Domestic sourcing becomes key battleground in Korea's biggest ESS project

Battery localization has emerged as the battleground for the government’s third energy storage system (ESS) procurement round. Companies are now competing to build domestic supply chains that extend to core battery materials, including cathodes and anodes.

For the third round of its centralized contract market, the Ministry of Climate, Energy and Environment is taking bids for 1,180 megawatts of ESS output capacity through Nov. 11, according to industry sources on Sept. 28.

An ESS works like a large-scale battery, storing electricity generated from sources such as solar and wind power. The government project calls for systems on the mainland and Jeju Island that are capable of sustaining a maximum output of 1,180 megawatts for six hours.

This is the largest project of its kind to date, with more than 7 gigawatt-hours of storage capacity — exceeding the combined capacity of the first two rounds. The government plans to select operators in November and bring the facilities online by February 2029.

At stake in the roughly 2 trillion won ($1.47 billion) procurement race is not just price or capacity but localization.

Price makes up half of the 100-point evaluation, with safety and industrial contribution accounting for the other half. Of the 50 points allocated to safety and industrial contribution, 25 are based on factors such as domestic manufacturing, supply chain localization and job creation.

LG Energy Solution is betting on localization after lagging in the first two rounds.

The company proposed sourcing some lithium, iron and phosphate (LFP) batteries from its Nanjing plant in China during the second round.

But for the latest tender, it plans to manufacture the entire supply in Ochang, North Chungcheong, and to source the four core battery materials — cathode materials, anode materials, separators and electrolytes — from domestic suppliers.

“For the first time, all four core materials used in our LFP batteries will come from Korean suppliers,” an LG Energy Solution representative said.

SK On, the largest supplier in the second round, is already accelerating its efforts to build a domestic LFP supply chain.

The company is converting 3 gigawatt-hours of its 7 gigawatt-hour production capacity at its Seosan plant in South Chungcheong into LFP lines for ESS batteries. Pilot production is scheduled for the end of this year, with deliveries expected to start in the first half of next year.

SK On had planned to procure cathode materials, separators and electrolytes from Korean suppliers as early as the second-round tender.

It recently signed LFP cathode material supply deals worth about 160 billion won with L&F and about 1.07 trillion won with Posco Future M. The company expects its second-round batteries to become the first LFP batteries made in Korea using domestically produced LFP cathode materials.

Samsung SDI has not yet settled on whether to compete with ternary or LFP batteries in the third round. Its first two bids called for nickel-cobalt-aluminum ternary batteries made in Ulsan, but it is converting some production lines there to LFP.

Either choice will, therefore, likely use domestically sourced materials. The company’s prismatic battery technology and ESS safety features, including fire detection and suppression, are also expected to be key selling points.

Domestic production strategies also proved decisive in the first two rounds. Samsung SDI secured about 76 percent of the total volume in the first round.

In the second, SK On emphasized domestically produced LFP batteries and greater use of Korean-made materials to win 284 megawatts, or 50.3 percent, of the 565 on offer. Samsung SDI took 35.7 percent, and LG Energy Solution 14 percent.

The third tender is shaping up as a key test for Korea’s domestic LFP materials supply chain.

LFP batteries have become the dominant chemistry in the ESS market thanks to their cost competitiveness and thermal stability. Korean manufacturers, however, have traditionally focused on ternary batteries, which offer advantages such as longer EV driving ranges. This has left Korean battery makers reliant on China for LFP materials, including cathode materials.

But that dependence is easing. L&F completed the construction of a dedicated LFP plant in Daegu in May and will begin mass production at the end of September. Posco Future M is converting part of its high-nickel production lines in Pohang to LFP and plans to start production by the end of the year.

“If Korean-made LFP batteries prove their performance and safety in the domestic ESS market, companies can build a track record to help win orders overseas,” an industry source said. “Growing demand could also create a virtuous cycle by encouraging further investment from materials suppliers.”

BY SUK GYEONG-MIN [[email protected]]