Editor’s Note
The 2019 Energy Storage West Forum opened on September 26 in Xining, Qinghai province, bringing together over 200 industry members for two days of presentation and discussions on energy storage. The cold late September air of Xining was a reminder of how the energy storage market has too slowed and cooled. Many wonder how long this “winter” will be for the energy storage market, and when spring will finally arrive.
On the afternoon of the 26th, the forum hosts held a closed-door discussion featuring fifty representatives from the government, generation groups, the power grid, energy storage companies, and other organizations. The meeting allowed participants to discuss the problems of energy storage and find directions for their solutions. With the current energy storage industry entering a period of slowdown and adjustment, this year’s Energy Storage West Forum was marked with intense discussion and a gradual consensus which provided hope that the industry will soon usher in a new season of positive development.
In 2018, China’s energy storage industry experienced a period of rapid development, with an accumulated annual growth rate exceeding 175.2%, and a new capacity annual growth rate of 464.4%. This new growth brought China’s electrochemical energy storage into the “GW/GWh” era. After ten years of development, energy storage seemed to finally be reaching a turning point. However, according to CNESA project database statistics, as of the end of June 2019, China’s electrochemical energy storage capacity totaled 1189.6MW, with 116.9MW being new capacity having been added in the first half of the year, an increase of -4.2%. This was the first time that energy storage capacity had seen negative growth in comparison to the previous year since recording began. Following rapid growth, the industry has now entered an adjustment period. One reason for this includes the government’s announcement that the costs of energy storage infrastructure investments made by the grid could not be included in T&D pricing, putting a halt to many of the grid-side projects which had been rapidly expanding. Another factor is the numerous energy storage system accidents which have occurred worldwide, igniting concerns within the industry and among the public over the safety of energy storage systems and adding yet another roadblock to the industry. These factors have caused investors to take a more cautious approach towards investment in energy storage.
China’s Energy Storage Market Growth as of 2019.1H
Western China is one of the country’s primary locations for energy storage deployment. As of the end of June 2019, the six provinces of western China (Shaanxi, Gansu, Qinghai, Ningxia, Xinjiang, and Tibet) were host to 215.958MW of energy storage capacity (not including pumped hydro and thermal energy storage). This number comprises over 18% of the country’s total operational energy storage capacity. Energy storage in northwest China has been primarily used in renewable integration applications. As of the end of June 2019, renewable integration energy storage applications totaled 187.1MW, or 11% of total energy storage capacity. Of note is that in the first half of 2019, there was no new installed capacity in the renewable integration category. Compared to other applications categories which have had rapid growth over the past two years, the growth of energy storage in renewable integration applications has not been as bright, especially after the release of the 531 policy last year, pressure from grid parity, and the relatively high cost of storage, challenges all of which shed doubts on the sustainability of the “solar-plus-storage” model. However, as the national government continues to adjust the energy structure, opportunities for development continue to form.
In 2017, the National Development and Reform Commission released Energy Production and Consumption Revolution Strategies (2016-2030), which stated that by 2020, non-fossil fuel energy should comprise 15% of primary energy consumption. By 2030, non-fossil fuel energy should comprise 20% of primary energy consumption. At around 2030, carbon emissions should reach their peak, though special emphasis is made on reaching peak carbon even earlier. With this goal in mind, China’s solar PV and wind have seen speedy growth, with project sizes and generation capacity continuously increasing. As a result, solar and wind curtailment issues and intermittency have caused stress on the grid, increasing the power system’s need for flexible adjustment resources. According to the Electrical Planning and Design Institute predictions on national peak shaving resources, from 2020-2025, the national peak shaving shortage will exceed 100 million kW, primarily across the northern China region. This peak shaving shortage will continue to expand through 2030. Apart from the northern region, more than half of the country’s peak shaving shortage will be concentrated in East China (Huadong), Central China (Huazhong), and southern China. With such high demand for peak shaving, apart from flexibility improvements to thermal plants, creation of new pumped hydro plants, hydropower, and natural gas, the remaining major gap in peaking shaving must be covered by energy storage and load-side peak shaving.
