Energy storage systems demand Report Interpretation

Overview

J.P. Morgan challenges pessimism on the ESS outlook following sharp share-price declines among Chinese ESS value-chain stocks. Its central case is that China’s structural storage build and policy reform, combined with resilient overseas demand, support continued ESS installation and battery-shipment growth into 2030.

Core views

J.P. Morgan argues that the market has become overly pessimistic about China ESS demand after CATL-A, HyperStrong, Deye and Sungrow corrected sharply from 1 June amid concerns over a weak 2027 outlook and geopolitical uncertainty. The institution maintains its forecast for China ESS installations to grow at roughly a 22% CAGR through 2030. Its long-term framework assumes China’s renewable-generation mix reaches about 33% by 2030 and cumulative ESS attachment reaches about 18%. It considers this attachment level reasonable against the UK’s approximately 34% renewable penetration and approximately 22% cumulative storage attachment in 2025. A CNESA expert’s expectation for 20–25% installation CAGR through 2030 provides further support. The report sees China’s policy rollout as only partly complete and therefore a source of further upside to project economics. Roughly 10 provinces were still expected to fully introduce or formalize capacity-fee frameworks, while an auxiliary-service fee market was being developed. Capacity charges already vary materially: Liaoning is cited at RMB370/kW per year, Jilin and Gansu at RMB330/kW per year, and several provinces around RMB165/kW per year. For a four-hour system in provinces with capacity pricing, all-in returns can reach about 8–9% or more, and about 12–15% in favorable cases. Economics are highly dependent on grid connection points because peak-to-trough spreads vary from roughly RMB0.25/kWh in Xinjiang, Gansu and Ningxia to about RMB0.35/kWh in Shanxi, with up to RMB0.6/kWh or RMB0.8/kWh at congested nodes. The report adds that a potential shift toward charging grid fees on a net-charge basis could reduce ESS projects’ fee burden. It also highlights storage retrofits at existing renewable projects, including Shandong’s policy allowing solar farms paired with ESS to sell into higher-priced evening hours. Near-term China data do not alter the report’s constructive interpretation. Independent ESS additions reached about 15GW in 1H26, lifting their share of the mix to about 70% from about 55% in 1H25; the expert expects the share could reach about 75% by end-2026. CNESA reported 1H26 additions of 21.8GW/58.6GWh, down about 16% year on year on a GWh basis, while three data sources indicated only 45–60GWh of installations in 1H26 against J.P. Morgan’s 255GWh full-year China forecast and approximately 500GWh of ESS battery shipments. J.P. Morgan argues the apparent divergence reflects incomplete reporting and seasonality rather than a fundamental demand reversal: second-half installations have historically been two to three times first-half levels, and implied December 2025 installations represented about half of CNESA’s reported FY25 total. CNESA’s 11M25 figure of roughly 100GWh was subsequently reconciled to a final FY25 figure of about 190GWh, illustrating the potential scale of later revisions. The institution also distinguishes shipment, installation and revenue-recognition timing. Domestic battery shipments generally lead commissioning by around 6–12 months, while overseas projects can take 12 months or longer because of transportation, integration and grid-connection processes. It therefore expects a meaningful share of strong 2026 shipment growth to convert into installations and revenue recognition during 2027, rather than representing substantial channel inventory. Lower consensus lithium-price expectations for 2027 are also said to reduce incentives for inventory accumulation. J.P. Morgan forecasts China ESS battery demand of 501GWh in 2026 and 606GWh in 2027, implying about 21% growth in 2027, versus market expectations for little to no growth. Overseas demand is the report’s second major pillar, particularly because overseas markets account for 60–65% of CATL’s ESS shipments. ICCSino forecasts global ESS installations of 508GWh in 2026, up about 53% year on year, and 664GWh in 2027, up about 31%, including about 40% China growth and about 21% overseas growth. Global ESS battery shipments reached 725GWh in 8M26, up 97% year on year, with overseas markets accounting for 54% of demand. For Chinese battery suppliers, EU and rest-of-world shipments rose about 120% and 136% year on year, respectively, in 8M26 and together accounted for 45% of their shipments. The report identifies US AIDC demand, renewable integration and policy-backed projects in Europe and APAC, and utility-scale projects in emerging markets as the principal drivers. Europe is a key example of the mechanism behind the overseas thesis. J.P. Morgan analyzed about 3 million data points across 32 European power-market regions since 2015 and found peak-to-trough spreads of roughly EUR105/MWh, close to the approximately EUR128/MWh dislocation during the 2022 energy crisis and well above the roughly EUR50/MWh long-term average. It links this to wind and solar overtaking gas in generation mix in several major markets, producing a more pronounced duck curve: midday prices have declined through 2026 amid excess renewable output, while evening prices remain supported by tighter net load, fuel-linked marginal costs and ramping constraints. Wider intraday volatility can improve ESS monetization through demand response and peak shaving, while deeper price dislocations may require longer-duration BESS. European policy support further strengthens the case, including German grid-fee exemptions, UK capacity and cap-and-floor arrangements, and Italy’s MACSE premium contracts. Bulgaria may see an exceptional 2026 installation surge before normalizing in 2027. Within covered Chinese ESS names, J.P. Morgan favors Deye for exposure to European and emerging-market commercial and industrial ESS growth. It maintains an Overweight rating on Sungrow, arguing that its roughly 40% underperformance since 1 July versus the SHCOMP Index has largely priced in geopolitical risk, while its integration capabilities and ex-US installation outlook remain supportive. CATL is viewed as the preferred exposure to global ESS growth because of its market share, overseas mix and valuation following the recent correction.

