China’s energy storage market made big strides in 2015. Major policy shifts last year – from power sector reform, to microgrids, to demand response – brought new opportunities to the table for energy storage.
Looking back, our experts weighed on the state of the market to bring you the top ten energy storage stories from 2015.
1. China Announces New Power Sector Reforms
Without a doubt, China’s power sector reform tops the list of important energy storage stories last year.
Beginning last March, China’s dormant power sector reform regime fired back up, with major policy releases marking adjustments to China’s generation, retail, and consumption regulations.
The heart of the reform rests in a landmark policy piece published by the State Council and CPC Central Committee, called Further Deepening the Reform of the Electric Power System, widely known as Document No. 9 (9号文). This document established that this round of reforms would:
- Maintain a monopolized transmission system, but open up generation and distribution to market competition
- Open up competitive electricity retail pricing
- Establish the groundwork for diversified energy trading
- Promote demand-side management and energy efficiency programs
- Increase the ratio of renewable energy in the country’s generation mix
China’s reform strategy thus far has strived for institutional separation between government bureaus and market entities, between generators and grid operators, and between main grid services and unrelated business operations in other sectors.
Document No. 9 states that the current round of reforms will open up market competition in generation and retail electricity markets and promote private investment in distribution infrastructure. Most importantly, the document calls for strengthened government oversight and control over grid planning.
In 2016, we expect these reforms to open up new opportunities for energy storage, particularly in demand response, ancillary services, and distributed generation.
2. National Energy Administration Releases Microgrid Guidelines
In July, the NEA shook up the microgrid space, announcing that each of China’s provincial governments should begin planning microgrid pilot projects. In the Guiding Opinions on New Energy Microgrid Pilot Projects, the NEA specified that these pilot projects should strive to integrate high penetrations of variable renewable energy sources.
This document emphasized the importance of energy storage, suggesting that policymakers are increasingly aware of the benefits energy storage can bring to microgrids.
The policy made no mention of specific subsidies for these projects, only stating that “new energy microgrid projects [should] be economically reasonable, given a certain degree of policy support.” Microgrid developers in China currently face challenges due to the lack of regulatory structures that colleagues in the United States and Japan rely on to drive value – such as widespread time-of-use rates, tiered electricity tariffs, and compensation for peak shifting and frequency regulation services. However, the opening up of retail electricity markets is expected to be an opportunity to develop these common-sense changes.
3. New Lithium-ion Battery Industry Regulations
Last year, the Ministry of Industry and Information Technology published new policies to better regulate China’s sprawling lithium-ion battery industry. The regulations specify that battery manufacturers should meet a number of production criteria to earn necessary government certifications.
Beyond manufacturing baselines, the regulations also set requirements for product quality, establishing minimum standards for cycling and energy density.
In comparison to previously published regulations, these are relatively relaxed. Nonetheless, this round of industry regulations should have some effect in cleaning up a disorganized industry and establishing further battery manufacturing standards down the road.
4. A Broad Push for Demand Response
As China’s economy shifts from manufacturing to service, load profiles are expected to change as well. Recognizing the challenges of a peakier load profile due to more grid-connected air conditioners and other high-consumption devices, the National Development and Reform Commission (NDRC) and the Ministry of Finance has taken an active role in promoting demand response pilot programs in select cities across China’s urban east coast.
The China Energy Storage Alliance was selected as the first certified load aggregator for the city of Beijing, putting us at the forefront of the effort to roll out demand response in China. On August 12th, for example, CNESA helped reduce load by 70 MW as Beijing’s peak load hit new highs. Although demand response providers still face myriad challenges in China, we expect to see increased institutional support for demand response as a result of last year’s successes.
5. Molten Salt Thermal Solar Storage Heats Up
In September, the National Energy Administration announced an RFP for thermal solar procurements totaling one gigawatt.
Notable for energy storage providers is the fact that the government required each project to include at least one hour of energy storage at rated capacity. Looking at the projects submitted so far, industry watchers could expect see a 4 GWh bump in energy storage capacity in China by 2018 from these procurements alone.
6. It’s All About the Energy Internet
If there’s been one catchphrase on everyone’s lips, it’s been the “Energy Internet.”
The Energy Internet (or the Smart Grid, as it’s described in other circles) is a term to describe energy systems characterized by a high degree of renewable distributed generation, wide deployments of a variety of energy storage technologies, and energy exchange between prosumers.
The idea has caught on quickly among China’s energy policymakers. Last April, the NEA held its first conference on the Energy Internet, resulting in the country’s first action plan to focus on distributed generation, microgrids, demand-side management, contract energy management, data-based services, and other business models and products.
With government support, companies like IESLab, NARI Technology, Shenzhen Clou Electronics are combining devices and big data analysis to shift from traditional sales to infrastructure-as-a-service. Meanwhile, leading inverter manufacturers Sungrow Power Supply and Xiamen Kehua are expanding into energy storage. In the EV space, Qingdao TGOOD Electric and Zhejiang Wanma Co. are building EV charging stations across the country.
