In 2018, China’s electrochemical energy storage capacity experience a growth spurt. The accumulated annual growth rate reached 175.2%, while the annual growth rate for new capacity reached 464.4%. The energy storage industry in China displayed an unprecedented level of new growth and saw major new breakthroughs, including the achievement of over 1GW of total accumulated capacity, breakthroughs in large-scale grid-side energy storage applications, Li-ion battery system construction costs reaching 1500 RMB per kWh, and the proliferation of energy storage throughout a variety of applications, including traditional power generators, solar PV stations, wind farms, the power grid, low-carbon transportation, telecommunications, logistics, shipping, and other industries.
According to CNESA project database statistics, as of the end of June 2019, China’s accumulated electrochemical energy storage capacity totaled 1189.6MW, with 116.9MW of capacity newly added in the first half of the year, a change of -4.2% in comparison to the first half of 2018. The figures represent a market slowdown following a major increase in capacity in 2018.
A look at the installation rate for each major energy storage application reveals that, in the first half of 2019, renewable integration applications saw the slowest rate of growth, having no new capacity installed. The once active behind-the-meter sector saw little development. Energy storage in frequency regulation applications, which saw great expansion in 2018, slowed significantly in the first half of 2019. The first half of 2019 saw the official launching of multiple grid-side energy storage projects that had begun planning in 2018, yet continued project construction in the future is likely to be difficult due to the lack of a profit mechanism for grid-side storage. Looking forward, it is likely that growth will slow at a quicker and more severe pace than the industry has anticipated.
Since 2016, when energy storage began its transition to commercialization, the central difficulty for the industry has been long investment return periods and profit instability. Market and price mechanism policies also have a major influence on the industry. Though rigid market requirements have gradually become clear this year, restrictions on energy storage system profits and costs have still not become a major driver for sustainable industry development.
In 2018, the launching of new grid-side energy storage projects brought tremendous new growth to the industry as well as confidence in continued future growth. According to CNESA data from the first half of 2019, projects which are anticipated to go operational between 2019-2020 have a total capacity of approximately 1000MW. These include stage two projects in Hunan, Guangdong, Jiangsu as well as projects in Zhejiang, Fujian Jinjiang, and Gansu. China State Grid’s Guiding Opinions on Promoting the Healthy Development of Electrochemical Energy Storage released in February 2019 stated the goal of “including all provincial power company grid-side energy storage investment costs as part of grid asset T&D pricing.” In other words, recouping the costs of energy storage construction investments through T&D prices. Yet the June release by the National Development and Reform Commission of the Transmission & Distribution Pricing Cost Supervision Methods stated clearly that grid company investments in energy storage infrastructure cannot be included in T&D power prices. The NDRC’s policy is a wakeup call that if no other method for generating profits is to be found soon, then the future development of grid-side energy storage is likely to be severely affected. State Grid’s recent announcement of plans to slow their construction of new grid-side energy storage projects is also no doubt related to the NDRC policy.
The recent shrinking of the peak and off-peak price gap, capital difficulties, and other problems have inhibited the growth of behind-the-meter energy storage. Energy storage companies take on the majority of the pressure of project funding. Policy changes can affect the investment return period for energy storage projects. When potential profits from peak and off-peak power price arbitration become unattainable, vendor enthusiasm for developing new projects and expanding the market begins to fade. Energy storage frequency regulation applications have suffered the same fate, yet the primary reasons have been due to policies which have lowered frequency regulation prices, competition in a limited market, payment delays, and funding difficulties, among other issues.
The China Energy Storage Alliance organized a series of studies between July and August of 2018, visiting local governments, energy storage vendors, systems integrators, power companies, design institutes, investment agencies, and other organizations. Almost all organizations supported the use of energy storage technologies and applications, yet on the question of how to establish a stable business model and realize profitability, most of those interviewed did not have an answer. Many are eagerly awaiting policy updates that can help resolve this question.
