On January 9, 2019, the second phase of State Grid Jiangsu’s electrical energy storage project in Suzhou-Kunshan passed initial review. This project, which includes 10 energy storage stations, is set to be the largest energy storage installation in the world. The news comes just six months after Jiangsu province saw the launch of world’s largest scale grid-side energy storage project.
The speed at which these projects have come about is evidence of how quickly China’s energy storage industry is growing. According to China Energy Storage Alliance statistics, by the end of September 2018, China had a total of 649.7MW of electrochemical energy storage in operation, an increase of 104% in comparison to the same period the previous year. Of this 649.7MW, newly added capacity totaled 260.8MW, an increase of 373% in new capacity in comparison to the same time the previous year.
The energy storage industry in China can be seen as developing in two steps: the first step consists of the initial transition from R&D demonstration projects into commercialization, while the second step entails the transition from the early commercialization stage into the development of large-scale energy storage projects.
In 2019, as more energy storage projects continue to be developed, the energy storage industry will move from the demonstration project stage into the important stage of initial commercialization. At the same time, new models and a new market are very likely to appear. For energy storage, spring has now arrived.
Policies Push Storage Forward
It is generally agreed that in 2019, China’s energy storage industry will continue its positive momentum, driven by a solid foundation of policy support.
First, the energy revolution and the move towards power structure reforms have brought about--and will continue to bring about--support for the storage industry. Recent technological breakthroughs have allowed for the development of renewable installations in increasingly larger capacities. As of the 2018 year’s end, countrywide combined solar and wind capacity totaled 360GW, or 20% of all electrical capacity. As long as instability issues and difficulties in consuming renewables persist, energy storage will continue to be in demand as a support measure.
Second, China has released a number of national-level policies supportive of storage that have played a key role in pushing the industry’s development. The end of 2015 marked entrance into the Thirteenth Five-Year Plan period, in which energy storage became integrated into the country’s national development plan. In June 2016, the National Energy Administration released the “Announcement on Promoting Electrical Energy Storage Participation in the ‘Three North’ Regions Ancillary Services Market Compensation Mechanism Pilot,” which helped establish generation-side energy storage infrastructure. Whether behind-the-meter or front-of-the-meter, energy storage has earned status as an independent market entity.
In November 2017, the National Energy Administration released the “Workplan for Improvement of Ancillary Services Compensation (Market) Mechanisms,” encouraging competition in ancillary services, the increase of ancillary services entities according to need, and the use of energy storage equipment and demand-side resources in ancillary services. The workplan also granted permission for third-parties to provide ancillary services and confirmed support for spot market trials in 2019-2020 that will help open the ancillary services market.
Yet of all national policies in support of storage, none has been more significant than the “Guiding Opinions on Promoting Energy Storage Technology and Industry Development” jointly released by five government bodies including the National Energy Administration and National Development and Reform Commission. Since its release, this policy has been one of the main driving forces for encouraging development in energy storage technology and industry across China.
Third, regional governments and power grid companies have released policies and regulations that directly drive the development of the energy storage industry.
By the end of May 2018, northeast China (Dongbei), Fujian, Shandong, Shanxi, Xinjiang, Ningxia, Guangdong, and Gansu regions/provinces had begun experimental ancillary services markets. Each of these markets provide energy storage a market entity status equal with that of generation companies, power sellers, and power customers. This means that energy storage can participate in ancillary services at the generation side (such as at traditional coal plants or centralized intermittent power generators), at the load-side, or as an independent market entity.
At the beginning of 2019, China State Grid Corporation released “Suggestions for New Era ‘Fresh Start’ Reforms for Increasing Construction of World-Class Energy Internet Companies,” which states intentions to research and explore the utilization of substation resources for energy storage stations and data centers, expanding customer support areas, and broadening the use of electric vehicles, energy storage, energy services, and other new technology and service models so as to encourage innovative business models to develop concurrently with the grid. Such actions are a sign of grid planning for continuous use of storage well into the future.
