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In this series of observations on new energy in Asia, Africa, and Latin America, we have conducted an analysis of 8 key countries in Southeast Asia and East Asia.

First, we have extrapolated the overall progress of energy storage development in the Southeast Asia and East Asia region; secondly, we have conducted a detailed analysis from multiple perspectives such as natural resources, transition policies, electricity markets, energy storage demand, and development categories for each country; finally, we have conducted a statistical summary of the total energy storage demand and a comparison between countries.

The abstract indicates that the energy storage market in Southeast Asia and East Asia is about to enter a stage of rapid development.

We believe that the fundamental demand for energy storage will increase with the proportion of VRE (Variable Renewable Energy) generation, and most areas in Southeast Asia and East Asia are currently in the early stages of development.

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Due to the overall insufficiency of power grid construction, the scale effect of traditional energy cannot be formed, and the system flexibility is poor.

Most countries will enter the initial stage at around 10%, and the inflection point of rapid growth may arrive earlier.

► From the perspective of natural resources: Except for Malaysia and Indonesia, most countries in Southeast Asia and East Asia rely on imported fossil energy, and the power infrastructure is weak, making it difficult to leverage the scale effect of power types dominated by traditional energy.

However, the region has a good endowment of wind and solar resources and a lower dependence on infrastructure.

Therefore, when the cost of wind and solar power generation gradually reaches an inflection point, the opportunities for the development of the energy storage market are good.

► From the perspective of electricity market policies: Although the degree of marketization of electricity in the region is generally lagging (except for Japan, Singapore, and the Philippines), the pace of electricity marketization has accelerated in recent years, and we expect that the future will provide more development models and opportunities for energy storage.

► From the perspective of industrial technology: China's industrial technology is advancing rapidly, driving the global reduction of costs for wind, solar, and energy storage.

Additionally, the region is also building its own industry, so the cost reduction is expected to be relatively fast, and the economic inflection point will be reached soon.

Based on our detailed research by country, we estimate that the region's eight countries will have a total of 163GW of new wind and solar installations and 104GWh of new energy storage installations from 2023 to 2028.

Risks include underperformance of renewable energy development, trade policy risks, and exchange rate risks.

The energy storage analysis framework and the current development status of Southeast Asia & East Asia are seen through three models: Model One: The development extrapolation framework of the energy storage industry.

The development of the energy storage industry involves multiple elements such as natural resources, policies, technological knowledge, and industrial capital.

Firstly, in the electricity energy market, the distribution of fossil energy, wind and solar resources, and demand resources affects the underlying power demand and economic viability, while policies such as carbon certificates and subsidies, as well as technical factors like LCOE, influence the overall pace of renewable energy advancement.

Secondly, in the electricity services market, new types of energy storage are one of the flexible resources, and the speed and prospects of their development relative to other flexible resources depend on the natural resource endowment, policies, technological development levels, and industrial capital tendencies of energy storage itself.

Model Two: What is the essence of energy storage company competition.

The decisive factors of the six key indicators can still be summarized as resources, technology, industrial capital, and policies.

From a production perspective: the cost of upstream raw materials, the one-time yield rate of energy storage battery products, and the utilization rate of production capacity are key competitive indicators.

From a demand perspective: the LCOS of energy storage, the ease of use, and the availability of products are key competitive indicators.

When energy storage is used as a production tool, the impact of LCOS is particularly important, which is mainly determined by construction costs, system efficiency, and cycle life.

Currently, the competition in lithium battery manufacturing is already quite fierce, and the energy storage supply is gradually becoming a buyer's market.

Model Three: The analysis model of energy storage technology breakthroughs.

The breakthrough of energy storage technology should consider factors such as the technology cost curve, business model innovation, industrial innovation, and there are also some accelerating impact factors, which together determine the overall market trend.

Technological innovation in energy storage belongs to a top-down form of innovation (better performance, large cost reduction space).

We believe that new products will fundamentally change the production, management, delivery, and sales models of products and services.

Looking at the degree of electricity marketization and technological potential, we believe that there is a large optimization space for the economic viability of energy storage in the future, and the vitality of business models will significantly exceed the current level, forming a pricing method dominated by new energy.

The development stage of Southeast Asia and East Asia is basically in the germination period, with strong growth potential.

The current situation: The overall energy storage market is currently in the germination period of development, and the inflection point of rapid growth is about to arrive.

We believe that the basic demand for energy storage will increase with the proportion of VRE generation, which is roughly divided into four stages.

