On March 24, the Suzhou Industrial Park Administrative Committee released Measures for the Management of Special Guiding Funds for Green Development of Suzhou Industrial Park (苏州工业园区绿色发展专项引导资金管理办法). The measures outline subsidies to be used for energy saving modifications, cyclical economic measures, and Internet of Energy projects. Subsidies are also provided for distributed natural gas generators and energy storage projects. As stated in the policy:
“Owners of natural gas generators and energy storage projects within the industrial park that have undergone pre-connection review, have connected to the grid, and are operational will receive a 3-year subsidy of 0.3 RMB for each kWh of electricity produced.”
Such a subsidy has big implications. Until now, China’s energy storage industry has lacked a financing mechanism for energy storage, making future profitability unclear. Industry stakeholders have for many years called for a financial subsidy that can help push the industry forward. Suzhou has now been the first this year to release clear subsidy standards that are certain to have a positive effect on energy storage, particularly behind-the-meter storage systems.
However, Suzhou is not the first Chinese city to introduce a subsidy policy for energy storage. In September 2018, Hefei released the Suggestions for Encouraging the Continued Healthy Development of the Solar PV Industry (关于进一步促进光伏产业持续健康发展的意见), which stated that solar-plus-storage projects put into operation after the release of the policy would, beginning in their second month of operation, receive a subsidy of 1 RMB for every kWh charged, with a limit of 1,000,000 RMB per project per year.
Cities like Hefei and Suzhou have begun to release such subsidy plans in response to policies that have caused I&C electricity fees to drop. Such policies shrink the gap between peak and off-peak power prices, causing the demand for behind-the-meter energy storage projects to decrease. Yet shrinking peak and off-peak price differences are not the only pressures that energy storage faces.
One example is Jiangsu. In August 2018, State Grid Jiangsu revised the “Customer-side Energy Storage System Grid Connection Regulations” (客户侧储能系统并网管理规定), preventing behind-the-meter energy storage stations from feeding energy back into the grid. Engineering and construction of behind-the-meter systems must comply with multiple national standards for grid connection and system design, while information relating to energy storage systems must be submitted to State Grid Jiangsu’s monitoring and interaction platform. For many companies, the entire process, including grid connection, safety inspection, permits, etc. can add an additional 200,000-300,000 RMB in costs to a project. Such policies are a hindrance to the development of the energy storage industry and the ability for projects to be profitable.
Suzhou’s energy storage subsidy is different from the Hefei subsidy in that instead of compensating based on amount of electricity charged, it instead compensates based on the amount of electricity released. Compensating in this way supports battery products with higher charge/discharge efficiencies, giving them an advantage in the market that contributes to a healthy, competitive growth in the energy storage industry.
From its small beginning 8-9 years ago, to its recent growth spurt over the past two years, the growth of the Chinese energy storage industry has been carried by the behind-the-meter market. According to CNESA statistics, in 2018, global newly added electrochemical energy storage project capacity was dominated by behind-the-meter storage at 1530.9MW, or 43% of the total. Concentrated renewable integration and ancillary services held second and third places, respectively, at 26% and 17%.
Despite the large increase in capacity last year due to new, large-scale grid-side energy storage projects, behind-the-meter energy storage will undoubtedly continue to play a key role in capacity growth. As one industry insider put it:
“China’s energy industry has developed thus far through the efforts of behind-the-meter storage developers. If the Chinese energy storage industry is to truly stand on its own, behind-the-meter energy storage will be the driver. National support, whether for electric vehicles or energy storage, is not guaranteed forever. If the EV industry is to develop, it must do so with the support of the consumer. If the energy storage industry is to develop, it is the behind-the-meter industry that must foot the bill.”
But this is also where the conundrum lies. Behind-the-meter storage cannot expect to forever rely on subsidies, yet the current state of the industry necessitates them. An appropriate subsidy can provide quick stimulation to market capacity while also providing a reasonable standard for projects to follow, awarding funds only to projects that are of good quality.
Of course, the major perquisite to a successful subsidy system is for the issuing region to possess solid financial strength. Besides Suzhou and Hefei, Beijing has been widely rumored to have a similar policy in the works.
From a national perspective, because energy storage is applicable to a wide variety of scenarios and many friendly industries are already receiving subsidies, it is unlikely that we will see a national-level subsidy in the future. At the 2018 Energy Storage 100 Lingnan forum in Shenzhen last December, a representative from China State Grid commented, “at this time, the national government is not going to release a comprehensive subsidy policy for energy storage, though they do support the creation of regional policies. However, such policies would inevitably lead to regional protectionism.”
Such regional protectionism could involve taxation, project developer registration, procurement of local equipment, etc. However, when considering the monumental challenges of how to guide and promote energy storage development, the possibility of regional projects coming with “strings attached” may not be an issue of great concern.
Author: Energy Storage 100 Translation: George Dudley