On November 22, China State Grid released the Notice on Increasing Stricter Control of Grid Investments (hereafter referred to as the “826 Document”). The 826 Document states that for the foreseeable future, China State Grid “will not engage in investment, leasing, or energy management contracts for the development of grid-side electrochemical energy storage infrastructure, nor develop new pumped hydro storage projects.” Industry media responded to the release of the notice with a mixture of both concern and hope. Although it is undeniable that the 826 Document is yet another blow to the energy storage industry following the release of the Transmission & Distribution Pricing Cost Supervision Methods, a return to rationality has still been the main thrust of the development of the industry in 2019. The future path of the energy storage industry should be viewed with a focus on long-term progress and stability.
In the midst of the debate over the 826 Document, the China Energy Storage Alliance and China Energy Research Society hosted the annual Energy Research Society Summit on December 5, 2019. The summit featured forum dedicated to energy storage titled “Constructing New Models for Efficient Development of Energy Storage.” Leaders and experts from the National Energy Administration, China State Grid, Chinese Academy of Sciences, and top energy storage companies were invited to participate in the event for a discussion of recent industry developments. The meeting featured a roundtable focused on the theme “Policy and Market Environments and their Influence on the Commercial Development Goals of China’s Energy Storage Industry.” Discussion topics included such challenges as how to realize the Fourteenth Five-year Plan’s goals of bringing about large-scale commercialized development, how policy and market mechanisms that support the commercialization of storage can be developed, and pathways for technology development. Below we take a look at some of the discussions and viewpoints presented during the session, with the hope that the thoughts presented can provide valuable knowledge to fellow industry members.
Firm Faith that Energy Storage Will Soon Break Out into a New Stage of Development
According to National Energy Administration Department of Science and Technology Assistant Director Liu Yafang, energy storage has strategic significance for China’s energy transition. The full value of energy storage must be discovered through reform and innovation. The National Energy Administration has always placed importance on energy storage development, actively supported marketization reforms, worked to improve current structures, and supported a positive environment for technology innovations and industry growth. The combined efforts of government and industry are helping contribute to the steady development of energy storage technologies and industry. As an emerging industry, energy storage cannot be expected to forge ahead without challenges. Problems of technology, safety, and structure must be evaluated objectively. With the combined efforts of all stakeholders, energy storage is destined to experience a new stage of development. The NEA is currently coordinating its departments to promote the launch of new energy storage policies, create implementation plans for energy storage standardization, and select new energy storage demonstration projects. We hope that these efforts will create new benchmarks for energy storage, provide technology support for system safety and reliability, and boost confidence for future storage development. Together, we can help promote the large-scale development of energy storage in the Fourteenth Five-year Plan period.
Lai Xiaokang of China Electric Power Research Institute expressed that energy storage has been recognized as a rising industry globally, bringing numerous undisputed benefits to the world’s energy system. The 826 Document only reflects the current needs of the grid. Although the notice will certainly influence energy storage in the short-term, from a long-term perspective, it will not affect the development of the energy storage industry. In the future, as renewables dominate the power grid, energy storage will see extreme demand. As long as demand is a driver, this industry will maintain a healthy, sustainable, and stable movement forward. However, this process will not be without difficulties which must be overcome through structural innovations, a search for new business models, and the development of suitable technologies for every scenario.
Implement Current Policies Effectively and Create Business Models that Will Maximize the Full Value of Energy Storage
Pei Zheyi, Assistant Senior Engineer of the China State Grid Dispatch Control Center, reflected on the relationship between policy and business models, stating that policy can have a key role in the development of an industry due to the close relationship between policies and business models. Although current domestic policies are quite thorough, they have not been effectively implemented, a process which must be given time. Many policies require coordination between multiple national government departments, while others require additional support from local government regulations in order to be implemented. The proper implementation of these policies provides conditions suitable for the creation of business models.
