NOSPF - Stationary Energy Storage Is Set For Insane Growth - How To Invest Into This Boom

June, 16 2023 06:27 AM Neoen S.A.

2023-06-16 06:27:21 ET

Summary

Stationary energy storage is booming, led by Tesla. Global stationary energy storage is forecast to double in 2023.
Tesla Master Plan 3 says the world will need ~120 TWh of stationary energy storage for a 100% renewable energy world. That's about a 1,200x increase on today's level.
How to invest into the stationary energy storage boom.

This article first appeared in 'Trend Investing Group' on May 16, 2023, but has been updated for this article.

For a background on the stationary energy storage trend you can read our past articles:

March 2021 - Energy Storage Is Now Booming As The World Moves Faster To Renewable Energy
Nov. 2019 - An Update On The Stationary Energy Storage Boom And A Recap Of The Main Players
March 2018 - Companies To Benefit From The Stationary Energy Storage Boom

Stationary energy storage is booming, led by Tesla

Tesla ( TSLA ) recently released their Q1, 2023 financials and hidden in there was a stunning statistic. Their stationary energy storage deployed grew a massive 360% YoY to 3.889 GWh.

Tesla Q1, 2023 financials reveal that Tesla's stationary energy storage grew 360% YoY in Q1, 2023 ( source )

Tesla Q1, 2023 financials presentation

The above growth is due to the ramp up of Tesla's Lathrop stationary energy storage factory in California. It plans to have capacity to produce 10,000 megapacks pa, equivalent to about 40 GWh pa.

Next will be the Tesla Shanghai stationary energy storage factory targeted to begin in Q2, 2024 with a plan to produce 10,000 megapacks pa (40 GWh pa).

Once both Lathrop and Shanghai are at full capacity they would produce 80 GWh pa. In 2022 the entire global stationary energy storage market deployment was at 34.5 GWh pa. Wow... that's insane growth just from Tesla.

Stationary energy storage growth forecasts

The chart below shows massive global growth forecast for global lithium-ion battery stationary energy storage. Yet this will be nowhere nearly enough growth for what the world will need if it wants to move to 100% renewable energy (see Tesla Master Plan 3 below).

Bloomberg's forecast below will likely one day look woefully conservative at 230 GWh by 2030 . Trend Investing's forecast (50% YoY growth) reaches 885 GWh by 2030 and will likely need to be increased, especially if the growth rate does run at 100% pa in 2023.

Bloomberg forecasts rapid growth in global lithium-ion battery stationary energy storage and a doubling in 2023 ( source ) (Jan. 2023)

BloombergNEF

Tesla Master Plan 3 says the world will need about 120 TWh of stationary energy storage

Tesla Master Plan 3 reports that we need 240 TWh of energy storage globally to support both energy production (stationary energy storage) and EVs (of which EVs will need 112 TWh). Roughly speaking that leaves about 120 TWh of stationary energy storage needed for the world to be able to move 100% to renewable energy. 120 TWh is 120,000 GWh.

Given 2022 total global lithium-ion battery stationary energy storage capacity added was only ~35 GWh and total global lithium-ion battery installed stationary energy storage is <100 GWh (about 90 GWh, but let's assume 100 GWh for round numbers), it means we need to produce 1,200x (120,000/100) more energy storage to reach the goal of a 100% renewable energy planet. Or put another way we need to rapidly ramp from 35 GWh pa to 10 TWh pa, then maintain that production for 12 years. Or more likely 5 TWh pa for 24 years. To go from 35 GWh to 5 TWh is a ~143x increase. This is the size of the challenge, or opportunity, assuming the world follows Master Plan 3 to be 100% renewable energy (perhaps by 2050).

Note: This figure of 1,200x could work out to be less if we include all forms of energy storage such as pumped hydro etc.

Tesla Master Plan 3 - Summary of key requirements needed for the world to move to 100% clean sustainable energy, including electric transportation ( source )

Tesla Master Plan 3 - April 5, 2023

For now Tesla believes that the vast majority of energy storage will be done via lithium-ion batteries. We think sodium-ion batteries will also be required, as will VRFBs and all types of cost-effective efficient energy storage.

Master Plan 3 comparison of energy storage types - Lithium-ion batteries come out on top ( source )

Tesla Master Plan 3 - page 19

Note: Red oval done by the author for emphasis.

How to invest into the stationary energy storage boom

1) Consider to buy the companies that are selling and leading the production of stationary energy storage products (mostly the 'LFP' battery leaders)

Tesla

Once Tesla ramps up its new Shanghai energy storage factory to full capacity (?2026-27) and including Lathrop (40 GWh), they will have 80 GWh of production, and likely be the global leader. Demand looks extremely strong as Tesla was reported to be fully reserved for Megapacks until Q4, 2024 which now looks to be Q1, 2025 based on Tesla's website order page (see below).

