Special Feature | Tangtai's New Battlefield: From System Integration to EPC.

Two Sides of the Coin!

In 2018, the Chinese energy storage market experienced rapid expansion, with grid companies and power generation groups leading the way in deploying energy storage projects. These projects, often reaching hundreds of megawatt-hours, have driven significant growth in installed energy storage capacity.

Large-scale project tenders from grid companies and power generation groups have attracted participation from almost all major equipment manufacturers, resulting in fierce competition. Particularly on the grid side, tenders in regions like Jiangsu, Henan, and Changsha have seen continuous price drops, with an average decrease of 20%.

Even if it means slim profits, most equipment manufacturers are eager to join the fray. On one hand, the prospects of the energy storage market are promising, and in order to enhance their influence in the industry, they must position themselves strategically. On the other hand, battery companies need to absorb their excess production capacity, and even at low prices, doing business with large-scale central and state-owned enterprises ensures a cash flow.

However, the situation becomes more complex when it comes to transactions between two private companies.

Unfortunately, this situation is unlikely to change in the next 2-3 years. Without a well-established market mechanism for power and energy storage in China, and with an unclear business model for energy storage, the market will remain dominated by a few major players driven by the grid.

Among all equipment manufacturers in the energy storage system, battery companies face the greatest challenges. Batteries are the most significant component in terms of procurement cost and attention, and cost reduction strategies often start with the battery side. Additionally, since batteries are controlled objects, any design flaws or operational difficulties in the system will ultimately be reflected in the battery.

"No company says their PCS is faulty or their BMS is faulty; in the end, it's always the battery that is blamed," said Liu Yi, Deputy General Manager of Shandong Tangtai Power Technology Co., Ltd., with a hint of helplessness.

Battery companies are caught in a dilemma where they earn money by selling batteries but bear the responsibility for the entire system. In the current limited conditions, finding the right market direction is a challenging problem that all battery companies must solve.

1、From "ensuring quality" to "ensuring electricity consumption"

Shandong Tangtai Power Technology Co., Ltd. was established in 2015 and is a wholly-owned subsidiary of Tangtai, specializing in energy storage business. It is positioned as a provider of new energy system solutions. Tangtai Group is a leading enterprise in the field of communication backup power supply. It has four subsidiaries, whose business covers lead batteries, lithium batteries, energy storage system integration and Battery recycling.

According to Tangtai Company, in addition to adhering to the traditional business of communication batteries, Tangtai Group is also actively seeking the next growth point. According to the strategic plan of Tangtai Group, 50% of the future business will come from the traditional communication market, and the remaining 50% will be filled by power batteries and energy storage businesses.

In the just concluded year of 2018, the development of Tangtai Power remained stable. Realize battery shipments of approximately 160-170MWh, revenue exceeding 100 million yuan, and order amounts exceeding 200 million yuan. According to the "2018 White Paper on Energy Storage Industry Research" released by the Zhongguancun Energy Storage Alliance, among the newly added electrochemical energy storage projects in China in 2017, Tangtai Power ranked second among all energy storage system suppliers in terms of installed capacity.

Tang Xisheng stated that in 2019, Tang Tai will continue to focus on valuable application scenarios such as grid side, power generation side, user side, and microgrid. Compared to sales, Tangtai places more emphasis on payment collection and cash flow. Some projects are not done because their technical capabilities cannot be achieved, but rather because the subsequent risks of the project are uncontrolled. The ultimate goal of business is not to make a profit, but to return to its essence - profitability

Ultimately, corporate profitability is a hard indicator. For investors, the calendar lifespan of the equipment is not important. Investment is only responsible for paying, and the key is how much electricity the energy storage device can store and release during its lifecycle. To some extent, this forces the energy storage equipment to shift from the previous "quality assurance" to "electricity conservation".

After participating in hundreds of projects both domestically and internationally, Tang Tai has accumulated more experience and lessons than others. Each application scenario of energy storage corresponds to a specific industry, and the use of batteries is completely different from past practices. Even the same type of battery has different charging and discharging strategies in different scenarios.

The batteries that leave Tangtai now are no longer the simple warranty they used to be, and service agreements must be signed. In different scenarios such as the power generation side and the power grid side, the usage methods and environmental requirements of the batteries must be passed on to customers. "Liu Xiaolu told" Energy Storage 100 People "that based on their understanding of various sub application scenarios, customizing each application scenario of the batteries is the core competitiveness of a company.

The reality is that many companies exaggerate their advertising in order to digest inventory, while the industry lacks third-party credible data and evaluations, which hinders the entry of capital. How much cash flow can projects that have already been put into operation in China bring, how much profit margin can they generate, whether the energy storage system can cycle 4000 or 6000 times, and how much efficiency can it achieve? There are big questions, and many people are kept in the dark, "Liu Xiaolu said bluntly.

Liu Xiaolu suggests that as an energy storage practitioner, one should have a reverence for technology and customers. Otherwise, this

2、Complete the shortcomings of EPC

Energy storage systems are tools for energy transfer and involve cross-border integration of various industries such as power electronics and electrochemistry. No matter how good the equipment is, without a professional design and construction background as support, the overall efficiency of the battery cannot be maximized.