Energy storage is set to have a large potential future market, but only if current challenges are handled carefully and thoroughly. Below, we summarize energy storage industry developments in western China based on the discussions that took place at the Energy Storage West Forum closed door meeting.
1. Exploring the New Model of “Shared Energy Storage”
On April 15, 2019, the first marketized transaction agreement for peak shaving ancillary services between an energy storage station and concentrated solar PV station was signed in Xining, Qinghai province. The agreement marks the launch of the Qinghai shared energy storage peak shaving ancillary services market. After a successful 10-day trial in April, Qinghai shared energy storage market transactions opened across the province in June. At present, single 50,000kWh/100,000kWh energy storage stations have created an additional 6,442,800kWh of renewable energy. Profits have been prorated, allowing both the renewable energy station and energy storage station to derive benefit.
The implementation of the shared energy storage model boosts the coordinated development of energy storage with the power grid and renewable energy stations. The model helps break through traditional energy storage applications, creates a new method for energy storage to participate in grid dispatch, takes full advantage of the many values of energy storage, and helps to bring more capital towards storage investment.
The shared energy storage model currently is still limited by high costs and is primarily only economical in solar PV stations with high feed-in tariffs. Yet as the ancillary services market continue to take shape, the shared model will continue to expand to new energy storage applications and create new revenue opportunities.
2. Region-specific Policies Emerge
In 2017, the Qinghai Development and Reform Commission released the Qinghai Province 2017 Wind Power Development and Construction Plan, which required new wind power stations to install energy storage matching 10% of constructed system capacity, bringing new debate to the issue of how energy storage should develop along with renewables. In July 2019, the Xinjiang Development and Reform Commission released the Notice on the Development of Generation-side Solar-plus-storage Projects, which announced the development of solar-plus-storage trial projects in four southern regions of Xinjiang, to be completed by October 31, 2019. Beginning in 2020, these solar PV stations would add an additional 100 hours of priority generation each year for five years. 36 projects were announced as qualifying for the first batch, at a total capacity of 221MW/446MWh. Though the projects have not met the October 31 deadline for completion, a large batch have begun construction while many others are in the works. Issues such as unclear revenue estimates, the lack of a coordinated operations mechanism with the grid, and the absence of supporting project management methods have all caused investors to take a step back.
Although Xinjiang’s policies still need improvement, the recent steps have been a beneficial exploration into the use of energy storage applications for renewables. The plan’s ability to provide 100 hours of priority solar PV generation is the first domestic policy to add a quantified amount of generation, providing a boost to the consumption of renewable energy, and is a notable recognition of the value of storage.
Polices in Xinjiang and Qinghai are an important exploratory step for the use of energy storage with renewable energy stations. Whether these steps bring about positive or negative results, they provide important reference point for future energy storage policies. For an emerging industry such as energy storage, achieving government acknowledgment and support is a long process that should be approached rationally. In the process of policy development, it is important for stakeholders to be involved and for a proper coordination mechanism to be developed to allow capital to be guided by policies.
3. The New Version of the “Two Regulations” Provides Hope for the Northwest Ancillary Services Market
At this year’s Energy Storage West Forum, Northwest Energy Regulatory Bureau Market Supervision Department Deputy Director Lu Rui stated, “It is my opinion that only with a reasonable market mechanism and an open mechanism for grid connection can energy storage fully contribute to the increased consumption of renewables and develop successfully.” Currently, the five provinces of northwest China are home to 33.77% of the country’s wind and solar power installations. Of these provinces, Gansu, Qinghai, and Ningxia possess renewable energy capacities that surpass the needs of their maximum power loads. Under such conditions, the need for high-quality renewable generation increases each day. At the end of 2018, the Northwest Energy Regulatory Bureau released the fourth version of the Regulations for Operations and Management of Grid-Connected Power Stations in Northwest Regions and Regulations for Ancillary Services Management of Grid-Connected Power Stations, often referred to as the “Two Regulations.” This new version of the “Two Regulations” provides new indexes for measuring available power, including indexes for renewable energy AGC, fast response, and SVC, as well as providing cap prices for both penalization and compensation, creating a balanced reward and penalty system.
