In 2019, energy storage continued to grow. According to statistics from the China Energy Storage Alliance, by the third quarter of 2019, China’s operational energy storage capacity totaled 31.69GW, of which electrochemical energy storage capacity totaled 1.27GW. Yet in the second half of the year, due to the influence of the “Measures for the Supervision of T&D Power Pricing Costs” and other policy and market factors, progress in energy storage exhibited a noticeable slowdown. Under such conditions, how should the energy storage industry adjust its course and face its challenges?
Urgent Improvements Needed in Efficiency
In 2020, improvements must be made in the lifespan, efficiency, and safety of chemical energy storage technologies. New progress is expected in high-safety lithium battery, solid-state lithium battery, and high energy density flow battery technologies. Further increases must also be made in the scale and efficiency of physical energy storage, while new progress is expected in key technologies such as 100MW advanced compressed air energy storage, high density composite heat storage, and 400kW high-speed flywheel energy storage. In both electrochemical and physical energy storage technologies, further cost reductions are needed to promote commercialization.
In the past ten years, mainstream energy storage technology costs have dropped 10% - 20%. Prices are expected to continue to decrease throughout 2020, but the costs of energy storage technologies will not decrease indefinitely. Once a certain scale is reached, the pace of cost reduction will slow until it finally stabilizes. More importantly than costs, China must also work to master original technologies with independent intellectual property rights in order to achieve core competitiveness and establish a solid foundation for development.
To improve core competitiveness, the industry must make efforts in four areas:
Electrochemical energy storage technologies, particularly those which develop quickly such as Li-ion batteries, must see improvements such as increased system safety, lifespan, environmental suitability, and reliability at the same time that performance of single cells is improved to meet customer needs. Different battery products must also be developed to suit varied energy storage applications. Finally, as the energy storage market continues to expand, a battery recycling industry chain is urgently needed and should be developed as soon as possible.
Physical energy storage, including new model CAES technologies, cold storage, heat storage, flywheels, and other technologies should be the focus of a greater number of pilot projects and applications.
Energy storage technology standards must be continuously improved. During the "Thirteenth Five-Year Plan" period, China established an initial energy storage technology standards system, but further improvements to the standards system are needed, particularly those related to energy storage system structure and system safety.
Increased personnel training. Energy storage is a multidisciplinary industry which combines physics, chemistry, and other subjects. However, at present, there are insufficient multidisciplinary talents in the industry. The cultivation of such composite talents should be an area of greater focus.
“New Recruits” Still Need Support
After 2020, the renewable energy industry will fully enter the grid parity era. The increase in the proportion of grid-connected renewable energy will help energy storage applications go from an “accessory” to an indispensable key supporting technology. Therefore, we can expect energy storage to see much greater demand in the near future.
Though business opportunities are plentiful, we must also recognize that no matter whether we are speaking of solar, wind, or energy storage, we are dealing with a “new recruit” to the energy system, with great potential for development that cannot occur overnight. During 2020 and the “Fourteenth Five-year Plan” period, the energy storage industry will still require the support of a mature market mechanism and continued policy improvement:
First, it is necessary to strengthen top-level planning from the government, including the incorporation of energy storage into the national energy development plan, the implementation of special energy storage projects, comprehensive planning of the development of industry technologies and applications, the establishment and improvement of support polices, and effective promotion and implementation of various measures that will unite government, industry, education, and research together to further development.
Second, peak and off-peak price differences must be guaranteed, the frequency regulation price mechanism must be improved, and capacity fees must not be charged for energy storage stations. Additionally, policies must be advanced which promote the compensated participation of energy storage in market transactions, and a compensation mechanism for energy storage services must be developed that is compatible with market-oriented power services. We must also promote pilot programs for an energy storage compensation mechanism, and establish a matching price mechanism for energy storage capacity. We must also create a mechanism for supervision of compensation, and establish severe punishments for those that violate regulations.
Third, we must accelerate the market-based applications for energy storage, and establish the “who benefits, who pays” mechanism for storage applications as soon as possible. We must also accelerate the establishment of a marketized transaction mechanism and price formation mechanism for flexible resources such as energy storage, encourage energy storage to participate directly in market transactions, and utilize the market mechanism to generate profit and stimulate market vitality.
Fourth, we must research a mechanism for recycling of battery energy storage systems and establish a waste battery disposal mechanism. These actions will eliminate the possible environmental pollution caused by the energy storage battery industry chain, and ensure the green and sustainable development of the energy storage industry.
Risks and Opportunities During the COVID-19 Epidemic
At present, the COVID-19 epidemic has impacted nearly all of China’s industries to varying degrees. In comparison with those industries that have been directly affected by the outbreak, such as dining, entertainment, tourism, and exhibition, the impact to the energy storage industry has been more indirect.
The impact on energy storage companies has been felt in both production and operation. Large-scale companies (such as state, party, and/or listed companies) have strong capabilities to combat risk, and the major impact has largely been in the ability to return to production and operation. In areas hit hard by the epidemic, factories have been shut down, and employees living in such areas have had difficulty returning to work.
Yet at the same time, compared to traditional businesses, the impact of the epidemic on energy storage business has been relatively small. This is due to the fact that energy storage often occupies only a small portion of the total business of these larger companies. In addition, energy storage projects typically have a long development period, meaning that many companies have already accounted for long timelines. Additionally, companies with factories outside of the major epidemic areas may be better able to manage production risks. Nevertheless, at present, the epidemic’s international impact is extremely complicated, and it is not yet possible for companies to accurately estimate the damage done to the global energy storage industry.
In contrast to large companies, the impact to small and medium-size companies is substantial, primarily to business operations and business development. Project delays cause cash flow problems and pressure on operations. Potential business activities among energy storage customers and partners are likely to see cancellations or extensions. Small and medium-sized companies are not as able to defend themselves against major risks. These companies must hope that the epidemic will end as quickly as possible, and that they may see government support in the form of tax relief, financing, and or social insurance breaks.
We expect that the overall impact of the epidemic on the domestic energy storage industry will mainly be felt in the first quarter. Short-term impacts on cash flow will be relatively large, but impact to the entire year will be limited. We should remain optimistic about the development of energy storage in 2020. Recent CNESA surveys as well as inevitable government policy stimulus to the economy once the epidemic is contained both suggest that the energy storage market will continue to grow steadily in 2020, with high probability of better overall performance than 2019.
Authors: Chen Haisheng, Chairman, China Energy Storage Alliance, and Liu Wei, Secretary General, China Energy Storage Alliance Translation: George Dudley