CATL gave up? No, he was waiting for an opportunity!

Recently, Zeng Yuqun, chairman of CATL, made a rare public response to media reports, saying that "we have not yet considered acquiring photovoltaic companies including Yida New Energy," finally cooling down the online rumors that have been rife in recent times. However, the four words "not yet considered" also left the industry with endless imagination.

Why did "King Ning " miss the big order from Saudi Arabia?

As we all know, the three major visions of CATL are to replace mobile fossil energy with power batteries, replace fixed fossil energy with renewable energy and energy storage, and achieve integrated innovation in market applications with electrification + intelligence. Under the established strategic goals, the energy storage business has become CATL's biggest growth point. If CATL does not have a photovoltaic business, it will be like "giving up" the market.

The most typical example recently is that CATL lost the 7.8GWh Saudi Arabia project order from Sungrow. Sungrow was previously mainly supplied by CATL, but in this world's largest order, it became a cooperation with China New Energy. Because in the current Middle East market, integrators and battery companies are almost one-to-one deep binding. Although CATL has already bound with Tesla in the European and American markets, in other overseas markets, integrators who have customer resources prefer less powerful battery companies so that they can occupy a certain dominant position in the partnership.

Since energy storage batteries have performance differences during the production process, manufacturers can only conduct simulation experiments in laboratory situations, and the performance after five or ten years of actual operation cannot be guaranteed. Once Middle Eastern customers find that the parameters are different from those promised during the bid, they will be sued for hundreds of millions or even billions of yuan. Therefore, energy storage integrators need to check and screen all batteries before they dare to bid. This corresponds to a huge workload, which also makes the role of "energy storage integrator" particularly important in the Middle East.

Even when issuing bidding requirements, Middle Eastern customers only accept bids from energy storage integrators, and reject individual bids from battery companies. At most, they will specify a list of battery suppliers. In addition to requirements for the construction process, Middle Eastern customers pay more attention to subsequent operation and maintenance, quality assurance and other services. This makes CATL's position in the Middle East very "awkward", because it is difficult for it to become an energy storage integrator itself, and it is difficult to deeply bind with other integrators. The final result is that CATL missed the big order of Sungrow's Saudi Arabia 7.8GWh project.

The Middle East is the fastest growing emerging market

In recent years, the number of wind, solar and energy storage projects planned and under construction in the Middle East has increased significantly. Saudi Arabia's official policy shows that by 2024, Saudi Arabia will release 16GWh of energy storage projects. In other words, the energy storage market size of Saudi Arabia alone is equivalent to the installed capacity of the domestic market in one quarter.

In terms of carbon neutrality goals, the UAE, Oman, Egypt, Iran and Israel have all pledged to achieve carbon neutrality by 2050, while Turkey and Saudi Arabia have pledged to achieve carbon neutrality by 2053 and 2060 respectively.

In terms of renewable energy installation, the Saudi government proposed the "Vision 2030" in 2016 and raised its goals several times. Its latest plan is to bid for 20GW of renewable energy projects every year from 2024, and to achieve 130GW of renewable energy installation by 2030, with renewable energy accounting for more than 50% of the structure by 2030; the UAE aims to reach 19.8GW of clean energy installation by 2030, Oman plans 25GW of wind and solar hydrogen production projects, and plans to reach 3.4GW of photovoltaic installations by 2027; Egypt's Energy Strategy 2035 plans to achieve 42% of electricity from renewable energy by 2035, of which photovoltaic power generation occupies an important position (accounting for 22%). The Egyptian government has also set a goal of renewable energy accounting for 60% of the power generation structure by 2040.

Data from the International Renewable Energy Agency shows that due to factors such as large project scale, low labor costs, and abundant sunshine resources in the Middle East, the cost of local photovoltaic power generation is one-fifth of the global average, while photovoltaic power generation accounts for less than 5%. "Strong resource endowment + high installed capacity planning + low penetration rate" will strongly support energy storage installation. At present, the scale of energy storage projects planned and under construction in the Middle East has reached 35.56GW.

