The ambitious south Xinjiang solar-plus-storage demonstration plan has yet to take the next few critical steps. Xinjiang’s first batch of solar-plus-storage projects, originally scheduled to go operational at the end of October, have been postponed.
After several months of research, consultation, and policy revisions, in July this year, the list of the first batch of solar-plus-storage demonstration projects to be launched in Xinjiang was released. A total of 36 projects were selected at a total scale of 221MW/446MWh.
Though the list of projects did not reach the initially planned total of 350MW, the announcement was still encouraging news in the context of the industry’s shortage of new projects this year. However, as the deadline approached, many issues that were originally thought could be resolved were unable to be resolved.
The Xinjiang solar-plus-storage policy, the key stimulus driving development of the projects, provides an additional 100 hours per year of priority generation to solar PV stations with co-located energy storage for a period of five years.
But there are two different understandings regarding the 100 hours of priority power generation. One interpretation is that solar PV stations will directly add 100 hours of generation. In such a case, a 100MW solar PV station will add an additional 3 to 5 million RMB in revenue per year. The other interpretation is that the 100 additional hours will be added to the original guaranteed purchased hours. In other words, traded electricity becomes guaranteed electricity. For example, if the grid guarantees a purchase of 600 hours, these hours would instead become 700 hours of guaranteed electricity, with the remaining generation being handled as traded energy. In this way, the 100 hours of generation would amount to a small fraction of additional RMB revenue per kilowatt, meaning that a 100MW solar PV station would see an additional several hundred thousand RMB in revenue each year.
Obviously, the difference in revenue between the two interpretations is huge, despite the calculation being based on the same 100 hours. The current situation suggests that the second interpretation is likely to be used. Though this means that potential revenue is lower, lower revenue is better than no revenue.
In order to attract investors, Xinjiang has a kilowatt subsidy in addition to the explicit documented incentives. This subsidy is calculated based on the charging port. For every kilowatt charged, a 0.4 RMB subsidy is provided. This subsidy was established as a verbal agreement made during a series of consultations. Because the agreement deals with funding sources and must be coordinated with the Energy Regulatory Bureau and grid companies, it was not included in the written agreement.
According to calculations, the current financing costs for private companies remain high, and solar PV subsidies are delayed by 2-3 years. Under a subsidy of 0.4 RMB and taking into account two years of financial costs, a direct increase of 100 hours of power generation would provide an investment return of about 9%. If the 100 hours is calculated as part of the guaranteed purchased hours, then the project yield would be 3-4%. With such a rate of return, it is difficult to convince a company or external strategic investor to invest.
In addition, renewable energy owners, as the hosts for energy storage projects, also need to obtain certain benefits. At present, some energy storage enterprises and renewable energy owners plan to adopt an 8:2 or 9:1 revenue sharing model, while some companies plan to adopt a distribution mode in which the revenue from additional generation is provided to the solar PV owner and the peak shaving subsidy is provided to the energy storage project investor.
In order to regulate the market and stress the seriousness of the policy, Xinjiang released an additional supplementary notice in August. Those energy storage companies which cannot implement the pilot projects will be blacklisted and not allowed to invest in or construct energy storage projects in Xinjiang in the future. This is a dilemma for those companies which have already been selected for project development. Should they pull out of the project, they will be blacklisted in Xinjiang, which could affect not only their energy storage business, but could also other potential business activities in the region as well.
Most of the companies that originally came to Xinjiang did so with an optimistic view of the region’s energy storage market opportunities and/or with the hope of completing large-scale solar-plus-storage stations. However, to achieve a basic return on investment and successfully promote the construction of demonstration projects, a more thorough and clear policy environment must be put in place.
Even with a 100 hour “transacted power to guaranteed power” scheme, a 0.4 RMB/kW subsidy can only provide an up to 3-4% annual revenue rate. Yet the exact source of this subsidy has yet to be defined. Some suggest referring to the practices of neighboring provinces by having the region’s power companies share the costs. However, such a plan would require the understanding and approval of multiple entities including the power generation companies, grid companies, and regulatory authorities.
As an emerging industry, electrochemical energy storage creates complicated business relationships in many scenarios. All parties involved in energy storage development may face challenges if coordination from high-level regulatory agencies and a strong policy foundation are lacking. The establishment and implementation of a settlement mechanism, coordinating grid connection responsibilities, and the distribution of benefits between the energy storage enterprises, renewable energy owners, and potential strategic investors involved—these are all major steps that must be developed from the ground up.
The original intention of the Xinjiang solar-plus-storage projects was twofold. First, to increase the consumption of solar energy, and second, to create a new point of economic growth. From the point of view of the energy storage industry, if the demonstration can provide clear benefit, it is very likely to stimulate other provinces to follow with their own projects, thus opening a broad new field of development for the industry. Such an opportunity would create value for all parties.
The deadline has already arrived, and the project has unfortunately fallen behind schedule. Besides installation and commissioning, one of the most time-consuming factors is the shipping of large quantities of Li-ion batteries due to their classification as hazardous chemicals. Insiders have reported that while the originally scheduled shipping time was estimated at 25 days, the actual shipping time for one batch of batteries from Jiangsu to Kashgar was 44 days. Other delays have arisen from efforts to introduce external funding, and it is likely that more time will be needed to discover additional strategic partners. Regardless of these delays, the key factor to the successful development of the Xinjiang projects still lies in the creation of a complete policy system and clear project development process.
Author: Hu Bufei, Energy Storage 100