On May 18, 2019, the China Energy Storage Alliance hosted the China Energy Storage Leaders Closed-Door Seminar at the 8th annual Energy Storage International Conference & Expo. This year’s seminar featured representatives from the National Development and Reform Commission, the Ministry of Industry and Information Technology, the National Energy Administration, as well as leaders from the South, Northwest, and North China Energy Regulatory Bureaus. Power grid representatives included those from, China State Grid, China Southern Grid, Inner Mongolia Power Group, and additional subordinate management departs and grid subsidiaries. Generation groups and energy storage system providers were also present. These representatives of the government and private industry discussed the path for development of energy storage technologies and applications in China. Below we explore the results of the seminar discussions.
1. China’s Energy Storage Development is “Flourishing”
At present, China’s energy storage technology applications have achieved the beginnings of large-scale development. According to data from the China Energy Storage Alliance, China’s operational energy storage capacity has reached a total of 31.3GW. Of this capacity, electrochemical energy storage has reached 1.07GW, marking 2019 as the beginning of the “gigawatt era” for energy storage. In the past year, newly added electrochemical energy storage projects totaled 700MW, placing China among the top three countries in both new energy storage capacity and total energy storage capacity. Following the release of the Guiding Opinions on Promoting Energy Storage Technology and Industry Development in 2017, the speed of development of energy storage in China has seen a massive increase. Energy storage technology already possesses the foundation for widespread commercial applications, and is now awaiting policy support and a market mechanism that can take it further. Despite the way in which energy storage is “flourishing,” these much-needed policies and market mechanism are not growing at the same rate as the industry itself. Further planning and design is required before such measures will be able to support China’s healthy and structured energy storage growth.
2. Conflicts Among Various Applications Have Become Apparent
In 2017, behind-the-meter storage saw rapid deployment in Jiangsu, Guangdong, and Beijing. By 2018 interest in behind-the-meter storage had not decreased, and large-scale deployments had not ceased. However, falling electricity prices produced a chilling effect on behind-the-meter systems, raising concerns among technology operators and limiting investment opportunities. Accidents at energy storage stations both domestic and international also brought forward safety concerns that could not be ignored, especially for large indoor I&C energy storage systems. These challenges put a damper on the development of one of the industry’s most lively sectors.
Beginning in 2018, the power grid began actively promoting energy storage applications. Both China State Grid and China Southern Grid released “Guiding Opinions” policies for the development of storage. The participation of the power grid provided a great boost to energy storage industry development while also opening a new door for grid-side energy storage applications. Jiangsu, Henan, Beijing, and Zhejiang all initiated deployments of large-scale grid-side energy storage projects, raising the portion of grid-side energy storage in China’s total energy storage capacity from 3% to 21.4%. In other countries where power markets are open, the handling of energy storage systems operations in the grid varies according to each regulatory agency. In the United Kingdom, energy storage is classified as a generation resource, and policies have considered prohibiting grid operators from owning and operating energy storage systems. In the United States, both the power grid and private industry are permitted to invest in energy storage projects, though grids are limited to project sizes which cannot exceed 50% of a total procurement goal. At present, China lacks an evaluation system and incentive system for grid-side energy storage, yet large-scale grid-side projects are already actively participating in grid services. Grid company support of energy storage has also already begun to influence government bodies to implement policies that will support grid-side storage. However, in a situation in which regulatory and market mechanisms are not satisfactory, we should not define energy storage as part of T&D costs, as has been done in the recently released T&D Power Price Supervision Methods policy. At the current stage, grid-side energy storage’s value and revenue channels still cannot yet be determined, which creates uncertainty in how grid-side storage will develop.
Aside from behind-the-meter and grid-side applications, ancillary services and renewable energy integration applications also still face many market problems. Current market rules do not reflect the full flexibility and functionality of such resources. A long-term market mechanism awaits establishment, as current evaluation and stimulus mechanisms cannot drive the combined use of energy storage with renewables.
3. Policies and a Market Mechanism are Slow to Form
Despite an undeveloped policy and market environment, China’s energy storage capacity still lies among the world’s top three countries. With project scales ever increasing and policies and market conditions unable to keep up with industry development, there are three major issues that must be addressed:
1) Safety management and environmental concerns must be planned and designed early
Safety is one of the leading concerns for energy storage systems, yet a unified and clear safety assessment model and grid-connection process still do not exist. Among energy storage projects that are already operational, a unified fire safety management system is also lacking. For large-scale energy storage systems, environmental assessment and system retirement requirements have not yet been defined. Such safety and environmental issues cast doubts on the successful future development of energy storage.