To get a feel for the potential revenues for Tesla consider each Megapack sells for about US$2.4m (currently US$2,387,370 ) and Lathrop and Shanghai plan capacity to build 10,000 Megapacks each pa. 20,000 combined @ ~US$2.4m each equals US$48b pa, perhaps in 2026 or 2027. Added to this would be sales from Powerwall. For perspective Tesla's total revenue in 2022 was ~US$81b and their 2022 energy generation (solar) and storage revenue was about US$4b (US$3.9b). This means stationary energy storage can soon become a very material revenue stream for Tesla in the next ~3-4 years. Within 10 years it may even be more than Tesla's EV revenue.

Note: Tesla gets its LFP batteries from CATL.

2020 - Musk says Tesla battery and solar business could be worth more than EVs

At the Tesla 2023 Shareholders Meeting Elon Musk stated (32 min mark): "The faster we can make battery packs, the faster we can move to a sustainable energy economy. That's the fundamental limiting factor."

At the Tesla 2023 Shareholders Meeting (52 min mark) Elon discusses Megapacks. He stated : "The Tesla Megapack is now more competitive than a natural gas peaker plant... growing faster than our vehicle sales... I think long term... stationary battery pack activity will be in excess of 500 GWh a year... the demand is quasi infinite. "

Note: Bold emphasis by the author.

Note: In 2022 Tesla produced 6.541 GWh of stationary energy storage. This means if Tesla grows to 500 GWh pa, that would be a 76x increase. Or 500 GWh selling at the current rate (~US$615m/GWh) would bring in ~US$307b in revenue for Tesla if achieved at some point in the future. In 2022 Tesla revenue from energy generation and storage was US$3.909b .

Tesla's energy storage deployments has increased rapidly and is set to grow exponentially - Q1, 2023 reached 3.9 GWh up 360% YoY ( source )

Tesla Q1, 2023 earnings slides

Tesla Megapack sells for about US$2.4m each ( source )

Tesla website

Tesla Powerwall 3 will use LFP batteries and should be very popular for home and business energy storage ( source )

Tesla website

Tesla Gears Up to Launch Powerwall 3: A Sleeker, More Efficient Home Battery - "One of the most significant changes to the new battery pack is the switch from lithium NMC (Nickel-Manganese-Cobalt) cells to Prismatic LFP (Lithium Iron Phosphate) cells, which will make Powerwall 3 cheaper to produce."

BYD Co [SHE:002594] [HK:1211] ( OTCPK:BYDDY ) ( OTCPK:BYDDF )

BYD is the equal 2nd largest lithium-ion battery producer globally with 13.6% market share. BYD is also a global leader in stationary energy storage products. BYD uses LFP batteries and is a vertically integrated producer.

BYD manufactures and sells a range of stationary energy storage products called BYD Battery-Box which can scale in size and be used for residential and commercial applications.

BYD energy storage solutions ( source )

BYD website

Contemporary Amperex Technology Ltd ("CATL") [SHE:300750]

CATL is the global leading lithium-ion battery producer with 37% market share. They are also the leading supplier of LFP batteries globally used in EVs and stationary energy storage. CATL's LFP batteries can achieve a very impressive life of up to 12,000 cycles . Tesla buys their LFP batteries for EVs and energy storage (Powerwall 3) from CATL.

CATL also sells their own Energy Storage Solutions products.

CATL products in large scale commercial stationary energy storage ( source )

CATL website

Gotion High-Tech [SHE:002074]

Gotion's main products include lithium-ion batteries, battery management systems, and energy storage battery packs .

Gotion is the 8th largest lithium-ion battery producer globally with a 2.7% market share. Gotion is a leader in LFP batteries and is the technology partner for the Volkswagen Group ( OTCPK:VWAGY ) components plant in Salzgitter, Germany.

2022 - Gotion High-Tech announces plans for two more battery plants (in China)
Oct. 2022 - China's Gotion joins US onshore battery manufacturing boom - "On October 5, the local government approved the Chinese company's proposal to construct a $2.4 billion facility in the US. The plant, which will be located near Big Rapids, Michigan... It is projected that the facility will produce up to 150,000 tons of cathode material and 50,000 tons of anode material per year... In December 2021, Gotion, whose largest stakeholder is Volkswagen, revealed that it had entered into a supply arrangement with a major publicly traded US manufacturer. The arrangement involves the supply of 200 GWh of LFP batteries between 2023 and 2028, which may be a major consideration in the Chinese company's efforts to localize the production and supply of LFP batteries... (Gotion) wants to construct a total battery production capacity of 300 GWh in three years, with 100 GWh located abroad.
May 2023 - Gotion High-Tech Unit Receives Battery Cell Order From Volkswagen; Shares Up 4%

Global lithium-ion battery manufacturers by market share in 2022 ( source )

CNEVPOST

Others to consider (in alphabetical order)

Electrovaya ((TSX:EFL)) ( OTCQB:EFLVF )
LG Energy Solution [KRX:373220]
Neoen [FR:NEOEN] ( OTC:NOSPF )
NextEra Energy ( NEE ) - A global leader in terms of scale of wind, solar, and battery storage.
Panasonic Corporation [TYO: 6752] (PCRFY)
Samsung SDI [KRX:006400]
Siemens Energy AG (Xetra:ENR) ( OTCPK:SIEGY ). Note: Fluence Energy is a JV between Siemens Energy AG and AES Corporation ( AES ).
SK Innovation [KRX:096770]
Vistra Corp. ( VST )
Amplify Lithium & Battery Technology ETF ( BATT )