As shown in the figure, when the proportion of VRE generation in China and the United States reaches 15%, the inflection point of rapid growth has already appeared; the inflection point in Europe appears when the proportion of VRE generation is close to 20%, relatively later.

On the one hand, this is due to the European electricity market allowing cross-border transactions, with stronger inter-regional interconnection.

On the other hand, it is because Europe has completed the transformation of traditional coal power earlier, and the proportion of highly flexible gas turbine units in the energy structure is much higher than in China and Southeast Asia.

We believe that most areas in Southeast Asia and East Asia are currently in the germination period of development, and most countries will enter the initial stage at around 10%.

Due to the overall insufficiency of power grid construction, the scale effect of traditional energy cannot be formed, and the system flexibility is poor, so the demand for energy storage is expected to explode earlier than in China, the United States, and Europe, and the inflection point of rapid growth will arrive earlier.

► Germination period (VRE ratio ≤10%): The impact of wind and solar power generation on the system is relatively small, the system's existing flexible resources are sufficient, and the demand for additional energy storage is relatively small.

► Initial period (10% ≤ VRE ratio ≤ 20%): The volatility of wind and solar power generation will have a certain impact on the power grid, the system's regulatory capacity begins to be insufficient, the demand for flexible resources begins to increase, and the growth rate of front-of-meter energy storage is relatively fast.

► Rapid development period (20% ≤ VRE ratio ≤ 80%): The frequency and depth of adjustment of traditional thermal power increase significantly, and during some periods of the day, thermal power units may all be shut down and switched to standby, and the market enters a period of rapid growth.

► Plateau period (80% ≤ VRE ratio ≤ 100%): The proportion of wind and solar power generation is relatively high, and the regulatory demand shifts from daily to weekly, monthly, and quarterly regulation.

The overall growth rate of electrochemical energy storage slows down due to the constraints of dispatching times, and hydrogen energy grows rapidly.

Most areas in Southeast Asia and East Asia also have the following characteristics.

► Feature 1: Anti-globalization promotes accelerated economic growth, and electricity consumption continues to rise.

Southeast Asia has become a beneficiary of the global supply chain restructuring, and the industrialization process will drive electricity demand.

As developed countries such as Europe and the United States gradually transfer manufacturing to the Southeast Asian region with lower labor costs and greater market potential, infrastructure, logistics, manufacturing, and other fields in the region will develop rapidly.

At the same time, regional trade intensified by anti-globalization has increased economic cooperation and intra-regional trade growth among Southeast Asian countries.

With the rapid expansion of the economy, electricity consumption will enter a long-term growth cycle.

Compared with China's annual per capita electricity consumption of over 6000 kWh, most Southeast Asian countries still have a large growth space for per capita electricity consumption.

► Feature 2: Good wind and solar resource endowment, and the photovoltaic parity inflection point is approaching.

► Feature 3: The continuous promotion of electricity reform, the demand for energy storage is released as the degree of electricity marketization increases.

When countries open up the electricity market, they usually follow a common pattern: the power generation industry is the first to be separated from national regulation; the power transmission industry is held and operated by state-owned enterprises due to infrastructure investment and grid safety considerations; the power sales industry is the last to be opened, and it is usually the most difficult part to liberalize.

The power generation industry, which is the first to open competition and increase capacity, is mainly due to the need for private enterprise participation in low-carbon energy investment.

There are significant differences in the energy markets of various countries in terms of regulatory frameworks, degrees of market liberalization, and whether independent power plants are allowed to enter: in terms of power generation, almost all countries have private power plants (IPP) involved in the power generation field; in terms of power transmission, except for the Philippines and Japan, the power grids of other countries are owned and operated by the state; in terms of power sales, Singapore, Japan, and the Philippines have currently opened up market competition.

It can be seen that most countries are in the process of promoting the liberalization of the electricity market.

With the improvement of marketization, we expect that the demand for energy storage will be further released.

► Feature 4: The construction of the power grid is relatively lagging, and the penetration rate of new energy vehicles increases, bringing fluctuations in the load side of electricity.

Compared with the development of renewable energy power generation, the construction of the power grid in various countries is relatively lagging.

The International Energy Agency's "2023 World Energy Outlook" report shows that the share of wind and photovoltaic power generation will rise to 20% by 2030 and exceed 50% by 2050, while this share was only 5% in 2022.