CNESA has been at the leading edge of these developments as well. Last December, CNESA and ENN Energy held the 2015 Energy Storage and Energy Internet Research Summit, with support from the National Energy Administration. Tsinghua University’s Energy Internet Innovation Institute and North China Electric Power University’s Energy Internet Research Institute co-organized the event, which brought over 150 academic and industry experts together to discuss how to support further research on building out the Energy Internet. This closed-door event focused on the common needs of the energy storage industry and the Energy Internet in order to help clarify new opportunities and business models for energy storage.
7. Financial Sector Interest in Energy Storage
As anywhere, a significant barrier to entry for energy storage technologies in China is a lack of financing sources to support commercialization and deployment.
To help resolve this problem, CNESA signed a three-year agreement with the Bank of Beijing last June, opening up one billion Chinese yuan in potential financing for CNESA member companies.
The agreement also aims to facilitate the creation of a crowdsourced equity fund to support smart grid development, supported by Chinese capital funds Mingwu Capital, Kaiwu Capital, Qingyu Fund, and a number of CNESA member companies.
8. Retail Reforms and New T&D Reform Pilots
One key element in China’s most recent round of power sector reforms will involve changing tariff structures for transmission and distribution services.
On April 15th, the NDRC published a document announcing the first steps on that road, including an expansion of T&D reform pilot programs and signaling the intention to hasten tariff reform.
For context, outside of Shenzhen and Inner Mongolia – where T&D tariff reforms were first piloted – grid operators are not held to any tariff structure. Rather, they make margins off the difference between the wholesale price and regulated retail price of electricity.
Now, additional provinces and regions are now taking up tariff reforms, including Anhui, Hubei, Ningxia, and Yunnan. The NRDC has specified that grid operators will be compensated based on “authorized costs plus a reasonable profit” – essentially a regulated grid transmission fee. The document also called on all remaining provinces to examine existing T&D assets, costs, and profit structures to begin laying the foundation for nationwide reforms.
Retail reforms are also driving changes in the power sector. Until recently, electricity retail was firmly in the hands of the large electricity monopolies controlling China’s T&D assets. In the few months since power sector reforms were announced, though, over ten companies have registered as electricity retailers.
With the opening of China’s retail market come opportunities for innovative retailers to provide new services to end-use consumers and to tap into new value streams through distributed generation, EVs, smart homes, and energy storage.
9. Growing Policy Support for EVs and Charging Infrastructure
In 2015, government policies on electric vehicles moved beyond subsidies and support mechanisms to begin engaging in greater industry regulation and technical standardization.
The government has continued to release policies supporting EV charging infrastructure deployment. In a set of guiding opinions published in September, the State Council emphasized the need for increased EV charging deployments to keep up with China’s surging consumer demand. The Opinions call for greater deployments, improved services, and better technical standardization .
In October, four national-level ministries jointly published the 2015-2020 EV Charging Infrastructure Development Guidelines, calling for “12,000 new centralized charging stations and 4.8 million distributed charging stations to meet demand from the national goal of 5 million electric vehicles,” by 2020.
Battery recycling has also gained national recognition. In September, the NDRC and MIIT published a draft paper guiding industrial policy for EV battery manufacturing and recycling. It also aims to establish a recycling and reuse system for these batteries.
10. Energy Storage China 2015 Held in Beijing
Last June, CNESA held its fourth annual Energy Storage China conference and expo in Beijing’s Crowne Plaza Hotel. The event was co-organized by event organizer Messe Dusseldorf and supported by the National Energy Administration
Kicking off with a training session on June 2nd, the four-day event featured sessions on global market developments, electric vehicles, stationary energy storage technologies, and distributed solar plus energy storage. The event also included an in-depth exploration of energy storage opportunities in light of China’s new power sector reforms. CNESA marked the event by releasing its annual energy storage industry white paper, which covers major trends in energy storage in China and around the world.
Energy Storage China 2015 was supported by an international coalition of energy storage trade associations, including BVES (Germany), CESA (California), IESA (India), and the Global Energy Storage Alliance. Last year’s event drew 700 attendees from over 10 countries, who enjoyed access to Chinese policymakers and leading utilities, generators, and energy storage solution providers. Attendees learned about global industry and regulation trends from 80 experienced speakers, and had the chance to promote their products, understand new business models, meet potential clients, and establish themselves in China’s growing market.
Energy Storage China 2016 will be held May 10-12th at the Beijing International Convention Center.
What's ahead for 2016?
2016 is going to be a big year for China. This March, China's national legislature is expected to approve the 13th Five-Year Plan, a far-reaching document that will guide investment and growth targets through 2020.
In this context, China watchers should expect a changing landscape for energy storage in 2016. Here's our take.