The government is expected to announce the bidding for the third central contract market for energy storage systems (ESS) by the end of this month. Major battery manufacturers LG Energy Solution, Samsung SDI, and SK On are ramping up production of lithium iron phosphate (LFP) batteries to secure contracts. Although the government has stated it will prioritize quality over low bids, LFP batteries are seen as advantageous for profitability and market share compared to nickel-cobalt-manganese (NCM) batteries.
According to the battery industry on September 18, the Korea Power Exchange is set to release the bidding announcement for the third ESS central contract market around the Chuseok holiday. To ensure a smooth bidding process, system checks began last week.
As domestic battery companies face declining performance and factory utilization due to stagnant electric vehicle demand and aggressive pricing from Chinese competitors, the growth of the ESS market driven by renewable energy and AI data centers is expected to be a key future opportunity for the domestic battery industry.
The government has already created a total of 1,128 megawatts (approximately 6.8 gigawatt-hours) of new demand through the first and second central contract markets, aiming to expand the domestic ESS market and support the battery industry. The ESS central contract market, led by the Ministry of Environment and the Korea Power Exchange, aims to address the uniformity issues in power generation associated with renewable energy by securing large-scale storage systems through competitive bidding. Selected operators will establish large-scale ESS facilities across the country and operate them as power system resources for 15 years.
The third central contract market is expected to select operators for a capacity of around 560 megawatts, similar to the first and second rounds. In the first market, Samsung SDI captured about 76% of the total 563 megawatts, while LG Energy Solution secured 24%, and SK On did not win any contracts.
In contrast, in the second market, SK On rebounded by forming strategic partnerships with SK Group's energy affiliates, securing 50.3% of the total 565 megawatts. Samsung SDI and LG Energy Solution obtained 35.7% and 14%, respectively.
The bidding price dropped from the 30 won per kilowatt-hour range in the first market to the 20 won range in the second, making profitability a major challenge for the three battery companies. As a result, the third round is likely to shift focus from NCM batteries to LFP batteries, which offer better cost competitiveness.
Additionally, the government has indicated that it will evaluate domestic supply chain establishment as a crucial factor, favoring companies with local production bases and partnerships. In response, the three battery manufacturers are expanding their domestic LFP production lines. LG Energy Solution is building a facility in Ochang, North Chungcheong Province, capable of mass-producing 1 gigawatt-hour of LFP batteries for ESS, set to begin operations next year. SK On plans to convert part of its electric vehicle battery production line at its Seosan plant in North Chungcheong Province to produce LFP batteries for ESS, aiming for a production capacity of 3 gigawatt-hours.
Strategic partnerships for establishing a domestic supply chain are also becoming more active. For instance, SK On has signed a supply contract with L&F for LFP cathode materials worth 160 billion won from 2026 to 2028. Industry analysts suggest that this collaboration is aimed at securing contracts in the central contract market. Depending on the business outcomes, there may be discussions to extend the contract for up to three years after 2028. LG Energy Solution and Samsung SDI are also reportedly making significant efforts to secure domestic LFP cathode materials from companies like LG Chem and POSCO Future M.
* This article has been translated by AI.
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