Xia Qing: What Kind of Policies Does Energy Storage Need?

At this year’s Energy Storage International Conference & Expo 2019, the hot topic was grid-side energy storage.  Much of the talk stemmed from the April 22 release of the “Transmission & Distribution Power Price Supervision Methods (Draft for Comment)” and its omission of energy storage as a T&D cost.

The cost of energy storage is currently one of the major factors slowing the pace of industry growth.  The inclusion of energy storage as a T&D cost would encourage grid companies to make rational investments in energy storage, providing guiding support for the industry.  Yet the draft version of this policy has clearly placed energy storage outside of the category of T&D costs.  During his speech at the ESIE 2019, Tsinghua University Department of Electrical Engineering professor Xia Qing shared his views on this policy.

Tsinghua University Department of Electrical Engineering professor Xia Qing Speaks at ESIE 2019

Tsinghua University Department of Electrical Engineering professor Xia Qing Speaks at ESIE 2019

As Xia Qing states, the reason that energy storage facilities have not yet been included as a T&D cost can be summarized in three reasons:

1. Energy storage facilities are still considered “luxury items” with high costs.

2. Grid-side energy storage project construction is undertaken by grid company subsidiaries, creating unbalanced prices.

3. When energy storage is used as T&D infrastructure, investment returns are difficult to measure.

Energy storage’s most notable trait is that it can help increase the usage of grid resources.  If energy storage is used in place of traditional T&D resources to meet peak load demands, then the power grid will see a significantly greater return on investments.

Xia Qing stressed that energy storage possesses great value.  If we admit that energy storage is a segment of the power grid, then we must consider energy storage as a fixed cost to be included in T&D electricity prices. However, this would not be without certain conditions.  The power grid could take an integrated planning approach to energy storage construction, yet it should also make efforts to bring other resource providers into the mix.  While T&D prices should receive part of the benefit, energy storage should generate profit primarily from the competitive power market, particularly the power spot market, wherein energy storage would have a much better opportunity to exert its full value.

Energy storage is a new and rising industry with major significance to the energy revolution.  New forms of industry require systematic innovation, and only industry policies can help push grid-side energy storage technologies to greater quality, higher efficiency, and sustainable development.  Regarding the types of policies that are needed, Xia Qing raised five suggestions:

1.       An Open Investment Market

The creation of a “diversified investment, unified operations” business model will help attract an increasing number of resource providers to the energy storage industry under a unified grid dispatch system.  Grid-side energy storage possesses global benefits that should be shared with all society, and an open market helps ensure fair energy storage pricing.

2.        Create an Open and Stimulative T&D Power Price Mechanism

Energy storage must connect with the T&D power price mechanism to provide better T&D deferral services (while meeting relevant economic margins). System lease prices should be determined by market competition, with their costs included in T&D capital costs.

3.       Create a Marketized Payback Mechanism

Xia Qing stressed that energy storage cannot entrust all hope for development in T&D power pricing.  Energy storage must be an active participant in the power spot market.  Through a free and open power market, energy storage can compete with traditional energy resources.  The success of energy storage in such a market would be proof of its value.  Such a model is one that the industry can rely on for continued development.  Marketization must come before planning, and we must use the market to lead industry development.

4.       Promote and Improve the Construction of a Power Spot Market

Create market mechanisms and pricing mechanisms for energy storage and other flexible resources.

5.       Create Sufficient Management Mechanisms and Effective Monitoring Mechanisms

To bring investment to grid-side energy storage, we must improve methods of management.  The simpler the management techniques, the easier they will be to implement.  Proper management should focus on the investment of energy storage capital before a project is developed, as well as evaluating the project once it has begun operations.  Such management processes will be able to certify whether the industry is operating reasonably.

From Professor Xia Qing’s suggestions it is not hard to see that the inclusion of energy storage in T&D costs would establish a clear and prominent position for energy storage. However, the majority of the value and benefits of energy storage should be drawn from the power market.  Without the support of one or both of these conditions, it will be difficult for energy storage to develop in a healthy direction.

Through systematic innovations, the support of improved industry policies, the opening of an inclusive market environment, and the development of an ideal management system, energy storage will be allowed to serve as an application supporting the creation of efficient, smart grids.  Grid-side energy storage has the potential to carry the development of the energy storage industry, providing a new and exciting element to the grid energy revolution.

Author: Carrie, Beijixing Energy Storage News
Translation: George Dudley