Compared with the rapid development of renewable energy power generation, the construction of the power grid has been relatively lagging in recent years, with a declining trend in annual investment and long construction planning periods with high complexity.

Energy storage, as a regulatory resource, has the effect of replacing grid expansion.

On the other hand, due to the numerous islands and frequent natural disasters in Southeast Asia, many areas in archipelagic countries such as Indonesia and the Philippines are difficult to connect to the national power grid, which has created a large development space for self-sufficient distributed rooftop photovoltaic energy storage.

In recent years, countries in Southeast Asia represented by Thailand have seen a significant increase in the penetration rate of electric vehicles, which has made residential electricity demand more unstable, especially during peak hours.

The concentrated charging increases the pressure on the power grid, and we believe that the development of energy storage can effectively smooth the fluctuations in electricity demand brought by the development of electric vehicles.► Feature 5: Increased electricity interconnection, enhanced storage demand.

Southeast Asian countries are geographically adjacent to each other, providing a natural geographical advantage for electricity interconnection.

The differences in resource endowment and development conditions among countries in the region, along with high complementarity, provide a favorable external environment for the realization of electricity interconnection.

In 2015, ASEAN first proposed a specific plan for the construction of the ASEAN power grid, establishing a close power cooperation relationship within the region.

For zero-carbon energy, both the import and export ends require energy storage systems to ensure the safety of electricity use and the stability of power transmission.

We believe that the demand for energy storage is particularly worth paying attention to.

Overview of energy storage demand in Southeast Asia and East Asia.

From the overall power generation situation: We estimate that the annual average growth rate of total power generation in Southeast Asia and East Asia (mainly the above 8 countries) from 2023 to 2028 will be 2.43%; the total power generation in 2028 will reach 3172 TWh, with Japan, South Korea, and Indonesia accounting for a higher proportion.

From the perspective of power generation growth rate: We estimate that the countries with the highest average growth rate from 2023 to 2028 are Vietnam (7%), the Philippines (6%), Indonesia & Thailand (5%).

From the perspective of renewable energy power generation proportion: We estimate that in 2028, the ranking of renewable energy power generation proportion from high to low will be Japan, South Korea, Vietnam, the Philippines, Thailand, Indonesia, Malaysia, Singapore, with Japan, Thailand, the Philippines, and Singapore having a faster increase from 2023 to 2028.

From the perspective of wind and photovoltaic power generation proportion: We estimate that in 2028, the ranking of wind and photovoltaic power generation proportion from high to low will be the Philippines, Thailand, Japan, Vietnam, South Korea, Singapore, Indonesia, Malaysia.

Among them, the countries with a faster increase from 2023 to 2028 are the Philippines, Thailand, Japan, South Korea, Indonesia, Singapore, Vietnam, and Malaysia.

Overview of the total energy storage demand and demand types in Southeast Asia and East Asia from 2023 to 2028.

A total of 163GW of new wind and photovoltaic installations are expected to be added from 2023 to 2028, with 104GWh of energy storage installations.

We estimate that from 2023 to 2028, Southeast Asia and East Asia (mainly the above 8 countries) will have 38GW of new wind power installations and 124GW of new photovoltaic installations, with a total of 163GW of new installations.

It is expected that from 2023 to 2028, Southeast Asia and East Asia (mainly the above 8 countries) will have 104GWh of new energy storage installations, ranked from high to low as: the Philippines, Vietnam, Japan, Thailand, Indonesia, South Korea, Singapore, Malaysia.

From the perspective of demand types: We believe that the driving force for large-scale energy storage comes from energy transformation and the demand for power import and export; the driving force for commercial and industrial energy storage mainly comes from high electricity prices, weak power grids, and rapid growth in manufacturing industries driven by economic growth, such as Japan, Indonesia, etc.

; the driving force for household energy storage mainly comes from high electricity prices, strong policies, and off-grid demand, such as Indonesia, the Philippines, Japan, etc.

Risk warning: The development of renewable energy may not meet expectations.

The renewable energy transformation policies in Southeast Asia and East Asia may change, and there may be certain problems in the actual transformation process that lead to a slower transformation pace than expected, which will affect the overall energy storage demand and thus affect the profitability of enterprises.

Trade policy risk.

Trade policies in Southeast Asia and East Asia may change, and there may be adjustments to local production and import tariffs, which may affect the profitability of enterprises.

Exchange rate risk.

Fluctuations in the exchange rates of different countries' currencies against the renminbi may bring unexpected foreign exchange risks to enterprises.