CNESA Chairman Johnson Yu has been a key player in China's burgeoning energy storage industry, first beginning in 2006 when his vanadium flow battery company was awarded tender in one of the world's largest projects of its kind, the Zhangbei Hybrid Wind & Solar Pilot Demonstration. His next venture provided ancillary services to China's national grid operator State Grid. It was during this time he also founded the China Energy Storage Alliance.
Q1: HOw would you describe the current stage of china's storage industry development?
We can divide the industry development into three stages. The first was technology verification (2000-2010) mostly consisting of launching basic R&D and technology demonstrations. The second stage (2011-2015) was the demonstration stage. As technology advanced, new ways to apply storage became increasingly clearer. Starting in 2015, energy storage entered a transition period, from demonstration to commercialization.
With regards to technology itself, the development of electric vehicles has brought about substantial drops in costs. Last year, storage commercialization began in China.
With the myriad of demonstration projects underway, the applications for storage technology are taking shape. China's main application sectors are currently distributed generation & microgrids, large-scale renewable energy integration, frequency modulation, in addition to ancillary services.
In the upcoming year, we expect China's installed capacity to double - both behind and in front of the meter.
Just recently the NEA published the “2017 Guiding Opinions on Energy Development” highlighting several projects expected to be completed by the end of the year. These include projects in Suzhou (Huiteng), Tibet (Nima), Dalian (Dalian Rongke), Changsha (BYD), Shanxi (Sungrow), and in Bijie, Guizhou.
Q2: How effective has policy support for energy storage been in 2016?
In 2016, several industry-focused Five Year Plans, including the “13th Five Year Plan for Energy Development,” “13th Five Year Plan for Renewable Energy Development” and the “13th Five Year Plan for Power System Development” all clearly indicated support for increased efforts in research & development and model demonstrations both in large-scale and distributed storage applications.
The NEA also issued policy documents with significant implications for storage industry commercialization. In February there was the “Guiding Opinions on Promoting the ‘Internet+’ Smart Energy Development” (关于推进“互联网+”智慧能源发展的指导意见) which included sections directly related to storage, including "Promoting Centralized and Distributed Storage Collaboration" and "Developing Storage Networks and Informatization." While these documents may be of a "guiding nature," they have had a clear impact on industry growth and are responsible for a surge in storage technology companies applying for authorization of project demonstrations. If you take a look at the recently released roster of approved "Internet of Energy" projects you see many projects with storage directly mentioned in the title.
In June the NEA released its first policy that directly supported energy storage: “Announcement on Promoting Electrical Storage Participation in Ancillary Service in the ‘Three Norths’ Region.” This allowed storage resources to be constructed at power generation sites to provide peak services and frequency modulation, or participate as an independent resource in the ancillary services market. The "Three Norths" policy is similar to the U.S. FERC Order 755, instituting a “mileage-based’ payment mechanism based on performance to increase the effectiveness of the compensation mechanism.
Q3: What are CHina's most profitable storage applications?
Pumped hydro can generate earnings through both capacity and electricity pricing schemes. Non-pumped hydro technologies can combine local storage subsidies with strategically storing and discharging energy during peak and off-peak times to save on power bills. This is currently the most profitable storage scheme in China.
In northern China ("Three Norths" Region), storage can provide frequency modulation services for thermal power generation plants through compensation and penalty schemes for profit.
Q4: What work remains in order to commercialize energy storage?
In the industry's early stages, subsidies are a must. However, in the long term a healthy industry development also needs to rely on free-market principles.
Power systems and the storage industry are also interconnected. China is currently enacting broad-reaching electricity system reforms. However, despite storage's widely acknowledged importance, the market mechanisms that make storage commercially viable, like spot markets and ancillary service compensation, have yet to be instituted nation-wide.
Under ideal market conditions, storage companies would only need to work on optimizing the quality-to-price ratio. America has reached this stage. China's storage players have to gain government approval for project demonstrations while also lobbying for policies to allow them to eventually enter the market.
Q5: In the 13th Five Year Planning Period What kind of DEVELOPMENTS can we expect to see?
Energy storage currently has an investment return period between 7 to 9 years. In addition to this, its ROI, usually less than 10%, limits the attractiveness of investing in storage technology to low leverage companies or banks. Due to continuous breakthroughs in battery technology, we do foresee that 2017 will be a break even point for storage investment; at the latest this would happen by 2018.
CNESA expert committee member, Lai Xiaokang, from the Chinese Academy of Sciences predicted back in 2012 that to in order to break even, storage systems need to exceed 5000 cycles with costs below CNY1500 per kWh. I agree with this prediction.
Coming up in 2017 we have several projects under first round of "Internet of Energy" pilot demonstrations as well as many hybrid energy optimization projects. Following this trend towards distributed energy resources, storage applications will also have a corresponding increase. During the National People's Congress that just convened in March we were also very pleased to see a proposed development plan titled "Distributed Energy + Storage."
Q6: Do you think one storage technology will become dominant in the upcoming years?
It's hard to answer this question without considering specific applications. As a whole, I believe that in the upcoming 10-15 years many storage technologies will co-exist. Just look at Li-ion, which in itself already includes several other technologies like lithium iron phosphate, lithium titantate, lithium sulfur, lithium metal, etc. These all will continue to develop. Aside from the lithium chemistries and advanced lead batteries, there's also compressed air, flow batteries, Na-ion, aluminum, and magnesium batteries we should also keep an eye out for in the future.
Q7: What are your thoughts on the latest lithium Titante batteries?
Again, to properly evaluate a technology you have to consider its application context. Lithium titanate batteries are relatively safe and long-lasting. If users can accept using these batteries over a long period then they are very competitive. However, if the user only wants to make a single investment and recover costs within 3-5 years, traditional Li-ion batteries are more appealing.
Q8: What has CNESA done to Promote energy storage commercialization?
CNESA is currently organized into four branches: our alliance members, expert's committee, research think tank, and financial services assistance.
We work closely with Chinese industry leaders and government agencies along with collaborating with foreign companies and alliance organization partners. From the laboratory to marketplace, from domestic to international, we follow it all. Our research results are summarized in our annual white paper.
With respect to promoting policy change, we are highly engaged in this field. Last year, on April 7, 2016, the NDRC and NEA jointly published the "Energy Innovation Action Plan (2016-2030)" to delineate China's energy innovation goals. CNESA organized our alliance expert's committee and industry members to contribute to the content and editing of the section titled, "Innovation in Advanced Storage Technology."
Our alliance also firmly believes that acquiring capital investments should not limit promising emerging technologies, and as such we are committed to helping startups build relationships with investors. Next month at our annual Energy Storage Conference & Expo, we will be holding the First Annual Energy Storage Innovation Competition. Our investment partners will be in attendance to learn more about promising technologies.
Q9: Any advice for upcoming storage entrepreneurs?
There are no set rules to be an entrepreneur, everything depends on your ideals and convictions. At present, industry observers often say that whoever can establish a viable business model before power markets are established will become successful once these power markets begin operating. Companies with a wide-range of resources, say for example microgrid design or business/construction management, if these companies expand to include storage operations it will be easier than for companies emerging directly from the laboratory. However, uncertainties in markets and emerging storage technologies still bring opportunities (as well as risks) to startups.
All this uncertainty is a good thing since uncertainty is a prerequisite for creativity. I'd say now is the time to get in the market, since things will only pick up from here. You need to have three key requirements: a team, a technology, and a business model. Even if you only have one of these components, you can still enter the market and work on building up the others.