The Long-Term Upward Tendency for Storage Demand requires Laws and Policies Supporting the Development of the Energy Storage Industry

　　Energy transition and net-zero carbon emission have become, no doubt, the clear global trend. For this purpose, all the countries, regions, and corporations worldwide one by one have begun to set up relevant goals, such as the percentage of renewable energy, the establishment scale of renewable energy, the ban on the sale of fuel vehicles, and RE100, which are set to be accomplished anytime from 2030 to 2060. All of these indicate that energy transition is bound to be a long process completed step by step. Although factors such as market prices, supply chain demand, policy subsidies, and technological advancements will cause midterm or short-term fluctuations in developments, net zero emission remains will become an inevitable goal in the long run. In Taiwan, the four major pillars of green energy development are comprised of energy creation, energy storage, energy conservation, and system integration. As for energy transition, relevant policy planning is aimed at more natural gas, less coal, green energy expansion, and denuclearization. Currently, the goal of renewable energy promotion is to reach 27.4 GW by 2025, in which solar power and wind power will reach 20 GW and 6.9 GW respectively. As for the years from 2026 to 2035, the establishment scales of solar power and wind power will respectively be 2 GW and 1.5 GW. It is also expected to develop continuously to fulfill the goal of net zero emission in 2050, by that time when the percentage of renewable energy will reach 60-70%. To make use of such a high percentage of intermittent renewable energy, only by combining with energy storage can the electrical grid be operated stably, and then the goal of thorough utilization by means of a smart electrical grid will be achieved finally.

By 2030, the scale of Taiwan's energy storage market will reach 8 GW accumulatively

　　The energy storage market can be divided into pre-transfer and post-transfer. The pretransfer market is mainly divided into the "power generation side" combined with renewable energy and the "electrical grid side" which is a part of ancillary services. The post-transfer market includes usages related to industry, commerce, and residential areas. According to current policies, the energy storage applications are primarily for 1. Taipower ancillary services, 2. solar integrated energy storage, and 3. fixed power generation for major consumers. For Taipower ancillary services, power demand from d-Reg and E-dReg by 2025 is 1 GW, with solar integrated energy storage at 0.5 GW and major consumers below 0.1 G. Therefore, the Taiwan energy storage market space by 2025 is at about 1.6 GW. However, as the maturity stages gradually take place in the aspects regarding renewable energy electrical grid transition, the development of energy storage supply chains, commercial modes, and relevant regulations, it is expected that the Taiwanese energy storage market will accelerate in its development between 2026 and 2030. By that time, the main applications will be: 1. Combination of wind and solar renewable energy, 2. Flattening of uneven consumption patterns, 3. Industrial and commercial usage such as UPS, charging piles, and contract capacity, and 4. Applications such as the post-transfer market under commercial modes. Based on policies and application items, InfoLink has also calculated that by 2030 the accumulated market scale will reach 6-8 GW / 17-21 GWh.

The four stages of Taiwan's energy storage market

　　The development of energy storage in Taiwan got a late start., So far, the establishment scales are not big enough. However, subsequent development begins to speed up. InfoLink divides it into the following stages: Stage One consists of demonstration sites such as the ones at Longjing and Changhua Binhai from 2018 to 2020, where various businesses cultivated practical experiences in the establishment and O&M through their own specialties. They also tested and verified net integration functions such as Renewable Energy Smoothing, stable power output, or electrical grid quality control, which allows for references for future businesses in addition to the establishment of initial supply chain capacity. Stage Two is performed as per Taipower's one and only bilateral 15MW d-Reg contract in 2020, with five corporations having won the bid, including Skwentex International Corporation, TPE Energy Inc., TCC Green Energy, Hengs Technology, and Tatung. At this stage, due to the immaturity of local supply chains and markets, and because businesses are full of uncertainties in commercial modes, earnings rate, and site establishment, many businesses remained lukewarm about the energy storage market. At Stage Three in 2021, the Power Exchange Platform went online, and Taipower's original goal of energy storage demand by 2025 was also increased from 590 MW to 1000 MW, with the newly added E-dReg ancillary service as an addition. The coming online of the Power Exchange Platform was a very important milestone for both Taipower and the Taiwanese energy storage market. In addition to establishing relevant business revenue modes, it also began an era of Taipower procurement for ancillary services. Furthermore, the addition of E-dReg as well as the raising capacity demand to 1000 MW indicated that the demand for energy storage will begin to be long-term storage instead. Stage Four started in 2022, when the Ministry of Economic Affairs launched its solar integrated energy storage application, with the goal of reaching 0.5 GW in capacity by 2025; in addition to allowing some of the existing solar sites to achieve greater efficiency, this also clarified Taiwan's route of integration between the energy storage market and pre-transfer renewable energy generation.

　　From the bilateral contract in 2020 to the promotion of solar integrated energy storage in 2022, Taiwan's energy storage industry developed at a blistering pace just in a span of two years. In addition to policy support and inelastic market demand, Taipower's Power Exchange Platform model and service revenue directly stimulated the active deployments of enterprises on related supply chains. By 2025, Taipower should achieve the demand for 1 GW of ancillary service capacity (regulation reserves service). As of August 2022, the application capacities have approximated 5 GW, in which the approved applications have exceeded 3 GW. As a result, Taipower announced that it will suspend the applications for d-Reg and pre-transfer Spinning Reserve as of October 15, 2022. Such positive market developments have revitalized the energy storage industry chain in Taiwan and also made many overseas first-class energy storage manufacturers begin to pay attention to the Taiwanese market, which has laid a good foundation for the energy storage market in the long run.

