[Complete Battery Mastery](32) ESS, Will It Be the Breakthrough to Overcome the Electric Vehicle Chasm?

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AVEL, an independent in-house company of LG Energy Solution, obtained permits for an Energy Storage System (ESS) power plant from Jeju Provincial Government and Korea Electric Power Corporation in March. This is the first domestic case to receive an electricity business license for an ESS power plant.

AVEL was launched in October 2022 to manage an integrated renewable energy power grid linked with ESS. Although renewable energy is rapidly increasing, frequent output control occurs due to mismatches between supply and demand, and it is difficult to predict power generation because of irregular weather. AVEL started with the aim of solving these problems through battery technology.

Within just over a year since its launch, AVEL is producing concrete results. It plans to operate a standalone ESS power plant in Jeju. The business involves storing electricity generated from renewable energy and supplying it where needed. To this end, AVEL plans to build a power plant with a battery capacity of 6.3 megawatt-hours (MWh) in Pyoseon-myeon, Seogwipo-si, Jeju.

AVEL is also preparing for a Virtual Power Plant (VPP) business. A VPP is a new concept of power plant that uses information technology (IT) to aggregate distributed resources and manage them as a single power plant. With the enactment of the Distributed Energy Activation Special Act in June, the number of VPP operators is expected to increase significantly. ESS will play a key role in the VPP business as well.

As the electric vehicle growth curve faces a chasm period, ESS is gaining attention as a new breakthrough for the secondary battery industry. With the global surge in renewable energy such as solar and wind power, the ESS market is also expected to grow rapidly. Major countries worldwide are implementing government-level policies to promote ESS. The three major domestic battery companies also view the ESS business as a new source of revenue and are expanding their operations.

ESS: The Perfect Partner for Renewable Energy

Electricity, once generated, cannot be stored. Therefore, various methods to store excess electricity for use during shortages have been sought since long ago. The most representative method is pumped-storage hydroelectricity. Pumped-storage uses surplus electricity at night to pump water to a dam, then releases the water during daytime peak demand to generate electricity. Pumped-storage is considered the most classical form of ESS.

Recently, the proportion of ESS using secondary batteries has overwhelmingly increased. Especially since the advent of lithium-ion batteries, almost all ESS use lithium-ion batteries. Lithium-ion batteries have advantages over other batteries in terms of high energy density, energy efficiency, and life cycle. Additionally, the spread of electric vehicles has enabled mass production of lithium-ion batteries, significantly lowering their cost.

In addition to lithium-ion batteries, various secondary batteries such as vanadium batteries, sodium-ion batteries, and sodium-sulfur (NaS) batteries are expected to be used in ESS in the future.

ESS mainly consists of four parts: ▲ batteries that store and discharge electricity ▲ BMS (Battery Management System) that controls battery voltage, current, and temperature ▲ PCS (Power Conversion System) that converts direct current to alternating current and supplies power ▲ EMS (Energy Management System), an operating system that controls the battery, PCS, and BMS.

ESS Components. Image source: Energy Insight, re-quoted from Daishin Securities Research Center

In the past, ESS was often used as an Uninterruptible Power Supply (UPS). It supplied emergency power when buildings could not receive electricity due to temporary outages.

Recently, with the spread of renewable energy such as solar and wind power, ESS is widely used to improve the quality of renewable energy. Renewable energy production is inconsistent, causing unstable voltage and frequency, which burdens the power grid. Rapid frequency changes can cause power equipment failures. ESS can adjust frequency and voltage to operate the power grid stably.

ESS also plays a role in distributing power demand. By supplying electricity stored in ESS during peak demand hours, less power needs to be generated, reducing energy costs. In homes, electricity generated by solar power during the day can be stored in ESS and used in the evening, saving on electricity bills.

ESS can mitigate side effects caused by the rapid expansion of renewable energy. For example, in areas rich in solar resources, excess electricity is generated during the day, causing supply and demand mismatches. This supply-demand imbalance is well illustrated by the so-called 'Duck Curve.'

The Duck Curve represents net demand, which is power demand minus renewable energy generation such as solar, shown as a curve. During daytime, the curve dips downward, resembling the shape of a duck, hence the name.

In California, the Duck Curve phenomenon has worsened to the point where it forms a canyon-like cliff shape, leading to the term 'Canyon Curve.' This is why California mandates ESS installation.

ESS can alleviate such renewable energy concentration issues. In the U.S., the West has abundant solar resources, and the Midwest has abundant wind resources. As the share of renewable energy increases, excess generation will inevitably occur in regions rich in renewable resources, increasing the need to store or transfer it to other regions. ESS can be a fundamental solution to these renewable energy side effects.