Industry development is once again experiencing a rocky period and many stakeholders have begun to share their woes. Yet if we take a rational look at the market, we can still see that there are many active elements guiding development. Following the release in October 2017 of the Guiding Opinions on Promoting Energy Storage Technology and Industry Development and the June 2019 release of the 2019-2020 Action Plan for the Guiding Opinions on Promoting Energy Storage Technology and Industry Development, local governments and grid companies have also released their own policies for energy storage promotion and development. Power system reform policies and renewable energy policies have also included energy storage in their range of support. Because energy storage technologies and applications are still relatively new, it is unrealistic to hope that policies will be able to have an instant effect. The effects of policies can often take considerable time to appear, and many policies often require adjustment after release. Recent regional policies have helped support the efforts towards energy storage commercialization and electric power marketization, with over 200MW of energy storage project capacity planned and/or under construction as a result. Although support for these policies may have regional limits, they are significant in their function for demonstration and promotion.
With the support of regional solar-plus-storage subsidy policies, the investment period for behind-the-meter energy storage has shortened, helping to promote the development of energy storage combined with solar.
Renewable integration is a large market for energy storage with high demand. Recently, both the government and private industry have worked to rouse the market, and energy storage shows good potential for development in the area of concentrated renewables.
In 2019, in parallel with the introduction of new policies, new developments in potential electric power system applications have also appeared. One such application is shared energy storage. In April of this year, the Qinghai Electric Power Company implemented shared energy storage market transactions in Qinghai, with Luneng Group Qinghai Branch, China Longyuan Qinghai Branch, and SDIC New Energy Investment participating in the program. The Qinghai Energy Big Data Center, constructed and operated by Qinghai Power, can integrate energy storage power stations used in behind-the-meter, generation-side, or grid-side applications for power grid dispatching. The original idea to circumvent the limits of energy storage station installations, serve multiple renewable energy stations, and resolve issues with curtailment and grid connection quality was first discussed in 2015. The current implementation provides a new revenue point for both wind and solar stations. If supplemented with a compensation policy similar to that of Xinjiang, the model would provide additional benefit by sharing excess resources while increasing power generation, in turn promoting the application of energy storage. These shared resources can also serve as regulatory resources used by the power grid, and can relieve some of the pressures of investment. Shared energy storage shows promise as an innovative energy storage application with potential for future expansion.
Demand response is another application which has seen recent development. In order to meet peak summer demands, Jiangsu and Zhejiang provinces each implemented demand response in July 2019. On July 30, the Zhejiang Energy Bureau launched demand response in Ningbo, Hangzhou, and Jiaxing. A subsidy of up to 4 RMB/kWh was provided for real-time peak shaving response. On the same day, the Jiangsu Development and Reform Commission and State Grid Jiangsu coordinated to implement demand response. Of note was that this marked the first time in which Jiangsu’s energy storage participated in demand response. A total subsidy of 80,000 RMB was provided to industrial electric power customers, providing a chance for energy storage users to earn additional revenue. Industrial and commercial energy storage user participation in demand response is one potential application for behind-the-meter energy storage. However, in the past, due to low compensation and limited application regions, it has not been carried out. The opening of demand response in both provinces this year provides a new space for behind-the-meter energy storage projects to increase revenue.
Though the first half of 2019 saw a slowdown in the energy storage market, project profits have not seen a significant improvement, and the future of many energy storage applications seems bewildering, industry development is not as desperate as it might seem at first glance. Policies continue to push the market forward and grid companies are focused on breaking through current profit limitations to ensure that energy storage can continue to serve the grid network and support greater integration of renewables. The government, grid, traditional generators, wind power, and solar power are all eagerly deploying storage, and new applications continue to be realized.
CNESA’s investigations also revealed some of the ways in which private companies have been working to resolve many industry development issues. Some companies have focused on resolving battery safety management and design issues to ensure safe and stable operations of energy storage systems. Many battery producers have focused on increasing the life cycle of batteries, thereby decreasing system costs and opening the door to new potential technology applications. Many industry leaders have also expressed the need for rational thinking, resisting premature action, and avoiding heated price competitions in order to survive challenging periods. Though a developing industry is bound to experience setbacks and hardships, the role and value of energy storage in the global energy transformation is destined to be realized.
Author: China Energy Storage Alliance Translation: George Dudley