As development continues apace, risks of energy storage must be overcome

Source: Taipower

　　Although the market undergoes active development, the safety of lithium batteries has always remained a problem. From mobile electronics, power tools, two-wheelers, and electric vehicles to energy storage, relevant accidents still occur without ceasing until now. Cell phone explosions, electric vehicle fires, and energy storage fires happen frequently all over the world, such as Gogoro switching station fire in Taiwan, the Longjing energy storage fire, and the recent Tesla crash involving Jimmy Lin. All of these show the potential risk of lithium battery explosive combustion, a risk that cannot be overcome in current mainstream lithium battery products. However, the occurrence of any accident does not and should not affect the rapid development of the lithium battery industry; instead, all the businesses, relevant agencies, and users should be more aware of safety pitfalls and in turn, improve product safety technologies while also enacting more comprehensive safety regulations.

　　After the rapid growth at the initial stage, most markets see numerous emerging issues such as reviews of relevant regulations, safety regulations, and on-site O&M. However, these factors are two sides of the same coin. If the regulations at the initial stage are much more well-rounded, it is possible that the development will get slower because the entry barrier in the market will be limited. However, if the regulations are too lenient, they will disrupt the sound development of the market or even lead to potential security pitfalls. For example, dozens of energy storage fires took place in Korea between 2017 and 2018. One of the main reasons was that there lacked relevant strict or well-organized regulations for safeguarding people's safety, in addition to the public's panic purchases due to the deadlines of Korean governmental subsidies. The series of such events not only affected the development of the Korean energy storage market but also had a great impact on the goodwill of the enterprises providing relevant equipment. Therefore, it is an important issue for governments and relevant departments to enact safeguarding measures without affecting industry development. For now, taking rolling reviews seems to be a policy that can take care of both development and safety and is also a pattern that Taiwan's energy storage industry is actively pursuing.

More comprehensive laws and policies are still required; the industry development is expected to have much more strength than weakness

　　The industry has constantly been questioning and complaining about these affairs, ranging from the beginning when Taipower required the applications for E-dReg ancillary services for feeder capacity above 5 MW, to the frequent updates of safety regulations and fire regulations recently, and even the proposal for combining solar power stations with energy storage systems proposed by Ministry of Economic Affairs. The introduction of policies and consequent changes will increase the costs and uncertainties in the further investment made by enterprises at present. In fact, the market has indeed been cooling down recently. Even though the quantity of the applications has approximated 5 GW, the scales of the already-completed integrated grids and the sites under construction are not as satisfactory as expected. It is speculated that there are several major factors behind this result, including: 1. Declining yields. 2. Prices increase due to oversupply of energy storage equipment. 3. Incomplete regulations with uncertain retroactivity and 4. Administrative procedures outside of the energy storage system safety regulations. First, regarding the decreases in the rate of return from d-Reg to E-dReg, the required storage hours for energy storage systems were increased from the baseline 1 hour to 2.5 hours. In other words, the equipment needs to use many more battery cells to meet construction requirements; however, the service fees given cannot support the additional cells equally, resulting in the IRR as calculated by businesses being lower than the existing d-Reg. Secondly, there is a correlation between the shortage of equipment supply and the decline in yield, because the shortage of lithium battery supply will lengthen the delivery time for equipment; the current high price of energy storage equipment will also affect IRR results. Third, non-uncomprehensive and unclear regulations may confuse businesses resulting in the greatest concern. In addition to worrying about the procurement of equipment and whether the construction of sites will be in compliance with the requirements for subsequent rolling reviews, they must also worry about whether they will have to continue investing much more manpower and many more costs to respond to relevant regulations in the future. Lastly, administrative procedures are complicated and non-unified. In addition to the reviews by Taipower, there seem to be no standardized procedures and review standards for different counties, cities, fire departments, and other relevant agencies, so many enterprises must spend considerable human resources and material resources. In summary, the first two factors are mainly due to market mechanisms. Just like the electric vehicle industry in the past, strong subsidies and incentive policies may simulate the market, however, as the market matures, competitors increase, and the supply chain becomes more robust, some players will inevitably withdraw gradually, while the barriers to entry will become higher. For the last two issues, the government and related organizations need to actively improve their regulations and listen to the industry. Especially, different counties, cities, and agencies have different administrative procedures and examination standards, which is time-consuming that adds to many more gray areas in between.

　　It is an established fact that renewable energy grids cannot be done without energy storage. The only changeable factor lies in the types and proportions of renewable energy, the types of energy storage, and the speed of development. Therefore, even though the above mentioned issues regarding prices, regulations, and revenues will indeed affect development speed and even cause some businesses to become timid within the short-term period, InfoLink is still optimistic about the development of Taiwan and the energy storage market in the medium term and in the long run. We believe that the 1 GW ancillary service capacity of Taipower and the goal of 0.5 GW solar integrated energy storage from the Ministry of Economic Affairs can be reached by 2025 as scheduled, or even slightly higher. We are optimistic about the scale reaching 6-8 GW / 17-21 GWh by 2030 in the long run.

　　What's more, the occurrence of accidents, strict safety regulations, and administrative procedures should not be regarded as factors that hinder the development of the industry, but should be the processes and bases for creating a sound development of the industry and supply chains; they also maintain the safety and reputation of the energy storage industry, in addition to avoiding speculative behavior by enterprises that disrupt market mechanisms. For the long-term development of the energy storage industry, they are helpful tools, not obstacles. Therefore, policies and market factors may have a short-term impact on revenues or create illusions of delayed industry development, but energy storage is ultimately a part of net-zero emission, making its development inevitable.