NEWS

Analysing Morgan Stanley’s Clean Power Report

Analysing Morgan Stanley’s Clean Power Report

NEWS

The Morgan Stanley Global Energy and Utilities team recently released a paper titled “ Clean Power: Deflation Path Supercharges Adoption”. The report contains a detailed analysis of the clean energy market and proposes a bullish view, forecasting an acceleration in the adoption of green energy.

The Morgan Stanley Global Energy and Utilities team recently released a paper titled “ Clean Power: Deflation Path Supercharges Adoption”. The report contains a detailed analysis of the clean energy market and proposes a bullish view, forecasting an acceleration in the adoption of green energy. It's worth digging a bit into the paper and extracting some useful stats, especially regarding batteries.

Market overview: The report states that clean power will reshape the electricity landscape, overtaking fossil-based generation by 2030, with over US$500bn of direct subsidies for low-carbon equipment manufacturing announced globally.

Key drivers of adoption:

According to Morgan Stanley, the key drivers of adoption will be:

Price. The global renewable cost curve will decline as new technologies achieve scale and diffuse faster, amid substantial oversupply and supply chain relocation.

Continued innovation will improve performance and reduce the per-unit cost of renewable energy, with the fall in storage costs serving as an added driver of growth given the supporting role that storage plays in renewable adoption.

• Major policy support in many nations, including the US, EU and China.

• A substantial increase in renewables, clean hydrogen and energy storage manufacturing capacity driving per-unit costs lower and leading to oversupply.

• While the conventional view is that the localisation of supply chains for energy security will be inflationary, Morgan Stanley's work suggests that most countries will be competitive if government incentives are considered across most infrastructure production costs, enabling developers to secure core technology near the point of demand, reducing geopolitical risks and supporting more aggressive growth targets.

Focus on BESS: Morgan Stanley states that as the cost of clean energy decreases and the share of renewable in the National Grid rises, the need for energy storage becomes greater to ensure Grid reliability. They expect that by 2030, BESS's installed capacity will increase from 48GWh to 227GWh and the cost of storage will be reduced by 30%. Technological progress has already reduced storage LCOE by 30-40% globally, however, it still is 3X that of solar in terms of producer economics. Therefore, further cost reductions will be needed for a broader deployment. New technologies show promising results, with sodium-ion currently about 30% cheaper than LFP, which in turn is 15% lower than NCM Li-ion cells, as both are less reliant on rare earth minerals. Cheaper Sodium-ion cells have reached commercial development and implementation in China, and multiple corporations have announced plans to build ESS manufacturing facilities focused on metal air and sodium-ion. However, some of this reduction in costs will be offset by a shift in supply chains to local production like the US, where capex/GWh is 2x vs Asia. However, government subsidies and production-linked incentives should help lower the impact of localisation in supply chains. Morgan Stanley states that in the medium term, the localisation in supply chains should bring OPEX benefits for power generators.

Although a lot needs to happen in terms of technological progress, public policy, private and public investments and geopolitical strategy, this report confirms the bullish view that we at L48 have on the clean energy transition and the role that batteries will play in it.