LFP batteries are now also gaining market share in EVs, forecast to reach ~40% share in 2023 ( source )

BloombergNEF

LFP to dominate 3TWh global lithium-ion battery market by 2030

2) Consider to buy the companies that supply the battery raw materials

Lithium companies or ETFs - If Tesla Master Plan 3 is the best guide then we should all just buy the quality lithium companies needed to supply lithium for LFP lithium-ion batteries. This is because Master Plan 3 implies most energy storage will be done using lithium-ion batteries. Tesla now plans for all their stationary storage to use LFP batteries.

Note: Could also buy into other parts of the lithium-ion battery supply chain such as the LFP cathode (Pulead Technology Industry, Targray, Nano One [TSX:NANO] ( OTCPK:NNOMF )) or anode manufacturers. Perhaps also the phosphate producers or juniors such as First Phosphate Corp. [CSE:PHOS] [FSE:KD0] (recent article here on First Phosphate Corp.)

ProShares S&P Global Core Battery Metals ETF ( ION )
Global X Lithium & Battery Tech ETF ( LIT )
Lithium Miners News For The Month Of May 2023
Lithium Junior Miners News For The Month Of May 2023

Sodium-ion battery companies or their supply chain - For now the leaders look to be CATL, HiNa, BYD Co and some others. See our recent sodium-ion battery article here .

Vanadium Redox Flow companies or their supply chain - Leading companies would be Largo Inc. [TSX:LGO] ( LGO ), AMG Critical Materials [AMS:AMG] ( OTCPK:AMVMF ) and several emerging vanadium companies such as Australian Vanadium [ASX:AVL] ( OTCQB:ATVVF ) and others. See Vanadium monthly news for vanadium companies and our last article here mentioning some VRFB companies.

3) Consider to buy companies or ETFs that cover all and/or other types of energy storage

Amplify Lithium & Battery Technology ETF ( BATT )
WisdomTree Battery Solutions UCITS ETF
WisdomTree Battery Value Chain and Innovation Fund ( WBAT )
First Trust NASDAQ Clean Edge Smart Grid Infrastructure Index Fund ( GRID )

A map summary of companies with lithium-ion Battery Energy Stationary Storage ("BESS") gigafactories in operation or planned (numbers highlighted in black) ( source )

Rock Stock Channel courtesy of Rho Motion

Risks

The energy storage boom may not continue. Looks highly unlikely.
Technology change - New energy storage technologies may replace the current popular technologies such as lithium-ion batteries. Sodium-ion batteries and Vanadium Redox Flow Batteries [VRFBs] are two popular choices.
Old EV batteries may be used for stationary energy storage thereby lowering demand for new batteries in energy storage.
Battery manufacturers may face increased material costs and declining battery prices which has potential to squeeze margins.
Investors should understand that investing early in any new disruptive technology carries higher risks as well as higher rewards.
Company risks - Debt, management risk, sovereign risk, currency risk. Several stocks are Chinese so some moderate risk there.
The usual stock market risks - Liquidity (best to buy on local exchange), volatility, sentiment.

Conclusion

Energy storage is forecast to grow globally at 100% pa in 2023. This could even accelerate if we adopt Tesla Master Plan 3, if the world transitions to renewable energy from now until about 2050, using mostly solar and wind. Based on Master Plan 3 numbers we would need roughly 120 TWh of stationary energy storage, which is about 1,200x more than we have installed globally today (<100 GWh). The Plan currently sees lithium-ion batteries (LFP chemistry) as the cheapest and best alternative; however, other types of energy storage is likely to do very well also.

Trend Investing views a three decade boom in energy storage at growth rates even higher than EV growth rates. Once we grow from the current 35 GWh pa production to 5 TWh pa, we still need to produce 5TWh pa for about 2 decades.

Trend Investing's top picks to play the stationary energy storage boom are Tesla, BYD , CATL , and Gotion-High Tech . The reason for choosing these four is that they are establishing themselves as the leaders in stationary energy storage and/or LFP batteries, which for now looks to be the future. A sodium-ion battery and VRFB manufacturer could also be part of the mix in making a top 6. Also you could add in a leading renewable energy provider that does energy storage such as NextEra Energy .

The supply chain led by the LFP cathode and anode makers and the raw material suppliers (mostly lithium) can also do well. This means the lithium miners and perhaps some sodium-ion supply companies, vanadium pentoxide producers, and battery grade phosphate producers.

Several energy storage ETFs can also be considered for those wanting a more diversified play. Our favorite remains BATT.

Please read the risks section.

As usual all comments are welcome.

For further details see:

Stationary Energy Storage Is Set For Insane Growth - How To Invest Into This Boom

Company Name:	Neoen S.A.
Stock Symbol:	NOSPF
Market:	OTC

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