2) Energy storage systems lack a proper definition
The Guiding Opinions simplifies the process for energy storage to receive approval, yet many regional and local bureaus, such as those dealing with development and reform, fire safety, land use, the environment, transportation, and other areas do not have a clear definition of energy storage. Energy storage is in desperate need of a clear identity. Excluding a small number of provinces, many currently operational energy storage projects are in violation of local regulations, with some even considered as “illegal constructions.” In addition, the process of connecting energy storage systems to the grid is fraught with obstacles, and current low-voltage connection designs are insufficient for the continued dispatch and use of energy storage resources into the future.
3) Challenges in multiple energy storage applications await breakthroughs
Behind-the-meter energy storage in China is currently limited to one source of revenue--energy arbitrage--and investment risks are high. Demand side management and other value-adding applications are unable to add a high level of additional value to energy storage. The rationality of grid investment in energy storage requires correct assessment. Grid-side energy storage development should not disrupt the principles of an open and fair market. Proper regulatory strategies and incentive mechanisms should be put in place to recognize the investments that the grid has put into existing projects and planned projects. The power market is China is still largely closed, but a transition from current ancillary services methods to a true ancillary services market will be key to establishing true business models. As regulations are continually tweaked and modified, the ability of energy storage to support the use of renewable energy is challenged by uncertain investment conditions, and business models are unable to mature.
4. Policy Suggestions
Energy storage is an important part of the energy system, with significance to the future development of China’s power structure, the creation of a low-carbon energy system, increasing the safety and efficiency of energy, and other benefits. For a time, the issue of whether to provide energy storage with subsidies in the way of solar PV and electric vehicles was one of frequent debate, with many feeling that subsidies are not conducive to market development. Yet in a power market that is not open, energy storage industry development and technology applications must have policy support. Positive funding management strategies and subsidy distribution regulations can reduce many key issues. However, industry development and technology applications require structured guidance, and projects that would receive subsidies need comprehensive regulation. The current inability to regulate is one of the key elements holding back industry development. Therefore, the industry should not rule out subsidies, yet at the same time should neither demand too much nor rely to greatly on the benefits they bring. Industry growth cannot simply rely on technological maturity and dropping prices if the market is still not open, especially when price dropping is conditional on industry development, policies, and the market. A complete reform of the power market is unlikely to occur in the short term. Therefore, the industry must rely on a suitable policy and market environment, while a reasonable compensation mechanism can help to propel new advancements in technology.
In addition, with energy storage system accidents becoming an ever-pressing concern, the central government must put greater effort into finding ways to take preventative measures rather than wait for accidents to happen. Safety responsibility should be a concern of all energy storage stakeholders. As projects increase in scale, we must all take the necessary design and development measures to prevent accidents and limit environmental pollution. The improvement of policies and development of a market mechanism for energy storage are both of major significance to China’s energy revolution. Long-term policy and market planning will have an effect on more economic sectors than just the power sector, while the current development lags will in hindsight be seen as a natural phase of industry development.
In the short term, there are a few problems that we must solve:
First, to address the safety issues of energy storage, project management responsibilities must be clear and unified. An evaluation system for energy storage systems must also be developed that can evaluate system safety at every stage of development and offer suitable responses to the results. In addition, standards and regulations for storage systems should also be improved, thereby creating stronger market entry requirements for energy storage systems.
Second, regarding the issue of irregular or noncompliant energy storage systems, the national government must provide clear direction to the regulatory bodies and bureaus that oversee storage, including those that handle fire safety testing, environmental safety assessments, land use approval, project registration, and other aspects of the project development process. Grid companies must also clarify the steps for grid connection for various energy storage applications and scenarios. Most importantly, policies must create a clear identity for energy storage to ensure its compliance with the energy system.
Third, for those large-scale energy storage systems already in the power system, the recycling and second-life usages of electric vehicle batteries can be used as a reference for management of retired batteries. The early establishment of a recycling and/or second-life usage mechanism will help to limit environmental pollution and provide a clear ending to the industry chain.
Fourth, more investment must be brought into grid-side energy storage systems by encouraging market-oriented development without interfering with market competition. Grids should also not limit the services they use to those provided by their own invested projects, but also allow behind-the-meter, generation-side, and other application projects to participate in grid dispatch, making full use of the value of all resources.
Finally, when viewing the many issues that energy storage faces in commercialization, China must continue to push for market reforms, using market strategies to solve issues and creating rational market rules that are adapted to storage technologies and applications. A full ancillary services and demand-side management market both wait to be established. While a developed market will help increase the value of energy storage across multiple scenarios, early stage market development will also need a certain level of financial support.
At present, government bodies have been actively working to produce a greater number of energy storage policies, opening themselves to suggestions from technology providers, power companies, and power customers on what policies should be developed. CNESA will continue to strive for the development of policies that will support storage, providing platforms for discussion and research that will reflect the needs and opinions of stakeholders both upstream and downstream, and working towards a healthy energy storage industry with developed markets, standards, and policies.
Author: CNESA Research Translation: George Dudley