Recently, some media reported that "energy storage companies suspended taking orders", which has caused controversy in the industry. So, why are energy storage companies "suspending orders"?

SES Power believes that the main reason is that the upstream lithium salt prices have risen sharply, resulting in downstream lithium battery companies and energy storage companies, in the large energy storage business path is unprofitable, and thus take the initiative to "strike".

"Suspension of orders" is not an absolute suspension, but in the lithium salt prices continue to rise, driven by rising costs, declining yields, the industry chain upstream and downstream game in the context of continuous "stress testing" under the "marginal shutdown ".

Lithium battery "supply tension" is only the surface, the essence of the cost constraints on the downstream lithium enterprises in large energy storage business line of resource allocation willingness, rather than the actual capacity shortage.

In fact, this is not a new thing.

Photovoltaic silicon prices have also risen sharply in recent years (corresponding to lithium salt), also causing PV module companies "unprofitable" to reduce production (corresponding to lithium battery companies), the terminal PV installation is also "suspended to take orders" (corresponding to energy storage companies). Is it the same as the same?

Let SES Power take a look at why energy storage companies "suspended to take orders"?

A: Rising lithium prices, touching the bottom of the income of energy storage enterprises

With global inflation, the epidemic caused by supply chain disruptions, international tensions and other factors, SES Power believes that the road back to lithium prices will not be smooth and smooth, and now the price of lithium carbonate "not down but up", the highest has reached $ 70,000 / ton. The cost of lithium iron phosphate cells for energy storage is all the way up.

Large-scale energy storage system for the feasibility of the start of construction based on the return on investment, in the context of high initial capital investment, long investment recovery cycle, it is a strong macro-financial attributes, macro-funding costs determine the bottom line requirements for large energy storage projects with return on investment, just different economies and background of the expected rate of return will vary.

There is no doubt that the lithium carbonate price all the way up, lithium iron phosphate costs all the way up, constantly challenging the bottom line of the yield of each background large energy storage projects, despite the cost of capital and the expected rate of return is different, but ultimately can afford the energy storage projects are becoming less and less.

This is a step-by-step game process. As the price of lithium carbonate continues to climb, it is believed that the already weakened demand for energy storage starts will be further hit.

B: energy storage projects have long-cycle properties, deterring companies from placing orders willing

Large-scale energy storage projects often have a construction cycle, especially the need to match an early financing process, the period will be longer. If the cost is stable, then this process does not bring trouble, but the cost fluctuation is too large is easy to increase the variables.

Energy storage companies "take orders" decision is therefore in a difficult situation.

For example, some large energy storage projects need to start construction next year or even the year after, but need to lock in the current supply of upstream lithium batteries, and even the purchase price. In the case of lithium salt prices remain stable, these are not a problem.

However, if there are variables in the price of lithium salt, especially the current high price of lithium salt, it is generally expected to decline sooner or later in the future, but when it will start to decline, what level it will fall to, and what the decline curve is, these are difficult to predict.

In the revenue assessment model of large energy storage projects, future cash flow income is relatively easy to assess, if the variability of the lithium salt price makes it difficult to determine the initial investment cost of the energy storage project, it will affect the determination of the final rate of return, which in turn affects the project construction of energy storage projects. The investment amount is huge and the pursuit of stable income of large energy storage projects, it is impossible to bear any subtle investment uncertainty.

This is an important logic chain of energy storage project "suspension of orders".

Unless the business chain, there are links willing to bear the risk of lithium salt price fluctuations. This is either an energy storage project investment and development company, or an energy storage project system integrator, or a lithium battery supplier, or even an upstream materials supplier. Of course, we also hope to see lithium salt-related futures products as soon as possible, which can be used to smooth out the risk of price fluctuations in the real industry through financial means.

The motivation and ability of each family to choose to bear the price of lithium salt varies. On the one hand, they may have enough confidence in the price trend of lithium salt, and on the other hand, they may want to seize market share. But in any case, the greater the risk of price fluctuations, the fewer subjects will stand out to resist the risk.

In this context, companies with risk-taking strength or risk-digesting ability will present a greater advantage, because their energy storage projects are less impacted, which is why we see some of the energy storage project orders are still active.

In short, due to the long-cycle properties of the construction of energy storage projects, in the context of the risk of large fluctuations in the price of lithium salt, the amount of investment and fixed income attributes of energy storage projects is difficult to bear the risk of lithium salt price fluctuations. If there is no good price risk transfer mechanism, the investment and construction enthusiasm of energy storage projects naturally declined significantly.

C: large energy storage cost absorption capacity is weak, easy to be "suspended"

Many factors affect the raw materials of lithium batteries, and the current global pricing mechanism is unreasonable or even distorted.

More importantly, lithium salt downstream application channel diversification, in addition to power batteries, there are energy storage batteries, and energy storage batteries downstream in addition to 2B large energy storage, there are 2C home energy storage.

The fundamental reason for this round of lithium prices is demand-driven, downstream demand is more elastic, while the inelasticity of upstream supply, which led to a rapid imbalance between supply and demand, and it is difficult to restore balance in the short term, coupled with the expected push, which naturally led to an irrational rise in lithium materials. In the short term, this pattern of supply and demand is still unable to fundamentally reverse.

In the face of the upstream lithium price rise, the downstream of different application scenarios in fact, their respective price affordability is different, the price digestion capacity is different, the price conduction mechanism is also different.

First of all, strong consumer attributes and the impact of the international energy crisis, home energy storage, the upstream cost tolerance is stronger, because of this, home energy storage has become the highlight of this year's energy storage industry and even the lithium industry.

Secondly, the same quite consumer attributes of electric passenger cars, this year, under the impact of upstream price increases, but also forced to raise prices one after another, which to some extent digest the upstream cost pressure.

Compared to home energy storage and electric passenger cars, which have stronger consumer attributes, large energy storage projects, which are production materials, have a lower price elasticity because of the solidified yield model and weaker ability to absorb upstream cost transmission.

More unfortunately, in the lithium battery business lines, home energy storage and power batteries are strong, fueling the "siphon effect" on large energy storage projects, lithium enterprises naturally give priority to meet the more cost-effective business direction, the demand for large energy storage projects are naturally relegated to the back burner, not favored by lithium enterprises, which is also the upstream lithium battery The so-called "supply shortage" of an important reason.

In the growing volume of lithium industry, no enterprise will not go over the order, just the order is selected.

To this end, in the upstream lithium salt prices and lithium battery costs continue to rise in the background, coupled with the lithium and energy storage enterprises themselves more profitable pressure, ultimately leading to cost digestion and conduction capacity of the weaker large energy storage projects are more likely to "surrender".

This is another logical chain of energy storage projects "suspended to take orders".

As a manufacturer with nearly 20 years of experience in the lithium battery industry, SES Power has paid attention to the demand for lithium battery energy storage system products for a long time, and we have launched corresponding products for different application scenarios to achieve the best price/performance ratio, such as lead-acid replacement products with balanced performance of square aluminum-cased lithium iron phosphate batteries (12V100Ah, 12V200Ah, 24V100Ah, etc.), and large energy storage projects. 24V100Ah, etc.), high-current (2000A) startup lithium battery, UPS high-voltage lithium battery system (up to 860V), 3Kw~20Kw off-grid, grid-connected, islanded lithium battery energy storage system, wall-mounted home energy storage system 48V100Ah, 48V200Ah, stacked energy storage system (single 51.2V100Ah, supporting up to 15 stacking), etc.

If you have any questions about lithium batteries, you are welcome to contact us.