LG Energy Solution withdraws from the auction
LG Energy Solution’s announcement that it would not participate in the energy storage system (ESS) central contract market auction has left the largest-ever competition for orders concentrated between Samsung SDI and SK On.
LG Energy Solution officially announced on November 5 that it had not submitted a proposal for the third ESS central contract market competitive auction. The third auction, which closed for proposal submissions on November 4, was opened for a total of 1,180 megawatts (MW), comprising 1,100 MW on the mainland and 80 MW on Jeju.
In battery storage capacity, the total reaches 7.08 gigawatt-hours (GWh), comprising 6.6 GWh on the mainland and 0.48 GWh on Jeju. This is the largest volume ever, exceeding the combined capacity of the first round, at 540 MW, and the second, at 565 MW, with project costs alone in the 2 trillion won range.
Sharply falling winning bid prices are behind the leading battery supplier’s decision not to participate. Average bid prices in the central contract market fell from the 30-won range per kilowatt-hour (kWh) in the first round to the 20-won range in the second, with some projects falling below 20 won.
The central contract market is structured so that developers receive settlement payments over an extended period at the fixed prices secured in the auction. When electricity sale prices fall, consortiums have little choice but to demand price reductions from battery suppliers, resulting in sustained loss-making competition in which cell manufacturers earn virtually no profit even when they win orders.
Reduced supplier pool and battery procurement prices
This time, more than 7 GWh of orders became available at once, while the number of suppliers fell to just Samsung SDI and SK On. Industry estimates put available supply at around 4 to 5 GWh for Samsung SDI and at least 3 GWh for SK On.
The entire demand in the third round could only just be met if both companies operated their factories at maximum capacity. This would give battery manufacturers the bargaining power to seek normal supply prices without having to yield to demands from developer consortiums for lower winning bid prices.
Battery procurement prices set by developer consortiums ahead of this auction are understood to have been around 1.3 to 1.4 times those in the previous auction. Despite stable battery raw material prices, land costs near grid substations have risen, while developers urgently seeking batteries following LG Energy Solution’s withdrawal have broadly accepted the two companies’ supply terms.
The bid prices submitted by consortiums are also reportedly being adjusted upward from previous lows to the low-to-mid 20-won range per kWh.
Supplier strategies and remaining auction conditions
This structural change offers different strategic benefits to Samsung SDI and SK On. Samsung SDI, which captured 76% in the first auction, is seeking orders that preserve high margins by drawing on the safety and high efficiency of its premium ternary batteries and recovering from its weaker second-round performance of 36%.
SK On, meanwhile, secured a 50% share in the second auction in a reversal of its fortunes. The latest competition gives it an opportunity to secure substantial medium- to long-term production volumes and raise factory utilization. Korea Giga Platform (KGP), a joint venture with global private equity firm KKR, has ended its partnership with LG Energy Solution and entered the third auction using SK On batteries, further reinforcing the two suppliers’ bargaining position.
However, KPX is maintaining the existing framework of 50% price evaluation and 50% non-price evaluation, leaving issues to resolve before final settlement prices and supply terms are confirmed. Domestic battery manufacturers have called for a greater weighting for non-price factors to counter aggressive low pricing by Chinese battery suppliers and prevent excessive price reductions, but their demands were again not accepted.
Meanwhile, demand for North American power grids and data centers is surging, with Korean battery companies’ quarterly ESS shipments in the US market exceeding 10 GWh. There is also an opportunity cost: committing too much supply to domestic deliveries could limit their capacity to respond to the highly profitable North American market.
KPX plans to close submissions of business plans and supporting documents on November 11, review the documents and announce the preferred bidders within November. Selected developers must complete construction by February 2029.
Original Korean article: leadeconomy.co.kr
English brief by Korea Wind Intelligence, koreawindintel.com
