National Energy Administration. The bank predicts significant requirements for energy storage station application, assessment, and construction period, which will to some extent drive the construction progress of temporarily suspended projects. Clarification of the responsible party for capacity pricing and settlement of electricity fees, as well as market participation. 1) Clarification of compensation for new energy storage capacity, included in local system operating costs and becoming part of the electricity pricing structure, to be borne by end-users. 2) Charging and discharging: for those with a spot market, charging and discharging are based on spot real-time prices; when there is no spot market, charging is based on the electricity purchase price for industrial and commercial users, and the discharging price is determined by the province. 3) Transmission and distribution fees: transmission and distribution fees must be paid during charging and refunded during discharging. 4) Future connection to the "reliable capacity compensation mechanism," sharing the same compensation mechanism as coal-fired and gas-fired power, ensuring fair competition. Impact: Many provinces are expected to introduce corresponding energy storage capacity pricing policies in the future, leading to a surge in demand. 1) Referring to the Gansu standard, with 330 RMB/kw*(1 - factory use rate 1.74%)(storage duration/6h)*supply and demand coefficient (89.5% for 25 years), the subsidy standard for 4h storage is 193 RMB/kw. If based on a cell price of 0.35 RMB/wh (lithium carbonate price of 120,000 RMB/ton), a price difference of 0.26 RMB/wh, with an IRR of 8-9%, meeting the financial return rate requirements. 2) The bank predicts that many provinces will introduce relevant subsidies in the future, with 183GWh of new energy storage being connected to the grid in 25 years, and the bank expects a 50% growth to 275GWh by 2026. 3) With a decline in lithium carbonate prices, new projects that were temporarily halted domestically are expected to resume if prices stabilize between 120,000-150,000 RMB. Investment recommendation The introduction of a national energy storage capacity pricing system and a decline in lithium carbonate prices are expected to drive energy storage demand. The bank recommends Contemporary Amperex Technology and Sungrow Power Supply, as they are already priced to reflect pessimistic expectations, with bottom-line valuations. Additionally, the bank recommends Eve Energy Co., Ltd. and Beijing HyperStrong Technology, and sees potential in CSI Solar Co., Ltd., CALB, BYD Company Limited, and Guangzhou Great Power Energy and Technology. The bank also sees opportunities in midstream materials, recommending separators, electrolytes, negative electrodes, positive electrodes, aluminum foils, copper foils, and other related industry targets. Risk warning: Demand falling short of expectations, raw material price increases exceeding expectations.