At present, generation-side and behind-the-meter energy storage both display relatively developed business models. A typical generation-side business model is the combination of energy storage with thermal generators to participate in frequency regulation, thereby reducing the risk of generator penalization. Another generation-side model is the combination of energy storage with renewable energy stations to reduce curtailment. Behind-the-meter energy storage models typically rely on peak and off-peak price arbitrage to generate profit. In contrast, grid-side energy storage does not yet have a clear business model. Energy storage can be used in the electricity system for peak shaving, frequency regulation, and backup power, as well as to defer new investments in T&D infrastructure and even generation equipment. For example, a 2,000 MW energy storage project can not only add 4,000 MW of peak shaving capabilities, but in certain situations can also replace 2000 MW worth of investment in new thermal generation. Energy storage can therefore bring major economic, societal, and environmental benefit. The question of how to construct and innovate grid-side storage business models to harness the full value of storage is one that all stakeholders must contemplate.
Finding the Right Position for Professional People to do Professional Things
State Grid Henan Comprehensive Energy Services Co. Assistant General Manager Liu Hao expressed his thoughts on the development of grid-side energy storage. The Henan Grid 100 MWh grid-side energy storage project was originally constructed in order to increase the safety of the country’s first UHV AC/DC Hybrid Power Grid in Henan and increase the consumption of renewables, not to generate a profit. Similarly, in Jiangsu and Hunan, grid-side energy storage project investments did not come from grid companies. Grid companies face many difficult to anticipate challenges when investing in energy storage projects, such as how to verify effective assets, how to verify effective capital, and others. This is because in the future, the central government will regulate T&D pricing with increased strictness. Liu Hao suggested a new positioning for grid-side energy storage:
First, as an energy storage market stimulator: energy storage has transitioned from a frenzy of new growth in 2018 to a slowdown in 2019. Grid companies have been viewed as the market stimulator that has affected the whole industry, bringing energy storage to a new stage of development that has attracted the interest of government and the market, and ignited greater contemplation on safety issues, technology roadmaps, policies, business models, and other issues. In this regard, grid companies play an important role.
Second, as a resource aggregator: in the future, the development of energy storage at the generation-side, grid-side, and behind-the-meter will all require an aggregator which will consider factors such as large-scale grid safety, renewable energy consumption, fair transactions, and others. The aggregator will aggregate, lead, and adjust. However, who this aggregator will be, and what industry or company it should serve the role is still a question for consideration.
Third, as a services executor: once the value and services of energy storage have been broadly recognized, government, grid companies, equipment providers, and third-party groups will all require a services executor.
Fourth, as the service buyer: in the future, once market stimulators, resource aggregators, and services executors have all been established, the grid company may serve as the service buyer, acting as a platform which brings together investors, constructors, service providers, operators, evaluators, and beneficiaries. In this way, energy storage will have a significantly clearer development path in which the services beneficiary is the one to foot the bill. In addition, grid companies will also serve as market organizers, relying on thorough market competition to guarantee that storage remains economical and preventing hostile bidding and low-quality competition.
Increase Government Supervision to Ensure Grid Investments in Energy Storage are Reasonable and Effective
In regards to the current policy environment and market mechanisms, Tsinghua University Assistant Professor Zhong Haiwang stated that in May of this year, the National Development and Reform Commission and National Energy Administration released the Transmission & Distribution Pricing Cost Supervision Methods, which prohibited power grids from including the costs of energy storage investments in T&D pricing. The policy is a preventive measure taken due to government concerns over the possibility of disorderly investments turning into supervised assets and passed over to consumers to foot the bill.
Using the experiences of the United States as an example, regulators are also exploring models for supervising investments in grid-side energy storage. If the government can take an effective and scientific approach to supervision and can guarantee rational investments, then such an investment can reasonably be included in T&D costs. For example, the government should verify the effectiveness of grid investments in grid energy storage. If investment is excessive, proper measures should be taken to curb such impulsivity. Resources which are truly effective at increasing consumption of renewables, can replace T&D resource investments, or provide T&D upgrade deferral should have their costs permitted for inclusion in T&D costs. If such a scientific and effective supervision model can be realized, it will become easier to push the government to gradually release relevant policies in the future, providing greater potential benefit for the energy storage industry.