In the current market that solely relies on price competition, Tang Tai is also gradually exploring and constantly revising its positioning in the energy storage industry. They hope to explore a business model for energy storage systems through EPC contracting and system integration.

EPC is the English abbreviation for "engineering, procurement, and construction", which is a completed industrial chain. Tang Xisheng believes that in addition to providing advanced equipment, the energy storage industry also needs new thinking and business model cooperation. To fully realize the value of energy storage systems, it is necessary to interface with various aspects such as the financial models of owners and investors, and focusing solely on the equipment itself is not enough.

The domestic energy storage industry is in the early stages of commercialization, and the application scenarios that can achieve economic benefits are still very limited. Tang Tai relies more on its own resources as a project developer, personally developing projects, recommending suitable projects to investors after screening, and then becoming its equipment and solution provider after negotiation.

From equipment manufacturers to system integration and EPC general contracting, while improving customer experience and enhancing customer stickiness, it has also significantly expanded the service radius, allowing the company to enter a larger market, but the threshold it faces is not low. Liu Xiaolu admitted that EPC is not simply connecting all devices. How to maximize the potential of batteries involves a series of issues such as management systems, PCS, EMS, containers, safety and fire protection.

In the past year, Tang Tai has strengthened the introduction of talents in engineering design, project management, software development and Big data. In terms of industry, academia, and research, Tang Tai has chosen to engage in strategic cooperation with the Institute of Electrical Engineering of the Chinese Academy of Sciences, leveraging its talent and technology to strengthen its core competitiveness in energy storage, electrical, and software. Tang Xisheng, the current general manager, also comes from the Institute of Electrical Engineering of the Chinese Academy of Sciences.

In early 2018, Tangtai's energy storage cloud platform was launched. It mainly solves the problems of Artificial Intelligence for IT Operations and continuous optimization of the system. Specifically, Tang Tai has connected all EPC energy storage projects undertaken globally to the cloud platform. Through the cloud platform, the status of each project and battery can be seen, enabling early prediction of the system. By collecting data, the evolution of battery performance can be studied, providing reference for the optimization design of batteries and the entire system.

Tang Tai has always focused on lead-carbon batteries in the field of energy storage. With the rapid decline in lithium battery costs, lithium batteries will become the mainstream of electrochemical energy storage for a long time in the future. With the change of its own position, Tangtai is vigorously promoting lithium battery energy storage, and finally determines which Technology roadmap to adopt according to the project profitability.

3、Expand the overseas market of optical storage

The flight takes 7 hours from Beijing to Kabul for landing. Kabul is the capital of Afghanistan, and its airport facilities are comparable to those of stations in third and fourth tier cities in the country, appearing somewhat dilapidated.

Afghanistan is one of the poorest and backward countries in the world, and to this day, there is still constant war and occasional terrorist attacks. Currently, over 50% of the population lives below the poverty line, and only about 45% of people have regular access to electricity.

Due to financial conditions and economic considerations, countries like Afghanistan will not invest heavily in building strong smart grids like China. By comparison, constructing photovoltaic+energy storage microgrid projects in areas without or without electricity requires less investment and higher efficiency. Especially with the technological progress and cost reduction of photovoltaic and energy storage systems, the Cost of electricity by source of photovoltaic+energy storage is more economical than the traditional Diesel generator.

Guo Jinfu, the overseas market leader of Tangtai Power, told "100 people with energy storage" that in these remote areas with weak power infrastructure, the cost of diesel power generation ranges from 3 to 4 yuan, especially the transportation cost of diesel accounts for a large proportion.

According to research firm Navigator Research, the global microgrid market will reach nearly $20 billion by 2020.

It's better to expand your territory overseas than to enjoy the illusory joy in China. In recent years, BYD, Wotai Energy, Sunshine Power, and Beikong Overseas have all achieved good results. Most of their projects are concentrated in countries with developed electricity markets in Europe, America, and Australia. These countries have mature market mechanisms and stable energy storage returns. But there are many players here, in addition to domestic peers, as well as giants such as LG, Panasonic, and Tesla.

Tang Xisheng stated that Tang Tai will focus on investing in emerging markets such as Asia Pacific, the Middle East, and Africa, with a focus on photovoltaic+energy storage microgrid projects. The reason for choosing these regions is because they themselves lack electricity and are easier to promote.

In 2018, the Ministry of Energy and Water Resources of Afghanistan announced that Tangtai Group had contracted to build the 5.5 MW optical storage micro grid project in Daykundi Province Province as EPC, which stood out from more than 10 competitors with a total contract amount of 13 million dollars.

After winning the first optical storage project in Afghanistan, Tang Tai successively won the subsequent 40MW optical storage microgrid project and 5MW photovoltaic project, with a total contract amount of over 80 million US dollars.

Guo Jinfu revealed that the above-mentioned project is led by the Afghan government and funded by a World Bank loan. The design and construction of subsequent projects will be completed together with local partners.

Tang Tai's approach is similar to that of early photovoltaic module companies, as there are relatively few market orders and they need to personally develop projects at home and abroad. Especially in this completely unfamiliar land overseas, it is not easy to truly occupy a place in the market.

In fact, there is no way to do EPC. We use projects to improve system solutions in different application scenarios. Once the market truly starts, Tangtai will focus on core technology and product support, and more importantly, we hope to expand the domestic and international markets as an 'integrated' role and partner.