Mandatory Policies in the U.S. and China... Global ESS Market to Reach 53 Trillion KRW by 2030

Major countries are promoting various policies such as mandatory installation, subsidies, and encouraging participation in electricity markets to expand ESS adoption alongside renewable energy growth.

In the U.S., five states?California, Oregon, Massachusetts, New York, and New Jersey?mandate ESS installation. Since the introduction of the Inflation Reduction Act (IRA) in August 2022, investment tax credits (ITC) provide tax deductions for ESS installation investments. Additionally, guidelines have been established to allow ESS participation in wholesale electricity markets.

China aims to expand ESS capacity to over 30 gigawatts (GW) by 2025 and reduce ESS costs by 30%. It also mandates ESS linkage for new utility-scale renewable energy facilities and provides subsidies through local governments for ESS installations meeting equipment standards.

Europe announced guidelines (Recommendation on Energy Storage) in March 2023 to improve ESS profitability and expand adoption. Germany and Australia are mainly promoting home-use ESS.

India plans to install 51?84 GW of ESS by 2032 and enforces policies to ensure ESS accounts for 4% of total power demand by 2030.

Driven by the increasing share of renewable energy and policy initiatives worldwide, the ESS market is expected to grow rapidly. According to BloombergNEF's 2023 forecast, ESS capacity (excluding pumped-storage) will increase more than tenfold from 91.5 gigawatt-hours (GWh) in 2022 to 1,432 GWh by 2030. The global annual ESS market size is projected to grow from $15.2 billion in 2022 to $39.5 billion (approximately 53.483 trillion KRW) by 2030.

Regionally, the U.S. and China will account for more than half of global ESS installations, with continued growth expected in other major developed countries.

By technology, lithium-ion battery-based ESS accounts for over 95%, with lithium iron phosphate (LFP) batteries gradually increasing their share. BloombergNEF noted that LFP batteries surpassed ternary (NCM·NCA) batteries in 2022 and are expected to lead the ESS market through 2030.

According to SNE Research, a domestic energy market research firm, the lithium-ion battery ESS market size is expected to grow 27% year-on-year to 235 GWh this year. It is projected to grow at an average annual rate of 10.6%, reaching 618 GWh by 2035.

In terms of value, the market is expected to double from $40 billion this year to $80 billion by 2035. Regionally, China is expected to hold the largest share, followed by North America, which is projected to grow rapidly from 55 GWh last year to 181 GWh by 2035.

ESS Market Shrinks Due to Reduced Subsidies and Fires in Korea... Battery Giants Seek New Growth Engines

Korea ranked 4th globally in 2022 with 4.1 GW of ESS capacity. According to the Ministry of Trade, Industry and Energy, domestic ESS new installations peaked at 3,836 MWh in 2018 but shrank to 252 MWh in 2022, a fifteenth of the peak.

The domestic market has stagnated due to reduced support policies such as renewable energy-linked Renewable Energy Certificates (REC) weighting, charging fee discounts, and installation subsidies. Additionally, a total of 50 fire incidents (as of September 2023) since 2017 have rapidly shrunk the market.

In October last year, the government announced an Energy Storage Industry Development Strategy. However, it did not include strong policies like subsidies or mandatory installations adopted by major countries. Instead, the government plans to expand ESS adoption based on market systems such as low-carbon central contract markets and ESS-linked renewable energy bidding markets.

The three major domestic battery companies are actively targeting the ESS market as a new revenue source. LG Energy Solution is strengthening its ESS business for LFP batteries, which are expected to see market expansion. The company currently produces LFP batteries for ESS in Ochang and Nanjing, China.

Aerial View of LG Energy Solution Arizona Plant

LG Energy Solution plans to establish a dedicated LFP battery production line for ESS. The Arizona plant in the U.S., which began construction in April, will produce cylindrical batteries (36 GWh) and ESS-dedicated LFP batteries (17 GWh). The plant is scheduled for completion in 2026.

The appearance of Samsung SDI's ESS product, 'SBB (Samsung Battery Box)'.

Samsung SDI produces ESS in Ulsan and Xi'an, China. Samsung SDI targets the market with its integrated ESS system called 'SBB (Samsung Battery Box),' based on NCA batteries, enhancing energy density and safety.

SK On partnered with North American ESS company 'IHI Terrasun Solutions' in 2021 to develop ESS businesses linked with renewable energy locally in the U.S.

References

Daishin Securities, ESS, Filling the Puzzle of Energy Transition. 2023.8.17
Ministry of Trade, Industry and Energy, Energy Storage (ESS) Industry Development Strategy, 2023.10.31
Electronic Times, LG Energy Solution's in-house independent company AVEL obtains Korea's first ESS power plant permit... “Providing differentiated customer value,” 2024.3.27