Promote the Establishment of an Electricity Market and Create an Improved Policy and Market Environment for Energy Storage Development
The development of energy storage is inseparable from the electricity market. The question of how to nurture this market to create an environment which stimulates energy storage is one of the industry’s biggest challenges. Although the process is difficult, the industry must work harder to overcome challenges within the current system. At present, the peak-shaving ancillary services markets implemented in numerous regions and provinces in China are a transitional solution for increasing renewable energy consumption, but compensation payments are only a transfer of funds between power generation enterprises, and related costs have not been transmitted to the user side. It is hoped that market construction efforts can reflect the value of storage and other new technologies.
Looking at the experiences of the international market, the most vital and competitive application for energy storage is in the provision of ancillary services. When used as a fast response resource such as for frequency regulation, energy storage has already proven its value internationally. Domestically, energy storage technologies have had proven success in frequency regulation applications, with optimistic investment returns in the early period, yet energy storage infrastructure has largely been required to be sited directly at power stations in order to provide ancillary services. Energy storage’s value and identity as an independent entity has yet to be clarified or realized.
As power market reforms continue, our goal is to allow energy storage’s value to fully emerge and to develop a system in which the beneficiary pays the cost for energy storage, creating a positive cycle which will encourage continued growth of the entire energy storage industry.
Develop Energy Storage Technologies for Every Scenario to Better Harness Energy Storage’s Value
The current market scale suggests that true large-scale energy storage applications have yet to appear. Many battery companies still use mobile batteries for energy storage applications, yet such battery types cannot fully satisfy all application scenarios for energy storage in the power system. Li Hong of the Institute of Physics, Chinese Academy of Sciences expressed during a presentation that the Ministry of Science and Technology’s special project on the 14th Five-Year Plan proposes seven requirements for energy storage technology: high safety, long life, high efficiency, low cost, large-scale, long duration, and sustainable development.
The market has already seen the appearance of energy storage batteries that are capable of 14,000 cycles. Yet current energy battery applications such as solar-plus-storage applications only require one charge and discharge in a day. Even with a goal of a 20-year lifespan, the battery will only experience 7000-8000 cycles. A focus on developing longer lifespans does not have realistic economic value. Instead, appropriate life cycles should be developed based according to each application scenario. In addition, aside from Li-ion batteries, lead-acid batteries, flow batteries, and other electrochemical energy storage technologies, in the future the industry should put greater emphasis on compressed air energy storage, flywheels, and other physical energy storage technologies to make use of the characteristics of each technology that best suit every application.
In regard to the systems integration of energy storage technologies, at present, the AC output of systems still use the traditional 380 or 600-volt inverter architecture, making it difficult to meet the needs of large-scale power production. For example, systems of 100MW capacity or higher require over 1000 converters working simultaneously to control and respond to signals from the power grid, creating challenges in terms of reliability, control synchronization, and system connection costs. The energy storage industry should continue to focus on such challenges, and work to improve the application of storage for large-scale energy systems. These efforts will be a significant contributor to industry development.
Summary
Many in the energy storage industry believe that as energy storage continues its path to commercialization, it is facing, or will face, a stage of developmental difficulty. China Energy Storage Alliance Chairman Chen Haisheng believes that, at a certain level, any industry’s development will reach a certain stage where adjustment is necessary and beneficial for long-term growth. Industry colleagues should take a holistic and long-term view of the energy storage industry’s development trends: the trend of fast-paced development has not changed, nor has continued motivation for sustainable growth. A slowing in pace is necessary only to allow our steps to fall more steadily and to travel a greater distance.
If energy storage’s value is to be represented in the power market, then a complete market mechanism must be developed to provide support. Technology innovations are also critically important to industry development, and industry members hope that technologies continue to mature and costs decline. Industry members also hope that market environments can match industry development, giving rise to the broad-scale use of energy storage in the power system, and ensuring storage technologies and applications are of a high quality and technical level. Despite industry challenges, energy storage still has a very bright future ahead.