Analysis framework

The report combines a long-term China power-system and ESS-attachment model with global benchmark comparisons, expert-call evidence, provincial policy analysis and shipment-versus-installation timing analysis. For overseas markets, it uses installation forecasts and a European power-price dataset covering roughly 3 million observations across 32 regions to link renewable penetration, intraday price spreads and storage economics.

Methodology notes

• Industry AnalysisSupply-demand framework

  ESS demand is assessed through renewable buildout, storage attachment rates, policy incentives, project economics and regional installation forecasts.

  The report estimates the storage required as renewable capacity expands, then tests whether policy and power-market revenues support the implied level of ESS deployment.

• Industry AnalysisUpstream-Midstream-Downstream Transmission

  Battery shipments, ESS project installation and revenue recognition occur on different timelines.

  J.P. Morgan uses shipment-to-commissioning lags to explain why strong battery shipments can precede reported installations without necessarily signaling excess inventory.

• Industry AnalysisVolume-price decomposition

  European ESS economics are evaluated through peak-to-trough power-price spreads and installation demand.

  The report links widening intraday power-price spreads to the revenue opportunity for storage and therefore to stronger demand for ESS capacity and longer-duration systems.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• CATL-A (300750.SZ) / CATL-H (03750.HK)

  Preferred exposure to global ESS growth.

  Strengths

  Leading market share, strong overseas exposure and an attractive valuation after the recent correction.

  Comparison

  Overseas markets account for 60–65% of CATL’s ESS shipments.

  Risks

  Exposure to geopolitical uncertainty and shifting US battery sourcing toward Korean and Japanese suppliers.

• Sungrow-A (300274.SZ)

  Preferred Chinese ESS integrator.

  Strengths

  Strong ESS integration capabilities and robust ex-US ESS installation growth outlook.

  Comparison

  The stock had underperformed by about 40% since 1 July versus the SHCOMP Index, which J.P. Morgan believes largely priced in geopolitical risks.

  Risks

  Geopolitical risks.

• Deye-A (605117.SH)

  Preferred Chinese ESS integrator.

  Strengths

  Exposure to Europe and emerging-market commercial and industrial ESS growth.

Key data

• China ESS installation CAGR~22% through 2030J.P. Morgan’s maintained long-term installation forecast.
• China 2030 renewable mix~33%Medium-term assumption for solar and wind generation as a share of total power generation.
• China cumulative ESS attachment rate~18% by 2030Compared with the UK’s ~22% cumulative storage attachment in 2025.
• China 1H26 ESS additions21.8GW / 58.6GWhCNESA-reported additions, down approximately 16% year on year on a GWh basis.
• China 2026E ESS installations255.2GWhJ.P. Morgan forecast; reported 1H26 data are viewed as incomplete and seasonally unrepresentative.
• Global ESS installations508GWh in 2026; 664GWh in 2027ICCSino forecast, representing approximately 53% and 31% year-on-year growth, respectively.
• European peak-to-trough power-price spread~EUR105/MWhCompared with ~EUR128/MWh during the 2022 energy crisis and a ~EUR50/MWh long-term average.
• Global ESS battery shipments725GWh in 8M26Up 97% year on year; overseas markets represented 54% of demand.

Impact & implications

The report’s conclusion is that weak reported China installation data should not be read as evidence of structural demand deterioration. Continuing capacity-fee and auxiliary-service reforms, renewable-storage retrofit demand and longer commissioning cycles support its shipment outlook, while overseas power-market economics and policy programs broaden the growth base for Chinese ESS suppliers.

Risks

• China ESS project returns are highly dependent on connection points, local power-price spreads and development constraints.
• Conventional US utility-scale ESS projects remain constrained by grid-connection queues and transformer availability.
• European demand performance may vary by country after strong 2026 project deliveries, and Bulgaria’s elevated 2026 installations are expected to normalize in 2027.
• Geopolitical uncertainty remains a concern for Chinese ESS value-chain companies.

What to watch

• Further provincial rollout and formalization of China capacity-fee frameworks and the development of auxiliary-service fees.
• The extent of revisions to China’s partial-year ESS installation data during full-year reconciliation.
• European intraday power-price spreads and the persistence of renewable-driven duck-curve conditions.
• Overseas project commissioning schedules and US AIDC-related ESS demand.