In addition, the Northwest Energy Regulatory Bureau is also taking steps to construct an ancillary services market. Marketized ancillary services would help create new peak shaving resources in the northwest and lower curtailment of renewable energy, among other benefits. In June of 2019, the Northwest Energy Regulatory Bureau released Notice on the Release of Qinghai Ancillary Services Market Operations Regulations (Trial), which clarified that energy storage stations could act as market entities participating in peak shaving and other ancillary services. The notice also provides requirements for participation, transaction rules, and defines the dispatch price for energy storage used in peak shaving as 0.7 RMB/kWh. The notice also provides policy-based support for the Qinghai “shared energy storage” model and provides a new model for energy storage to participate in peak shaving transactions.
The new version of the “Two Regulations” and the creation of an ancillary services market helps promote the use of renewable energy at a much broader range. The new regulations also increase the utilization of energy storage stations, and in turn their profitability. They also help promote the participation of independent ancillary services providers, providing a foundation for new and varied ancillary services models to participate in the future.
4. Improving the Quality and Performance of Energy Storage Systems is the Cornerstone of Healthy Industry Development
In 2018, the global energy storage industry entered a period of rapid development. South Korea experienced the fastest development, leading the world in total energy storage capacity. The growth came largely due to South Korea’s use of a renewable energy quota system and power price discount plan. Under the encouragement of these policies, developers quickly began construction of energy storage projects in order to recoup costs in as short of a period of time as possible. Yet speedy construction of projects meant that developers neglected proper safety measures. By May 2019, South Korea had experienced at least 23 fires at energy storage stations, resulting in a freeze in the development of further projects in South Korea, and providing a wake-up call for China’s energy storage stakeholders.
During the closed-door meeting, Guangzhou Zhiguang Chairman Jiang Xinyu stated that current energy storage technologies have yet to mature, and that projects launched in 2018 still have many issues. As an energy storage industry stakeholder, Chairman Jiang stressed the need for enterprises to continually improve quality and performance while maintaining reasonable costs. When policies and markets mature, energy storage will be able to experience true industry development. As State Power Investment PV Innovation Center Deputy General Manager Pang Xiulan also stated, renewable energy companies must work together with energy storage vendors to create a competitive price/performance ratio, thereby helping turn renewable energy stations into conventional sources of energy. This cooperation will lead to a long-term mutual benefit for both industries.
Over the past ten years of energy storage industry progress, stakeholders have sought longer system lifespans, low costs, and better safety. With mainstream energy storage technologies becoming increasingly mature and new energy storage technologies emerging every day, we believe that China will soon see “fair-price energy storage.”
The world is currently experiencing a major transition in its energy structure. As China’s energy system continues its transition, the integration of energy storage and renewable energy systems is inevitable. Energy storage is a critical technology for supporting the construction of energy systems dominated by renewables. CNESA believes that energy storage planning and development should be incorporated in the national Fourteenth Five-year Plan, thereby strengthening the coordinated development of storage with the power grid and renewables. Renewable infrastructure which incorporates energy storage should be provided policy benefits such as priority grid connection, priority inclusion in guaranteed electricity prices, tax incentives, and similar benefits. As spot markets develop, energy storage should be allowed a place to participate and make full use of its value and characteristics. The Plan should also explore incentives which combine energy storage and renewable energy quotas to bring forth the full economic value of energy storage in the renewables sector through market-based means.
Finally, to borrow words from Former National Energy Administration Deputy Director and Executive Vice Chairman of the China Energy Research Association Shi Yubo, “The current slowdown in energy storage development is an opportunity to prepare, and is a necessary transition into the next stage of development. On the development path, it is not a problem to take slow and stable steps. A solid foundation will help us to better welcome a flourishing industry in the future.” Indeed, as we move through a period of slowdown, it is important to remember that only through patience and diligent effort can we move towards the next stage of energy storage growth.
Author: China Energy Storage Alliance Translation: George Dudley