According to Ember statistics, the total installed capacity of wind and solar power in the Middle East will reach 48.55GW in 2023, and the proportion of wind and solar power installed capacity is only 8.8%. Compared with Europe, where the total installed capacity of wind and solar power accounts for 30.9%, its solar and energy storage development potential is huge.

Five characteristics of energy storage construction in the Middle East

At present, the construction of high-speed energy storage projects in the Middle East and North Africa has the following five characteristics:

First, the pace of renewable energy deployment The core demand for energy storage in the Middle East lies in supporting the construction of new energy. The renewable energy targets of various governments are relatively radical, with the target time nodes mostly set at 2030. The pace of renewable energy deployment in recent years will have a direct driving effect on the demand for energy storage.

Second, the iteration of energy storage technology and the speed of cost reduction directly affect the economic feasibility of energy storage projects. Technological iteration can significantly reduce production costs, improve battery energy conversion efficiency, cycle life, and system reliability, and bring marginal improvements to the economic feasibility of energy storage.

Third, the policy support of various countries. The power industry in the Middle East is highly nationalized. About 60% of the countries have only one vertically integrated power company. The main players in the power market are basically owned by the government or strictly controlled by the government. Therefore, energy storage projects in the Middle East are mainly promoted by the government. Most power projects in the Middle East are loaned with a leverage ratio between 65:35 and 85:15. Some countries attract investment in energy storage projects by providing incentives such as financial subsidies, tax incentives, and low-interest loans, effectively promoting the deployment and implementation of energy storage.

Fourth, the progress of power market reform. The power markets in Middle Eastern countries are generally regulated, the degree of power marketization is not high, and the profit model of energy storage is unclear. With the gradual advancement of power marketization in the future, energy storage is expected to achieve frequency regulation, peak regulation, spare capacity, arbitrage, and other emerging profit models. Diversified profit models will effectively increase investment returns and reduce investment risks.

Fifth, the improvement of relevant laws and regulations. In the energy policies of Middle Eastern countries, there are still few laws and regulations that clearly define or manage energy storage systems, and the blank governance framework brings greater risks to investment. With the improvement of relevant laws and regulations, the blueprint for the deployment of energy storage systems may become clearer.

Overseas energy storage market will gradually shift to grid transformation projects

In the energy transformation vigorously promoted by countries in the Middle East and North Africa, countries such as Saudi Arabia and the United Arab Emirates tend to be driven by government will, while the economic benefits of power interconnection projects with renewable energy power generation in Western European countries drive Egypt and Morocco. At the same time, the Middle East model is likely to be used as a reference by other countries and regions, and the status of energy storage integrators will become increasingly important. In the future, the overseas energy storage market will gradually change from household energy storage that mainly makes money from electricity price differences to power grid transformation projects that are mainly invested by governments and large enterprises.

Faced with attractive overseas markets and its own shortcomings, one of CATL's countermeasures is to start its own energy storage integration business. At the end of last year, "Ningwang" released its first energy storage integration product and this year it also vigorously promoted it in overseas markets, but the market acceptance was average.

At the same time, CATL is also looking for suitable integrators to tie up with, but this is very difficult to achieve. Therefore, acquiring a leading photovoltaic company is the best solution for CATL to penetrate overseas markets.

Perhaps as Zeng Yuqun said, CATL will not acquire photovoltaic companies for the time being, but everyone knows that CATL has never really given up its photovoltaic business, nor is it possible to give up its huge overseas market. Now Zeng Yuqun, who has a huge amount of cash in hand, is waiting for an opportunity to make a move.

As for Zeng Yuqun's "not yet considered", it also leaves enough room for CATL to make major acquisitions in the next one or two years. When it completes its photovoltaic layout, CATL, which will control the two core links of power/energy storage batteries and photovoltaic cells, will realize Zeng Yuqun's dream and become the third new energy giant spanning the lithium battery and photovoltaic industries after Tesla and BYD.