Profit Models: A Mixture of Old and New
The current primary profit models for storage include energy arbitrage and frequency regulation/ancillary services. In 2019, additional profit models such as distributed energy storage, centralized renewable integration, and grid-side storage will continue to mature.
The development of distributed energy storage has been based on the foundation of distributed renewables, in particular the rapid growth of solar resources.
According to statistics from the China Photovoltaic Industry Association released in early 2019, distributed solar PV development increased significantly throughout 2017, reaching approximately 20GW of capacity in 2018. Due to the intermittent and fluctuating nature of renewable energy, there is a strong need for energy storage to help support the stability and reliability of such distributed energy systems.
A second model is centralized renewable integration, in which energy storage has great potential to increase.
With greater amounts of renewable resources connecting to the grid, curtailment issues arise for both wind and solar resources, brought about largely due to intermittency, instability, and the inability to be dispatched. Energy storage technology can allow nondispatchable electricity that would normally be “thrown away” to be transformed into high quality dispatchable electricity.
A third model is grid-side energy storage, which took off in 2018 and is expected to continue to be a growing trend through 2019.
In the grid-side storage model, energy storage can be used for peak shaving, allowing the grid to better match the time, size, and strength of the load, thereby decreasing the level of investment needed in new grid infrastructure, increasing the consumption of renewables, and increasing safety and efficiency. Grid companies and utilities lead grid-side storage project development through procurement plans directed at storage solutions or service providers.
Costs Decrease, Opportunities Increase
Costs and applications are both expected to see changes in 2019.
There are two main factors for cost decrease: first is the development of storage technologies. New innovations in technology help strengthen system effectiveness, maturity, and scale, factors which help to decrease overall costs. Second is the overall development of the storage industry, which has allowed production of energy storage products to become more standardized, intelligent, and large-scaled. The ability to manufacture at larger scales in particular has caused major drops in energy storage costs.
Second, looking at international trends, behind-the-meter system participation in demand response and grid services are two new models for generating profits from energy storage and diversifying business models. In 2017, the Chinese government granted third parties the right to provide energy storage equipment and demand side resources for use in grid services. Operations models and compensation mechanisms are currently in the works, with some in trial stages. In the future, behind-the-meter storage business models are likely to merge with those of grid-side storage.
2018 saw many cities creating energy storage industry clusters, a trend that is likely to continue and even accelerate through 2019. Among these clusters, two types are likely to have a good chance of development, first are those industry clusters which focus on core critical technologies, helping proprietary technologies to develop in synergy with the industry. The second are those with a strong industry foundation that can improve energy storage’s supporting infrastructure and industry chain.
As one can imagine, industry clusters face as many challenges as they do opportunities. These opportunities arise in three areas. First are the needs of the energy revolution, particularly the widespread use of renewables which creates a great need for energy storage. The second are reforms to the power system and power markets brought about by new government policies. Third is the accumulation of energy storage technology and infrastructure that has laid the groundwork for fast-paced development.
Challenges arise in a variety of areas. First is that the full value of storage cannot be realized under current price models because a full compensation model for storage has not yet been released. Second is that China still needs to advance in the realm of energy storage technologies, particularly holding of proprietary and intellectual property rights and critical technologies. China still lacks the ability to produce many critical components. Third is costs and safety, both of which require continued improvements.
Over the next year, the global energy storage market will also see rapid development. Mature markets in the United States, Australia, Japan, and South Korea will continue to grow steadily, while emerging markets in the United Kingdom, Ireland, and India are likely to see major increases. Leading Chinese companies already possess strong competitive abilities in the international market, and are certain to continue to play an important role in the international storage market into the future.
Author: Chen Haisheng, China Energy Storage Alliance Chairman and Deputy Director of Chinese Academy of Sciences Institute of Engineering Thermophysics Translation: George Dudley