Korea's ESS products have experienced unprecedented growth thanks to the government’s renewable energy policies.

Introduction

Energy storage, or ESS, is the capture of energy produced at one time for use at a later time. It consists of energy storage, such as traditional lead acid batteries or lithium ion batteries and controlling parts, such as the energy management system (EMS) and power conversion system (PCS). Installation of the world’s energy storage system (ESS) has increased from 0.7 GWh in 2014 to 4.8 GWh in 2018. This number is expected to grow to 70.5 GW in 2025. The global ESS market in 2017 was about USD 2.42 billion. This amount is expected to increase to USD 15 billion in 2020 and USD 19.9 billion in 2025. During that period average annual growth rate will maintain at 30 percent. Battery-type ESS is being actively adopted, especially lithium ion batteries, due to its great potential for growth. This is largely due to its transformation efficiency and environmental friendly traits. Experts forecast the global lithium ion battery market to expand from 1.8 GWh in 2016 to 8.5 GWh in 2020 and 16.2 GWh in 2024.

Korea’s ESS accumulated capacity: 2/3 of that of U.S. in 2018

As of 2018, Korea's ESS installation level increased by 2.91 GWh or 10 percent of the world’s annual installation and reached to 3.63 GWh. Its accumulated capacity is about two thirds of that of the United States. Considering that Korea’s land mass is only about 1 percent of that of the U.S., the volume of Korea's ESS installation is enormous. Korea's lithium ion battery production is one of the world’s highest and continues to increase rapidly. In particular, major Korean companies like LG Chem Ltd., Samsung SDI and SK Innovation’s total production capacity is 65 GWh which will be expanded to 326 GWh in 2023. During that period, the annual average growth rate will be 50 percent.

Relatively low competitiveness overall

Korea’s ESS industry takes up a large share in the global market, but its overall competitiveness is relatively lower than major global companies. In the area of fundamental technology, Korea’s competitiveness level is about 82 to 85 percent of that of the world’s best. Its parts and material competitiveness stands at about 79 to 84 percent. Its manufacturing technology is relatively higher, standing at approximately 88 percent. However, the overall price level of Korea’s ESS industry is generally about 25 to 27 percent higher than those of other global companies. Compared with the explosive expansion of the domestic ESS installation capacity, Korea has recently suffered from fire accidents at ESS sites perhaps because the instability of ESS systems. Therefore, LG Chem and Samsung SDI’s sales performance has drastically dropped since the middle of 2018. As a result, Samsung SDI announced its plans to invest KRW 200 billion to secure ESS system safety, and experts expect that these companies will recover their sales levels in 2020.

Major Korean companies penetrating the global market

Major ESS companies in Korea are active players in the global market. LG Chem and Samsung SDI are front runners. Hanhwa Energy and LSIS have developed a new business model that combines photovoltaic and energy management systems. For the successful realization of this project, they are pursuing cooperation with KEPCO, a major electricity supplier in Korea. The power conversion system (PCS) is a crucial part of ESS installation. Experts estimate that the PCS share makes up about 25 percent of the value of ESS. Destin Power is the strongest company in this field, while Kokam is chosen as the highest ranked global company by Bloomberg and Navigant Research. Recently the Volkswagen Group announced the signing of MOUs with LG Chem, Samsung SDI and SK Innovation to supply its production of 22 million electric vehicles in the next 10 years.

Government strongly supports in ESS demand and R&D technology development

The Ministry of Trade, Industry and Energy (MOTIE) has introduced many efficient support measures to boost Korea’s domestic ESS demand. These include the mandatory installation of ESS in public buildings and the revision of special ESS price reduction. For public buildings, there are mandatory measures enforcing a minimum of 5 percent ESS installation for electricity contracts over 1 MW. Recently the government is establishing the 4th Energy R&D Plan in which it will help to develop new energy technology including new energy material which enhances material competitiveness of Korea’s ESS industry.

By Daejong Gwak (djgwak@kiet.re.kr)
Research Fellow Korea Institute for Industrial Economics and Trade (KIET)